Finance and Management Services
www.santa-ana.org/finance
Item # 19
City of Santa Ana
20 Civic Center Plaza, Santa Ana, CA 92701
Staff Report
April 2, 2024
TOPIC: Early Direction for the Fiscal Year 2024-25 Budget
AGENDA TITLE
Early Direction for the Fiscal Year 2024-25 Budget (continued from the meeting of March 19, 2024, Item No. 26)
RECOMMENDED ACTION
Provide direction for preparation of the proposed FY 2024-25 budget.
GOVERNMENT CODE §84308 APPLIES: No
DISCUSSION
This Early Direction agenda item is the beginning of City Council deliberations for the upcoming FY 2024-25 budget. This report has two purposes: provide information that impacts the budget in FY 2024-25 or the future, and request direction from City Council.
The City Council is scheduled to consider the proposed budget in May and hold a public hearing in June.
Budget Outreach
On December 19, 2023, the City Council approved the Budget Calendar and Community Engagement Plan for the FY 2024-25 budget process. To date, the following actions have been taken:
•The budget survey was posted to the City’s website on January 8 in three languages.
•On February 12, the City began Social Media posts regarding budget engagement, including the simulation tools.
•Community outreach at events began on February 3.
•During the February 20 City Council meeting, staff shared a new budget video with the City Council and the public.
•Neighborhood meetings began on February 22.
•A postcard with engagement information was mailed to every household on March 1.
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Through March 3, the City has received 719 budget survey responses. Staff will continue community engagement and expects to present summary results to the City Council on May 7.
Budget Process
The City will conduct its internal budget meetings with departments from March 25 to April 5 to receive supplemental budget requests and staff priorities. After comparing the requests to City Council priorities received during Early Direction and community priorities received during budget outreach, Finance will work with the City Manager’s Office to build a proposed budget for City Council consideration in May.
City Council Priorities Identified to Date
City Council Members have identified some of their top priorities to address during the budget process. Exhibit 1 includes a list of those priorities, along with additional information and recommendations for each.
GENERAL FUND
The recurring portion of the FY 2023-24 (current year) General Fund budget is summarized below.
Revenue $400,824,370
Spending ($400,811,075)
Net Recurring Activity $13,295
With costs increasing faster than revenue sources, we expect the FY 2024-25 budget will be difficult to balance. Receiving Early Direction from City Council will help staff develop a balanced proposed budget that meets the needs of the community.
General Fund Ten-Year Outlook
The General Fund Ten-Year Outlook has been updated with the latest information available. The following assumptions were used:
•Only recurring revenues and spending were included;
•Property Tax estimates from consultant for FY 2024-25 through FY28-29, 3% increase thereafter;
•Sales Tax estimates from consultant for FY 2024-25 through FY 2029-30, 3% increase thereafter;
•Inflation Factor for all other revenues: increase of Consumer Price Index as forecasted by CA Department of Finance for FY 2024-25 through FY 2026-27 (2.4%, 2.6%, 2.7%) and 3% thereafter;
•Labor at the top of the range: negotiated increases of 3% for FY 2024-25, Inflation Factor thereafter;
•For labor below the top of the range, use the same 3% as above + 5% merit step increases;
•Orange County Fire Authority contract increase of 4.5% annually; Early Direction for the Fiscal Year 2024-25 Budget
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•Contribution to OC Street Car operations beginning November 2025, increasing by Inflation Factor;
•Debt retirements (Police Building, City Hall Annex, 800Mhz communication system, Streetlights);
•Employee pension unfunded liability contributions as estimated by CalPERS, increasing due to the CalPERS investment losses in FY 2021-22; •Contributions to, and uses of, the Pension Stabilization Account have been included to smooth the pension debt fluctuations; and
•Inflation Factor for all other spending.
The graphical results of the Outlook indicate that expenditures are increasing faster than revenue, creating a deficit beginning in FY 2025-26. When the Measure X rate decreases in 2029, that deficit will increase significantly.
There are three basic options to rebalance the budget in the future:
1. Request voter approval for a revenue measure;
2. Reduce service levels to fit within available resources; and/or
3. Encourage new development to increase the tax base in the City, which may also necessitate increased spending to serve additional residents and businesses.
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The FY 2023-24 Measure X spending plan is attached to this report as Exhibit 2. The detailed spending plan identifies expenditures that may be considered if and when it becomes necessary to reduce costs to rebalance the budget.
Recommendations from Measure X Oversight Committee
The Measure X Citizens Oversight Committee met on February 21 and March 13 to formulate recommendations for the FY 2024-25 budget process. Staff expects to include those recommendations in the April 2 presentation to City Council.
Use of One-Time General Fund Money
As part of the Midyear Budget Report on February 20, staff provided an estimate of $14,650,726 of General Fund balance available for one-time spending. Staff seeks direction from City Council regarding one-time spending to include in the proposed FY 2420-25 budget. Options follow.
•Establish a Measure X sunset stabilization fund, as recommended by the Measure X Citizens Oversight Committee.
•Make an additional contribution to the employee pension cost stabilization fund to mitigate future cost increases due to CalPERS investment losses. •As discussed throughout this report, staff has multiple recommendations for one- time spending to be included in the proposed FY 2024-25 budget.
Miscellaneous Fees
The City charges fees for services to individuals that do not benefit the public at large (e.g. building permit). Per state law, the City cannot charge more than its cost to provide the service. Each year, staff recommends increasing miscellaneous fees to keep up with the City’s costs of doing business. Last year, the budget included an increase of
4.1%, based upon the increase of compensation for employees providing the services (both salary and benefits).
The increase of the Consumer Price Index for Los Angeles-Long-Beach Anaheim for the year ended December 2023 was 4.66%. The employee bargaining groups negotiated wage increases of 3% for the current fiscal year. In addition, many of the City’s employees received merit step increases of 5%. Contributions for employee health insurance increased 8.1% and the City’s normal cost contribution for the employee pension plan increased by 9.5% for public safety and 11.75% for all other employees.
Based on this information, an increase of up to 4.66% is substantiated and the City would maintain compliance with state law. Shall staff include a miscellaneous fee increase of 4.66% in the proposed FY 2024-25 budget?
Ambulance Transport Reimbursements
As previously reported on May 16, 2023 and with the Midyear Budget report on February 20, 2024, the City has benefited from a new federal program that provides Early Direction for the Fiscal Year 2024-25 Budget
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higher reimbursement rates for Medicare and Medi-Cal transports, which comprise three-quarters of the ambulance transports in Santa Ana.
The California Department of Health Care Services (DHCS) developed the Public Provider Ground Emergency Medical Transport (PP-GEMT) Intergovernmental Transfer Program (IGT) program to provide increased reimbursements, by application of an add- on increase, to emergency medical transports provided by eligible public GEMT providers. The program became effective on January 1, 2023 and requires an overall level of participation from local agencies in the form of discretionary contributions to fund a portion of the increased reimbursements. Based on the latest information we have, this new program has nearly doubled the revenue to the City; yet the City is the only remaining large agency in the state that has not paid the PP-GEMT contribution, estimated to be $2.9 million annually.
The City’s consultant AP Triton is working to complete an Emergency Medical Services Transportation and Optimization Study. The Study includes recommendations to increase and establish fees to be reimbursed by PP-GEMT and insurance companies.
In addition, it may be beneficial for the City to have an ongoing consultant arrangement to help manage the ambulance contract and maximize transport reimbursements. If staff pursued these fee recommendations, revenue may exceed $13 million (current estimate is $10 million). The increased revenue could be used to pay for the PP-GEMT contribution and consulting assistance.
Shall staff pursue the fee increases recommended by AP Triton and include allocations for the PP-GEMT contribution and consulting assistance in the FY 2024-25 budget, offset by increased revenue?
Parking Validations
The City Clerk provides parking validations for all who attend City Council meetings and park in the Civic Center garage. The cost of providing these parking validations is approximately $27,500 annually, which is not budgeted. To date, the cost has been absorbed with other budgetary savings.
Shall staff continue to provide parking validations and include the cost in the proposed FY 2024-25 budget?
Parking Enforcement Program
In addition to Parking Control Officers, the Parking Enforcement program utilizes services from two different contractors: Data Ticket and LAZ Parking California. These contracted services help the City generate $4.9 million of annual parking fine revenue with a current year Parking Enforcement program budget of approximately $3 million.
The current year budget allocated for Data Ticket automated parking citation and processing services is $368,200 based on the original agreement approved in February Early Direction for the Fiscal Year 2024-25 Budget
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2022. On January 16, 2024, staff proposed and City Council approved an amendment to the contract to provide for increased postage costs and an increased volume of delinquency processing. The amended cost of annual service is approximately $700,000.
Shall staff include an allocation of $700,000 in the proposed FY 2024-25 budget (an increase of $331,800 from baseline budget) to maintain service levels and process delinquency payments? Or shall staff seek an option with a lower level of service to fit within the baseline budget of $368,200?
The current year budget included an allocation of $826,260 for the LAZ parking enforcement contract. The highest-scoring proposal for services included a cost of $1,153,368. The Police Department reduced the proposed service hours to arrive at a contract cost of $938,444 per year, which was approved by City Council on June 20, 2023. The Police Department has found that the reduced level of service is not sufficient for the City’s needs.
Shall staff include an allocation of $1,153,368 in the proposed FY 2024-25 budget (an increase of $327,108 from baseline budget) to return to the previous level of service? Or shall staff maintain the decreased level of service and include an allocation of $938,444 in the proposed FY 2024-25 budget?
Downtown Parking Enterprise
Prior to the COVID-19 pandemic in March 2020, the Parking Enterprise fund had been spending down the accumulated fund balance for three years to install automated parking garage equipment, new parking meters, and lighting improvements. Due to the decrease in parking rates requested by the downtown business community, the Parking Enterprise has received multiple General Fund subsidies to backfill the cost of operations. The table below illustrates the current deficit with variable parking rates.
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If the City continues providing reduced parking rates, the estimated General Fund subsidy necessary for FY 2024-25 will be $2.2 million. A significant portion of the Parking Enterprise includes Downtown Enhancement with the Clean and Safe program which undertakes functions such as power washing and other debris pick-up.
Reinstating rates to fund the Parking Enterprise is important for the atmosphere and upkeep of amenities in Downtown Santa Ana.
Shall staff reinstate the downtown parking rates to avoid another General Fund subsidy in Parking Enterprise?
Zoo Operations
The costs to operate Municipal zoos, aquariums, and museums are typically subsidized, based on the educational and recreational benefits to residents. The Santa Ana Zoo has an annual operations budget of approximately $3 million. This does not include any capital projects such as new or rehabilitated exhibits and safety improvements. Last year, revenue reached $1.8 million, the most ever received. Therefore, the Zoo currently requires an annual subsidy of approximately $1.2 million (or 40%) for recurring operations. In contrast, the City’s General Fund contributes nearly $1.7 million annually to the Bowers Museum for operations.
The Zoo continues to find creative ways to increase revenue for a higher level of operations that support accreditation. On February 20, the City Council approved a concession agreement that includes alcohol sales, with the Zoo receiving a revenue share ranging between 6% and 10% of sales. The Zoo is considering implementation of
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other revenue-generating programs such as yoga in the Zoo and behind-the-scenes animal encounters. The Zoo will host its second Brew at the Zoo event this year.
Last year, the Zoo increased admission prices by $1. Due to the extensive ongoing construction that includes the Giant River Otter habitat, staff does not plan to request another admission price increase for FY 2024-25. However, the City may need to consider an admissions increase in the following year. Except for the Orange County Zoo which has an unusual heavily subsidized admission of $2 per person, the Santa Ana Zoo is still a relative bargain when compared to other similar attractions. Any future staff proposal will include details and benchmarking.
To provide a recurring allocation for deferred maintenance and other capital needs, staff will consider recommending a Zoo subsidy increase from $1.4 million to $1.7 million with the proposed FY 2024-25 budget.
Vehicle Incentive Program
In 2019, the City Council approved the Santa Ana Vehicle Incentive Program, which provides a $500 dollar rebate to residents who purchase a new or used vehicle at one of 10 participating Santa Ana auto dealerships. The program was developed at the request of the auto dealers, as they were concerned with the impacts that the November 2018 Measure X sales tax increase would have on auto sales. This 5-year program is currently funded by the General Fund and the agreement is set to expire in March 2024. The dealerships have requested a 10-year extension of the program at $1 million per year. Actual program expenditures since inception and the current year budget follow.
FY19-20 $937,500
FY20-21 $860,000
FY21-22 $649,500
FY22-23 $651,500
FY23-24 to date $606,000
FY23-24 budget $1,700,000
Staff does not recommend extending the program. As an alternative, City Council could consider an extension to March 31, 2029 (the last day of the 1.5% Measure X rate), with a smaller funding allocation.
Shall staff prepare an extension of the program for City Council consideration and include a Vehicle Incentive Program allocation in the proposed FY 2024-25 budget? City Events
The City Events budget for the current year includes a $1,581,640 allocation from recurring revenue and $900,000 from one-time resources. The FY 2024-25 draft proposed budget is $1,605,700 with no one-time allocations. This does not include Early Direction for the Fiscal Year 2024-25 Budget
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Public Safety support for these events; which to date, has been absorbed by the Public Safety budgets using staff vacancy savings.
Event Approximate
Current Year
Allocations
Current Year
One-Time
Allocation
Proposed FY24-25
Allocations
Easter $35,000 $45,000
Juneteenth $55,000 $41,000
Movie Series $65,000 $70,000
Fourth of July $105,000 $100,000
Concert Series $60,000 $70,000
Birch Series $18,640 $0
Indigenous Peoples’
Day
$30,000 $31,000
Chicano Heritage $145,000 $125,000
Fiestas Patrias $530,000 $475,000
Santa Ana Holidays $290,000 $900,000 $240,000
Mid-Autumn Festival $60,000 $75,000
Recreation Section
Events
$3,000 $117,700
Tet Festival $95,000 $75,000
Zoo Events $10,000 $36,000
Shakespeare $10,000 $10,000
Santa Ana Fun Run $70,000 $85,000
Pacific Symphony $0 $10,000
Totals $1,581,640 $900,000 $1,605,700
Staff welcomes City Council direction regarding the City Events budget.
INTERNAL SERVICE FUNDS
During the 2023 budget process, staff shared concerns with the City Council regarding the fiscal health of internal service funds. These funds provide a centralized service and charge departments for use of the services (e.g. Building Maintenance). Over the last several years, the City has taken steps to solve long-term issues for each fund. Most recently on December 19, City Council approved a one-time $2.9 million subsidy for the Engineering Division. There are four potential forthcoming requests for internal service funds, discussed below.
Central Stores
Due to just-in-time availability from resource vendors, the use of Central Stores has decreased over the years. With decreased usage, the City has lost economies of scale and there is no longer a cost benefit of maintaining a Central Stores. At this point, there is only a need to keep specialized water operations equipment on hand. Therefore, staff is preparing to close the Central Stores internal service fund by the end of the current Early Direction for the Fiscal Year 2024-25 Budget
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fiscal year and transfer the remaining inventory and staffing to the Water Enterprise. In preparation for the closure, the City recently ended its relationship with Shamrock Supply Company for consignment inventory. Account reconciliations indicate that a one- time subsidy ranging from $500,000 to $800,000 will be necessary to close the fund.
Once the fund is closed, gas and diesel sales will move to the Corporate Yard fund.
Corporate Yard
In recent past, the City’s Corporate Yard has been underutilized, and has not been able to charge enough usage fees to cover its costs. In addition, the Corporate Yard recently incurred significant costs to mitigate hazardous waste. Therefore, we expect to request a one-time subsidy ranging from $500,000 to $700,000 to make the fund whole. Going forward, Public Works is exploring potential use from other governmental agencies to increase revenue for the Corporate Yard; and as noted above, the operation will benefit from fuel sales.
Information Technology
The Information Technology internal service fund has an estimated spendable fund balance of $12 million to be used for a variety of system upgrade projects, including a new land management system and a new Enterprise Resource Planning (ERP) system.
A new ERP system would serve Accounting, Payroll, Human Resources, and Cashiering. The existing systems were implemented roughly 20 years ago, and were simply upgrades of the previous mainframe versions. The City recently received ERP system proposals and is in the process of evaluation. Although it is too soon to identify a specific amount, the latest estimate is $7.65 million. Additional funding may be necessary to purchase the system, implement it, and provide training.
Equipment Replacement Fund
The City has a large fleet of vehicles used to provide services to the public, comprised of both owned and leased vehicles. On December 19, the City Council approved renewal agreements with Enterprise Fleet Management for leased vehicles used in both the Police Department and the Planning & Building Agency (PBA). There are a total of 18 leased vehicles used in PBA, all with lease terms that end during FY 2024-25. When vehicles are held for the full useful life of the vehicle, leasing becomes a more expensive option than purchasing.
The estimated cost to purchase 18 new vehicles for PBA is approximately $1 million, due to the new state law requiring a mix of electric vehicles in the fleet. To minimize long-term costs, shall staff include a one-time spending allocation in the proposed FY 2024-25 budget to purchase replacement vehicles for PBA?
RESTRICTED FUNDS
Cannabis Public Benefit Fund
Two-thirds of Cannabis Tax revenue related to adult-use and supply activities is transferred to the Cannabis Public Benefit Fund each year pursuant to Santa Ana Early Direction for the Fiscal Year 2024-25 Budget
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Municipal Code Section 13-203. To date, this funding has provided for both recurring programs and one-time projects supporting youth services and enforcement activities.
The Cannabis tax rates were reduced effective January 1, 2023, resulting in a decrease of revenue transferred to the Cannabis Public Benefit Fund.
Now that we have a full year of experience with the decreased tax rates, it appears that ongoing revenue is approximately $9.4 million and the recurring baseline budget is approximately $9.8 million. The accumulated fund balance was able to absorb the spending deficit for FY 2023-24, but the recurring budget must be rebalanced for FY 2024-25.
A snapshot of recurring spending programs follows. Approximately $4.2 million is programmed for youth services and approximately $5.6 million is programmed for enforcement activities.
Library Book Mobile 135,360
Library Digital Subscriptions & Content 174,540
Library Hotspots and Chromebooks Data Plans 295,460
Library Library Staffing & Support 271,110
Library Library Youth Programs/Events 98,530
Recreation Recreation & Zoo Staffing & Support 2,031,620 Recreation Zoo and You 114,880
Recreation Zoo Nature Center 70,610
Recreation Aquatics 102,280
Recreation Aquatics Maintenance 40,000
Recreation Teen Excursions 62,510
Recreation Recreation Mobile 8,750
Recreation Recreation Events 5,350
Recreation Recreation Youth Programs 29,050
Recreation Internship Program Wages & Support 742,360
CAO City Attorney Staffing & Support 253,080
CAO Legal Services Contracts 300,000
PBA Code Enforcement Staffing & Support 1,172,520
PBA Code Enforcement Equip/Supply 18,000
Police Police Staffing & Support 2,359,350
Police Evidence Warehouse 132,400
Police Body Worn Camera Program (year 2 of 5) 1,029,150 Finance Finance Collections Staffing & Support 107,440
Finance Cannabis Auditing Contracts 255,550
Total Expenditures - Original Budget 9,809,900
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Staff expects to propose a balanced budget for FY 2024-25, which may result in reduced spending for one or more of the programs listed above. Staff welcomes City Council input regarding programs that should be considered for reduction.
Opioid Settlement Money
To date, the City has received $1.75 million of opioid settlement money. The City has also received an invoice for attorney’s fees of $248,208 to be paid from the settlement money, and the City used $1 million of this money to help purchase the Carnegie Shelter, leaving a balance of $0.5 million. The City will continue to receive settlement payments of at least $400,000 annually through 2039. The money is highly restricted to specific opioid-related expenditures.
Currently, staff is planning to purchase naloxone for first responders to use and distribute once the state no longer provides it to local government for free. The City’s Homeless Services Division Manager has indicated that we have a need for securing beds at College Hospital or Phoenix House for homeless individuals who want to detoxify from Fentanyl. The process of detoxification is very difficult and is best done with hospital rehabilitation.
Shall staff explore the feasibility of using this funding for medical treatment for homeless individuals with an addiction to Fentanyl who wish to detoxify? Gas Tax
The City receives allocations from the state Highway Users Tax Account (HUTA, commonly known as Gas Tax) and the Road Maintenance and Rehabilitation Account (RMRA). Both HUTA and RMRA are cents-per-gallon taxes. Therefore, if consumption decreases, so does the City’s revenue allocations.
The City expects to receive $15.8 million from these allocations in the current fiscal year. Next fiscal year, the estimate from the League of California Cities is $16.5 million or 4.4% more overall. The increase is short-lived.
The California Legislative Analyst Office (LAO) released a report in December 2023 regarding the impact of California’s climate policies (e.g. mandating more electric vehicles) on transportation funding such as HUTA and RMRA. The report states: “Most significantly, policies aimed at increasing the adoption of ZEVs will decrease the consumption of gasoline and diesel fuels, and consequently reduce the associated tax revenues that currently support the state’s transportation system.” The report goes on to estimate state transportation revenues will decrease by 31% over the next decade, and recommends the California Legislature develop a long-term plan.
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The City’s HUTA and RMRA allocations currently fund the following expenditures.
Debt Service for $68 million of local street improvements beginning in 2007 (debt is scheduled to be paid-off in 2040) $3.2 million
Traffic Signal Maintenance $2.6 million
Median Landscaping $1.2 million
Roadway Maintenance $2.0 million
Street Projects (SB-1 spending plan approved by City Council each year)
$7.7 million
Recurring Programs Paid by Gas Tax Fund $16.7 million
In the last five years, since the passage of Measure X, the City’s General Fund began paying for the following recurring roadway maintenance expenditures.
Streetlights $1.0 million
Alley Improvements $1.5 million
Sidewalk and/or Street Repair $1.0 million
Traffic Calming $1.0 million
Median Landscaping $0.5 million
Street Paving $2.0 million
Recurring Programs Paid by Measure X in the General Fund $7.0 million Additional General Fund spending may become necessary in the future with the eventual decrease of Gas Tax revenue, yet the Measure X funding source is scheduled to decrease by 33% in 2029.
Revive Santa Ana
The Revive Santa Ana spending plan is primarily funded with the City’s $128 million allocation from the federal American Rescue Plan Act (ARPA), which is one-time money. To date, the City has spent and obligated total funding of $70.5 million. Many projects are in the design phase and are scheduled for contract award during 2024. The deadline to obligate the remaining funding is December 31, 2024. The deadline for final spending is December 31, 2026.
Staff is performing an internal review of project status to determine if there are project savings available to fund additional items. The following is a short list of unfunded high- priority projects that qualify for ARPA money.
•The Main Library renovation project has a funding shortfall of $2.3 million for furniture and fixtures.
•The Zoo Master Plan includes a Zoo Primate Forest. Funding of approximately $1 million is needed to prepare the design and construction documents, to ensure the project is shelf-ready for grant and other restricted funding opportunities.
•Recreation & Parks has identified a need for $2.1 million of funding for park lighting, as detailed below.
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oDelhi Park: upgrade existing baseball field lights, install new LED lighting for two additional multi-purpose fields including security lighting, and lighting for the playground and fitness court.
oAngels Park: install new multi-purpose LED field lighting, security lighting, basketball court lighting, and playground lighting.
oAdams Park: retrofit existing poles and fixtures to LED including security lighting, and lighting for the restrooms and playground. oRosita Park: retrofit existing poles and fixtures to LED including security lighting, and lighting for the playground and fitness court. •Cypress Fire Station project with an estimated cost of $4.3 million with no identified funding source.
Federal ARPA funding for staffing must be spent by December 31, 2024. In other words, the only staff expenditures that will be accepted from January 1, 2025 through December 31, 2026 are those related to compliance and reporting activities. ARPA- funded staff positions below are not eligible for expenditure after December 31, 2024.
Position Service Provided Annual
Cost
PAAL Assistant Director Plans and supervises recreational and educational after-school programs, teen
activities and mentoring programs.
$112,620
Associate Engineers (2) Development of Plans, Specification, & Cost Estimates, including consultant and
contractor oversight. Managing various
contracts related to Park & Facility
projects.
$327,230
Public Works Projects
Manager (under-filled)
Scope development for projects,
contractor oversight, and contract
management for various Park & Facility
projects.
$132,290
Public Works Projects
Specialist
Scope development for projects,
contractor oversight, and contract
management for various Park & Facility
projects.
$149,840
Associate
Parks/Landscape Planner
(under-filled)
Implementation of the Parks Master Plan,
including managing architects and
consultants agreements for various park
planning efforts.
$112,750
Assistant Parks/Landscape
Planner
Implementation of the Parks Master Plan,
including managing architects and
consultants agreements for various park
planning efforts.
$112,200
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Economic Development
Specialist (50%)
Bilingual Business Retention and
Attraction for businesses including
specialty outreach and grants coordination
with small businesses and microenterprise
efforts for start-ups.
$73,950
Total $1,020,880
Shall staff include an allocation of approximately $0.5 million in the proposed FY 2024- 25 budget to continue funding these positions for January 1 through June 30, 2025, with a future annual recurring cost of approximately $1 million? Water Enterprise Revenue Bonds
In 2019, the City prepared a water rate study, which indicated debt (revenue bonds) would be necessary to meet the capital needs of the system. Since 2019, the water enterprise has been spending down an accumulated fund balance for water infrastructure improvements.
The rate study consultant’s latest estimate of planned improvements that remain unfunded is $30.2 million. In addition, the City is currently installing smart meters as part of the Advanced Metering Infrastructure (AMI) project. The latest information suggests we have an $11 million funding shortfall to complete the project. Finally, the City may have an opportunity to refinance the outstanding $8.9 million of water bonds issued in 2014.
The City has assembled a financing team to structure a proposed revenue bond issue.
The debt would be secured by water enterprise revenue, and therefore would only require City Council approval. The financing team would only be paid if bonds are issued, and payment would come from the bond proceeds.
Staff expects to return to the City Council prior to June 30 to consider a recommendation to proceed with a proposed debt financing.
FISCAL IMPACT
There is no direct fiscal impact at this time, as the recommended action would only provide direction to staff. City Council is scheduled to consider the proposed FY 2024- 25 budget in May and take action in June.
EXHIBIT(S)
1. City Council Priorities
2. FY23-24 Measure X Spending Plan
Submitted By: Kathryn Downs, FMSA Executive Director
Approved By: Tom Hatch, Interim City Manager