6/6/23 Item *1.A
City Council Meeting
Item # 1A - RTC 23-143
Study Session: Review of the
Proposed FY 2023/24 &
•D00000a. FY 2024/25 Biennial Operating
Budget and FY 2023/24 Capital
1852 Budget Changes
THE MISSION CITY
June 6, 2023
Agenda
• Overview
• FY 2023/24 and 2024/25 Proposed Budget
• Potential Future Revenue Sources
• FY 2023/24 Capital Budget Amendments
• Amendments to the Proposed Budget
• Follow-up from May 9th Budget Study Session
• Next Steps
City of
Santa Clara
The Center Whats Foes be
POST MEETING MATERIAL
1 Overview
City of
Santa Clara
Overview
Budget Provides Stability for Community Services
• FY 2023/24 and FY 2024/25 Proposed Biennial Operating Budget - Reflects improved 10-Year General Fund Forecast ($27M to $9M) - General Fund structural deficit significantly reduced - Preserves services with fewer reductions necessary
- Strategic support reductions vs. direct services
- Multiple Study Sessions / Public Hearing - Budget adoption June 27th • FY 2023/24 Capital Budget
- Limited adjustments for FY 2023/24
- Future revenue measure direction needed
City of
Santa Clara
The Center of What's Rost bie
2 Overview
Budget Development Process
• Mayor/Council Briefings - Late March
• Release Proposed Budget on City's website - April 28th • Budget Study Session/Forecast Update - May 9th
• Release Budget-in-Brief/outreach to stakeholders - May 23rd • Budget Study Session - June 6th
• Public Hearing/Budget Adoption - June 27th
City of
Santa Clara
The Center of What's Possible
Overview
Where We Have Been
• Significant operational and financial upheaval
triggered by COVID-19
• High vacancies and continued cost controls
• Used approx. $80 million in one-time reserves and
federal stimulus funding to help address shortfalls and allow time for recovery
• Successful ballot measures (TOT, Business Tax,
SORRY det COVID-19
Utilities Transfer)
CLOSED
• Balanced approach to addressing deficit with focus on preserving community services
City of
Santa Clara
The Center What oth
3 Overview
Where We Are Now
• With lifting of COVID restrictions, organization is aligning to a new normal • Cost control measures allows time for successful COVID recovery • High vacancies continue with impacts to service delivery - Saved $10 million last year
- Current 16.7% vacancy rate as of May 3rd; excludes frozen positions (37.5 FTE) - Department vacancies in select areas remain high with competitive recruitment environment (e.g., SVP @ 24% vacancies)
8% - 10% annual turnover rate (retirements, resignations, dismissal, other) • While General Fund forecast has improved significantly, uncertainty remains as witnessed by the recent events in the banking industry
• Collaborate with all departments to address deficit
City of
Santa Clara
The Conter of WhattAMaN
Overview
Where We Are Going
• Improved financial forecast reduces need for
significant reductions
• Reduce structural deficit and replenish reserves
• Budget that protects critical services including
public safety - avoids layoffs
• Address 21% loss of capacity to due vacancies and
frozen/eliminated positions
• Pursue financial revenue options to create capacity
to address unmet needs and Council priorities
• Economic uncertainty and risk of recession persist
- Budget Stabilization Reserve down by nearly half
City of
Santa Clara
The Center of What's Possible
4 FY 2023/24 & FY 2024/25
Proposed Budget
City of
Santa Clara
Proposed Budget Overview
• Balanced budget of $1.5 billion for FY 2023/24 and $1.2 billion budget for FY 2024/25; General Fund approx. one-fifth of budget • Multi-pronged approach to solve the General Fund deficit: new revenues, one-time & ongoing expenditure savings, use of reserves • Limit direct service impacts; strategic support reductions • City continues to fill vacant positions - result in overall improvement City of Santa Clara
to services (still below pre-pandemic levels)
• Set General Fund Budget Stabilization Reserve at minimum of 15% of expenditures
• City's utilities represent the majority of the budget and the resources are aligned with expected activity
• Collaboration with all City departments
City of
Santa Clara
The Center of Whits Possibl
5 Proposed Budget Overview
FY 2023/24 and FY 2024/25 Proposed Budget
FY 2022/23 FY 2023/24 FY 2024/25
Fund Type Adopted Budget Proposed Budget Proposed Budget General Fund $272,355,000 $280,774,000 $287,459,000
Special Revenue Funds 28,469,000 38,412,000 37,111,000
Enterprise Funds 815,865,000 872,344,000 968,036,000
Internal Service Funds 42,429,000 38,851,000 41,630,000 Debt/Other 19,847,000 374,983,000 40,658,000
Less (Transfers, Contributions, (509,710,000)
and Reserves)* (203,143,000) (247,781,000)
Subtotal Operating Budge $975,822,000 $1,095,654,000 $1,127,113,000 Capital Funds $357,381,000 $396,879,000 $108,386,000
Less (Transfers, Contributions, (1,454,000) (1,588,000) (1,454,000) and Reserves)*
Total Capital Budget $355,927,000 $106,932,000
Total Budget
* Adjusts for transfers,
internal services funds are excluded)
City of
Santa Clara
Tha Canet WhAt AMAN 11
Budget Guiding Framework
Council Adopted Strategic Pillars:
1. Promote and Enhance Economic, Housing and Transportation Development
2. Deliver and Enhance High Quality Efficient Services and Infrastructure
3. Enhance Community Sports and Recreational and Arts Assets
4. Enhance Community Engagement and Transparency
5. Ensure Compliance with Measure J and Manage Levi's Stadium
6. Manage Strategically Our Workforce Capacity and Resources
7. Promote Sustainability and Environmental Protection
City of
Santa Clara
The Center of What's Pots Be 12
6 Summary of Funded Position Changes
Summary of Funded Position Changes (All Funds)
FY 2022/23 Budget 1,127.00
Base Budget Changes (Fire SAFER Grant firefighter positions) 18.00 Base Budget Changes (SVP Funded) 10.00
Base Budget Changes (Development Fee Funded) 5.00
Base Budget (Other Changes) 0.25
Base Budget Changes (freeze Related-funded positions) (7.00) Proposed Budget Changes - General Fund Reductions (4.00) FY 2023/24 Budgeted Positions 1,149.25
FY 2024/25 Proposed Additional Positions (Building Fee Funded) 4.00 FY 2024/25 Budgeted Positions 1,153.25
City of
Santa Clara
The Conter of What's Poss be 13
Budget Balancing Strategy
• Combination of strategies to address ongoing
deficit in Biennial Budget
- Revenue-generating actions
- Ongoing/one-time expenditure reductions Use of Revenue Reserves Solutions
- Use of Reserves
- Continue phased approach
• Maintain Budget Stabilization Reserve at 15% Reduce
Costs
• Restoration of services not in budget; would rely
on outperforming forecast and/or new revenues
City of
Santa Clara
14 7
Budget Balancing FY 2023/24 and FY 2024/25 Biennial Operating Budget General Fund Balancing
($ in millions)
Strategy FY 2023/24 FY 2024/25 Ongoing
Forecast Shortfall ($8.0 M) ($8.9 M) ($11.4 M)
Increased Revenues
• We need both new revenues - Increase TOT Rate: phased 2% 0.9 1.7 and expenditure reductions -Fee Adjustments 0.5 0.8
-One-Time Revenues 0.2 0.0 0.0
($8 M - $12 M ongoing) Total Revenue Solutions 1.6 2.5 4.2 • Continued phased approach; Expenditure Reductions
- Fire SAFER Grant 1.0
address approx. half of ongoing -Police Vacancy Savings 1.6 3.1 need -Other Departmental Proposals 2.7 2.7 2.0
Total Expenditure Solutions 5.3 7.5
• Use one-time funds (SAFER Use of Reserves
grant, salary savings, reserves) - Budget Balancing Reserve (1.1) Use of Reserves (1.1)
to balance budget Future Unidentified Solutions
5.2 General Fund Balancing Total $8.0 M $8.9 M $11.4 M
City of
Santa Clara
The Center of What's Foss bie 15
Budget Balancing Strategy
Revenue Solutions
• Transient Occupancy Tax - phase in the remaining voter-approved Transient Occupancy Tax increase in FY 2023/24 (1 percent in January 2024) and in FY 2024/25 (1 percent in January 2025), generating additional revenue of approximately $0.9 million in FY 2023/24 and increasing to $3.4 million ongoing
• Fee increases were brought forward and approved by the City Council on April 18, 2023 • Anticipated increase to the Storm Drain Environmental Compliance fee is assumed in FY 2024/25
• One-time transfer of $149,000 from the Vehicle Replacement Fund for the sale of vehicles that will be retired as a budget proposal
City of
Santa Clara
16 8
Budget Balancing Strategy
Phase in TOT Increase Transient Occupancy Tax by City
City Rate
• City of Santa Clara's current TOT rate is 11.5% Gilroy 9.0% Saratoga 10.0%
• The City has implemented 2% of the 4% TOT Fremont 10.0% increase approved by the voters Mountain View 10.0%
San Jose 10.0%
Morgan Hill 11.0%
• Remaining 2% needed to address deficit
Santa Clara 11.5%
(additional 1% in Jan. 2024 and 1% in Jan. 2025) Campbell 12.0% Cupertino 12.0%
• Outreach regarding this proposal occurred with Los Gatos 12.0% several large City hotels earlier in March 2023 Sunnyvale 12.5% Los Altos 14.0%
Milpitas 14.0%
Palo Alto 15.5%
City of
Santa Clara
The Center of Whit's Posse
Budget Balancing Strategy
Expenditure Savings/Reductions
• In FY 2022/23, the Fire Department was awarded a three-year SAFER grant, which will generate annual General Fund savings ($1.0 million to $3.1 million) during the grant period
• Align the Police Department's vacancy factor with the historical staffing rates over the past decade, generating savings of $1.6 million - $1.7 million in FY 2023/24 and FY 2024/25; the vacancy factor adjustment will allow the continuation of recruitments and hiring efforts
• Other departmental reductions limit direct service impacts, and the 4.0 position reductions are in strategic supports areas (City Attorney's Office, City Manager's Office, City Auditor's Office, Human Resources Department)
City of
Santa Clara
The Center of What's Possible 18
9 Budget Balancing Strategy
Use of Reserves/Future Unidentified Solutions
• In FY 2022/23, Budget Balancing Reserve established as part of the FY 2021/22 Budgetary Year-End Close process; this Proposed Budget uses $1.1 million of this reserve in FY 2023/24 and replenishes the amount in FY 2024/25 • After the biennial budget period, future balancing solutions are expected to be necessary; a revised forecast will inform the needed actions at that time City of
Santa Clara
The Center of What's Poss ble 19
Budget Stabilization Reserve
Budget Stabilization Reserve
90 • Budget Stabilization Reserve has 80
dropped almost half from $80 M
70 • Other one-time sources used for budget 60
balancing
50 - Land Sale Reserve ($11 M) 40
- Federal Stimulus Funds ($26 M) 30
20 10
FY 2019/20 FY 2020/21 FY 2021/22 FY 2022/23 FY 2023/24 FY 2024/25 City of
Santa Clara
20 10
Select General Fund Reserves
2023/24 &
2022/23 2024/25
Reserve Type Balance Balance
General Fund Budget Stabilization (BSR) $40.8 M $45.8 M1 General Fund Capital Projects $6.6 M $6.1 M2
Land Sale Reserve $18.5 M $18.5 M
Pension Trust (General Fund) $21.4 M $21.4 M
FY 2023/24 Budget Balancing Reserve $2.0 M $0.9 M/$2.0 M3 Total $89.3 M $92.7 M/$93.8 M
1BSR increase of $5.0 M needed to meet the 15% target in FY 2023/24 and FY 2024/25; separate action to be brought forward in June 2023 to increase reserve 2Use of $0.5 M funds the third year of the Modesto Ash tree removals plan 3The FY 2023/24 Budget uses $1.1 M of the reserve, which is restored in FY 2024/25 City of
Santa Clara
21 Potential Future
Revenue Sources
City of
22 Santa Clara
11 Potential Future Revenue Sources
Consider for implementation in future budgets
• General Obligation Bond (Capital Infrastructure)
- Fire, Storm, & Community Facilities Infrastructure
• Library/Community Services Parcel Tax
• Documentary Transfer Tax
• Sales Tax
• Utility Tax (gas, telephone, cable)
Separate process to evaluate options with Fall 2023 decision goal City of
Santa Clara
The Certer of What Posse 23
FY 2023/24 Capital Budget
Amendments
City of
24 Santa Clara
12 2023/24 Capital Budget Amendments
• FY 2023/24 - Second Year of Biennial Capital Budget
• Adjustments to reflect changes in estimated project costs / timelines
• Limited number of new projects and budget adjustments - Northern Receiving Station Transformer and Breaker Upgrades ($76.3 M)
- Kifer Receiving Station Rebuild and Replacement ($30.7 M) - NRS-KRS 115kV Line ($29.3 M)
- Scott Receiving Station Rebuild and Replacement ($29.0 M) • Carryover of FY 2022/23 funds brought forward as part of budget adoption
• Over $500 M unfunded infrastructure needs remain
City of
Santa Clara
he Center ol whats Possibe
25 Amendments to the Proposed
Budget
26 City of
Santa Clara
The Center of NuTS Postele
13 Amendments to the Proposed Budget
• Capital project carryovers from FY 2022/23
• Actions occurring after Proposed Budget issued
- Homekey Interim Housing Development (May 2nd) - $5 M from Santana West Settlement and unused balances in Housing funds
- Housing Annual Action Plan (May 9th) - align with adopted plan • Limited operating carryovers and other clean-up adjustments City of
Santa Clara
27 The Center of Whuts Posse
Follow-up from the May 9th
Budget Study Session
City of
28 Santa Clara
14 Follow-up from May 9th Budget Study Session
Summary of Feedback
• Discussions about elements of the General Fund Forecast and balancing strategy (e.g., personnel costs, CaPERS, development estimates, sales tax, TOT) • Concerns around staffing, recruitment, and program delivery - Interest in increasing library and senior center hours by filling positions - Discussions around public safety and the need to deliver the programs and services (e.g., Northside substation, drug education, fire services after SAFER grant expires) - SVP high vacancy rate
• Interest in pursuing revenue-generating options to address significant capital infrastructure needs and other service needs
City of
Santa Clara
29 Follow-up from May 9th Budget Study Session
Responses to Questions (Attachment 2 to RTC)
• Written responses to 36 questions provided
• Address questions regarding various revenues and expenditures (e.g., sales tax, TOT, cannabis, CaPERS, use of one-time funds/reserves, vacancy rates) • Address questions regarding staffing levels/vacancies, programming and projects (e.g., Northside substation, drug education, senior center, libraries, on-demand shuttle, Street Tree Services project, Lick Mill Boulevard Beacons project) • Future revenue opportunities to address significant unfunded capital infrastructure needs and other services to be brought forward in separate study session • Budget in Brief (Attachment 3 to RTC)
City of
Santa Clara
The Center of What's Port bie 30
15 Next Steps
City of
31 Santa Clara
Next Steps
FY 2023/24 and 2024/25 Budget Calendar
Date Budget Schedule
April 28, 2023 Proposed Biennial Operating Budget and CIP Budget changes Released May 9, 2023 Study Session to review Biennial Operating Budget and CIP Budget changes June 6, 2023 Study Session to review Biennial Operating Budget and CIP Budget changes June 27, 2023 Public Hearing/Adoption of Biennial Operating Budget and CIP changes City of
Santa Clara
The Center of What's Possible
16 Recommendations
June 27th Recommended Actions
1. Approve the Proposed FY 2023/24 and FY 2024/25 Biennial Operating Budget and FY 2023/24 Capital Budget Amendments
2. Approve recommended revisions to the Proposed Budget
3. Approve the Appropriation Schedules for Operating and Capital Funds
4. Adopt the FY 2023/24 Appropriations Limit
5. Direction to phase in Transient Occupancy Tax rate increase from 11.5% to
13.5%
City of
Santa Clara
33 City Council Meeting
Item # 1A - RTC 23-143
Study Session: Review of the
Proposed FY 2023/24 &
FY 2024/25 Biennial Operating
Budget and FY 2023/24 Capital
1852 Budget Changes
THE MISSION CIT
June 6, 2023
17