NOTICE AND AGENDA
CITY OF UNION CITY
CITY COUNCIL /
SPECIAL MEETING AND STUDY SESSION
Tuesday, June 6, 2023
5:00 PM
City Hall- Council Chamber
34009 Alvarado-Niles Road
Union City, CA 94587
1. CALL TO ORDER
1.a. Roll Call
2. ORAL COMMUNICATIONS - Comments limited to items on the Special Meeting Agenda
3. STUDY SESSION
3.a. Study Session On The Proposed FY 2023-2024 And FY 2024- 2025 Operating Budget
4. ADJOURNMENT
/s/ Carol Dutra-Vernaci
Carol Dutra Vernaci
Mayor
Agenda Item
DATE:
TO: HONORABLE MAYOR AND CITY COUNCIL
FROM: JOAN MALLOY, CITY MANAGER AND JACKIE ACOSTA, FINANCE
DIRECTOR
SUBJECT:
BACKGROUND
DISCUSSION
FISCAL IMPACT
RECOMMENDATION
Prepared by:
Submitted by:
ATTACHMENTS:
Description Type
FY2023-2024&2024-2025 Proposed Operating Budget Staff Report Staff Report Bu
dgetPrinciplesAttachment
OrganizationalChartsAttachment
Agenda Item
DATE: 6/6/2023
TO: HONORABLE MAYOR AND CITY COUNCIL
FROM: JOAN MALLOY, CITY MANAGER
JACKIE ACOSTA, FINANCE DIRECTOR
SUBJECT: STUDY SESSION ON THE PROPOSED FY 2023-2024 AND FY 2024- 2025 OPERATING BUDGET
XECUTIVE SUMMARY
Staff recommends that the City Council receive an overview presentation on the proposed FY 2023- 2024 and FY 2024-2025 Biennial Operating Budget. The purpose of this study session is to provide an opportunity for staff to inform the City Council about the City’s financial status and provide information about the upcoming Biennial Budget and the City’s long-term financial forecast. The informal nature of the study session will also allow for the City Council to ask questions and provide comments on the City’s proposed Biennial Operating Budget. A Public Hearing on the Biennial Operating Budget and the Five-Year Capital Improvement Plan (CIP) Budget is scheduled for Tuesday, June 13, 2023, and adoption of the budget is tentatively scheduled for Tuesday, June 20, 2023.
STRATEGIC PLAN
The biennial budget has been developed based on the City Council’s Strategic Plan goals which are:
Goal A – Financial Stability and Sustainability: Foster fiscal health through disciplined long-term planning, cost control, heightened efficiency, increased revenue and cost recovery.
Goal B – Governance and Organization Effectiveness: Produce high-quality services to the community through a commitment to local government best practices and employee development, support and retention.
Goal C – Economic, Community Development and Public Safety: Institute forward-thinking business, land use development, housing, social services, and public safety strategies that provide community growth and innovation.
Goal D – Environmental Sustainability and Infrastructure: Create a healthy, sustainable community and maintain and improve the City’s infrastructure.
Goal E – Communication and Outreach: Build strong connections with community partners, residents and employees.
BACKGROUND
The City adopts an operating budget and prepares a Five-Year Capital Improvement Plan (CIP) budget every two years (biennially). The City’s current budget for FY 2021-2022 and FY 2022-2023 was adopted in June 2021. As required by the Union City Municipal Code (UCMC), the City Manager is responsible for preparing and submitting a proposed budget to the City Council for approval. Under the direction of the City Manager, staff has developed the FY 2023-2024 and FY 2024-2025 operating budget with an accompanying Five-Year CIP budget. Attached to this report for the Council’s general information are the City departments’ organizational charts and the Budget Principles.
DISCUSSION
City staff, under the direction of the City Manager, have prepared a proposed Biennial Budget for FY 2023-2024 and FY 2024-2025 for City Council consideration. The proposed biennial budget includes the continuation of City operations based on projected operating revenues and fund balance reserves available to fund those operations.
The operating budget was developed with the following framework:
1. Planned restoration of staffing and services to pre-COVID-19 pandemic levels
2. Full fiscal recovery delayed by the length of the pandemic and not expected until FY 2025- 2026
3. Costs have gone up significantly due to salary and equity adjustments, rising inflation, increases in insurance costs and increases in the fire services contract with ACFD
4. Most funds have sufficient reserves to allow for the restoration of projects, staffing and maintenance of services
Status of the City’s Finances
For some background to bring us up to current times, the City suffered a crippling cyberattack in September 2019 that destroyed the City’s records, and perhaps most critically, the finance and human resources records, although all departments were significantly impacted. The City did not pay the ransom and instead committed to rebuilding the financial records and the information technology infrastructure. It took Finance staff more than one year to recreate the financial records that were lost during the cyberattack. With all that time spent recreating the City’s financial records, Finance became significantly delayed in annual closings, audits, and the preparation of the City’s financial statements.
As of this date, staff is still behind, but close to getting back on schedule. Staff recently completed the June 30, 2021 audit, showing a net positive result for the General Fund of $5.3M, of which $2.7M was set aside to pay down the City’s unfunded liabilities and $825,000 was appropriated for five important deferred maintenance projects. Staff is currently finishing the year-end close for FY 2021-2022 and will start the audit soon and hopefully finish the June 30, 2022 financial statements by September 30, 2023. At that time, staff will immediately start the FY 2022-2023 year-end close and audit, with the goal of getting the June 30, 2023 financial statements completed by January 31, 2024. That will put the City back on track and ready to have a very timely FY 2023-2024 year-end close, audit and issuance of the June 30, 2024 financial statements.
Tonight’s study session is focusing on the City’s General Fund. The Citywide Budget and the LongTerm Financial Forecast will be presented at next week’s study session.
General Fund
Using the June 30, 2021 audited financial statement information as a starting point, on the following page is a chart of the financial results of the City’s General Fund for the past two years.
General Fund Amounts
June 30, 2021 Fund Balance $16,371,772
FY 2021-2022 revenues (est) $72,531,413
FY 2021-2022 expenditures (est) $65,031,952
Revenues over expenditures (est) $7,499,461
June 30, 2022 Fund Balance (est) $23,871,233
July 1, 2022 Fund Balance (est) $23,871,233
FY 2022-2023 revenues (est) $77,248,310
FY 2022-2023 expenditures (est) $71,147,660
Revenues over expenditures (est) $6,100,650
June 30, 2023 Fund Balance (est) $29,971,883* * Estimated $15.5 million is the minimum fund balance required to maintain 20% reserve per Budget Principles
The City’s General Fund balance has increased over the past three years, but due to factors that weren’t necessarily positive. Most of the funds accumulated in the fund balance are the result of not knowing the City’s financial situation for quite some time after the cyberattack and so expenditures were curtailed sharply while the City rebuilt its financial records. Then just a few months after the cyberattack, the COVID-19 pandemic hit causing millions of deaths and nearly bringing down the economy, again causing much uncertainty for the City. Many of the City’s retail sales tax generators closed for some period, including much of Union Landing. Hotels were empty and the use of public transit dwindled, which significantly impacted City parking revenues. In addition, the Public Safety Parcel Tax renewal failed in March 2020, creating significant uncertainty for City revenues. During the first two years of the pandemic, many of the City’s operations were scaled back or shut down completely. The City ceased filling vacancies unless they were critical positions, capital projects were delayed, and revenues were compromised. Out of all of this, there were two primary factors that caused the City’s General Fund balance to increase: 1) significant salary savings due to not filling vacancies; and 2) a $14 million influx of American Rescue Plan Act (ARPA) funds from the Federal government.
The City is now starting the next two-year budget cycle with a healthy General Fund balance, however, the City is facing an operating budget shortfall for the next biennial budget because of the following:
• Increased salary and benefits costs as a result of the three-year MOUs and the equity adjustments provided to staff to address the below-market pay scales • Increased fire services contract costs
• Increased liability and workers’ compensation insurance costs • Increases in supplies, materials and contract services costs due to inflation • Restoration of full staffing and services
• Full fiscal recovery is delayed by the significant length of the pandemic and not anticipated until FY 2025-2026 (For example, the Transient Occupancy Tax (TOT) revenues are still underperforming, parking and citation revenues are almost non-existent due to the lack of BART riders, and the General Fund continues to support the Landscape and Lighting District).
For Fiscal Year 2023-2024, General Fund revenues are estimated to be $76,242,740 while expenditures are projected at $77,773,024, creating an operating shortfall of $1,530,284. Similarly, for Fiscal Year 2024-2025, General Fund revenues are estimated to be $79,707,691 while expenditures are projected at $81,079,487, creating an operating shortfall of $1,371,796. See Chart #1 on the following page.
Chart #1
The City’s General Fund does have sufficient fund balance (reserves) to accommodate these operating shortfalls and maintain the required minimum 20% General Fund reserve of approximately $15.5 million for FY 2023-24 and 16.2 million for 2024-25; however, the reserve cannot be sustained over the long-term. In order to continue to provide the level of services the community wants and expects, the City will need to find additional stable and continuous revenue sources. There are options as to what those revenue sources may be. A look at the major revenue sources of our neighboring cities in Chart #2 on the following page shows that Union City does not have all the same revenues that other cities do. Additionally, it shows that the residents of, and visitors to, Union City do not “pay the highest taxes of any city” as has been quoted by some residents.
Chart #2
Transient
Occupancy
Tax (TOT)
Utility
Users’
Tax
(UUT)
Local
Sales
Tax
Real
Estate
Transfer
Tax
Emergency
Medical
Services
Tax
Public
Safety
Parcel
Tax
Other
Taxes
Alameda 14% 7.5% ½ X
Albany 10% 7% ½ X
Berkeley 12% 7.5% X X
Dublin 8% X
Emeryville 12% 5.5% ¼ X X
Fremont 10%
Hayward 8.50% 5.5% ½ X
Livermore 8% X X X
Newark 10% 3.25% ½
Piedmont - 7.5% X X
Pleasanton 8% X
San Leandro 14% 6%/5.7%* ½ X X X
Union City 13.54% 5% ½ X
*San Leandro’s UUT is 6% on electricity and gas and 5.7% on telephone and cable Chart #3 on the following page shows General Fund revenues by type and expenditures by department as projected for the biennial budget. Total General Fund revenues for the two-year period are estimated to be $155,950,431, while expenditures are projected at $158,852,511, creating an operating shortfall of ($2,902,080) combined for the two-year budget. The General Fund Balance has sufficient capacity to cover the operating shortfall over the next two-year budget cycle, however, over the long-term, the City cannot continue to operate with a structural deficit. Additional revenue sources need to be identified.
Chart #3
The revenue and expenditure trends displayed below in Chart #4 show that for this current year and the past two years (the pandemic years), General Fund revenues exceeded expenditures. As stated previously, that is due primarily to salary savings and ARPA funding. That trend will not continue during this next biennial budget cycle as the City returns to full staffing and operations. Revenues for FY 2023-2024 are projected to be 1.3% less than revenues for this fiscal year, while expenditures for FY 2023-2024 are expected to be 9.3% more than this fiscal year. The slight revenue decline can be attributed to the net effect of increase in several revenues such as property tax, UUT, TOT, building permits and others, offset by the end of ARPA funding from which the City received $7 million for each of the past two years. The expenditure increase is attributable to the return to full staffing, increases in salary and benefit costs from COLAs, equity adjustments and pension costs, the 5.2% increase in the fire services contract, a 24% increase in liability and workers’ compensation insurance premiums and overall increases in supplies, materials and contractual services.
Chart #4
In developing this proposed biennial budget, staff used the following key revenue and expenditure assumptions:
General Fund Revenues General Fund Expenditures
Property Tax – 2% increase for FY 2023-2024, and 4%
increase for FY 2024-2025.
Staffing Levels – restoration to pre-pandemic levels
Sales Tax – 0% increase for FY 2023-2024 and 3%
increase for FY 2024-2025. Both Bradley-Burns and the
City’s Measure AA local tax are generating annual
revenues significantly higher than in FY 2018-2019 (prepandemic).
Staffing Costs – 3% COLA’s and agreed-upon equity
increases included. Two PIO positions in the City
Manager’s Office are unfunded. Vacancy factor equivalent to the cost of four Police Officers included.
TOT – 5% increase projected for each of the next two
years. The $2.1 million expected in 2024-2025 will still be 24% below the pre-pandemic high of $2.7 million.
Pension costs – rates continue to increase. Miscellaneous rate up 1.12% since last year and Safety rate up 3.36%
since last year. Annual payment for unfunded liabilities has increased from $5.5 million in 2019-2020 to $8.3
million in 2023-2024.
UUT – exceeding original estimates from 2020. 4%
increase projected for next two years.
Fire Services Contract – 5.2% increase in base contract over 2022-2023, plus $240,000 included for replacement
of communications equipment at each fire station.
Franchise Tax – No increase projected over the next two years. Zolly case in Oakland may ultimately cause the City to see a permanent decline in Franchise Tax revenues.
Insurance Costs – 24% increase over last year and 231.6% increase since 5 years ago (2018-2019).
Cannabis Tax – projecting a 30% increase over 2022-
2023 budgeted amount. Actual revenues exceeding
projections for 2022-2023 by 21%. Third retailer expected to open in 2023-2024.
Inflation Increases – Supplies, materials and contract
services increasing due to inflation of 5-6% over last year.
Building Permits – 10% growth annually for past 10
years. Large projects – Windflower, Nuvera and Integral – all 1-2 years behind schedule.
Parking Revenues – loss of $500,000 in parking revenues which will not return until BART ridership recovers.
Some of the notable items included in the biennial operating budget include: 1) funding of the negotiated COLAs and equity adjustments to bring staff closer to market, 2) restoration of staffing to pre-pandemic levels, 3) restoration of Community & Recreation Services programs, 4) the funding of a limited-term Deputy Police Chief position to address retirements and succession planning, 5) $240,000 for replacement of the communications equipment at City fire stations, and 6) increased technology costs to secure and modernize the City computer network.
However, there are some priority items that are desired but not currently included in the budget. Those include: 1) the funding of an Economic Development Coordinator position, 2) administrative staff support for the IT and Public Works departments, 3) funding for a Climate Action Plan and Facilities Master Plan, 4) restoration of additional library hours, 5) funding for retiree medical payments (will use PARS Section 115 Trust funds), 6) the purchase of replacement fire apparatus (postponed pending receipt of development impact fee funding), and 7) funding for the vacant Public Information Officer positions in the City Manager’s Office.
Adding the highest priority positions of the Economic Development Coordinator and administrative staff support for the IT and Public Works Departments would add $300,000 to the deficit. These positions are critical to economic development and increased business outreach, and to provide key administrative support for department operations. It is staff’s recommendation that these items be included in the final adopted budget. However, this reinforces that the City needs to take action in the near-term to find new ongoing and stable revenue sources that will support City operations and address the City’s structural deficit.
Citywide Budget and Long-term financial forecast
Staff is working with Baker Tilly US, LLP to incorporate the proposed biennial budget information into the long-term financial forecast and on the Citywide combined budget and will provide an updated those items at the next study session.
FISCAL IMPACT
There is no fiscal impact at this time. Adoption of the budget at a subsequent meeting will result in the appropriation of funds for use during the upcoming fiscal year.
RECOMMENDATION
Staff recommends that the City Council receive an overview presentation on the proposed FY 2023- 2024 and FY 2024-2025 Biennial Operating Budget.
Prepared by
Jackie Acosta, Finance Director
Submitted by
Jackie Acosta, Finance Director
Attachments
Description: Type:
Budget Principles Department Organizational Charts
City of Union City
Guiding Budget Principles
Resolution No. 5714-21
It is recommended that the City Council establish a set of budget principles to guide current and future policy makers and staff to ensure the long-term financial sustainability of the City. The budget principles that are listed below are recommended for consideration and reflect best practices of other local agencies throughout California and the United States. The set that is ultimately approved by Council may result in new or updated Council policy.
Budgeting Policies
1. Budget development will be guided by a long-term financial plan proposed by the City Manager and adopted by the City Council and should include considerations such as the cost of deferred maintenance and unfunded liabilities.
2. Once adopted, annual budgets within the biennial budget should be amended only when urgency requires and should identify a specific funding source for any new priorities.
Reserve Policies
3. General Fund unassigned reserves should be maintained at a minimum of 20% (or approximately 10 weeks) of annual operating expenditures and should not be planned to fall below 10% in any year in the long-range forecast.
4. Self-Insurance fund reserves will be maintained at a level that adequately indemnify risk exposure to City property, liability, health benefits and workers compensation obligations.
5. Reserve policies for equipment replacement funds (e.g., fleet, information technology, equipment) will be incorporated into the biennial budget based on projected remaining useful lives of underlying assets (based on years and usage) and, to the extent that such funds included operating costs, will also include a planned operating reserve of not less than 10% of annual operating and maintenance costs.
Fiscal Sustainability Planning
6. The City will adhere to the Guiding Budget Principles which are the core of fiscal sustainability planning to ensure the General Fund reserves stay within the reserve policies established by the City Council and the Goals and Strategies of the Strategic Plan are adhered to.
7. The City’s long-range financial forecast will be updated during the biennial budget process and at least on an annual basis, for which any such updates will be presented to the City Council.
8. To the extent that the long-range financial forecast indicates a structural gap where projected annual expenditures and net transfers exceed revenues, the City will implement specific tactics
to ensure the General Fund reserves stay within the reserve policies established by the City Council.
9. Any projected deficiency in General Fund reserves and/or any projected structural gap in a longterm financial forecast will be addressed in such a way that it is eliminated no later than the final year of the long-range financial forecast (not to exceed 10 years).
10. Service level reductions will be implemented if other strategies are not possible or cannot be achieved in a timely fashion.
11. Unanticipated annual surpluses in the General Fund may be used in the following fiscal year to fund unfunded liabilities associated with the City’s retirement obligations through CalPERS and/or other post-employment benefits such as retiree medical obligations subject to the following:
A. General Fund reserves exceed the minimum reserve policy of 20% of annual operating expenditures, and
B. Limited to 50% of the unanticipated annual surplus.
Ongoing Resources and Operations
12. Ongoing expenditures should be supported by ongoing revenues.
13. The City will seek to avoid dependence on temporary or economically elastic (volatile) revenue sources to fund mainstream municipal services.
14. Charges for services should be sufficient to recover the full cost of related services, including direct operating costs, and other indirect costs such as capital and overhead costs.
15. General Fund revenues should not be earmarked for specific services or projects in order to allow for maximum flexibility when making funding decisions.
Use of One-Time (Windfall) Resources
16. One-time revenues will not be used for ongoing expenditures on a continuous basis.
17. Unpredictable revenues, such as those derived from the sale of surplus land assets or inventory, will be treated as one-time revenue and will not be used to support ongoing expenses.
18. One-time resources (including excess reserves) may only be used to support one-time expenses such as capital investments or to replenish reserves.
Capital Projects
19. A five-year Capital Improvement Plan will be developed as part of the biennial budget process to identify capital projects based on a system of prioritization and considering funding resources that are available.
20. When capital projects are considered, all associated costs - including annual operating expenses, debt service, and any additional future costs - will be identified and incorporated into a longrange financial forecast in order to properly assess future financial impacts.
Debt Management
21. Short-term or long-term debt will not be used to support ongoing operations.
22. Capital leases may be used as a mid-term borrowing arrangement for fleet, equipment, and technology uses to the extent that the imputed interest rate in any such capital lease is competitive with existing long-term borrowing rates, considers potential maintenance cost savings for assets under the capital lease, and that such costs are incorporated into the longrange financial forecast.
23. Long-term borrowing (three years or more) for capital facilities/infrastructure will be considered as an appropriate method of financing facilities under the following conditions:
A. The facilities/infrastructure benefit more than one generation of users, B. Existing reserves or other one-time resources are not available, C. Projected debt service obligations have an identified means of repayment and/or do not impair the long-term fiscal sustainability of the City’s General Fund, D. Succeeding debt obligations will not be used to extend the original debt term unless there is a significant reduction in interest costs, and E. The debt service term does not exceed the useful life of the improvements financed.
Other Matters
24. Each enterprise fund will reflect the true cost of operation, including direct and indirect costs of services provided by the General Fund, and should be self-reliant upon fees and/or use rates paid by ratepayers.
25. Development of residential, commercial and/or industrial properties shall pay its fair share of capital improvements that are necessary to serve the development and should not be subsidized by public funds.
26. All new housing development projects shall pay for the incremental costs of providing services.
1 CITYWIDE ORGANIZATIONAL CHART
2 CITY ATTORNEY
City Attorney
Meyers Nave
3 CITY CLERK
City Clerk
Commissions Records
4 CITY MANAGER
City Manager
Administration
Community Relations
Emergency
Preparedness
Solid Waste &
Recycling
Special Projects
ACFD
(Contract Services)
City Clerk
Commissions
Records Management
5 FINANCE
Finance Director
Administration
Financial
Planning
Financial Reporting
Ad Hoc Project
Management
General Liability
Insurance
Risk
Management
Revenue
Accounts Receivable
Cashiering
Business & Animal
Licensing
Revenue Collection
Finance
Accounting
Payroll
Accounts
Payable
6 POLICE Police Chief
Police Captain
Support Services
Programs
Property &
Evidence
Records Unit
Special Services
Unit
Investigations
Unit
Personnel &
Training
Professional
Standards Unit
General
Responsibilities
Budget/Payroll
Honor Guard
Crime Scene
Investigation
Injury On Duty
Unmanned
Aerial System
Special Events
Wellness
Program
Use of Force
Team
Volunteer
Services
Facilities
Police Captain
Field Operations
Programs
Communications
Traffic
Patrol Division
SWAT/Hostage
Negotiation
Team
Information
Technology
General
Responsibilities
Communication
Services
Outreach
Services
Crisis
Management
Admin
K-9
Grant Program
Admin
PBID/Union
Landing
Fleet
Animal Control
PSO / THF
FTO
NHUSD Liaison
7 ECONOMIC &
COMMUNITY DEVELOPMENT
Economic & Community
Development
Director
Building
Permitting &
Inspection Services
Neighborhood
Preservation
Program
Planning
Current Planning
Long-range
Planning
Housing
Public Services
Affordable Housing
Development
Economic
Development
Environmental
Programs
8 PUBLIC
WORKS
Public Works
Director
Engineering
Transportation
Funding Programs
Development &
Permitting
Capital
Improvement
Projects (Streets,
Parks, Facilities)
Stormwater
Program
Traffic
Signalization &
Smart Cities
Initiatives
Maintenance
Grounds & Parks
Streets
Facilities
Fleet
Transit
Local bus service
Paratransit
The Flea
9 COMMUNITY
& RECREATION SERVICES
Community &
Recreation Services
Director
Recreation
Holly Center
Facility Rental
Day Camps
Licensed
Preschools
Special Events
Subsidized Care &
Scholarships
Tot Programs
Arts Programs
Ruggieri Senior
Center
Senior
Programming
Special Needs
Fee Classes
Aquatics
Volunteers
Kennedy Youth
Center
Community
Garden
Farmers’
Market
Park Permits
Banners
Tennis
Programs
Teen & Youth
Programs
Mark Green Sports
Center
Adult Sports
Fitness & Fun
Runs
Online
Registration
Sports Advisory
Committee
Sports Field
Permits
Youth Sports
Activity Guide
Youth & Family
Services
Intervention
Counseling
Case Management
Employment
Development
Community
Outreach
Homelessness
10 HUMAN
RESOURCES Human Resources
Director
Employee & Labor
Relations
Counseling
MOU Negotiations
Recruitment &
Selection
Onboarding &
Seperation
Compensation &
Benefits
Benefits
Compensation
Leave Administration
Unemployment &
Workers
Compensation
Organizational
Development
Employee Training &
Development
Employee Health,
Safety & Security
Disaster
Contingency
Planning
Employee
Assistance
Program
Workers
Compensation
Risk Management
HR Manager
11 INFORMATION
TECHNOLOGY
Information Technology Director
Infrastructure
Cyber Security
Software Services
Network & Server
Web Services
Web & Intranet
GIS
UCTV Ch 15
Client Services
Desktop
Mobile
IoT