REPORT TO COUNCIL
SUBJECT
Title
Approve Budget Modification No. 24 in the Amount of $150,000 for Advisory Services Including Polling, and Public Education Outreach Related to the Evaluation of New Revenue Strategies to Fund New and Increasing Service Demands and/or Unfunded Capital Investments, and Find that the Action is Exempt from CEQA
Report
BACKGROUND
Like many cities across the country, the City of Sunnyvale faces increasing costs to deliver projects as well as increased costs and demands for service. As these costs are projected to outpace revenue growth, and to find capacity to invest in projects and deliver the high-quality services expected from the community, new and existing revenue sources should be evaluated.
As part of a Council Study Issue (FIN 17-01), on October 3, 2017, staff presented revenue strategies at a City Council study session that identified ways to secure stable revenue sources to fund new and increasing service demands and/or unfunded capital investments. A wide variety of revenue sources were reviewed including Development Impact Fees, Franchise Fees, Transient Occupancy Tax (TOT), Utility Users Tax (UUT), Sales Tax, Business License Tax, and Real Property Transfer Tax. The discussion evaluated potential revenue increases, the sustainability of the different funding sources, the probability for success, and the varying level of approval for each revenue source (e.g., staff, City Council, voter). In consideration of the upcoming 2018 General Election, Council focused on several of the revenue sources that would require voter approval.
EXISTING POLICY
Council Policy, Chapter 7, Planning and Management, Policy B.1.1 - The City will maintain a diversified and stable revenue base, not overly dependent on any land use or external funding source.
Council Policy, Chapter 7, Planning and Management, Policy B.1.4 - When considering a new tax or revenue source or an increase in an existing tax or revenue source, the following criteria should be considered:
• Community/Voter acceptance
• Competitiveness with surrounding communities
• Efficiency of revenue collection and enforcement
• Effectiveness in generating sufficient revenues in the short and long-term to justify its establishment
• Enhancement of revenue diversity to promote stability and provide protection from downturns in business cycles
• Equity/Fairness in distribution of the revenue burden on various segments of the community
Pursuant to Sunnyvale Charter Section 1305, at any meeting after the adoption of the budget, the City Council may amend or supplement the budget by motion adopted by affirmative votes of at least four members to authorize the transfer of unused balances appropriated for one purpose to another, or to appropriate available revenue not included in the budget.
ENVIRONMENTAL REVIEW
This action is exempt from review under the California Environmental Act (CEQA) in that it involves fiscal and administrative activities that will not result in direct or indirect changes to the environment, and which do not commit the City to any specific project that may result in a potentially significant impact on the environment. (CEQA Guidelines, Section 15378(b)(4) and (b)(5).)
DISCUSSION
The objective of the study is to develop new revenue strategies that the City can implement, including a greater diversification of the City’s revenues based on locally controlled revenue sources to address unfunded or underfunded programs and projects. As the City continues to grow and evolve, the demand for services has also increased and changed. However, the growth of traditional revenue sources has not kept pace with the resources necessary to meet the service expectations of the community and to address delayed/deferred capital projects. Identification of new and the review of existing revenue sources, particularly those which can be under the sole control of the City, is paramount in maintaining the existing service level and potentially funding changing and future service and capital investment needs.
As noted in the City Manager’s FY2016/17 Recommended Budget, the City is in the process of developing and implementing many budgetary strategies to ensure the long-term fiscal health of the City. These efforts include changes to a total compensation model and assumptions to set aside limited funding to cover projected personnel cost increases, such as pensions and other post-employment benefits. In addition, efforts also include, tax and fee structure studies, enterprise fund reviews, identifying unfunded or underfunded programs and projects, establishing a pension trust, establishing community benefit programs, utilizing third-party expert investors to manage a portion of the City’s investment portfolio, and making investments in key areas (e.g., technology).
Some examples of near-term unfunded services/projects that need to be addressed, as well as needed operating expenditures and infrastructure improvements over the next 20 years, include:
• Branch Library Operating and Maintenance Costs
• Transportation Strategic Plan Projects
• Downtown Specific Plan Projects
• Sidewalk Repair
• Water, Wastewater, Stormwater Infrastructure
• Civic Center Modernization
• Fire Station Replacements/Rehabilitation
• Emergency Operations Center
Next Steps
One component of the budgetary strategy, to ensure long-term fiscal sustainability, is securing stable revenue sources and further diversity of the City’s revenue portfolio. Based on City Council feedback at the at the October 3, 2017 study session, Council wishes to explore moving forward with a general tax ballot measure, focusing on Real Property Transfer Tax, Transient Occupancy Tax, or Business License Tax. The November 2018 General Election is the next opportunity. In comparing the possible revenue sources, and the revenue potential for each, voter sentiment to support a ballot measure is still untested.
Staff is recommending that polling be done to test various options. This would be helpful to understanding what voters may support. This step will be completed in early 2018. Based on the last poll conducted by staff for the Civic Center and a Utility Users Tax ballot measure, the estimated cost for polling and developing ballot language to test is $50,000. Upon completion of the polling, staff would return to Council with the results. Based on the polling results, Council would be asked whether to proceed further with planning for the placement of a ballot measure on the November 2018 ballot.
Should Council decide to place a measure on the ballot, public education outreach could be required at an additional cost. Estimated cost of this work is $100,000 (also based on prior experience with the Utility Users Tax measure).
Staff will also evaluate, through the budget process, fees and charges that can be changed under Council or staff authority. This will include a review of existing fees, as well as look at potential new fees as appropriate. In addition, based on polling results and the fee and charges review, staff will lay out options for potential new revenues that Council may want to consider in future years.
FISCAL IMPACT
The cost associated with this study is for consultant services including polling, and public education outreach. Staff time required to research and evaluate the options and fiscal impacts will be absorbed. Budget Modification No. 24 appropriates $150,000 to an existing project (833620). Project 833620, Evaluation of New Revenue Strategies, was established for FY 2017/18 with a budget of $20,000 for consultant expertise to help guide the revenue strategy.
Budget Modification No. 24
FY 2017/18
|
General Fund |
Current |
Increase/(Decrease) |
Revised |
|
Expenditures |
|
|
|
|
833620 - Evaluation of New Revenue Strategies |
$20,000 |
$150,000 |
$170,000 |
|
|
|
|
|
|
Reserves |
|
|
|
|
Budget Stabilization Fund Reserve |
$33,945,795 |
($150,000) |
$33,795,795 |
Funding Source
This project is funded by the General Fund.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City's official-notice bulletin board outside City Hall, at the Sunnyvale Senior Center, Community Center and Department of Public Safety; and by making the agenda and report available at the Sunnyvale Public Library, the Office of the City Clerk and on the City's website.
RECOMMENDATION
Recommendation
Find that the action is exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15378 (b)(4) and (b)(5) and approve Budget Modification No. 24 in the amount of $150,000.
As the City continues to face increased costs, demands for service, and aging infrastructure, strategic and creative approaches to ensure long-term fiscal sustainability are required.
Prepared by: Brice McQueen, Senior Management Analyst
Reviewed by: Timothy J. Kirby, Director of Finance
Reviewed by: Teri Silva, Interim Assistant City Manager
Approved by: Kent Steffens, Interim City Manager