REPORT TO COUNCIL AND SUNNYVALE FINANCING AUTHORITY
SUBJECT
Title
City Council Adoption of the Fiscal Year (FY) 2024/25 Budget, Fee Schedule and Appropriations Limit, and Sunnyvale Financing Authority Adoption of the FY 2024/25 Budget
Report
BACKGROUND
The City Manager’s FY 2024/25 Recommended Budget was provided to the City Council on May 9, 2024. It was made publicly available on the City’s website on May 10. On May 23, City Council held a budget workshop to review the Recommended Budget and twenty-year resource allocation plan in detail. On June 4, the City Council held a public hearing on the FY 2024/25 Recommended Budget, Appropriations Limit, and Fee Schedule. Notification of the hearing was also sent to those who specifically requested notice of fee increases per the provisions of California Government Code section 66016(a). On June 18, 2024, the City Council has the opportunity to adopt the FY 2024/25 Budget, Fee Schedule, and Appropriations Limit, which must be adopted by June 30 per the City Charter.
The FY 2024/25 Recommended Budget also includes the annual budget for the Sunnyvale Financing Authority, the governing body established to provide debt service. The only appropriation for the Financing Authority is the annual debt service payment for the new Civic Center bond issuance. The Sunnyvale Financing Authority Board held a public hearing for the Authority’s FY 2024/25 Budget on June 4, 2024. On June 18, 2024, the Authority also has the opportunity to adopt its FY 2024/25 Budget.
EXISTING POLICY
The California Constitution Article XIIIB requires that the City annually adopt an appropriations limit for the upcoming fiscal year.
California Government Code Section 6508 requires that any annual budget of the agency to which the delegation is made must be approved by the governing body of the Joint Powers Agency (Sunnyvale Financing Authority).
City Charter, Section 1304 requires the City Council to adopt the budget for the upcoming fiscal year on or before June 30.
Section 4.2 of the Joint Exercise of Powers Agreement Creating the Sunnyvale Finance Authority requires the adoption of a budget prior to July 1 of each year.
Council Policy 7.1.1 Fiscal -Long Range Goals and Financial Policies:
I. To make financial decisions over a twenty-year planning horizon to allow decision-makers to consider the long-range implications of short-range budgeting decisions.
7.1A.1.3 A balanced Twenty-Year Resource Allocation Plan shall be presented to the City Council annually.
7.1A.1.8 Boards and Commissions should review the annual budget as appropriate to their area of interest and make recommendations to the City Council.
7.1A.1.9 The City Council shall adopt the City Manager’s Recommended Budget, with any changes desired, by resolution before June 30th of each year.
7.1A.1.13 All competing requests for City resources should be weighed within the formal annual budget process.
7.1E.1.4 The Budget Stabilization Fund will be a minimum of 15% of projected revenues for the first two years of the twenty-year planning period. Beyond year two, the Budget Stabilization Fund will always have a balance of at least zero.
ENVIRONMENTAL REVIEW
The adoption of the City of Sunnyvale and the Sunnyvale Finance Authority’s budgets and the City’s FY 2024/25 Appropriations Limit are a fiscal activity that does not require review under the Environmental Quality Act (CEQA Guidelines, Section 15378(b)(4)).
The adoption by the City’s FY 2024/25 Fee Schedule is exempt from the California Environmental Quality Act pursuant to Public Resources Code Section 21080(b)(8), because the fees, rates and charges are for the purposes of (1) meeting operating expenses, including employee wage rates and fringe benefits; (2) purchasing or leasing supplies, equipment or materials; (3) meeting financial reserve needs and requirements; (4) obtaining funds for capital projects, necessary to maintain service within the existing service areas; and/or (5) obtaining funds necessary to maintain intra-city transfers.
DISCUSSION
Three actions are required by the City Council and one action is required by the Sunnyvale Financing Authority.
First, the Council must consider and take action on the proposed fee changes. The proposed FY 2024/25 Fee Schedule is presented as Exhibit A under Attachment 1 - FY 2024/25 Fees, Rates, and Charges Resolution.
Second, the Council must adopt the FY 2024/25 Budget by June 30, 2024. Traditionally, this has been accomplished by resolution. The Budget Resolution, including exhibits, presents the appropriations by fund, fund transfers, and reserve changes that are necessary to implement the budget as recommended in this report (Attachment 2).
Third, the Council must adopt, by resolution, the FY 2024/25 Gann Appropriations Limit. The calculations and detailed supporting information are contained in Attachment 3. A discussion regarding each of the three actions required by Council is included below.
Lastly, the Sunnyvale Financing Authority must adopt, by resolution, the FY 2024/25 Budget for Debt Service related to the new Civic Center bond issuance, which totals $7,512,675. The Budget Resolution (Attachment 4) includes the appropriation for the debt service payment.
Fees, Rates, and Charges
The current fees and charges of the City have been reviewed in accordance with Council Policy 7.1.1 (Fiscal-Long Range Goals and Financial Policies). Staff made the necessary adjustments to the proposed Fee Schedule to ensure that fees and charges are aligned with the cost to provide each service. The only exceptions are those that are legally limited, market based, or subsidized for public purpose such as the Park Dedication In-Lieu Fee - Average Fair Market fee reduced due to a recent land sale survey. Certain new fees have been added to the Fee Schedule where appropriate such as an administrative citation fine for denial of required City access for inspection sampling, and other data collection related to stormwater pollution control. Other details regarding newly added fees and the proposed fee changes are discussed in Report To Council 24-0262, presented to Council on June 4, 2024. During the June 4 public hearing, Council solicited public input. No action was taken on the proposed fees.
At the public hearing, Council directed staff to provide Golf participation totals along with an analysis of a potential infrastructure fee for every round of golf. June 1, 2023 - May 31, 2024, Golf Rounds played are as follows:
|
Golf Course |
Golf Rounds |
|
Sunken Gardens |
55,920 |
|
Sunnyvale Municipal |
79,384 |
|
Total |
135,304 |
Should Council wish to implement an infrastructure fee, a $1 fee would be added to each round of golf at both courses. The fund would be reserved in the Golf and Tennis Operating Fund for future infrastructure improvements. Staff recommends holding off on adding an infrastructure fee until the Golf Infrastructure Plan (Plan) is completed around June 2025, which will clarify overall needs of the golf courses. The Plan will help define the improvements currently planned for funding using Park Dedication Fee revenue. The FY 2024/25 Park Dedication Fund long-term financial plan has estimated placeholder funding of $121.5 million over the twenty years for anticipated improvements needed at both golf courses when the Plan is finalized.
Summary of FY 2024/25 Recommended Budget
The FY 2024/25 Recommended Budget provides for a balanced budget of approximately $731.2 million in total revenues and expenditures (including $60.5 million in reserves).
• $362.1 million for citywide operations
• $296.6 million for projects, project administration, and council service level set-aside
• $72.5 million is for other expenditures including employee benefit transfers, debt service, lease payments, and equipment
• $60.5 million Use of reserves, which factors in drawdowns and additions to reserves across funds.
The proposed Recommended Budget for FY 2024/25 is designed to support the City’s daily operations. It allocates funds for both staff and necessary supplies to ensure the City continues providing a variety of services that reflect our community’s values and the Council’s priorities.
This year’s Recommended Budget aims to adjust operations appropriately, including increasing staff to keep up with population growth, higher demand, unfunded mandates, new or enhanced services and the need to complete Study Issue, and update infrastructure and technology. The FY 2024/25 Recommended Budget includes:
• Current revenue projections from all sources
• Adjustments to the base operating budget for:
o Inflation and rising cost of goods and services
o Operating costs for new facilities and fleet
o Total employee compensation
o Citywide service level enhancements by adding 26.5 FTE across all departments
• Continued long-term planning with:
o Investment in Infrastructure
o Establishing a Service Level Set-Aside in the General Fund starting in FY 2024/25
• Positive revenue forecasts for key sources including property tax, sales tax, and transient occupancy tax.
Updates to FY 2024/25 Recommended Budget
The amounts proposed for adoption were updated after the public hearing. This is due to reconciling items, authorized position changes that occurred after the development of the Recommended Budget, project and operational budget adjustments, and to incorporate items from Budget Supplement No. 1 through 7.
FY 2023/24 budget modifications adopted after delivery of the Recommended Budget have also been included in long-term financial plans.
The most significant update to the FY 2024/25 Adopted Budget is the incorporation of a salary adjustment for Public Safety Officer Association (PSOA) and Public Safety Managers Association (PSMA) members to reflect the results of the salary survey effective July 2024. Due to timing of developing the FY 2024/25 Recommended Budget, this change was not reflected.
Budget Supplements
For the FY 2024/25 Recommended Budget, seven budget supplements were presented for Council consideration. A complete description of each budget supplement is included in Volume I of the FY 2024/25 Recommended Budget.
Budget Supplement No.1 Funding for Study Issues for the FY 2024/25 Recommended Budget contains ten items that were included in the Recommended Budget. The City Manager recommended twelve issues for study (above the line) and ten require funding. All ten items are funded from the General Fund for a total cost of $690,000. During deliberations, Council approved a motion to revise Study Issue 24-09 to study the feasibility of a pedestrian scramble at Homestead Road and Kennewick Drive instead of a “no right turn on red” light. This change is being incorporated into the study issue paper and has no fiscal impact on the study itself, although the added complexity may delay the completion of this and other study issues.
Budget Supplement No. 2 outlined potential additions or savings above what was included in the FY 2024/25 Recommended Budget. No action was required of Council; however, the City Council had further discussion during the Budget Workshop on May 23 and directed staff to include three items:
• 2B.1 Add Term Limited Librarian and supplies to support sustainability and climate education through library programs; Game Plan 2028 for a General Fund twenty-year cost of $313,738, funded by the Budget Stabilization Fund.
• 2B.2 Increase subsidy for Recreation Scholarship Program by $50,000 per year for a total twenty-year cost of $1.25M funded from the Service Level Set-Aside.
• 2B.3 Add $60,000 a year in ongoing organizational development funding for a twenty-year of $1.5M funded from the Service Level Set-Aside. As part of this action, Council also included an addition to the Neighborhood Grants Program of $10,000 per year for a twenty-year total of $250,000.
The net impact of these three items on the General Fund twenty-year plan is $3.3M and has been incorporated into the FY 2024/25 Recommended Budget.
Budget Supplement No. 3 Increase the Service Level Pertaining to City Legislative and Funding Advocacy was approved for $200,000 annually as funding for Budget Proposal OCM 2024-05 to hire a lobbyist firm to increase the City’s legislative and funding advocacy.
Budget Supplement No. 4 Purchase and Install Fixed Automatic License Plate Reader (ALPR) Devices was approved for $84,150 in the General Fund to fund Budget Proposal DPS 2024-02 for the installation of ALPR devices to enhance Public Safety and assist with criminal investigations.
Budget Supplement No. 5 Hire an Active Transportation Planner was approved for $219,525 annually from the General Fund for Budget Proposal 2024-01 to fund a permanent, full-time Active Transportation Planner.
Budget Supplement No. 6 Curb Painting Program was approved for a one-time cost of $80,000 and an ongoing annual operating cost of $192,565 to be funded by the Gas Tax Fund for Budget Proposal 2024-06 to support a citywide curb painting program.
Budget Supplement No. 7 Increase Department of Public Safety Authorized Sworn Staffing Levels was approved for a one-time cost of $150,000 and an ongoing annual operating cost of $556,274 from the General Fund for Budget Proposals 2024-03 and 2024-04 adding two Public Safety Officer positions to enhance the department’s ability to meet the City’s General Plan goals.
Budget Workshop on May 23, 2024
Staff presented an overview of the City’s FY 2024/25 Recommended Budget at the Budget Workshop. During the workshop, Council asked for information and/or clarification on several issues. These items are listed in Attachment 7, with responses or follow-up action noted as appropriate.
Reserves
One key tool the City uses in its budget are reserves. Reserves are intended for many different needs, including emergencies, holding restricted monies, or to balance out cash flow and economic volatility.
The Budget Stabilization Fund Reserve (BSF) in the General Fund serves as the General Fund’s economic volatility and cash flow reserve. The projected BSF maintains a stable position throughout the twenty-year plan. Further, the FY 2024/25 BSF achieves the policy requirement of being at a level of at least 15% of total revenues for the first two years.
City Council Reserve Policy 7.E.1 states that beyond year two, the Budget Stabilization Fund Reserve will always have a balance of at least zero and the FY 2024/25 Recommended Budget meets this requirement. The low point of the BSF is in FY 2035/36 at $22.8 million, equal to 6% of the projected resources in that year. At the end of the twenty-year plan, the Budget Stabilization Fund Reserve recovers with a balance of approximately $51.5 million.
Appropriations Limit
The appropriations limit, required by Article XIIIB of the State Constitution, places a limit on the amount of revenue that can be spent by government entities and is set on an annual basis. The purpose of the appropriations limit is to preclude state and local governments from retaining excess revenues, which are required to be redistributed back to taxpayers and schools. To date, the City has not exceeded its appropriations limit in any year. California Government Code section 7910 requires the City annually adopt an appropriations limit for the coming year. The appropriations limit is dependent upon the change in population within the jurisdiction and the change in the cost of living, as determined by the state. State law requires the Council to select one factor by which the limit is calculated. The options available are as follows:
1. Inflation Factors
a) California per capita income
b) Increase in non-residential assessed valuation due to new construction
2. Population factors
a) City population growth
b) County population growth
For FY 2024/25, the choices that lead to the more favorable appropriations limit are California per capita income and the City population growth factor, and these are the factors staff used to calculate this value.
As shown in Attachment 3, the appropriations limit for FY 2024/25 is $316,649,657. Expenditures subject to the appropriations limit exclude the Redevelopment Agency’s Successor Agency activity, enterprise and internal service activity, debt service payments, and capital outlay projects purchased with tax proceeds that have a useful life of ten years or more and a value that exceeds $100,000. Non-tax revenues, such as federal and state grants, fees for service, or revenues restricted for specific purposes are also excluded from the calculation. The City will be under the allowable appropriations limit by approximately $62.7 million for FY 2024/25, which means that the City has additional capacity allowed by law of approximately $62.7 million before the limit is reached.
FISCAL IMPACT
The City Manager’s FY 2024/25 Recommended Budget presents a balanced allocation of resources designed to advance the policy priorities set by Council. Project and operating costs have been updated to reflect the rising costs and level of effort required to provide exceptional service while continuing to meet the increasing demands of an evolving community and maintaining a sustainable financial position for the City through persistent economic uncertainty.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the NOVA Workforce Services reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
On June 4, 2024, the City Council held a public hearing on the FY 2024/25 Recommended Budget and Resource Allocation Plan, the Appropriations Limit, and the proposed Fee Schedule. Simultaneously, the Sunnyvale Financing Authority held a public hearing on the FY 2024/25 Recommended Budget. The Sunnyvale Financing Authority received input from the public. No action affecting the FY 2024/25 Recommended Budget was taken.
Boards and Commissions Budget Review
The FY 2024/25 Recommended Budget was made available to boards and commissions on May 9, 2024. Meeting minutes from the boards and commissions that held meetings to discuss the budget prior to submission of this report are included in Attachment 5. Recommendations to Council on the budget were voted on and are detailed in the minutes. Given the short timeframe available for review of the minutes by the boards and commissions, some of the minutes may be draft minutes.
ALTERNATIVES
1. City Council:
Adopt the resolutions presented as Attachment 1 (including Exhibit A), Attachment 2 (including Exhibits A through D), and Attachment 3 (including Exhibit A) that provide for the adoption of the FY 2024/25 Fee Schedule, Budget, and Appropriations Limit.
2. Sunnyvale Financing Authority:
Adopt the FY 2024/25 Budget Resolution (Sunnyvale Financing Authority) presented as Attachment 4 to this report.
3. City Council:
Adopt the resolutions specified in Alternative 1 with amendments to the FY 2024/25 Budget, FY 2024/25 Fee Schedule or revisions to the Appropriations Limit. (e.g., identifying, in the case of increases in expenditures, any corresponding decreases in expenditures, draws from reserves, or increases in revenue to ensure there is no adverse effect to the City’s financial position).
STAFF RECOMMENDATION
Recommendation
City Council:
Alternative 1: Adopt the resolutions presented as Attachment 1 (including Exhibit A), Attachment 2 (including Exhibits A through D), and Attachment 3 (including Exhibit A) to the report that provide for the adoption of the FY 2024/25 Fee Schedule, Budget, and Appropriations Limit.
Sunnyvale Financing Authority:
Alternative 2: Adopt the FY 2024/25 Budget Resolution (Sunnyvale Financing Authority) presented as Attachment 4 to this report.
Staff
Prepared by: Kurtis Mock, Acting Budget Manager
Reviewed by: Tim Kirby, Director of Finance
Reviewed by: Jaqui Guzmán, Deputy City Manager
Approved by: Kent Steffens, City Manager
ATTACHMENTS
1. FY 2024/25 Fees, Rates, and Charges Resolution, including Exhibit A - FY 2024/25 Fee Schedule
2. FY 2024/25 Budget Resolution, including:
Exhibit A - Appropriations - General Fund, Special Revenue Funds,
Enterprise Funds
Exhibit B - Appropriations - Internal Service Funds
Exhibit C - Transfers - To/From All Funds
Exhibit D - Appropriations To/Deductions From Reserves - All Funds
3. FY 2024/25 Appropriations Limit Resolution, including Exhibit A - Appropriations Limit
4. Sunnyvale Financing Authority FY 2024/25 Budget Resolution, including Exhibit A
5. Draft Boards and Commissions Meeting Minutes for the FY 2024/25 Recommended Budget
6. Revised FY 2024/25 Recommended General Fund Financial Plan
7. Responses to Council Questions from May 23, 2024, Budget Workshop
8. Revised Study Issue - DPW-24-09