REPORT TO COUNCIL AND SUNNYVALE FINANCING AUTHORITY
SUBJECT
Title
City Council Adoption of the Fiscal Year (FY) 2023/24 Budget, Fee Schedule and Appropriations Limit, and Sunnyvale Financing Authority Adoption of the FY 2023/24 Budget
Report
BACKGROUND
The City Manager’s FY 2023/24 Recommended Budget was provided to the City Council on May 2, 2023 and made publicly available on the City’s website on May 5. On May 18, City Council held a budget workshop to review the recommended budget and twenty-year resource allocation plan in detail. On June 6, the City Council held a public hearing on the FY 2023/24 Recommended Budget, the establishment of the City’s Appropriations Limit, and the Fee Schedule. Notification of the hearing was also sent to those who specifically requested notice of fee increases as per the provisions of California Government Code section 66016(a). On June 20, 2023, the City Council has the opportunity to adopt the FY 2023/24 Budget, Fee Schedule, and Appropriations Limit, which by City Charter must be adopted by June 30.
The FY 2023/24 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 2023/24 Budget on June 6, 2023. On June 20, 2023, the Authority also has the opportunity to adopt the FY 2023/24 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 20-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 20-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 2023/24 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 2023/24 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 Fee Schedule is presented as Exhibit A under Attachment 1 - FY 2023/24 Fees, Rates, and Charges Resolution.
Second, the Council must adopt the FY 2023/24 Budget by June 30, 2023. 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 2023/24 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 2023/24 Budget for Debt Service related to the new Civic Center bond issuance, which totals $7,510,425. 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 Fiscal Policy. After a detailed staff review of fees, necessary adjustments have been made 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. New fees have been added to the Fee Schedule where appropriate. Other details regarding newly added fees and the proposed fee changes are discussed in RTC No. 23-0455, which was presented to Council on June 6, 2023. During the June 6 public hearing, Council solicited public input and there was no action taken on the proposed fees.
Summary of FY 2023/24 Recommended Budget
The FY 2023/24 Recommended Budget provides for a balanced budget of approximately $608.6 million in total revenues and expenditures (including $24.5 million in contributions to reserve). Of the expenditure total, $335.2 million is for operating; $172.8 million is for projects, project administration, and council service level set-aside; and $76.1 million is for other expenditures including employee benefit transfers, debt service, Civic Center rent, and equipment. Contributions to reserves total $24.5 million citywide, which factors in drawdowns and additions to reserves across all funds.
The FY 2023/24 Recommended Budget is focused on the City’s projects budget, maintains a core level of service, and invests in key initiatives and City infrastructure with a diverse portfolio of projects in support of our community values and Council’s strategic priorities:
• Critical City Facilities
• Utility Infrastructure
• Golf Infrastructure
• Transportation
• Special Projects
• Public Safety Recruitment
This year’s Recommended Budget also shows operations largely returned to pre-pandemic levels and preserves sufficient reserves to weather a downturn or unexpected event. Furthermore, the FY 2023/24 Recommended Budget:
• Forecasts positive revenue trends for some of the City’s main sources - property tax, sales tax, and transient occupancy tax.
• Maintains project budget assumptions; over 12% inflation for projects entering construction in FY 2023/24; base of 4% annual inflation across 20-yr plan
• Includes targeted service level enhancements
• Continues long-term planning with:
o Investment in Infrastructure
o Establishing a Service Level Set-Aside in the General Fund starting in 2040/41
• Strategically uses reserves over the planning period
Additionally, as part of the normal course of budget development, some operating adjustments are included. FY 2023/24 midcycle operating changes:
• Updates operating assumptions for:
o Salaries and benefits
o Internal service charges & utility rates
• Adds $100,000 to ITD for software licensing and support for the new city hall building management system, etc.
• Adds $1.4 million per year in costs for chemicals at the water pollution control plant to mitigate algal bloom
• Incorporates the Homeless Services Program Manager into the twenty-year plan
• Adds several positions to facilitate project delivery:
o One new Civil Engineer to the Special Projects team for delivery of the Clean Water Program and Civic Center Phase II
o New Special Projects team dedicated to the delivery of parks projects funded by Park Dedication Fees
• Adds support for the City’s new permit system
Updates to FY 2023/24 Recommended Budget
Certain amounts proposed for adoption have been updated subsequent to the public hearing. This is due to reconciling items, corrections and authorized position changes that occurred after the development of the Recommended Budget. Additionally, project and operational budget adjustments to incorporate items from Budget Supplement No. 1,2,3, and 4 as well as Council direction from the Budget Workshop on May 18 to amend the FY 2023/24 Recommended Budget have been included. FY 2022/23 budget modifications adopted after delivery of the Recommended Budget have also been included in long-term financial plans.
Noteworthy updates between the FY 2023/24 Recommended and Adopted budgets:
1) Incorporation of an additional 1.8% salary adjustment for the Public Safety Officers Association (PSOA) and 1.6% for Public Safety Managers Association (PSMA) group members, and 1.6% to executive salary ranges to reflect the results of the salary survey effective July 2023. Salary survey results were greater than the budgeted 5.0% assumption in the FY 2023/24 Recommended Budget.
The impact is estimated at $890,032 in FY 2023/24 and $22.3M over twenty years.
As public safety is primarily funded through the General Fund, the General Fund experienced the greatest fiscal impact of this change. In order to maintain a positive fund balance in the Budget Stabilization Fund Reserve, assumptions on the total compensation cost for public safety personnel were adjusted. A revised FY 2023/24 Recommended General Fund financial plan is included as Attachment 5.
Budget Supplements
For the FY 2023/24 Recommended Budget, five budget supplements were presented for Council consideration. A complete description of each budget supplement is included in Volume I of the FY 2023/24 Recommended Budget. Eleven items from Budget Supplement No.1 Funding for Study Issues for the FY 2023/24 Recommended Budget were included in the Recommended Budget. The City Manager recommended thirteen issues for study (above the line), of which eleven require funding. Nine items are funded from the General Fund totaling $990,000. There are also two items to be funded by the Technology and Communication Services Internal Services Sub-Fund totaling $198,000.
Budget Supplement No. 2 outlines potential additions or savings above what is included in the FY 2023/24 Recommended Budget. No action was required of Council; however, the City Council had further discussion during the Budget Workshop on May 18 and moved to include two items: 2A.5 (820130 ‐ Routine Resurfacing of City Owned Parking Lots), which reduces the General Fund twenty-year plan by $468,953 and 2B.2 (835490 ‐ Community Events & Neighborhood Grants), which increases the twenty-year plan by $140,791. The net impact of these two items is a reduction of $328,162 and has been incorporated into the General Fund FY 2023/24 Adopted Budget.
Budget Supplement No. 3 Increase the Tree Pruning Contract to Resolve the Two-Year Backlog Over the Next Two Fiscal Years was approved at $1.2 million as funding for Budget Proposal DPW 2023-01 and has been incorporated into the General Fund FY 2023/24 Adopted Budget.
Budget Supplement No. 4 Bicycle and Pedestrian Collision Investigation Pilot Program appropriates $60,000 in the General Fund to fund Budget Proposal DPW 2023-02 to hire a consultant to implement a Bicycle and Pedestrian Collision Investigation Pilot Program.
Budget Supplement No. 5 Increase Service Levels For Neighborhood Preservation to Proactively Enforce Sunnyvale’s Short-Term Rental Ordinance was amended to a one-year pilot program costing $149,240, but the main motion as amended did not pass. Therefore, staff will continue short-term enforcement efforts within existing resources.
May 18, 2023 Budget Workshop
Staff provided a detailed presentation on the City’s FY 2023/24 Recommended Budget at the Budget Workshop. At the workshop, Council asked for information and/or clarification on several issues. These items are listed in Attachment 2, with responses or follow-up action noted as appropriate.
City Council also voted on several budget amendments directing staff to make modifications to the recommended budget as follows:
• Add $15,000 annually to Project 829620 - Downtown Association for a total annual budget of $60,000 through FY 2028/29 to enhance support for downtown marketing efforts to attract residents and visitors to Downtown Sunnyvale.
• Add $12,200 annually to the Office of the City Manager operating budget for membership to the US Conference of Mayors.
Reserves
One of the key tools the City uses in its budget are reserves. Reserves are intended for many different needs, including emergencies, holding restricted monies, or to balance cash flow and economic volatility. Some of the major funds in which the budget assumes a planned drawdown of reserves includes the General Fund, Solid Waste, Park Dedication, Capital Projects, and Infrastructure Funds.
The use of reserves in some funds is offset by addition to reserves in other funds, including Housing, Water, Wastewater, and Development Enterprise. In addition, the Golf and Tennis Operations Fund will contribute to reserves with a planned General Fund subsidy transfer of $2.1 million in FY 2023/24.
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 2023/24 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 2023/24 Recommended Budget meets this requirement. The low point of the BSF is in FY 2036/37 at $23.7 million. At the end of the General Fund 20-year plan, the Budget Stabilization Fund Reserve balance is projected at approximately $64.9 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 that 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 2023/24, staff calculated the appropriations limit using the California per capita income and the City population growth factor, which were the most favorable options for the City.
As shown in Attachment 3, the appropriations limit for FY 2023/24 is $304,855,740. 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 $92.3 million for FY 2023/24, which means that the City has additional capacity allowed by law of approximately $92.3 million before the limit is reached.
FISCAL IMPACT
The City Manager’s FY 2023/24 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 agenda on the City's official-notice bulletin board outside City Hall, at the Sunnyvale Public Library, Senior Center, Community Center 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 6, 2023, the City Council held a public hearing on the FY 2023/24 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 2023/24 Recommended Budget. The Sunnyvale Financing Authority received input from the public. No action affecting the FY 2023/24 Recommended Budget was taken.
Boards and Commissions Budget Review
The FY 2023/24 Recommended Budget was made available to boards and commissions on May 5, 2023. Meeting minutes from the boards and commissions that held meetings to discuss the budget prior to submission of this report are included in Attachment 6. 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 2023/24 Fee Schedule, Budget, and Appropriations Limit.
2. Sunnyvale Financing Authority:
Adopt the FY 2023/24 Budget Resolution (Sunnyvale Financing Authority) presented as Attachment 4 to the report.
3. City Council:
Adopt the resolutions specified in Alternative 1 with amendments to the FY 2023/24 Budget, FY 2023/24 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 2023/24 Fee Schedule, Budget, and Appropriations Limit.
Sunnyvale Financing Authority:
Alternative 2: Adopt the FY 2023/24 Budget Resolution (Sunnyvale Financing Authority) presented as Attachment 4 to the report.
Staff
Prepared by: Felicia Silva, Budget Manager
Reviewed by: Tim Kirby, Director of Finance
Reviewed by: Teri Silva, Assistant City Manager
Approved by: Kent Steffens, City Manager
ATTACHMENTS
1. FY 2023/24 Fees, Rates, and Charges Resolution, including Exhibit A - FY 2023/24 Fee Schedule
2. FY 2023/24 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 2023/24 Appropriations Limit Resolution, including Exhibit A - Appropriations Limit
4. Sunnyvale Financing Authority FY 2023/24 Budget Resolution, including Exhibit A
5. Revised FY 2023/24 Recommended General Fund Financial Plan
6. Draft Boards and Commissions Meeting Minutes for the FY 2023/24 Recommended Budget