REPORT TO COUNCIL AND SUNNYVALE FINANCING AUTHORITY
SUBJECT
Title
City Council Adoption of the FY 2018/19 Budget, Fee Schedule, and Appropriations Limit and Sunnyvale Financing Authority Adoption of the FY 2018/19 Budget
Report
BACKGROUND
On May 9, 2018, the City Manager’s FY 2018/19 Recommended Budget was provided to City Council and made publicly available on the City’s website and at the Sunnyvale library. On May 25, 2018, City Council held a budget workshop to review in detail the recommended budget and twenty-year resource allocation plan. On June 12, 2018, the City Council held public hearings on the FY 2018/19 Recommended Budget, the establishment of the City’s Appropriations Limit, and the Fee Schedule. The public offered comments at this hearing. Notification of the hearing was sent to those who specifically requested notice of fee increases as per the provisions of California Government Code section 66016(a). Council must now consider the adoption of the FY 2018/19 Budget, Fee Schedule, and Appropriations Limit.
The FY 2018/19 Recommended Budget also includes the annual budget for the Sunnyvale Financing Authority, the governing body established to provide the debt service for the Sunnyvale Office Center. The only appropriation for the Financing Authority is the annual debt service payment for the Sunnyvale Office Center. The governing board of the Joint Powers Agency, the Sunnyvale Financing Authority held a public hearing on the Authority’s FY 2018/19 Budget on June 12, 2018. The Authority must now consider the adoption of the FY 2017/18 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:
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 and Sunnyvale Finance Authority’s budgets and the City’s
FY 2018/19 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 2018/19 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 by the City Council are required at tonight’s meeting, and one action is required by the Sunnyvale Financing Authority. First, the City Council must consider and take action on the proposed fee changes. The proposed Fee Schedule is presented as Exhibit A under Attachment 1 - FY 2018/19 Fees, Rates, and Charges Resolution.
Second, the City Council must adopt the FY 2018/19 Budget by June 30, 2018. 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 City Council must adopt, by resolution, the FY 2018/19 Appropriations Limit. The calculations and detailed supporting information are contained in Attachment 3. A discussion concerning each of the three actions required by Council is included below.
Lastly, the Sunnyvale Financing Authority must adopt, by resolution, the FY 2018/19 Budget for Debt Service related to the Sunnyvale Office Center, which totals $870,346. 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 the Council Fiscal Policy. After an extensive and detailed staff review of fees, necessary adjustments have been made to the proposed Fee Schedule to ensure fees and charges are aligned with the cost to provide each service. The only exceptions are those fees that are legally limited, market based, or subsidized for public purpose. Certain new fees have been added to the Fee Schedule where appropriate. Other details regarding the proposed fee changes are discussed in Report to Council No.
18-0263, presented on June 12, 2018. During the June 12 public hearing, discussion regarding the proposed increase to golf fees and fire prevention fees occurred, but no modifications to the recommended fees were made.
Summary of FY 2018/19 Recommended Budget
As published on May 9, 2018, the City Manager’s FY 2018/19 Recommended Budget includes total revenues of approximately $489.6 million. The total recommended budget for all expenditures is approximately $480.1 million. Of that total, $292.6 million is for operating; $179.2 million is for projects, project administration, and council service level set-aside; and $8.3 million is for other expenditures including debt service, lease payments, and equipment. Planned contributions to reserves total $9.5 million Citywide, which factors in drawdowns and additions to reserves across funds. The funds in which the budget assumes a planned drawdown of reserves include the General Fund, Infrastructure Renovation and Replacement Fund and the Capital Projects Fund. The use of reserves in those funds is offset by additions to reserves in other funds, including the Park Dedication, due to elevated Impact Fee revenue, and the Utility funds (i.e., Wastewater, Solid Waste, and Water) due to funds being set aside for significant capital projects scheduled over the next two to three years.
This year’s Recommended Budget includes:
• A nuanced analysis balancing the benefits of a strong economy with sound revenue growth projections to ensure the budget provides a sustainable resource base for the City’s strategic investments and services over the long term.
• Funding for public safety and maintenance of the City’s excellent response times and low crime rates.
• Additional significant investments over the twenty-year plan in public safety including an additional $19.3 million for recruitment and training, the acceleration of $1.1 million for the replacement of two fire engines, and the addition of $650,000 for the replacement of fire hoses.
• The strategic and prudent addition of staff, carefully positioned to meet targeted demands.
• The results of our initial work on the Revenue Strategy Study Issue, yielding appropriate fee adjustments and the anticipation of an additional $500,000 per year in Transient Occupancy Tax Revenue from short-term rentals.
• Funds for major transportation infrastructure projects, including the funds allocated to street and sidewalk maintenance from the Road Maintenance and Rehabilitation Act (SB1) and Measure B.
• Continued investment in the significant needs of our aging infrastructure including the recognition of $127 million in State Revolving Funds for the Sunnyvale Clean Water Program and the continued focus on the Civic Center Modernization.
• Investments in personnel-related costs to ensure we attract and retain a high-quality workforce.
• Funding for a proposed pension trust to better meet long-term pension obligations.
• Fiscal Strategies in the General Fund are still required until resolved in the fifteenth year of the plan when a significant portion of the City’s pension liability is funded.
While the FY 2018/19 Budget is focused on operations, the budget also includes significant funding toward special and capital projects. This totals $179.2 million in FY 2018/19. It is important to note that over the course of a project’s life, unspent funding is carried over from year to year. A number of projects in FY 2017/18 will continue into FY 2018/19 based on the continuation of projects between fiscal years and the actual project budget for FY 2018/19 will increase as a result. Significant projects include rehabilitation of the Fair Oaks bridge, reconfiguration of Mathilda/237/101 intersection, and additional funding for pavement and the replacement of sidewalks, curbs and gutters. A twenty-year, $189 million plan has also been budgeted for the renovation and enhancement of all the City’s 21 parks. Additionally, efforts are underway to modernize the Civic Center, rebuild the Water Pollution Control Plant and the construction of the Lakewood Branch Library and Learning Center.
Staff is proposing revisions to several line items from the amounts in the FY 2018/19 Recommended Budget for the Housing Fund and HOME Grant Fund. The City was notified of the 2018 entitlement grants (HOME) after the Recommended Budget was prepared and published. The amount of HOME funding is higher than the estimates used to prepare the Recommended Budget, therefore, allocations for a project and related administrative contracts, paid by the Housing Mitigation Sub-Fund, are proposed to be increased, as shown below, consistent with the 2018 HUD Action Plan approved by City Council on May 22, 2018 (RTC No. 18-0305). Attachment 5 includes the revision to the Housing Funds as a result of these actions. A summary is also provided in the table below:
|
Revision |
Published Recommended Budget |
Revised Budget for Adoption |
|
HOME Grant Fund (71): HOME 2018 Grant |
$310,000 |
$423,646 |
|
HOME Fund (71): Tenant Based Rental Assistance (TBRA) Program, Project 828750 |
$833,500 |
$919,735 |
|
Housing Mitigation Fund (70-100): TBRA Administrative Contract change to Operating Budget (11% of TBRA Project Budget) |
$50,000 |
$101,200 |
The FY 2018/19 Recommended Budget also contains eight budget supplements, six of which were recommended for funding by the City Manager. The City Council approved staff’s recommendation with a modification to provide additional funding for tenant-landlord and community mediation services annually for a five-year period. With this modification, the recommended Budget Supplements total approximately $4.6 million over twenty years, with approximately $707,500 in FY 2018/19. A more complete description of each budget supplement is included in Volume I of the FY 2018/19 Recommended Budget.
The FY 2018/19 Recommended General Fund budget includes a drawdown of the Budget Stabilization Fund Reserve of $11 million. After adjusting for one-time transactions, expenditures continue to outpace revenues in the near-term. The Budget Stabilization Fund is anticipated to drop to a low of $14.2 million in FY 2030/31 before revenues are anticipated to outpace expenditures. At the end of the 20-year financial plan, the Budget Stabilization Fund balance is projected at approximately $65 million. While the FY 2018/19 General Fund Budget Stabilization Fund achieves the policy requirement of being at a level of at least 15% of total revenues for the first two years, fiscal strategies in the out-years of the General Fund financial plan are required to keep the Budget Stabilization Fund above zero. City Council Policy 7.1.1, subsection E.1 states that beyond year two, the Budget Stabilization Fund will always have a balance of at least zero. Language is included in the City Council budget adoption resolution that states that City Council acknowledges that with the adoption of the Fiscal Strategies included in the General Fund Allocation Plan that the Budget Stabilization Fund will have a balance of at least zero beyond year 2 of the Plan pursuant to City Council Policy 7.1.1. Absent the adoption of the Fiscal Strategies, the Budget Stabilization Fund can potentially drop below zero before recovering within the Plan.
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 2018/19, the choices that lead to the most 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 2018/19 is $232,128,614. It should be noted that the Appropriation Limit attached has been amended from the original included in the June 12, 2018 City Council Meeting (RTC No. 18-0064) in that it includes the Housing Funds amendments included in this report. Expenditures subject to the appropriations limit exclude Redevelopment Successor Agency activity, enterprise and internal service activity, debt service payments, and capital outlay projects 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 particular purposes are also excluded from the calculation. The City will be under the allowable appropriations limit by approximately $105.6 million for FY 2018/19.
FISCAL IMPACT
The City Manager’s FY 2018/19 Recommended Budget presents a balanced allocation of resources designed to continue a high level of service, fund projects and begin to meet the increasing demands of a growing economy.
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.
Public Hearing
On June 12, 2018, the City Council held a public hearing on the FY 2018/19 Recommended Budget and Resource Allocation Plan, the Appropriations Limit, and the proposed Fee Schedule. Council took input from the public. No action affecting the FY 2018/19 Recommended Budget was taken.
On June 12, 2018, the Sunnyvale Financing Authority held a public hearing on the FY 2018/19 Recommended Budget. The Sunnyvale Financing Authority took input from the public. No action affecting the FY 2018/19 Recommended Budget was taken.
Boards and Commissions Budget Review
All the City’s boards and commissions have had the opportunity to review the FY 2018/19 Recommended Budget, which was made available to them on May 9, 2018. 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 of this report. 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 are 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 2018/19 Fee Schedule, Budget, and Appropriations Limit.
2. Sunnyvale Financing Authority:
Adopt the FY 2018/19 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 2018/19 Budget, 2018/19 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 2018/19 Fee Schedule, Budget, and Appropriations Limit.
Sunnyvale Financing Authority:
Alternative 2: Adopt the FY 2018/19 Budget Resolution (Sunnyvale Financing Authority) presented as Attachment 4 to the report.
Staff
Prepared by: Kenn Lee, Assistant Director of Finance
Reviewed by: Timothy J. Kirby, Director of Finance
Reviewed by: Teri Silva, Interim Assistant City Manager
Approved by: Kent Steffens, City Manager
ATTACHMENTS
1. FY 2018/19 Fees, Rates, and Charges Resolution, including Exhibit A. FY 2018/19 Fee Schedule
2. FY 2018/19 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 2018/19 Appropriations Limit Resolution, including Exhibit A. Appropriations Limit
4. Sunnyvale Financing Authority FY 2018/19 Budget Resolution
5. Revised FY 2018/19 Recommended Housing Funds Long-Term Financial Plans
6. Draft Board and Commission Meeting Minutes for the FY 2018/19 Recommended Budget