Title
Staff Report for City of San Leandro City Council Public Hearing and Adoption of the City Manager’s Proposed Budget for 2021-2022 and 2022-2023 for the City of San Leandro, the Successor Agency to the former Redevelopment Agency for the City of San Leandro, and the San Leandro Public Financing Authority
Staffreport
SUMMARY AND RECOMMENDATION
Staff recommends that the San Leandro City Council conduct a public hearing and take public comment regarding the City Manager’s Proposed Budget for 2021-2022 and 2022-2023. At the conclusion of the public hearing, the City Council may adopt the proposed biennial budget.
Staff recommends that the City Council approve resolutions adopting the City Manager’s Proposed Budget for 2021-2022 and 2022-2023.
1. Resolution adopting the City Manager’s Proposed Budget for the City of San Leandro for 2021-2022 and 2022-2023.
2. Resolution adopting the City Manager’s Proposed Budget for the Successor Agency to the former Redevelopment Agency for the City of San Leandro for 2021-2022 and 2022-2023.
3. Resolution adopting the City Manager’s Proposed Budget for the Public Financing Authority for the City of San Leandro for 2021-2022 and 2022-2023.
BACKGROUND
The City Council approved the last biennial budget for 2019-2020 and 2020-2021 General Fund and other funds on June 3, 2019. Approved budgets are the annual expenditure plan and resource allocation guide that ensures implementation of City Council policies and priorities. The budget implements the vision, values, and direction for the broad range of services meeting the needs of the community in accordance with City Council policy.
The City Manager’s Proposed Budget for 2021-2022 and 2022-2023 envisions both the community and the City organization moving steadily out of the COVID-19 environment. The proposed budget projects a stable revenue platform and describes a work program and expenditure plan supporting continued delivery of all regular City programs, services, and planned projects for the community. The budget also proposes enhancing services in key program areas related to human services, police oversight, economic development, resiliency, and capital projects.
Total proposed expenditure budgets for 2021-2022 and 2022-2023 are $199,900,700 and $208,923,800, with the General Fund contributing over 60% of the total. The proposed budgets fund a total of 363 full-time positions. The biennial budget continues the long-term fiscal philosophy of the City Council.
DISCUSSION
The City Manager’s Proposed Budget incorporates the estimated revenues and planned expenditures for all General Fund, Special Revenue Funds, Enterprise Funds including Internal Service Funds, and other agency funds. The resources total for all funds in the biennial budget is $198,941,400 in 2021-2022. Total proposed expenditures amount to $199,900,700.
General Fund
The General Fund finances the operations of the City that have no special or dedicated revenue sources. The fund pays for the basic operations of the City. Over one-half of the General Fund revenue is allocated to support public safety activities. Total 2021-2022 and 2022-2023 General Fund expenditures total $129,956,400 and $135,817,600, respectively. Estimated revenues in the amount of $123,102,300 and $127,338,400 finance the anticipated expenditures.
General Fund Revenue
In 2021-2022, revenues from taxes, franchises, licenses and permits, fines, fees & forfeitures, interest & property income, and charges for services are estimated to increase by 6% over 2020-2021. Of the estimated General Fund revenue of $123,102,300 in 2021-2022, 70% is generated from only three sources: sales tax, property tax, and utility users tax.
• Property Tax - Total property-related tax revenues increase by $793,000 in the proposed budget compared to the 2020-2021 projected budget. Secured Tax and Redevelopment Residual Property Tax revenues make up 62% of the City’s annual Property Tax revenue. Secured Tax revenue amounts to $14,093,000 in 2021-2022, while Redevelopment Residual Tax amounts to $2,584,000. Property Tax is the City’s second largest revenue source and represents 22% of total General Fund revenue.
• Sales/Transaction Taxes - Sales/Transaction Tax revenues increase by $4,203,000 compared to the 2020-2021 projected budget. The budget for 2020-2021 reflected adverse impacts from COVID-19 affecting taxable transactions. The original budget of $38,986,000 was later increased to $44,438,000 following the mid-year budget review. Avenue Insights, the City’s sales tax advisor, projects the City will receive $48,641,000 in 2021-2022. This amount includes Measure HH amounts of $13,000,000. The favorable report on the recovery in taxable transactions is critical as Sales and Transaction Taxes are the City’s largest revenue sources and makes up 40% of the General Fund revenue.
• Utility Users Tax (UUT) - Total UUT revenues increase by $330,000 in the proposed budget compared to the 2020-2021 projected budget. The 2021-2022 budget is estimated at $10,672,000. Natural gas and electric UUT revenues represent about 73% of the total UUT revenues. UUT is not expected to increase significantly in future years due to the use of renewal energy and increased competition in the telecommunication market (e.g., cable TV and wired and wireless telecommunications).
• Real Property Transfer Tax (RPTT) - Property Transfer Tax revenues increase by $2,000,000 compared to the 2020-2021 projected budget. Ballot Measure VV was approved by City voters in November 2020. The measure authorizes increasing the Transfer tax rate from $6 per $1,000 in valuation to $11. The projected 2020-2021 budget was increased by $3,200,000 at mid-year and the proposed budget adds an additional increase of $2,000,000 in the first full year of Measure VV funding. RPTT revenues are estimated at $9,000,000.
• Business Licenses Tax - Business License Tax revenues decrease by $570,000 compared to the projected 2020-2021 budget. The proposed budget of $5,830,000 primarily arises from the closing of one parking operator business (primarily serving long-term parking at the Oakland International Airport). The business was the significant taxpayer in the parking lot classification arising from Measure OO.
General Fund Expenditures
Operating expenditures are projected to increase by 8% in 2021-2022 and 5% in 2022-2023. Employee salaries and benefits are the largest line-item expenditures in the General Fund. The Alameda County Fire Department contract services and equipment account for 20% of the General Fund expenditures.
General Fund salaries and benefits are estimated at $63,020,600 for 2021-2022. Total personnel costs are expected to be significantly higher than the 2020-2021 projected budget. Impacts of COVID-19 pandemic led to both full-time and part-time positions remaining vacant in the current fiscal year. This extraordinary level of savings is not projected in the proposed budget. Personnel costs represent 48% of the General Fund budget. As a service organization, the City’s core expenditures are personnel related.
In May 2021, the City received $9,300,000 in Fiscal Recovery Funds from the U.S. Treasury. This amount represents the first half of the $18,600,000 Federal funding allocated to the City. Based on the guidelines issued by the U.S. Treasury, the City calculated its lost revenues for the period ended December 31, 2020. The amount is estimated at $6,735,000.
Consistent with the guidelines, the budget proposes to use the recovered revenues to support government services in fiscal year 2021-2022 covering programs from infrastructure maintenance, human services, library services, recycling program, to park and street maintenance. Please note that funds cannot be used to restore reserves or fund pension liabilities. As the City continues to review the guidelines and develop the expenditure plan, the 2021-2023 budget may be amended to incorporate the use of Fiscal Recovery Funds for other important services and programs.
Department Requested Service Enhancements
Limited improvements and expansion of City operations and services are proposed to promote department effectiveness and resolve deficiencies in existing service delivery. Proposed new and reclassified General Fund positions include:
• College Intern (City Manager’s Office)-administrative support.
• Administrative Assistant III (City Manager’s Office)-City Clerk Public Records Act support.
• Planner (Community Development)- two-year limited duration, plan check support.
• Street Maintenance Worker (2, Public Works)-two-year limited duration, paving crew addition.
• Administrative Assistant III (Public Works)-administrative support - upgraded from an Administrative Assistant II position.
• Project Manager (Human Services)-mental health/homelessness program support
Two Tree Trimmer II positions for Public Works were frozen and the work will be covered by contract services as part of a two-year pilot program. The change in service delivery will provide the City an opportunity to evaluate operational efficiency. The Street Maintenance Worker and Project Manager position are also listed below in the Service Enhancements Reflecting City Council Goals section.
Other key proposed General Fund service enhancements in 2021-2022 include:
• City Manager’s Office-community survey ($55,000).
• Human Resources-executive recruitments ($55,000), classification and compensation study ($75,000), and City Hall building security ($65,000).
• Community Development-planning and code compliance services ($100,000).
• Public Works-debris/trash removal services through Code Compliance ($75,000), tree trimming ($354,000), turf maintenance ($94,000), and recycling software ($55,000).
• Recreation & Human Services-homelessness needs gap assessment ($54,000).
• Library-circulation materials ($183,500).
Key Expenditures and Assumptions
Salary Adjustments
The budget forecasts salary adjustments based on existing labor for all labor groups. Salaries and benefits for periods in 2021-2022 and 2022-2023 outside existing Memorandums of Understanding (MOUs) are adjusted by 2%.
Medical Insurance
Medical and dental insurance costs include estimated increases. The budget and the multi-year forecast include annual 4% rate increases.
Retirement Plan Costs (CalPERS)
The City contracts with CalPERS to administer its pension plans. Pension costs are made up of two parts including normal cost and unfunded liability amortization. Normal cost represents service credits earned by active employees in the current year and is calculated as a percentage of payroll. Based on the 2019 actuarial valuation reports provided by CalPERS, the normal cost rates for Miscellaneous and Safety plans are expected to remain close to the 2020-2021 rates. While benefits remain unchanged, pension contributions are expected to increase due to prior year portfolio losses and changes in actuarial assumptions. Pension costs are projected to increase by 9% in 2021-2022 estimated at approximately $21,600,000 for all funds. Please note that the unfunded pension liability includes costs for firefighters who separated from the City when fire services were contracted out.
Over many years, the City has taken proactive steps to buy down its unfunded liabilities. The Finance Committee has been evaluating funding strategies for pension liabilities as the City’s Other Post-Employment Benefits (OPEB) liability is adequately funded. The City Council directed staff to establish a pension trust to mitigate rising pension costs and the proposed budget reflects resource allocation for a $5,000,000 pension reserve.
Fire Contract
The 2021-2022 proposed budget for the fire services contract with the Alameda County Fire Department amounts to $26,009,000 and this amount is expected to increase to $26,969,000 in 2022-2023. Estimated year-end savings are included in the budget resulting in slightly lower amounts. The contract provides both emergency and non-emergency fire services in the City. The 2020-2021 projected budget for contract services amounts to $25,578,000 before estimated savings.
Transfers Out
Transfers out of $6,660,800 in 2021-2022 and $13,739,500 in 2022-2023 include General Fund contributions to Capital Improvement Program projects, the Business Improvement District, the Gas Tax Fund, Self-Insurance Fund, and the Information Technology Fund.
Service Enhancements Reflecting City Council Goals
City program and service level enhancements have been proposed consistent with the City Council goals and priorities. The proposals include certain recommendations from the Community Advisory Budget Task Force that was formed in late 2020. Enhancements cover a wide range of programs from mental health services, a homeless navigation center, police oversight, street and road maintenance/CIP projects, a financial system upgrade, economic development efforts, park and building maintenance studies, and investments in community resiliency.
In addition to the funds reallocated from the Police Department at last year’s budget adoption, Fiscal Recovery Funds and General Fund reserves are used for one-time costs and investments. These investments will be beneficial to the City in the long run in enhancing services and building infrastructure. Resource allocations are detailed in the attachment. One-time funding sources include $1,700,000 from 2020-2021 reallocated police funds, $1,200,000 from the General Fund Community Impact Reserve, and $5,700,000 from the General Fund Undesignated Reserve.
The budget proposes to use $6,735,000 in Fiscal Recovery Funds to support existing services and certain service enhancements described in the attachment such as the Project Manager position for human services. As staff continues to develop the expenditure plan, Fiscal Recovery Funds may be used for other eligible programs. Therefore, the City can preserve General Fund resources for priorities that are not eligible for Federal and state funding.
Please note that $150,000 is budgeted for a police cultural study in the Asset Forfeiture Fund and $200,000 is budgeted for a financial system upgrade in the IT Fund. These Non-General Fund items are budgeted in 2021-2022, and they are not listed in the attachment.
Special Revenue Fund
Special Revenue Funds are used to account for revenue derived from specific taxes from other revenue sources that are restricted by law or administrative action to expenditures for specific purposes. Special revenue funds have either a restriction on their use or special reporting requirements, such as funds received related to AB 1600 development impact fees.
Enterprise and Internal Service Funds
Four Enterprise Funds make up the City’s business type operations. The Water Pollution Control Plant Fund, Environmental Services Fund, Shoreline Enterprise Fund, and the Storm Water Fund are City municipal operations designed to fully recover costs through user fees. Internal Service Funds also operate as business activities, exclusively supporting the City’s internal operations. Facilities Maintenance, Information Technology, Insurance Services, and Equipment Maintenance make up these funds.
The Storm Water Enterprise Fund is the only enterprise fund projected to face a negative fund balance (-$1,940,800). For the Fund to remain self-sufficient over the long-term, it will require new voter-approved funding or continued subsidy from the General Fund. The Shoreline Fund has a positive fund balance, but it must be monitored closely due to $6,500,000 in debt owed to the General Fund. Deferring principal repayments on the Shoreline Fund’s debt to the General Fund has been a balancing strategy since 2012-2013. However, loan principal payments were reinstated in 2017-2018 and are included in the proposed budget.
Significant Shoreline Fund proposed changes in 2021-2022 relate to golf course operations and include:
• Golf Course-management fee ($150,000), operating expenses ($1,788,400), and driving range and clubhouse improvements ($350,000)
Capital Improvement Program
The Capital Improvement Project (CIP) program represents the spending plan for infrastructure improvements and other specific large-scale capital purchases. Projects include major street and park improvements, building construction, and significant facility maintenance or upgrades.
The total CIP program in the biennial budget consists of $20,717,900 in 2021-2022 and $23,834,200 in 2022-2023. These amounts include miscellaneous department projects. General Fund CIP commitments total approximately $6,000,000 in 2021-2022 and $13,000,000 in 2022-2023. The CIP plan significantly contributes to the total budget and to the community. It is important to note that the budget does not include every project on the master list, but only projects currently underway.
City Reserve Policy
The proposed City Reserve Policy designates funds into reserves and out of operating funds thereby strengthening fiscal stability and operational sustainability. The proposed is included as attachment 2. The policy outlines the Reserve for Economic Uncertainty, the Major Emergency Reserve, and the Undesignated Fund balance.
ATTACHMENT
• Attachment 1 - Service Enhancements Reflecting City Council Goals
• Attachment 2 - Proposed City Reserve Policy
• Attachment 3 - City Manager’s Proposed Budget for 2021-2022 and 2022-2023
PREPARED BY
Susan Hsieh, Finance Director