Title:
Title
Adoption of the Fiscal Year (FY) 2019/20 Operating Budget and 2019-2024 Capital Improvement Program [Noticed 05/31/2019]
End
FileID
File ID: 2019-00519
Location
Location: Citywide
Recommendation:
Recommendation
Conduct a public hearing and upon conclusion, adopt a Resolution: 1) approving the FY2019/20 Operating Budget and 2019-2024 Capital Improvement Program (CIP); 2) adopting the General/Measure U (G/MU) Fund Uncertainty Reserve (EUR) Policy; and 3) rescinding the Measure U Financial Management Policy.
Contact: Howard Chan, City Manager, (916) 808-7488, Office of the City Manager; Dawn Holm, Director, (916) 808-5574; Daniel Choe, Interim Budget Manager, (916) 808-5049, Department of Finance
Body
Presenter: Dawn Holm, Director, (916) 808-5574, Department of Finance
Attachments:
01-Description/Analysis
02-Attachment 1 Mayor/Council Budget Priority Memo
03-Attachment 2 Measure U Financial Management Policy
04-Attachment 3 Resolution
05-Exhibit A Budget Changes
06-Exhibit B FTE Changes
07-Exhibit C Measure U Programming
08-Exhibit D FY2019/20 Approved Budget
09-Exhibit E 2019-2024 Approved CIP
10-Exhibit F G/MU EUR Policy
Description/Analysis
Issue Detail: The City Charter, Article IX, Section 111 requires the City Manager to deliver budget recommendations no later than 60 days prior to the start of the new fiscal year. The City Manager’s FY2019/20 Proposed Budget (Budget) was released on April 24, 2019. As part of the budget presentations, changes to the Budget necessary to implement programs and services for the fiscal year were identified. The following summarizes the changes recommended by the City Manager, presented through June 4, 2019:
• $95,000 in funding for the Community Against Sexual Harm was changed to a one-time commitment for FY2019/20 (May 21, 2019, Item 19);
• $367,000 in one-time funding for the 4th R Program was eliminated as the California Department of Education will be able to transfer all affected children to the childcare subsidies provided by Child Action, Inc. (May 21, 2019, Item 04);
• $157,000 and 1.0 full-time equivalent (FTE) position (Program Specialist) was added to the City Manager’s Office, Economic Development Division to establish the City’s Film Office (May 21, 2019, Item 03);
• The Utilities CIP Program was amended to reflect the recent issuance of the 2019 Wastewater Revenue Bonds (May 21, 2019, Item 02); and
• The Budget Resolution (Section 17.3) was amended to address the Shared-Rideable Implementation Project (K15195100) (June 4, 2019, Item 02).
The following table reflects the Budget with the City Manager’s changes as outlined above (details on the changes are provided below):
The FY2019/20 Budget is balanced and provides $50.6 million in one-time resources. These resources are available to address Council priorities on a one-time basis. Unspent resources will be available in the following fiscal year.
On May 30, 2019, Mayor Steinberg released a Memorandum (Memo) on Inclusive Economic Development Framework and Mayor/Council Budget Priorities (Attachment 1). This Memo outlines the City’s Framework for Inclusive Economic Development, with a plan for meaningful investment in the following categories:
• Underserved Neighborhoods and Commercial Corridors
• Affordable Housing
• Economic Development (Employment Incentives, Small Businesses, etc.)
• Youth/Community Empowerment Grants (Three-Year Grant Program)
• Arts and Cultural Economy
• Active Transportation Safety Improvements
On June 4, 2019, the Budget and Audit Committee discussed and approved a motion to include the funding recommended in the Memo and forward to Council on June 11, 2019 for adoption. The Budget as proposed includes over $12 million toward these efforts and the budget priorities as recommended by the Mayor/Council will add almost another $16 million plus a capital investment plan that could provide additional resources.
Annual Commitment of $40 million for Five-Years for Inclusive Economic Development: The FY2019/20 Budget as amended includes $55.5 million toward this commitment. As explained during the June 4, 2019 Budget and Audit Committee meeting, $15.5 million in excess of the annual commitment will be applied to the FY2020/21 commitment. The City Manager will work with the Mayor/Council annually over the next four years to identify opportunities for funding this initiative. The $40 million will continue to include the ongoing spending in the City Manager’s Budget, as well as any annual debt service payments (estimated at $7.5 million) for the Capital Investment Program that may be considered and approved by Council in the future. Pursuant to the Memo the $200 million commitment over the five-years for job creation, youth and workforce development, affordable housing, and underserved neighborhoods is essential for our City to exponentially grow our tax base to support future investments in core city services.
Fiscal Health Principles: On February 5, 2019, the Council directed the City Manager to amend the EUR Policy to include Measure U resources in determining the amount to be set aside in reserves and to develop a strategy to add to the EUR to meet the higher target. Based on Council’s direction the forecast includes fund balance budgeted at 0.5% of G/MU Fund expenditures or $2.9 million in FY2019/20 which will be transferred to the EUR if not needed during the budget year. Based on the forecast above, this strategy would put the EUR at just above 10%, the currently adopted minimum for the reserve, at the end of FY2023/24.
The Budget Resolution (Attachment 3) has been amended to address the fiscal health principles included in the Memo:
• Limit Debt Services at 6% of General Fund Revenue
• Economic Uncertainty Reserve 10% of Total General Fund including Measure U
• Pass General Fund Stress Test before Bonding
Funding for the EUR was also identified in the Memo and has been addressed in the revised G/MU EUR Policy (Exhibit F). The other two items have been included as action items in the Resolution.
While the forecast continues to reflect strong General Fund revenue growth and we will operate with a structurally balanced budget this fiscal year, the five-year outlook continues to show that the City is facing increasing pressures going forward that must be addressed in future years. These challenges include the following:
• CalPERS pension costs will increase by $39 million, a 42% increase over the next five years;
• Workers’ compensation insurance and self-insurance premiums costs in FY2019/20 increased by $1.7 million and $3.3 million respectively and are projected to grow substantially;
• Rising OPEB costs as more employees transition into retirement; and
• Funding for the City’s libraries in FY2019/20 increased by $750,000 and $5.2 million over the term of the forecast to maintain existing services.
It is important to note that the City’s labor agreement with the Sacramento Area Firefighters (Local 522) expired in December 2018 and negotiations are ongoing. The labor contracts with eight recognized employee organizations (REOs) will expire on June 21, 2019 and one other agreement will expire on December 22, 2019. The forecast does not include future labor growth related to these negotiations.
In January 2019, the City Council approved a contract between the Office of the City Auditor and Management Partners to conduct a Citywide Innovation and Efficiency Assessment. The purpose of the assessment is to review citywide operations to identify improvements in efficiency, economy, and customer service levels. The contract also includes a long-term financial forecast and best practices research and survey. Management Partners has conducted meetings with department directors and staff. A final report is expected to be released in the summer of 2019. The results of this work will be used to inform future budget discussions.
Detailed information is included in the Budget Resolution (Attachment 3), Summary of Budget Changes (Exhibit A), Summary of FTE (Exhibit B) and the G/MU EUR Policy (Exhibit F).
Policy Considerations: The Budget is balanced and reflects the Council’s adopted Budget Policies and Guidelines, with a focus on long-term sustainability. The Budget includes significant resources for Council priorities related to inclusive economic development, youth, public safety, homelessness and essential core services. However, even with the benefits these investments provide, the City as a matter of policy must remain focused on efforts to right-size the organization to achieve budget sustainability (ongoing expenditures below ongoing revenues) over the long-term.
Economic Impacts: Not applicable.
Environmental Considerations:
California Environmental Quality Act (CEQA): This report concerns administrative activities that will not have a significant effect on the environment and that do not constitute a “project” as defined by the CEQA Guidelines Sections 15061(b)(3); 15378(b)(2) and are not subject to the provisions of CEQA (CEQA Guidelines15060(c)(2)(3)). CEQA review for any project, which utilizes funds allocated under the FY2019/20 CIP budget, has been or will be performed in conjunction with planning, design, and approval of each specific project as appropriate.
Sustainability: None.
Commission/Committee Action:
Budget and Audit Committee (Committee): The Committee discussed the Budget on April 30, 2019 and again on June 4, 2019. At the June meeting the Committee forwarded the Budget with recommended changes to the City Council for adoption.
Planning and Design Commission (Commission): Sacramento City Code Section 17.912.010 requires the Commission review the City’s five-year CIP for consistency with the City’s General Plan and to report its findings to the City Council. The Commission met on May 9, 2019 and determined that the 2019-2024 CIP is consistent with the General Plan.
Rationale for Recommendation: With prudent management of expenditures and robust revenue growth in key revenue sources, this budget is balanced. The G/MU Fund initiatives included in the Budget are focused on the strategic use of one-time resources to address critical capital needs and one-time equipment purchases as well as the addition of resources reflecting Council identified priorities outlined above. Initiatives included in this Budget funded by the Enterprise Funds and Other Funds address increased regulatory requirements, preventative maintenance, and operational efficiencies.
Financial Considerations: The G/MU Fund forecast provides a multi-year view of revenues and expenditures, allowing an assessment of the fiscal consequences of both prior and current funding decisions in the context of forecasted revenues and expenditures. G/MU revenues are projected to exceed expenditures in FY2019/20; however, as discussed above increasing labor and pension costs will challenge G/MU budget sustainability over the long-term.
The following forecast has been updated to reflect the Memo as approved by the Budget and Audit Committee on June 4, 2019.
A variety of options and financial forecasts were presented and discussed during the budget hearings. The total resources reflected above are estimates and will be adjusted as necessary to carry out Council’s direction. The official G/MU Forecast based on all changes to the Proposed Budget will be reflected in the FY2019/20 Approved Budget which will be released in early fall.
Following the budget hearings, it was determined that the 2019-2024 CIP had an incorrect project number for the Roosevelt Park Baseball Lighting Renovation (L19155000) Project. As this number has already been assigned to another project, the Roosevelt Park project will be assigned a new project number (L19155500).
The City’s Enterprise and other funds are balanced. Five-year forecasts for each of the Enterprise Funds are available in the Forecast section of the Budget.
Local Business Enterprise (LBE): Not applicable.