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PUBLIC HEARING TO ADOPT THE FISCAL YEAR 2024-25 ANNUAL BUDGET; APPROVE THE 2024-2029 CAPITAL IMPROVEMENT PLAN; APPROVE THE FY 2024-25 FEE SCHEDULE; APPROVE THE FY 2024-25 CALIFORNIA CONSTITUTIONAL APPROPRIATIONS LIMIT; ADOPT THE FY 2024-25 ANNUAL BUDGET FOR THE PARKING AUTHORITY OF THE CITY OF STOCKTON; ADOPT THE FY 2024-25 ANNUAL BUDGET FOR THE SUCCESSOR AGENCY TO THE FORMER STOCKTON REDEVELOPMENT AGENCY
recommended action
RECOMMENDATION
It is recommended that the City Council approve a resolution to:
1. Adopt the Fiscal Year (FY) 2024-25 Annual Budget, the 2024-2029 Capital Improvement Plan, and the FY 2024-25 Fee Schedule,
2. Adopt the FY 2024-25 California Constitutional (Gann) Appropriations Limit,
3. Approve other administrative and financial actions.
And it is recommended that the Parking Authority of the City of Stockton (Parking Authority) approve a resolution to:
1. Adopt the FY 2024-25 Annual Budget for the Parking Authority (Exhibit 1 to the Parking Authority resolution).
And it is recommended that the Successor Agency to the former Stockton Redevelopment Agency (Successor Agency) approve a resolution to:
1. Adopt the FY 2024-25 Annual Budget for the Successor Agency to the former Stockton Redevelopment Agency (Exhibit 1 to the Successor Agency resolution).
It is further recommended that the City Manager be authorized to take appropriate and necessary actions to carry out the purpose and intent of the resolutions.
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Summary
The City Manager submitted the Proposed Annual Budget, Capital Improvement Plan, and Fee Schedule to the City Council on May 15, 2024. These documents, available on the City’s website, include a detailed annual financial plan for all City funds, the key elements of which are summarized below. The City Council held a meeting on June 5, 2024, to review the budget in detail and receive public comment for consideration.
The FY 2024-25 annual budgets for the City of Stockton Parking Authority and the Successor Agency to the former Stockton Redevelopment Agency are also provided for approval and adoption.
The proposed financial plans are balanced in both the short and long term, address Council priorities, and maintain the Council’s commitment to fiscal sustainability. Expenditures in the Proposed Budget total $955.7 million for the operations, capital, debt, and transfers for all funds and programs of the City. This amount represents an increase of $43.5 million or 4.8% from the FY 2023-24 Annual Budget. The increase in the city budget is attributable to several factors including the cost of salaries and benefits. Salaries, health, retirement, and general liability costs are up across all funds with a larger impact on the Police and Fire Department budgets. In addition to the COLAs, there were several reclassifications and market adjustments to help recruit and retain qualified employees. There also continues to be increased costs associated with maintenance and supplies from ongoing inflation.
Citywide estimated revenues are $873.5 million in the FY 2024-25 Proposed Budget for all City programs excluding transfers between City funds, which is a decrease of $2.2 million compared to the FY 2023-24 Annual Budget. The FY 2024-25 Annual Budget supports 1,773 full-time positions as detailed in the Personnel Listing found in the budget document appendix.
Staff recommends that Council conduct a public hearing to receive input regarding the proposed budgets and after the hearing, approve resolutions to enact the FY 2024-25 budgets for the City, the Parking Authority, and the Successor Agency to the former Stockton Redevelopment Agency.
DISCUSSION
Background
In February 2024, the City Council conducted a priority goal setting session to establish updated priorities for the upcoming year. The Council’s planning workshop culminated in reaffirming and refining the core strategic targets and priority goals for the upcoming year. Further updates to the City’s Long-Range Financial Plan defining available resources and long-term financial constraints combined with Council goals to set the stage for FY 2024-25 budget development. The City Manager released the FY 2024-25 Proposed Annual Budget, along with the 2024-2029 Proposed Capital Improvement Plan and the FY 2024-25 Proposed Fee Schedule to Council on May 15, 2024. The City held one public study session on June 5, 2024, to review the budget in detail and to receive public comment. The citizen advisory committees had the opportunity to examine the proposed budget as it relates to the City’s three transaction tax measures (Measures A, W, and M) at their meetings in June.
Present Situation
The City Manager’s proposed budget is balanced and remains consistent with the Council’s commitment to long-term solvency. The revenue estimates and expenditure appropriations in the budget are for all City funds. They include operations, capital, debt, and internal transfers for all programs and support functions of the City. Fund summaries and financial schedules showing the prior year’s actual results, FY 2023-24 projections, and the FY 2024-25 budget are presented for each City budgetary unit in the budget document.
In addition to the proposed budget, related items are presented for Council approval.
FY 2024-25 Annual Budget
Citywide Budget
Citywide estimated FY 2024-25 revenues are $873.5 million for all City programs, which is a decrease of $2.2 million compared to the prior year (page B-16). Total sources of $912.2 million including revenues from external sources of $681.9 million, transfers of $38.7 million, and benefit and equipment internal service fund charges of $191.6 million, support the total expenditures of $955.7 million for all funds, departments, and programs, resulting in a balanced budget. While overall sources are less than total expenditures, some funds will draw down available fund balances for special one-time projects or capital improvements.
The table below summarizes the proposed FY 2024-25 revenue budgets by department:
The proposed expenditure budget totals $955.7 million for all programs, funds, and departments of the City (page B-14), which is an increase of $43.5 million or 4.8% from the FY 2023-24 adopted budget. The increase in the city budget is attributable to several factors including the cost of salaries and benefits. Salaries, health, retirement, and general liability costs are up across all funds with a larger impact on the Police and Fire Department budgets. The cost of retirement benefits for safety employees increased to $0.84 for every $1 of employee salary. In addition to the COLAs, there were several reclassifications and market adjustments to help recruit and retain qualified employees. There also continues to be increased costs associated with maintenance and supplies from ongoing inflation
The table below summarizes the proposed FY 2024-25 Annual Budget by department:
The proposed FY 2024-25 Annual Budget funds 1,773 full-time positions. New positions include:
• 5 Fire Department positions to staff the reopening of Fire Station No. 7
• 1 Public Works position to support the Capital Improvement Program tracking and delivery
• 1 Community Development position focused on review and issuing of permits
• 8 Municipal Utilities positions supporting water systems and plant maintenance
• 5 Police Department positions working in dispatch, animal services and an American Sign Language translator
• 1 Office of Violence Prevention position for service navigation, efficient onboarding, and leveraging resources
• 4 Administrative Services positions to support budget, procurement and administration
• 3 Community Services positions focused on improving recreation and library services
• 3 Information Technology positions focused on cybersecurity and systems support
Approved mid-year positions are twelve new positions; including seven firefighters and four grant-funded positions in the Sustainability Office and one position in the Office of Performance and Data Analytics, along with the reprogramming of sixty Police Department positions.
General Fund Operating Budget
The total General Fund expenditure budget for FY 2024-25 is $328.3 million, an increase of $38.6 million from the FY 2023-24 Adopted Budget. Approximately $13.2 million in newly approved expenditures are included in the General Fund budget; some are highlighted starting on page A-5. The proposed revenues of $320.5 million are $15.1 million more than budgeted FY 2023-24 revenues.
The table below summarizes the proposed FY 2024-25 Annual Budget:
Proposed FY 2024-25 General Fund expenditures are $328.3 million. Operating expenses across the General Fund increased due to employee payroll growth in approved labor contracts, retirement rates, health insurance, general liability charges, utility rates, and maintenance costs. Salary expenses in total are 9.6% greater than the prior year with a 4% cost of living adjustment for the safety units included in the budget and 3% cost-of-living adjustment for all other employees along with various market adjustments. Employee benefits are up primarily because of general liability, health, and safety retirement rate increases. The assumption for employee vacancies was 6.3% for Police and 4.3% for all other departments, reducing the General Fund employee services budget by $11.2 million. The Debt Service category is $174,000 less than FY 2023-24 with increases to the City’s contingent payment based on revenues.
The General Fund is projected to end FY 2023-24 with an available fund balance of $73.6 million, of which $54.7 million is required by City Council Reserve policy to be put toward the working capital reserve as a proportion of the FY 2024-25 expenditures. Labor agreements for the safety units expire on June 30, 2025, and negotiations for successor contracts will start in December 2024.
General Fund Reserves
Per the General Fund - Reserve and Fund Balance Policy, updates to the General Fund reserve targets are proposed as follows:
With the increase in budgeted expenditures compared to the prior year, the Working Capital Reserve target will increase from $48.3 million to $54.7 million. The Working Capital reserve is equivalent to two months of annual operating expenses. The Known Contingency reserve target increased from the prior fiscal year ($74.0 million to $93.3 million) based on identifed needs. The target for the Priority II Risk-Based Reserve in the Fiscal Sustainability Fund increased from $80.8 million in the prior year to $89.0 million in the current year based on updates to infrastructure, liability, and revenues amounts.
At the end of FY 2023-24, the General Fund projected available balance will be sufficient and would first be assigned to the Working Capital reserve consistent with the reserve policy. Known Contingency reserves fund future pension costs, public safety facility needs, retention and recruitment efforts, and replacement of major City’s operating systems. The General Fund balance is projected to be sufficient at the end of FY 2023-24 to fund the Working Capital and the Known Contingency reserves. Under the Council reserve policy, any balance above these amounts would be split between Council Priority projects and the Risk-Based Reserves.
Citizens’ Advisory Committees
The FY 2024-25 Proposed Annual Budget is also reviewed by three citizen advisory committees. The Measure W Oversight Committee reviewed the plan for the use of Measure W proceeds by the Police and Fire Departments at its meeting on May 30, 2024. The Measure A Citizens’ Advisory Committee reviewed the FY 2024-25 Proposed Budget as it relates to Measure A revenues at their meeting on June 6, 2024.
The Strong Communities Advisory Committee reviewed the use of Measure M proceeds by the Community Services Department on June 13, 2024.
2024-2029 Capital Improvement Plan (CIP)
The CIP is a five-year plan that lists the City’s facility and infrastructure needs. On April 25, 2024, the Planning Commission determined that the proposed 2024-2029 CIP conforms to the City of Stockton 2040 General Plan as required by Government Code Section 65401. The first year of the CIP is incorporated in the FY 2024-25 Annual Budget for appropriation of $58.1 million. Below is an updated breakdown of the FY 2024-25 capital projects by funding source.
The proposed five-year Capital Improvement Plan covers fiscal years 2024-25 through 2028-29 and totals $1.4 billion. Over half of the CIP is related to Transportation projects ($779.1), Municipal Utility projects ($281.4 million) or 19%, with other Citywide projects ($398.7) comprising the remainder.
The first year of the CIP is financially constrained and reflects only projects for which funding has been identified. The second year through the fifth year of the CIP reflects the City’s unfunded facility and transportation needs in addition to projects with identified or anticipated funding.
FY 2024-25 Fee Schedule
The FY 2024-25 Fee Schedule reflects new and proposed changes to existing fees in several City departments, including a 3.4% inflationary adjustment to all fees that is intended to address the increasing cost of providing services. Section 1 of the Proposed FY 2024-25 Fee Schedule lists the proposed new and changed fees, along with reasons for each change. Proposed new fees are presented for Economic Development, Municipal Utilities, Parking, Police, and Recreation & Leisure. Proposed fee changes include Administrative Services, Economic Development, Information Technology, Municipal Utilities, and Police. Water utility rates are set to increase 3.5% based on the rate study completed in FY 2020-21. Fire, Library, Police, and Recreation & Leisure are proposing to inactivate five existing fees. Fee changes are summarized in the Proposed Fee Schedule, pages I-3 to I-13.
Parking Authority of the City of Stockton
The Parking Authority of the City of Stockton is a public body established by the City Council in Resolution 2013-12-17-1209, pursuant to the Streets and Highways Code, to oversee the parking garages, lots, on-street spaces, and enforcement activities within the boundaries of the City of Stockton CFD 2001-1 Downtown Parking District.
Revenues derived from fees paid for parking within the district and proceeds from enforcement of parking violations are pledged to first pay the 2020 Parking Bond debt service, then operations, maintenance, and any other obligations of the Authority. Taxes assessed on property owners and businesses in the downtown parking district are recorded in this fund and used for parking management and operations of parking facilities and programs within the district. In February 2020, the Parking Authority refinanced existing parking bonds to save money and to procure $3 million for capital needs. The bonds are funding much needed elevator upgrades and the replacement of the revenue control system, including ingress and egress equipment at parking garages and lots. These capital upgrades will add safety, reliability and efficiency to the facilities and allow staff to provide better services to parking customers.
Parking operations are emerging from the impacts of the COVID-19 pandemic with overall revenues expected to surpass pre COVID levels in FY 2022-23. Despite the overall improved performance, Enforcement revenues continue to be the slowest in recovery, as citations have not resumed previous payment rates. The Parking Fund received $770,000 from ARPA Funds to offset some of the losses from previous years. FY 2024-25 revenues are forecasted to continue to recover over expected year-ending proceeds. Operations and monthly proceeds will be monitored closely as parking revenues continue to stabilize and expenses are managed with rising labor and service/maintenance costs.
Successor Agency to the former Stockton Redevelopment Agency
The Successor Agency depends on the receipt of property tax increment revenues to pay obligations of the former Stockton Redevelopment Agency. To receive the tax increment, the Successor Agency submits a Recognized Obligation Payment Schedule annually to an Oversight Board and the State Department of Finance. After approval by the Oversight Board, tax increment funds are distributed to the Successor Agency by the San Joaquin County Auditor Controller’s Office. The use of tax increment is restricted, and the Successor Agency does not receive excess tax increment. Excess tax increment after payment of debt and administrative costs are distributed to other taxing entities such as the City, San Joaquin County, the State of California (for schools), and special districts.
Successor Agency revenue of $7.5 million is expected to be just short of funding debt and enforceable obligations in FY 2024-25, with a net activity of ($28,126) coming from fund balance. The total FY 2024-25 Successor Agency budget, including transfers and loan repayments, is $7.5 million. The available balance is sufficient to fund administration and the repayment of City loans approved by the State Department of Finance. The Ending Available Balance in the Successor Agency will be retained by the San Joaquin County Auditor-Controller for distribution to other taxing entities, including the City of Stockton.
Other Budget Actions
FY 2024-25 Gann Appropriation Limit
The California Constitution limits growth in local government spending and establishes a maximum limit for expenditures from general taxes. The law, commonly known as the Gann Limit, requires that the limit is recalculated and approved annually by the City Council at the beginning of each fiscal year. The Gann Limit is indexed to specified growth factors approved by the Legislature and applied to revenue appropriations. The City’s FY 2024-25 Gann Limit, as calculated is $485,043,602, and exceeds the proposed appropriations subject to the limit of $271,226,807. The City’s appropriations remain well within the Constitutional appropriations limit.
FINANCIAL SUMMARY
The proposed FY 2024-25 Annual Budget appropriates expenditures of $955,676,204 for all City funds, $7,969,422 for the Parking Authority, and $7,528,506 for the Successor Agency.
The complete documents of the City’s Proposed FY 2024-25 Annual Budget, the Proposed 2024-2029 Capital Improvement Plan, and the Proposed FY 2024-25 Fee Schedule are available for review on the City’s website <https://www.stocktonca.gov/government/budget___financial_reports/index.php> or in the City Clerk’s Office.