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HOLD PUBLIC HEARING ADOPTING THE FISCAL YEAR (FY) 2017-18 ANNUAL BUDGET; APPROVING THE 2017-2022 CAPITAL IMPROVEMENT PLAN; APPROVING THE FY 2017-18 FEE SCHEDULE; APPROVING THE FY 2017-18 CALIFORNIA CONSTITUTIONAL APPROPRIATIONS LIMIT; ADOPTING THE FY 2017-18 ANNUAL BUDGET FOR THE PARKING AUTHORITY OF THE CITY OF STOCKTON; AND ADOPTING THE FY 2017-18 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 that:
• Adopts the FY 2017-18 Annual Budget, the 2017-2022 Capital Improvement Plan, the FY 2017-18 Fee Schedule, the FY 2017-18 California Constitutional (Gann) Appropriations Limit and other administrative, financial actions.
And it is recommended that the Parking Authority of the City of Stockton (Parking Authority) approve a resolution that:
• Adopts the FY 2017-18 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 that:
• Adopts the FY 2017-18 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 Council on May 15, 2017. These documents include an annual financial plan for all City funds, the key elements of which are summarized below and described in much greater detail in the documents, which are available on the City’s website.
The FY 2017-18 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. Council held a Special Meeting on June 6, 2017, to review the budget in detail and receive public comment for consideration.
The proposed financial plans are balanced in both the short- and long-term, address Council priorities and maintain the commitment to financial sustainability. The proposed Budget released on May 15, 2017 has been increased by $750,000 for a total of $626.4 million for operations, capital, debt, transfers and internal service fund operations for all programs of the City. This represents an increase of $35.5 million from the FY 2016-17 budget primarily due to appropriations for retirement benefit costs, federal capital project grants, technology projects, and Strong Communities Initiative funding. Citywide revenues are budgeted at $605.4 million for FY 2017-18. Fund summaries and financial schedules showing prior year actuals, FY 2016-17 projections, and FY 2017-18 budget, are included for each City budget unit. The FY 2017-18 budget funds 1,691 full-time positions as detailed in the Personnel Listing.
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 2017-18 budgets.
DISCUSSION
Background
The City is poised to begin a fifth year of fiscal stewardship and discipline. In recent years, the Council balanced both its short- and long-term demands by keeping a watchful eye on the City’s long-term financial position. The Mayor and Council proactively adjusted the City’s financial components within its control and established reserves to ensure the ongoing delivery of services. The City’s fiscal stability was further enhanced by Stockton voters, who approved sales tax increases for public safety, libraries, and recreation services. Adherence to prudent financial policies required discipline in the face of internal and external need-based pressures and resulted in Stockton being ranked one of the most financially stable large cities in the United States. The City Manager’s proposed budget is balanced both in the near-term and long-term and is consistent in its commitment to long-term solvency. General Fund projected revenues net of transfers and internal charges are expected to exceed expenditures by $4.1 million in FY 2017-18.
In March 2016, the City Council adopted the General Fund - Fund Balance and Reserve Policy that describes various reserve types, funding priorities, and calculation guidelines. At the close of FY 2015-16, Council allocated the available General Fund balance to the reserve categories outlined in the policy: Priority I targets for the Working Capital and Known Contingencies, and Priority II reserve targets for risk-based contingencies. The Working Capital Reserve target is based on a percentage of total budgeted General Fund expenditures. The current Known Contingencies Reserve target is based on a list of known future expenses that require significant resources, including CalPERS pension costs, staff recruitment and retention, financial system replacement, and a permanent City Hall. The risk-based reserves are based on potential City costs related to infrastructure replacement, extreme events/disasters, legal claims, and economic and revenue volatility. At the close of FY 2015-16, the Working Capital Reserve was funded at $34 million, Known Contingencies at $31 million and $5 million was distributed among the risk-based reserves. The reserve targets are reviewed annually in accordance with the reserve policy.
Present Situation
The City Manager provided the Proposed FY 2017-18 Annual Budget, along with the Proposed 2017-2022 Capital Improvement Plan and the Proposed FY 2017-18 Fee Schedule to Council on May 15, 2017. A public study session was held on June 6, 2017, to review the budget in detail and to receive public comment. The revenue and expenditure appropriations in the budget are for all funds and include operations, capital, debt and internal transfers for all programs and support functions of the City.
Revisions to the Published Proposed FY 2017-18 Budget
During the Council’s Study Session on the proposed budget held on June 6, 2017, Council members discussed and considered the varying needs of Stockton residents. The Council indicated a strong interest in continuing efforts for blight reduction, increasing efforts to address issues related to homelessness, economic development, public safety radios, and establishing discretionary funds to be available to each Councilmember and the Mayor for projects that are significant to the residents of Stockton. Funding for Council priority spending in the amount of $750,000 has been incorporated into the General Fund Non-Departmental budget increasing total expenditures from $216.3 million to $217.1 million. A portion of the increase for Council priority spending is from the transfer of residual balances from inactive assessment and special district funds. The district funds add $300,000 to General Fund revenues of $220.8 million for a new revenue budget of $221.1 million. Following further Council direction on programming the $750,000, the appropriations will be scheduled as necessary consistent with Council direction.
FY 2017-18 Annual Budget
Citywide Budget
Citywide revenues are budgeted at $605 million, which represents an 11 percent increase from the prior year total budgeted revenue of $546 million. These increases include:
• $12 million in utility user fees
• $11 million of inter-departmental revenue for higher employee benefit rates and technology projects
• $10 million from the new Strong Communities Initiative transactions and use tax
• $9 million in additional transportation grant monies for traffic congestion mitigation, safety, and traffic flow projects
• $6 million of additional property tax, sales tax, business license and interest revenues
• $6 million of unspent bond proceeds to be used toward eligible district and utility capital or maintenance costs.
• $2 million from the State revisions to Gas Tax funding
Total City expenditures of $626 million reflect a 6 percent increase from the prior year total appropriation of $590 million, with $22 million of the $36 million increase for new positions, wage and benefit rate changes; $3 million for technology; $2 million for Strong Communities Initiative programs; and the remainder for capital projects, equipment, grants and operating needs.
The Proposed FY 2017-18 Annual Budget funds 1,691 full-time positions, an increase of 44 from the adopted FY 2016-17 Annual Budget. All but three of these new positions were added by Council action during FY 2016-17, including 26 positions for the Strong Communities Initiative and 11 positions for the Enterprise Resource Plan (ERP) project.
City staff developed this Annual Budget using certain assumptions for baseline costs, such as approved positions and salary and benefit increments in line with approved labor agreements and ongoing expenditure increases no greater than ongoing revenue increases. Staff recommends one-time expenditure increases for equipment purchases, professional services, facility repairs and capital improvements. To ensure long-term sustainability, staff continue to utilize the Long-Range Financial Plan (L-RFP) as part of budget development, an overview of which is included in the Proposed FY 2017-18 Annual Budget Introduction section.
General Fund Operating Budget
General Fund revenues are expected to increase $6 million to $221 million from $215 million projected in the prior year, primarily from sales taxes ($2.8 million), property taxes ($2.3 million), and business licenses ($0.6 million).
As part of its settlement agreement to adjust bond debt in bankruptcy, the City agreed to compensate Assured Guaranty if actual revenues rebounded more than projected in the Plan of Adjustment. Revenues returned to the level required to trigger this provision, and in FY 2017-18, the City expects to pay $2.1 million to Assured Guaranty. The costs related to this “contingent payment” provision were already incorporated into the L-RFP and will be a draw on General Fund resources of $350,000 to $1.6 million annually for the next 35 years.
The General Fund expenditure budget is $217 million and reflects a $13 million increase from what was originally adopted in FY 2016-17. This 6 percent increase is primarily related to labor rate increases that occurred after the FY 2016-17 budget was adopted, and increases to retirement costs. Other benefit costs have remained stable.
The General Fund is projected to end FY 2017-18 with a positive net annual activity of $4.1 million, when combined with FY 2016-17 projections, would result in an available fund balance of $51 million.
General Fund Reserves
In accordance with the General Fund - Reserve and Fund Balance Policy, the General Fund reserve targets have been updated for the year:
|
Category |
Amount (millions) |
|
Working Capital |
$36 |
|
Known Contingencies |
$69 |
|
Risk-Based |
$73 |
|
Total |
$178 |
With the increase in budgeted expenditures compared to prior year, the Working Capital Reserve target will also increase from $34 million to $36 million. The list of Known Contingencies remains the same. However, the reserve target increased because of CalPERS policy changes adopted last year that increase City costs. The target for the Priority II Risk-Based Reserve in the Fiscal Sustainability Fund increased by $1 million to $73 million based on updated revenues and infrastructure values.
At the end of FY 2016-17, the General Fund projected available balance of $47 million would first be used to fund the Working Capital reserve of $36 million consistent with the reserve policy. Per the Policy, the balance will partially fund the Known Contingencies. Because there is insufficient funding for the Known Contingencies, no additional funds will be provided for the Risk-Based Reserve that will remain funded at the $5 million level established at the close of FY 2015-16.
The citizens of Stockton, in demonstration of their support for their community, approved new General Fund taxes that generated revenues faster than services and staffing could be deployed. The lag between the collection of Measure A, and likely Strong Communities, tax revenues and the full ramp up of services is one of the main reasons the General Fund reserves accumulated. As the Police Department fills positions and Strong Communities projects are begun, the rate at which General Fund reserves has grown is likely to diminish.
Measure A Citizens’ Advisory Committee
On May 31, 2017, the Measure A Citizens’ Advisory Committee reviewed the Measure A FY 2017-18 Proposed Budget (page C-7) along with supporting documents. In summary, the ongoing General Fund increases contained in the Annual Budget include Marshall Plan staffing and operations for the fourth full year.
The Committee recommended the following expenses be added to the proposed budget:
1. Purchase additional radios for the Police Department to assign all sworn officers with a radio unit.
2. One additional prevention staff member within the Office of Violence Prevention to increase school outreach.
The cost to purchase 80 additional radios is $400,000. A new staff position in the Office of Violence Prevention would cost approximately $125,000 annually. These costs are not included in the City’s Long-Range Financial Plan and would result in the fund balance dropping below the 5% warning level absent offsetting reductions to other services.
Continuation of FY 2016-17 Appropriations
Pursuant to Section 1908 of the City Charter, budget appropriations lapse at the end of each fiscal year if not expended or encumbered. With this requirement in place, projects lose funding at year end unless Council takes action to continue the appropriation into a following fiscal year. A review of City Council-approved FY 2016-17 funding for one-time expenses resulted in six recommendations to continue appropriation balances in FY 2017-18:
|
Description |
Department |
Fund |
Not to Exceed Amount |
|
Homeless Care |
Non-Departmental |
General Fund |
150,000 |
|
Youth Employment |
Non-Departmental |
General Fund |
100,000 |
|
Marketing Communication Plan |
Non-Departmental |
General Fund |
25,000 |
|
City Facility Re-keying |
Public Works |
General Fund |
55,000 |
|
Community Center Gym Equipment |
Community Services |
Recreation Fund |
40,000 |
|
Pixie Woods PA System |
Community Services |
Recreation Fund |
7,000 |
|
TOTAL |
|
|
$377,000 |
2017-2022 Capital Improvement Plan (CIP)
The CIP is a five-year plan that lists the facility and infrastructure needs for the City. On April 27, 2017, the Planning Commission determined that the proposed 2017-2022 CIP conforms to the City of Stockton 2035 General Plan as required by Government Code Section 65401. The CIP includes a list of projects with a total value of $720 million. Citywide appropriations of $37 million are recommended in the FY 2017-18 Annual Budget, and of this amount, $869,000 or 2 percent represents the General Fund appropriation. Appropriations are made for only the first year of the plan, with available funding identified and confirmed. Project costs in years 2 through 5 of the CIP show an unfunded project need of $275 million. For these unfunded projects to be delivered, additional funding will need to come from cost efficiencies, one-time cost savings, additional revenues from State and Federal grant funds, or other sources.
FY 2017-18 Fee Schedule
The FY 2017-18 Fee Schedule reflects new and proposed changes to existing fees in many City departments, including a 6 percent inflationary adjustment intended to recover the cost of providing services where applicable. Proposed new and changed fees are listed in Section I of the document along with reasons for each change. Proposed new fees are presented for Administrative Services, Community Development, Economic Development, Fire, Library, Police, and Recreation & Leisure. Proposed fee changes include revisions to Medical Cannabis Business fees, Boat Launching Facility fees, Water and Stormwater fees, Parking bail schedules and Recreation & Leisure event permits, sports registration and activities.
FY 2017-18 Gann Appropriation Limit
An amendment to the California Constitution intended to limit growth in local government spending requires the establishment of a maximum limit for expenditures from general taxes. The law, generally 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 also indexed to specified growth factors approved by the Legislature and applied to revenue appropriations. The City’s FY 2017-18 Gann Limit is $339,151,468 while the appropriations the City is making subject to the Gann Limit are $185,275,310. Therefore, the City’s appropriations are well within the Constitutional appropriations limit.
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, meters and enforcement activities within the boundaries of the City of Stockton CFD 2001-1 Downtown Parking District. The FY 2017-18 Budget for the Parking Authority includes expenditure appropriations for operations, violation enforcement and debt service for parking garage facility bonds. The expectation is for expenditures to exceed revenue in FY 2017-18 with the allocation of available fund balance for parking facility and technology improvements.
Revenues derived from fees paid for parking within the district and proceeds from enforcement of parking violations are pledged to first pay the 2004 Parking Bond debt service, then to fund operations and maintenance and any other obligations of the Parking Authority. Taxes assessed on property owners and businesses in the downtown parking district are also recorded in this fund and used for parking management and operations of parking facilities and programs within the district. Revenues are expected to increase 2 percent from proceeds related to more special events, and Parking Authority expenditures of $6.9 million are less than one percent below projected FY 2016-17 expenditures.
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 tax increment funds, 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 of Stockton, San Joaquin County, the State of California (for schools), and special districts.
Successor Agency revenue of $12 million is expected to be sufficient for all debt and enforceable obligations in FY 2017-18. The total FY 2017-18 Successor Agency budget including transfers and loan repayments is $18 million. For the first time since the dissolution of the Redevelopment Agency, the City’s General Fund will not be subsidizing the Successor Agency for its administrative and operating costs. As property values increase and more tax increment becomes available, there is sufficient funding for administration and loan repayments to City funds approved by the State Department of Finance. The FY 2017-18 Budget includes approximately $1.8 million in loan repayments to the General Fund, Community Development Block Grant, and Parking Authority funds. The Ending Available Balance in the Administration and Project Area budgets will be retained by the San Joaquin County Auditor-Controller for distribution to other taxing entities including the City of Stockton.
FINANCIAL SUMMARY
The proposed FY 2017-18 Annual Budget appropriates expenditures of $626,353,982 for all City funds, $6,847,552 for the Parking Authority, and $18,496,942 for the Successor Agency.
The complete documents of the City’s Proposed FY 2017-18 Annual Budget, the Proposed 2017-2022 Capital Improvement Plan, and the Proposed FY 2017-18 Fee Schedule are available for review on the City’s website www.stocktonca.gov <http://www.stocktonca.gov> or in the City Clerk’s office.