title
PUBLIC HEARING TO ADOPT THE FISCAL YEAR (FY) 2018-19 ANNUAL BUDGET; APPROVE THE 2018-2023 CAPITAL IMPROVEMENT PLAN; APPROVE THE FY 2018-19 FEE SCHEDULE; APPROVE THE FY 2018-19 CALIFORNIA CONSTITUTIONAL APPROPRIATIONS LIMIT; APPROVE INTERFUND LOANS; ADOPT THE FY 2018-19 ANNUAL BUDGET FOR THE PARKING AUTHORITY OF THE CITY OF STOCKTON; AND ADOPT THE FY 2018-19 ANNUAL BUDGET FOR THE SUCCESSOR AGENCY TO THE FORMER STOCKTON REDEVELOPMENT AGENCY
recommended action
RECOMMENDATION
It is recommended that the City Council approve two resolutions that:
1. Adopt the Fiscal Year (FY) 2018-19 Annual Budget, the 2018-2023 Capital Improvement Plan, the FY 2018-19 Fee Schedule, the FY 2018-19 California Constitutional (Gann) Appropriations Limit and other administrative, financial actions.
2. Approve two interfund loans including a loan in the amount of $8,915,000 from the Workers’ Compensation Internal Service Fund to the Parking Authority and a loan in the amount of $3,482,423 from the Workers’ Compensation Internal Service Fund to the Fleet Internal Service Fund with associate lease documents.
And it is recommended that the Stockton Public Finance Authority approve a resolution that:
1. Authorize a lease in the amount of $12,397,422.39 with the City of Stockton in connection with the refinancing of the Stewart-Eberhardt Building (including adjacent parking structure) and 2007, 2015, and 2017 Fire Truck Leases and approves related assignment agreement and subleases.
And it is recommended that the Parking Authority of the City of Stockton (Parking Authority) approve two resolutions that:
1. Adopt the FY 2018-19 Annual Budget for the Parking Authority (Exhibit 1 to the Parking Authority resolution).
2. Approve an interfund loan in the amount of $8,915,000 from the Workers’ Compensation Internal Service Fund to the Parking Authority.
And it is recommended that the Successor Agency to the former Stockton Redevelopment Agency (Successor Agency) approve a resolution that:
1. Adopt the FY 2018-19 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, 2018. 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 City Council held a Special Meeting on May 23, 2018, to review the budget in detail and receive public comment.
The FY 2018-19 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 Council’s commitment to financial sustainability. The Proposed Budget totals $709.4 million for the operations, capital, debt, transfers and internal service fund operations for all programs of the City. This amount represents an increase of $83.1 million from the FY 2017-18 Annual Budget. The largest elements of the increase are operations cost increases in programs funded by the voter-approved Strong Communities initiative, a $35.1 million increase in capital purchases for projects and equipment, primarily funded through an infusion of roadway and transportation funding from federal, state and local governments, and the initial phase of the wastewater treatment plant modifications project. Approximately $34.9 million of the increase can be attributed to the refunding of debt that will result in close to $2.0 million in savings. Interfund loans with related lease documents are included for approval action by the City, the Stockton Public Finance Authority and the Parking Authority to complete the proposed refunding.
Citywide estimated revenues are budgeted at $630.9 million for FY 2018-19 excluding transfers between City funds. With transfers between City Funds, total sources of funding for the City are $678.5 million. The balance of funding for the FY 2018-19 expenditures ($30.9 million) is from available balances in the various City Funds primarily for capital project expenses. The FY 2018-19 budget supports 1,705 full-time positions as detailed in the Personnel Listing found in the budget document.
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 2018-19 budgets.
DISCUSSION
Background
The City is poised to begin the sixth year of fiscal stewardship and discipline established upon resolution of the bankruptcy process. In recent years, the Council has balanced its short- and long-term demands by keeping a watchful eye on the City’s long-term financial position. The Mayor and Council continue to proactively adjust the City’s finances as needed and establish reserves to ensure the ongoing delivery of services. Stockton’s voters greatly enhanced the City’s fiscal stability by approving sales tax increases for public safety, libraries, and recreation services. The City’s adherence to prudent financial policies required discipline in the face of internal and external need-based pressures and has resulted in Stockton traveling from bankruptcy to being ranked one of the most financially stable large cities in the United States.
The City Council held a workshop on January 29, 2018, to establish priorities for the year. The priorities and targets developed by the City Council informed the development of the FY 2018-19 Proposed Annual Budget. The City Council also conducted a special meeting on May 1, 2018, to review updates to the City’s Long-Range Financial Plan (L-RFP). This update of available resources and long-term financial constraints set the stage for the FY 2018-19 budget discussions. The City Manager provided the FY 2018-19 Proposed Annual Budget, along with the 2018-2023 Proposed Capital Improvement Plan and the FY 2018-19 Proposed Fee Schedule to Council on May 15, 2018. Council held a public study session on May 23, 2018, to review the budget in detail and to receive public comment.
Present Situation
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 approximately $9.0 million in FY 2018-19. The revenue estimates 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. Fund summaries and financial schedules showing prior year actual results, FY 2017-18 projections, and FY 2018-19 budget, are included for each City budget unit in the budget document.
In addition to the proposed budget, a number of related items are presented for Council approval.
FY 2018-19 Annual Budget
Citywide Budget
Citywide revenues are budgeted at $630.9 million, which represents a 4.2 percent increase from the prior year total budgeted revenue of $605.4 million. The primary components of this increase include:
• $5.8 million in increased tax revenues
• $5.6 million in increased street and capital project funding
• $4.9 million in increased utility fees
• $3.9 million for development and fire permits, fees and inspections
Total City expenditures of $709.4 million reflect a 13.3 percent increase from the prior year total appropriation of $626.4 million. The components of the increase are $35.9 million more for operations, $35.1 million in capital purchases for projects and equipment, and $12.1 million for debt service.
The proposed FY 2018-19 Annual Budget funds 1,705 full-time positions, an increase of 14 positions compared to the adopted FY 2017-18 Annual Budget. The large majority of the position increases were in two non-General Fund areas: Development Services (to deal with a large increase in development activity in the City), and in the Street Maintenance and Gas Tax Funds (to deliver the capital projects associated with increased funding).
This Annual Budget was developed 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 expenditures 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 2018-19 Annual Budget General Fund section.
General Fund Operating Budget
General Fund revenues are expected to increase by $8.5 million (4 percent) from the FY 2017-18 Adopted Budget and $4.6 million from the current projected year-end budget (2 percent) to $229.6 million. The increases from the FY 2017-18 Adopted Budget primarily reflect growth from property taxes ($2.0 million), sales taxes ($1.5 million) utility taxes ($0.9 million), and fire contracts ($0.3 million).
As part of its bankruptcy settlement agreement, 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 2018-19, the City expects to pay $1.8 million to Assured Guaranty. The costs related to this “contingent payment” provision were already incorporated into the L-RFP and are estimated to be a draw on General Fund resources annually for the next 34 years.
The General Fund expenditure budget is $220.6 million and reflects a $3.6 million increase from the FY 2017-18 Adopted Budget. This 1.6 percent increase is primarily related to increased CalPERS costs, parks maintenance operating costs and Animal Shelter costs.
The General Fund is projected to end FY 2018-19 with a positive net annual activity of approximately $9.0 million, when combined with FY 2017-18 projections, would result in an available fund balance of approximately $56.2 million.
General Fund Reserves
In accordance with the General Fund - Reserve and Fund Balance Policy, updates to the General Fund reserve targets are proposed as follows:
|
Category |
Amount (millions) |
|
Working Capital |
$36.7 |
|
Known Contingencies |
$59.8 |
|
Risk-Based |
$80.5 |
|
Total |
$177.0 |
With the increase in budgeted expenditures from the prior year, the Working Capital Reserve target will also increase from $36.2 million to $36.7 million. The Known Contingency reserve target has been reduced because of the City’s purchase of the Waterfront Office Towers. However, other significant infrastructure needs have been added to the Known Contingencies list. The target for the Priority II Risk-Based Reserve in the Fiscal Sustainability Fund increased by $70.2 million to $80.5 million based on updated revenues and infrastructure values.
At the end of FY 2018-19, the General Fund projected available balance of $56.2 million would first be used to fund the update Working Capital reserve level of $36.7 million consistent with the Council’s reserve policy. Per the policy, the balance will then be recommended to continue to fund the remainder of the Known Contingencies. With insufficient funding to meet the Known Contingencies reserve target, no additional resources will be available for the Risk-Based Reserves, leaving the $5.0 million funding level established at the close of FY 2015-16 unchanged.
Citizens’ Advisory Committees
The FY 2018-19 Proposed Annual Budget is also reviewed by three citizen oversight committees. On May 29, 2018, the Measure A Citizens’ Advisory Committee reviewed the Measure A FY 2018-19 Proposed Budget (page C-7) along with supporting documents. The committee made no recommendations regarding the Measure A budget. The Measure W Oversight Committee reviewed the plan for use of Measure W proceeds by the Police and Fire Departments as presented in the FY 2018-19 Proposed Budget at its meeting on May 30, 2018. The committee made no recommendations regarding the proposed Measure W revenues and expenditures. The Strong Communities Advisory Committee is scheduled to review the FY 2018-19 Proposed Annual Budget on June 1, 2018 after the printing of this report. Any actions or recommendations from the Strong Communities meeting will be communicated at the public hearing.
2018-2023 Capital Improvement Plan (CIP)
The CIP is a five-year plan that lists the facility and infrastructure needs for the City. On April 12, 2018, the Planning Commission determined that the proposed 2018-2023 CIP conforms to the City of Stockton 2035 General Plan as required by Government Code Section 65401. The five-year Capital Improvement Plan (CIP) covering fiscal years 2018-19 through 2022-23 totals $1.1 billion, including Municipal Utility projects of $327 million, transportation projects of $328 million, and other Citywide projects of $468 million. The first four years of the CIP are financially constrained and reflect only projects where the City has identified funding. The fifth year of the CIP reflects $568 million in facility and transportation projects that do not have identified funding sources in addition to $98.2 million in projects with identified funding. The five-year CIP is a planning document that does not appropriate funds for projects. Only the $70.3 million proposed for the first year of the CIP is appropriated from being incorporated into the City of Stockton’s FY 2018-19 Annual Budget.
FY 2018-19 Fee Schedule
The FY 2018-19 Fee Schedule reflects new and proposed changes to existing fees in many City departments, including a 2 percent inflationary adjustment to all fees intended to recover the cost of providing services. Proposed new and changed fees are listed in Section I of the document, with the proposed new amounts, along with reasons for each change. Proposed new fees are proposed for Administrative Services, Community Development, Economic Development, Library, the Municipal Utilities Department, and Parking. Proposed fee changes include revisions to Stockton Marina fees, Fire Department Plan Checks, Water and Stormwater fees, Parking bail schedules, Public Facility Fees, Library Fees, and Police Department Code Enforcement and Animal Services Fees.
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.
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.
Due to ongoing parking meter theft, the Authority experienced a drastic reduction in parking revenues in FY 2017-18. Nearly 1,400 parking meters were stolen, resulting in an approximate $700,000 shortfall in revenues. Significant capital investment is therefore included in the FY 2018-19 budget to purchase and install new parking technology. The Parking Authority will see minimal changes to the parking administrative and operating budgets in the proposed budget. FY 2018-19 revenues are budgeted to increase by approximately 8 percent, and expenses by 5 percent. A significant portion of the operating expense increase reflects the new state-mandated increase in the minimum wage.
Successor Agency to the former Stockton Redevelopment Agency
The Successor Agency depends on the receipt of property tax increment revenues to pay the 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, the San Joaquin County Auditor Controller’s Office distributes tax increment funds to the Successor Agency. The Agency’s use of tax increment is restricted by state law, and the Successor Agency does not receive excess tax increment. Excess tax increment after payment of debt and administrative costs is 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 $14.5 million is expected to be sufficient for all debt and enforceable obligations in FY 2018-19. The total FY 2018-19 Successor Agency budget, including transfers and loan repayments, is $12.9 million. As property values increase and more tax increment becomes available, there is sufficient funding for administration and loan repayments to City funds as approved by the State Department of Finance. Due to a larger amount of available revenues, the FY 2018-19 Budget includes approximately $5.1 million in loan repayments to the General Fund, the CIP, and Community Development Block Grant, and Parking Authority funds. This compares to $1.8 million in repayments in FY 2017-18. 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.
Other Budget Actions
FY 2018-19 Gann Appropriation Limit
The California Constitution requires the establishment of a maximum limit for expenditures from general taxes. This requirement, 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 also indexed to specified growth factors approved by the Legislature and applied to revenue appropriations. The City’s FY 2018-19 Gann Limit is $390,274,143 while the appropriations the City is making that are subject to the Gann Limit are $189,849,182. Therefore, the City’s appropriations remain well within the Constitutional appropriations limit.
Refunding of External Debt
The FY 2018-19 Annual Budget proposes to refund one bond and multiple capital leases through inter-fund borrowing between the Workers’ Compensation Internal Service Fund and the two City funds responsible for debt repayments. The Workers’ Compensation Fund has cash reserves for workers whose compensation claims are projected to be paid more than ten years in the future. The refunding will use some of those reserves to pay off existing debt which carry interest rates at, or in excess of 4 percent on the remaining maturities, will save approximately $2.0 million, and will not compromise the City’s ability to pay claims.
Lease Revenue Bond Refunding - Staff recommends an interfund loan in the amount of $8,915,000 between the Workers’ Compensation Internal Service Fund and the Parking Authority Fund. The 2006 Lease Revenue Refunding Bonds Series A were issued in the amount of $13,965,000 in March 2006. The Bonds were issued to finance the acquisition and construction of the Stewart-Eberhardt Building and the adjacent parking structure. The current source for repayment is from Parking Authority Fund revenues. If the interfund loan is approved, the Parking Authority would then make scheduled payments to the Workers’ Compensation Fund at a 2 percent rate consistent with the City’s historically return on investments, resulting in an annual savings of $123,000 through FY 2031-32.
Fire Vehicle Capital Leases - Staff recommends an interfund loan in the amount of $3,482,423 between the Workers’ Compensation Internal Service Fund and the Fleet Internal Service Fund to refund three capital leases.
1. On April 17, 2007, the City Council approved the execution of a Master Equipment Lease agreement with Banc of America Leasing and Capital, LLC to provide a tax-exempt funding mechanism for designated capital projects and equipment purchases. The City authorized the purchase of an aerial fire truck and water rescue vehicle for the Fire Department amounting to $1,000,000. This refunding is estimated to save over $3,800 annually through FY 2022-23.
2. On May 19, 2015, the City Council authorized the purchase of three Fire Engines and one Ladder Truck partially financed by entering a purchase lease agreement with Western Alliance Bank. This action is expected to save over $15,500 annually through FY 2025-26.
3. On February 7, 2017, the City Council authorized the purchase of two Fire Engines and one Ladder Truck, partially financed by entering into a purchase lease agreement with Western Alliance Bank. The annual savings from this refunding is estimated to be approximately $19,750 through FY 2026-27.
It is also recommended that a lease transaction with the Stockton Public Financing Authority be authorized to comply with Section 18 of Article XVI of the California State Constitution. The interfund loans and the associated documents need to be approved by the City Council, the Stockton Public Finance Authority, and the Parking Authority.
Area of Benefit Funds
State code allows for cities to adopt an area of benefit for the construction of public improvements which benefit surrounding development. City staff has reviewed the various established Areas of Benefit to confirm completion of improvements and assess balances. Some established Areas of Benefit were found that are more than 20 years old and had remaining funds after the completion of the improvements for which the fees were collected. Under the Stockton Municipal Code, these funds are eligible to be transferred to the General Fund. In FY 2018-19, a total of $1.2 million is being proposed to be transferred to the General Fund.
Public Facility Fee Loan Repayments
The Public Facilities Fee (PFF) program has been in effect in Stockton since FY 1988-89. These fees are collected at the time of issuing building permits, to mitigate impacts of new development on public facilities. The revenues are used to finance the acquisition, construction, and improvement of public facilities to provide service to new development. The PFF program allows for the transfer of funds between the PFFs. However, these transfers should be treated as interfund loans, and a pre-determined repayment plan is required.
There are several recorded interfund loans that exist in the PFF funds that do not have an established plan. The loan balances were as follows on June 30, 2017:
|
Loan From |
Loan To |
Unpaid Balance |
|
Street Improvement PFF Fund |
Community Recreation Centers Fund |
$2,906,770 |
|
Street Improvement PFF Fund |
Police Stations PFF Fund |
$1,248,169 |
|
Street Improvement PFF Fund |
Fire Stations PFF Fund |
$589,504 |
|
Library PFF Fund |
Fire Stations PFF Fund |
$1,966,866 |
|
Capital Improvement Fund |
Community Recreation Center Fund |
$991,737 |
Staff recommends establishing a payment plan to repay these loans in a realistic timeframe. While the FY 2018-19 Proposed Annual Budget includes projected annual repayments toward the loan balances, adoption of this plan is contingent on review and approval by the Development Oversight Commission (DOC) as outlined in the Settlement Agreement between the Building Association of the Delta (BIA) and the City dated July 13, 2009. After the City presents the plan to the DOC, the plan will be brought to City Council for formal adoption.
The conditions of this proposed repayment plan are outlined below in accordance with the PFF program guidelines:
1. The loans will be settled in 20 years or earlier based on available balances.
2. Available fund balances as of June 30, 2017, will be used to make the first loan re-payment in FY 2017-18.
|
Fund |
Available Fund Balance |
|
Community Recreation Centers Fund |
$308,442 |
|
Police Stations PFF Fund |
$234,284 |
|
Fire Stations PFF Fund |
$703.899 |
3. In subsequent years, all fees and revenues collected by these three funds will be used to make the annual payments until the loans are paid off in full.
4. Police Stations PFF and Fire Stations PFF loans will incur the same rate of interest at the City’s pooled interest rate.
5. Community Recreation Center PFF fund will incur interest at 1 percent flat rate due to the fund’s limited capacity for repayment.
6. Revenues in the Community Recreation Center PFF are projected to be insufficient to complete the loan pay-off in 20 years. The unpaid balance on Community Recreation Center PFF fund loan will be paid off by another funding source, potentially the General Fund, at the end of 20 years (FY 2037-38).
7. The loan from the General Capital Improvement Fund be written off due to the Community Recreation Center PFF fund’s lack of capacity for repayment.
The repayment plan will be reviewed annually and revised as needed through the City’s annual budget process. All loan repayments will be reported through the PFF Annual Report.
Internal Auditor Contract Extension
In early 2013, Stockton contracted with Moss Adams to complete a risk assessment and internal control review. The recommendations from this work were translated into a three-year Internal Audit Plan designed to strengthen internal controls and processes for the City, as well as make improvements to priority programs and initiatives of the City Council. The City entered into a five-year contract with Moss Adams to carry out the initial Internal Audit Plan and continue to provide City Auditor services in subsequent years. The Moss Adams five-year contract expires in October 2018. The City has anticipated issuing a Request for Proposals (RFP) at the end of the term of the current internal audit contract as is the practice with external financial audit contract. Each fiscal year, the City Auditor presents an annual Internal Audit Plan to be completed by June 30, 2018. Rather than contemplate a change in internal auditor in the middle of an internal plan, in October 2018, staff recommends that Council extend the Moss Adams contract through the end of FY 2018-19. This will allow Moss Adams to complete the Internal Audit Plan for the coming fiscal year and allow staff to conduct a well-designed Request for Proposals for City Auditor Services in future years. The Proposed Resolution includes authorization for the City Manager to execute a one-year extension to the contract with Moss Adams.
Continuation of FY 2017-18 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 approved FY 2017-18 budgets resulted in eight recommendations to continue appropriation balances into FY 2018-19:
|
Description |
Department |
Fund |
Not to Exceed Carryover Amount |
|
Summer Youth Employment program |
Non-Departmental |
General Fund |
$100,000 |
|
Stockton is Home |
Non-Departmental |
General Fund |
25,000 |
|
Audit Findings Response |
Administrative Services |
General Fund |
40,000 |
|
Council District Project Funds |
City Council |
General Fund |
70,000 |
|
Mayor Special Project Funds |
City Council - Mayor |
General Fund |
22,000 |
|
Capital Purchases |
Fire Department |
General Fund |
60,000 |
|
FirstWatch Software |
Fire Department |
General Fund |
25,000 |
|
Fire Administration Strategic Plan |
Fire Department |
General Fund |
50,000 |
|
TOTAL |
|
|
$392,000 |
FINANCIAL SUMMARY
The proposed FY 2018-19 Annual Budget appropriates expenditures of $709,419,235 for all City funds, $16,042,914 for the Parking Authority, and $12,909,775 for the Successor Agency.
The complete documents of the City’s Proposed FY 2018-19 Annual Budget, the Proposed 2018-2023 Capital Improvement Plan, and the Proposed FY 2018-19 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.