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PUBLIC HEARING TO ADOPT THE FISCAL YEAR (FY) 2021-22 ANNUAL BUDGET; APPROVE THE 2021-2026 CAPITAL IMPROVEMENT PLAN; APPROVE THE FY 2021-22 FEE SCHEDULE; APPROVE THE FY 2021-22 CALIFORNIA CONSTITUTIONAL APPROPRIATIONS LIMIT; ADOPT THE FY 2021-22 ANNUAL BUDGET FOR THE PARKING AUTHORITY OF THE CITY OF STOCKTON; ADOPT THE FY 2021-22 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 FY 2021-22 Annual Budget, the 2021-2026 Capital Improvement Plan, and the FY 2021-22 Fee Schedule,
2. Adopt the FY 2021-22 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 2021-22 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 2021-22 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, 2021. These documents include an annual financial plan for all City funds, the key elements of which are summarized below and described in detail in the documents and are available on the City’s website. The City Council held two meetings on June 9 and 10, 2021, to review the budget in detail and receive public comment for consideration.
The FY 2021-22 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, totaled $991.8 million for the operations, capital, debt, and transfers for all funds and programs of the City. This amount represents an increase of $204.2 million or 26% from the FY 2020-21 Annual Budget. The increase is primarily attributable to the planned $120.2 million Bond Anticipation Note payoff by the Wastewater utility, over $81.8 million for the Municipal Utilities Department wastewater treatment plant modification project, and $20.6 million for capital projects.
Citywide estimated revenues are $805.7 million in the FY 2021-22 Proposed Budget for all City programs excluding transfers between City funds, which is an increase of $88.2 million compared to the FY 2020-21 Annual Budget. Revenue growth is primarily attributable to anticipated bond revenues in the Wastewater Utility of $35.2 million and sales tax revenue growth of $28.0 million. The FY 2021-22 Annual Budget supports 1,736 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 2021-22 budgets for the City, the Parking Authority, and the Successor Agency to the former Stockton Redevelopment Agency.
DISCUSSION
Background
The City Council held a workshop on February 19, 2021 to establish its priorities for the year. The priorities and targets developed by the City Council shaped the development of the FY 2021-22 Proposed Annual Budget. On May 11, 2021, staff presented updates to the City’s Long-Range Financial Plan (L-RFP) to the City Council. These updates on available resources and long-term financial constraints set the stage for FY 2021-22 budget development. The City Manager provided the FY 2021-22 Proposed Annual Budget, along with the 2021-2026 Proposed Capital Improvement Plan and the FY 2021-22 Proposed Fee Schedule to Council on May 15, 2021. The City held two public study sessions on June 9 and 10, 2021, to review the budget in detail and to receive public comment. Three citizen advisory committees examined the proposed budget as it relates to the City’s three transaction tax measures (Measures W, A, and M) at their meetings in May and 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 prior year actual results, FY 2020-21 projections, and the FY 2021-22 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 2021-22 Annual Budget
Citywide Budget
Citywide revised revenues are budgeted at $805.7 million, which represents a 12% increase from the prior year budgeted revenue of $717.5 million. Revenue growth is primarily attributable to anticipated bond revenues in the Wastewater Utility of $35.2 million and sales tax revenue growth of $28.0 million. Revenues from external sources of $657.5 million combined with transfers of $45.5 million, benefit and equipment internal service fund charges of $148.1 million, and use of $140.6 million in fund balance support the total expenditures of $991.8 million for all funds, departments and programs, resulting in a balanced budget. The City is anticipating approximately $78 million in the next two years from the federal American Rescue Plan Act (ARP Act). However, the ARP Act funding is not included in the FY 2021-22 Proposed Budget as regulations on how the funds can be programmed are still in development. The budget will be adjusted when those revenues are received.
The table below summarizes the proposed FY 2021-22 revenue budgets by department:
Total City expenditures of $991.8 million in the FY 2021-22 Proposed Budget reflect a 26% increase from the FY 2020-21 total appropriation of $787.6 million. The increase is primarily attributable to the planned $120.2 million Bond Anticipation Note payoff by the Wastewater utility, over $81.8 million for the Municipal Utilities Department wastewater treatment plant modification project, and $20.6 million for capital projects. Expenses in most of the Insurance and Benefit Funds are greater than FY 2020-21, including a $6.4 million increase in retirement expenses, $1.8 million in the Health Benefits Fund, and $1.5 million in general liability expenses. Total salary and benefit costs are 6% higher than FY 2020-21, an increase of $16.7 million across all City funds of which $9.1 million is attributable to the General Fund.
The table below summarizes the proposed FY 2021-22 Annual Budget by department, including changes made in the Budget Addendum:
The proposed FY 2021-22 Annual Budget funds 1,736 full-time positions, an increase of 11 full-time positions compared to the adopted FY 2020-21 Annual Budget.
• Three grant-funded positions approved mid-year.
• Two civilian positions in the Police Department for data analysis and records requests.
• One position expanding the Office of Performance and Data Analytics to a total of three full-time employees.
• One grants management position to assist with additional workload from new grant sources.
• One Plan Checker in Fire Prevention to assist with development workload.
• Two County-funded Library Assistants for Mountain House branch.
• One Program Manager focused on promoting economic development.
Based on continued restrained spending, the City’s overall fiscal health is relatively stable. This discipline benefits Stockton today and will benefit the Stockton of the future. Despite the challenges of the COVID-19 pandemic and the associated economic impacts, Stockton has been able to maintain the services on which residents and business owners rely. In the year to come, the City’s reserves and other funding will allow critical park, transportation, and construction programs to flourish and provide for the essential needs of the community. Looking ahead, the focus will continue to be on pandemic management and post-pandemic readiness and preparedness.
General Fund Operating Budget
The total General Fund revenue budget for FY 2021-22 is $250.8 million, an increase of $27.4 million from the FY 2020-21 Adopted Budget, and $2.2 million more than FY 2020-21 year-end projections. Sales, Utility User, Business License, Hotel/Motel, and Document Transfer taxes were all projected to decline in FY 2020-21 due to the COVID-19 pandemic. While these revenues sources have seen some declines, the timing varies and the revenue impacts are not as severe as originally projected. Sales tax revenues remained flat in FY 2020-21 and are budgeted to increase 4% in FY 2021-22. The Utility Users Tax (UUT) revenue estimate for FY 2021-22 is 1% less than the revised FY 2020-21 estimates. Business License Tax revenues, based on gross receipts for the prior year, are projected to decrease by 13%. Hotel/Motel and Document Transfer taxes are down $441,000 in FY 2020-21 with less than 1% growth anticipated in FY 2021-22. Property tax revenues in FY 2021-22 have been affected by the pandemic with assessed value growth based on a Consumer Price Index (CPI) of less than 2%. Other revenue sources are stable, with minor variances from year-end projections.
The table below summarizes the proposed FY 2021-22 Annual Budget:
The General Fund expenditure budget is $255.9 million and reflects an $8.0 million increase from the FY 2020-21 Adopted Budget of $247.8 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 are 3% greater than prior year based on a 2% cost of living adjustment, planned market adjustments, and merit growth. Employee benefits are up 8% primarily because of retirement rates (6%) and health insurance (17%). The assumption for employee vacancies remains at the same level as FY 2020-21, reducing the General Fund employee services budget by $6.2 million. The General Fund’s share of cost increases in the general liability program and the radio internal service fund were 15% and 21%, respectively. The Debt Service category is $2.3 million more than FY 2020-21 with increases to the City’s contingent payment based on higher revenues. More detail on General Fund expenditures is available on page C-6 of the budget document.
The General Fund is projected to experience negative net annual activity of approximately $5.0 million in FY 2021-22, which, when combined with FY 2020-21 projections, would result in an available fund balance of roughly $44.6 million, excluding projected reserves of $33.3 million.
General Fund Reserves
Per the General Fund - Reserve and Fund Balance Policy, updates to the General Fund reserve targets are proposed as follows:
|
Category |
Amount (millions) |
|
Working Capital |
$42.6 |
|
Known Contingencies |
58.6 |
|
Risk-Based |
72.2 |
|
Total |
$173.4 |
With the increase in budgeted expenditures compared to the prior year, the Working Capital Reserve target will increase from $41.6 million to $42.7 million. The Working Capital reserve is equivalent to two months of annual operating expenses. The Known Contingency reserve target increased from the prior year (from $46.5 to $58.6 million) based on identified needs. The target for the Priority II Risk-Based Reserve in the Fiscal Sustainability Fund increased from $70.2 million to $72.2 million based on updated revenues and reduced unfunded liabilities values.
At the end of FY 2020-21, the General Fund projected available balance of $49.6 million would first be assigned to the Working Capital reserve consistent with the reserve policy. Known Contingency reserves fund future pension costs, radio infrastructure, public safety facility needs, retention and recruitment efforts, and replacement of the City’s financial and payroll systems. With insufficient funding to meet the Known Contingencies reserve target, no additional funds will be available for the Risk-Based Reserves, leaving the $5.0 million funding level established at the close of FY 2015-16.
Citizens’ Advisory Committees
The FY 2021-22 Proposed Annual Budget is also reviewed by three citizen advisory committees. On June 11, 2021, the Measure A Citizens’ Advisory Committee reviewed the FY 2021-22 Proposed Budget as it relates to Measure A revenues (page C-7). The Measure W Oversight Committee reviewed the plan for the use of Measure W proceeds (pages D-11 and E-17) by the Police and Fire Departments at its meeting on June 9, 2021. The Strong Communities Advisory Committee discussed the planned use of Measure M proceeds (page G-11) by the Community Services Department at its meeting on May 4, 2021. By motion, the Strong Communities Committee recommended the addition of the renovation of Victory Park pool as a priority for Measure M expenditures, and recommended the City Council review the North West Stockton Library services. The annotated agenda from this committee meeting with motions under Item 4.3 is included as Attachment A. The Measure A and Measure W committees made no recommendations regarding the proposed budget.
2021-2026 CAPITAL IMPROVEMENT PLAN (CIP)
The CIP is a five-year plan that lists the City’s facility and infrastructure needs. On April 22, 2021, the Planning Commission determined that the proposed 2021-26 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 2021-22 Annual Budget for appropriation. Below is an updated breakdown of the FY 2021-22 capital projects by fund source.
The proposed five-year Capital Improvement Plan covers fiscal years 2021-22 through 2025-26 and totaled $1.02 billion with revisions. Two-thirds of the CIP is related to Municipal Utility projects ($329 million) and transportation projects ($297 million), with other Citywide projects ($396 million) comprising the remainder.
The first year of the CIP is financially constrained and reflects only projects where the City identified funding. The second year through the fifth year of the CIP reflect the City’s unfunded facility and transportation needs in addition to projects with identified or anticipated funding. The majority of the unfunded projects are in the fifth year.
FY 2021-22 Fee Schedule
The FY 2021-22 Fee Schedule reflects new and proposed changes to existing fees in several City departments, including a 1.4% inflationary adjustment to all fees that is intended to address the increasing cost of providing services. Section 1 of the Proposed FY 2021-22 Fee Schedule lists the proposed new and changed fees, along with reasons for each change. New fees are proposed for Municipal Utilities, Facility & Property Rentals, Library, Recreation & Leisure, and Sports. Proposed fee changes include Municipal Utilities, Parking, and Police. Wastewater rates are increasing by 6% per the approved 2019 rate study. Water utility rates are not increasing in FY 2021-22. Two City departments are proposing to inactivate fees. Fee changes are summarized in the Proposed Fee Schedule, pages I-3 to I-9.
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 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 will fund 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.
Since the COVID-19 outbreak and statewide stay at home directives, the Parking operations have consolidated hourly services and ceased event operations, while continuing to provide monthly and street parking options. Revenues from operations are showing indications of being down by nearly 30%. Expenses have been reduced through factors such as personnel cuts, reductions in service contracts, and consolidation of some facility operations, throughout FY 2020-21. Operations and monthly proceeds will continue to be monitored closely as the COVID-19 directives progress.
Successor Agency to the former Stockton Redevelopment Agency
The Successor Agency depends on the receipt of property tax increment revenue 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 $12.8 million is expected to be sufficient for all debt and enforceable obligations in FY 2021-22. The total FY 2021-22 Successor Agency budget, including transfers and loan repayments, is $12.8 million. Projected revenues are sufficient to fund administration and the repayment of City loans approved by the State Department of Finance. Based on the available revenues, the FY 2021-22 Budget includes approximately $5.0 million in loan repayments to the General Capital Fund and Community Development Block Grant (there were $4.9 million in repayments projected in FY 2020-21). 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 2021-22 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 2021-22 Gann Limit, as calculated $409,001,948, exceeds the proposed appropriations subject to the limit of $209,007,647. The City’s appropriations remain well within the Constitutional appropriations limit.
Continuation of FY 2020-21 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, programs lose funding at year-end unless Council takes action to continue the appropriation into the following fiscal year. A review of approved FY 2020-21 budget activity suggests appropriation balances of $1,751,777 should continue into FY 2021-22 for completion of funded activities:
|
Description |
Department |
Fund |
Not to Exceed Amount |
|
Council Discretionary Project Funds |
Mayor and City Council |
General Fund |
256,000 |
|
Scoreboard Installation Misty Holt |
Community Services |
Strong Communities |
20,000 |
|
Marina SMG/ASM Contract |
Economic Development |
Downtown Marina |
60,969 |
|
GIS Migration |
Information Tech. |
Technology Fund |
100,000 |
|
Cisco DNA Appliance |
Information Tech. |
Technology Fund |
70,000 |
|
Electrical Arc Hazard Assessment-Safety |
Municipal Utilities |
Water Utility Fund |
25,000 |
|
Electrical Arc Hazard Assessment-Safety |
Municipal Utilities |
Wastewater Utility Fund |
50,000 |
|
Electrical Arc Hazard Assessment-Safety |
Municipal Utilities |
Stormwater Utility Fund |
25,000 |
|
Economic Development Strategic Plan |
Economic Development |
General Fund |
65,000 |
|
Infrastructure Improvements |
Public Works |
General Fund |
568,000 |
|
Tax Collections |
Admin. Services |
General Fund |
47,000 |
|
Leadership Training |
Human Resources |
General Fund |
67,000 |
|
Open Data and iLab |
City Manager |
General Fund |
290,808 |
|
Training/Equipment |
City Manager |
General Fund |
107,000 |
|
Grand Total |
|
|
1,751,777 |
FINANCIAL SUMMARY
The proposed FY 2021-22 Annual Budget appropriates expenditures of $991,770,073 for all City funds, $6,384,062 for the Parking Authority, and $12,767,916 for the Successor Agency.
The complete documents of the City’s Proposed FY 2021-22 Annual Budget, the Proposed 2021-2026 Capital Improvement Plan, and the Proposed FY 2021-22 Fee Schedule are available for review on the City’s website www.stocktonca.gov/budget <http://www.stocktonca.gov/budget> or in the City Clerk’s Office.