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HomeMy WebLinkAbout2024-05-21 Finance Committee Summary MinutesFINANCE COMMITTEE SUMMARY MINUTES Page 1 of 11 Special Meeting May 21, 2024 The Finance Committee of the City of Palo Alto met on this date in the Community Meeting Room and by virtual teleconference at 1:02 PM. Present In Person: Burt (Chair), Lauing, Veenker Present Remotely: None Absent: None CALL TO ORDER PUBLIC COMMENT 1. Hillary M. & Marcy T. of Solving Fun, creators of the Palo Alto Puzzle Hunts, stated their contract was through this year and they have not yet gotten confirmation that this event will be in next year's budget. They described the success of the event and asked what they could do to help get this into the budget for future years. ACTION ITEMS 1. Discussion on the Fiscal Year (FY) 2025 Budget Wrap-Up and Recommended FY 2025 Budget including the FY 2025 Municipal Fee Schedule for City Council Adoption Lauren Lai, Chief Financial Officer, reviewed that the purpose of this item was to wrap up the proposed budget in preparation for Council adopting the budget on June 17. She reviewed the updates since the May 8 budget hearing with the revised parking lot and recommended technical adjustments. The revised parking lot expenses were discussed. She then went over the revised parking lot revenue table, with a new line item to use the Uncertainty Reserve to balance FY 2025 with the new OPEB information. She presented the 2-year and 5-year outlook if Tables 1 and 2 were taken as they stand. Rebalancing '25 causes some challenges in '26, with a net deficit of $8.6M. This would liquidate the Uncertainty Reserve, and the Budget Stabilization Reserve would trend below the 18.5% target. Regarding SUMMARY MINUTES Page 2 of 11 Finance Committee Special Meeting Summary Minutes: 5/21/2024 OPEB, she reviewed the retiree benefits funding policy assumptions and discussed the differences in the 2021 versus 2023 valuation actuarial report. She disclosed an identified error resulting in a change to the General Fund from $2.4M to $3.3M. The financial impact of incorporating the new 2023 valuation actuarial report was shown in a table with different approaches to pre-funding. With the Committee's direction, the yellow items in the parking lot would be moved to the green table as formal Committee adjustments proposed to the Council. She also described several technical administrative adjustments recommended by Staff and finally presented the draft motion for consideration by the Committee. Chair Burt questioned if, in the two-year phase-in of the OPEB impact, half of the impact from this year would be phased in and added to next year. Chief Financial Officer Lai responded that in going with $1.65M in FY'25, the balance of that amount not contributed will be given to the actuary, who will determine how to phase that in over the 13-year schedule. Council Member Lauing asked about the column "Other Funds" in the OPEB Fiscal Impact table and where the $1.9M comes from. He questioned if there was a slide showing the impact of phasing in. He felt ongoing expenses were treated too liberally. Chief Financial Officer Lai explained that Other Funds refers to enterprise funds and funds other than the General Fund. All three columns in the table would be contributed because employees are funded through various funds. She shared the implications of phasing in for '25 and '26. The out years will be deferred to the actuaries. Rebalancing '25 would borrow about $1.7M from the Uncertainty Reserve with '26 remaining at a deficit of $8.6M. She explained that Staff listed items that were pilots, grants, or clearly one-time as not ongoing, and if it was not apparent, it was notated as ongoing. The Committee may decide today to change ongoing items to be funded only for one year. Council Member Veenker wanted clarification the 2026 BSR of 17.5% could change depending on how the $8.6M FY 2026 deficit is dealt with. She noted that Table 4 showed a projected surplus in 2030 that jumps up after several years of deficits and asked the primary reasons for that. Chief Financial Officer Lai agreed that folding in OPEB at a higher level may move the appropriation number, which may move the 17.5%. She explained in the long-range forecast, revenues are anticipated to continue to grow while expenses are stabilizing, improving the gap. SUMMARY MINUTES Page 3 of 11 Finance Committee Special Meeting Summary Minutes: 5/21/2024 Chair Burt suggested to bear in mind the policy that half of the end-of-year surpluses go to the unfunded pension liability and half to the capital program with supplemental contribution. Adding that surplus to the BSR will mean not having those supplemental contributions to the pension and capital plan. There was discussion about the 2024 midyear budget surplus of about $3M, which has been appropriated to keep 2024 balanced. He asked if there were updates on any increases in revenue or savings on expenditures over the second half of 2024. It was clarified that the estimated return rate for OPEB of 5.75% was the City's rate, not CalPERS'. He asked what was in the budget for fire med response and what the $1M to $4M for this on the staff work plan was. He questioned the cost of the Puzzle Hunt and if there was anything in the budget for it. He noted the citywide Special Events line lumped together some funding done as one-offs, including Magical Bridge programming, and the projects added up to more than the $200K proposed. He questioned if the Magical Bridge was in the budget. Chief Financial Officer Lai explained that the Q3 financial report showed modest surpluses. She noted there was nothing in the budget for enhancement of paramedic response but the existing service level is in the budget. The $1M to $4M was for changes to the service model. Hillary Miller, Puzzle Hunt Organizer, stated the Puzzle Hunt happens the entire month of May and is about $25K. Kristen O’Kane, Director of Community Services, explained the Puzzle Hunt and summer concerts were bundled in the budget as family events but the Puzzle Hunt was not included in the budget for balancing purposes. She could look into using some of the Special Events budget to work on continuing this event. The Magical Bridge Foundation had noted they could scale back their request for '25 to meet the budget needs. Chief Financial Officer Lai added that moving forward with the citywide events and programming in FY '25 may require one FTE to do the administrative work associated with that. This is not a set cost and was noted just for awareness. PUBLIC COMMENT: 1. Carmela A. noted there is nothing in Palo Alto aside from the Magical Bridge Park and programming that meets her special needs daughter's needs while also allowing her younger children to participate. She stated this is an essential part of living in Palo Alto for her family and encouraged the Committee to continue this funding. SUMMARY MINUTES Page 4 of 11 Finance Committee Special Meeting Summary Minutes: 5/21/2024 2. Olenka V. of the Magical Bridge Foundation was disappointed to have to advocate for tax dollars to go toward families in Palo Alto connecting with their community members. She explained the $150K the foundation was asking for would allow them to be able to further innovate and collaborate and do much more. She encouraged the Committee to try to do more for this population. Chair Burt cited the Ramona Car-Free Streets design as an area that could be reduced as the businesses there are enthusiastic about working with Staff to come up with improvements. He asked if the increase to $400K on PATMA aligned with their ongoing cost level. He noted VTA has agreed to provide over 500 SmartPasses at around $90 each, which is 10 times the number of passes for the same amount they are already spending. Phillip Kamhi, Chief Transportation Official, responded that PATMA's request of $400K was in line with their spend rate over the past year. Council Member Veenker had a generic question about the visibility into the amounts in the Table 1 expenses. She did not want to overburden these groups but felt there should be some parameters and guidelines. Ed Shikada, City Manager, responded that, in the most general terms, it was ultimately a decision for the Council as to how much granularity and visibility they want for any particular grant. He stated there will be a study session with the Council on that point after they return from break. Council Member Lauing wanted a more rigorous process on some of these requests. He thought the Committee should figure out how much money they want to save from what is on the list and also drill down on any ongoing items. He agreed with Council Member Burt about the design for Ramona Street. He questioned whether a full $1M should be committed for Roth. He did not feel the use of proceeds for Ability Path was appropriate as a budget item. He did not understand why so many staff members were tied to revenue of the zoo and questioned reducing the proposed staff increase. Director O'Kane explained the staffing issues at the zoo. Chief Financial Officer Lai added that the four part-time FTEs for the animal care position converting to four full-time FTEs are assumed for half a year in the budget, beginning January. The 2 FTEs for guest services positions are a full year in '25, and reducing that by one would be a savings of about $115K. SUMMARY MINUTES Page 5 of 11 Finance Committee Special Meeting Summary Minutes: 5/21/2024 There was discussion that the Friends of JMZ had supported increasing the entrance fee to $14 with the caveat that the consultants' recommendations were followed. Chair Burt asked for an update on the modified program for Palo Alto Link. He wanted to prioritize serving those who actually need it. He thought Ramona should be at most $50K for the design. He discussed that some items could be rolled to mid year to increase the funding at that point. Chief Transportation Official Kamhi explained Palo Alto Link would have a service reduction of 25% to 45% from its current level: geofencing and removing school service during school hours, increasing fares, and potentially reducing service areas. Council Member Veenker agreed about the Ramona Street item. She asked if it was possible to find other ways to contribute to the Roth Building item and if there was anything to be done in terms of timing. She asked about the thinking that the Ability Path could possibly be addressed with the CDBG funds. On Palo Alto Link, she asked about geofencing the schools. She requested clarification on the proposal for the turf fields. Chief Financial Officer Lai explained the Roth project is moving pretty quickly. The $200K was because of an initial balance but is depleting because of construction and invoices being paid. Jonathan Lait, Planning Director, stated it was not certain Ability Path would be eligible for CDBG funding, but if so, there would be limited funds authorized to be used for these purposes. Other service providers currently use those funds, and there would have to be tradeoffs if they were reallocated. Chief Transportation Official Kamhi explained that the geofencing of Palo Alto Link could be adjusted as needed and would be flexible. Director O'Kane discussed that the solution for the turf replacement was to do the study of synthetic turf versus natural grass while replacing Stanford Palo Alto with an organic infill, such as cork, so it can be used. If the Council then chooses to replace the synthetic turf with natural grass at all fields, El Camino would be first in line, then Cubberley when it is due, then circling back to Stanford Palo Alto. Chair Burt questioned how much of the health hazard is reduced by switching the infill to cork from petroleum-based fill. Regarding the Roth building, he questioned comments by City Manager about committing to an amount on TIs. SUMMARY MINUTES Page 6 of 11 Finance Committee Special Meeting Summary Minutes: 5/21/2024 Director O'Kane did not have the health information available for the turf. City Manager Shikada noted the City has an interest in seeing the Roth Building as a successful program and a conversation around how the City could participate in the subsequent phase would be well received. Council Member Lauing asked about the detail in the Cal Ave improvements and whether that was the final number. Steve Guagliardo, Assistant to the City Manager, explained that $450K represented Staff's best estimate for the work through the medium term: work to install planters, soil planting, some signage as well as some hardscape improvements at the entrances to Cal Ave. Council Member Lauing agreed on putting Ramona at $50K. On Roth, he suggested taking out $500K plus the $200K interest earnings, giving them $300K now. He proposed pulling out the Ability Path for now and taking out at least one position at the JMZ for this year. He thought the $11K for Foothills Nature Preserve should be in another category. Chair Burt agreed with reducing the museum by $500K if they were receptive, with the commitment to contribute $500K of TIs on the build-out in the 5-year CIP. He stated that raising the Special Events pot to $250K, it would cover the full Magical Bridge and that $11K. There was detailed discussion about the JMZ staff item. The Committee was in agreement to do the two-year phase-in for OPEB. As a result of the proposed changes, it was decided not to use the Uncertainty Reserve and to put that back in for use in 2026. This will create a balanced budget for '25 rather than a quasi-surplus. MOTION: Council Member Veenker moved, seconded by Council Member Lauing, to recommend to the City Council 1. Adoption of the FY 2025 Operating and Capital Budgets and Municipal Fee Schedule, amended by: a. The Table of Finance Committee Adjustments to the Budget, including the Staff technical adjustments b. Changes approved in the wrap-up discussion, including those shown in the below table (FY25 Subtotal Source: $3,154,000; FY25 Subtotal Use: $3,154,000) SUMMARY MINUTES Page 7 of 11 Finance Committee Special Meeting Summary Minutes: 5/21/2024 2. Approve the FY 2025-2029 Capital Improvement Plan, amended by: a. Changes approved in the wrap-up discussion Dept Finance Committee Adjustments to Budget FY 2025 GF (cost)/savings or rev Ongoing Beginning Balance $ - $ - NON Increase Gas Transfer to General Fund in FY25 to 14.5% (from 11.9%) & in FY26 to 18% (previously scheduled in FY27) 2,000,000 900,000 NON Use BSR to balance FY 2025 - Reduce BSR from 18.8% to 18.5% 606,000 - NON Use Uncertainty Reserve to Balance FY 2025 - - NON Increase JMZ ticket prices from $10 to $14, during peak periods 350,000 350,000 CSD Account for Los Altos & Los Altos Hills contribution for animal control services CMR#2403-2827 198,000 198,000 Subtotal Sources (Revenue) $ 3,154,000 $ 1,448,000 NON Other Post Employment Benefit (OPEB) (1,650,000) (3,300,000) CIP California Avenue Interim Improvements (450,000) - CIP Car-free Streetscape Design for Ramona Street (50,000) - SUMMARY MINUTES Page 8 of 11 Finance Committee Special Meeting Summary Minutes: 5/21/2024 CIP Additional funding for Roth Building Rehabilitation (PF-23001) * (revise terms & conditions of tenant work letter) (300,000) - Organization request $1M partially offset with $0.2M interest earnings NON Establish a Citywide Special Events & Programming ($265k total program) * [Requested UNAFF $45k, 3rd Thursdays $40k, Neighbors Abroad $30k, Magical Bridge Programming & Events $150k, cultural events] (235,000) (235,000) NON Ability Path Matching Gift * - - NON Palo Alto Transportation Management Association (PATMA) increase to $400,000 * (200,000) (200,000) CSD Environmental Volunteers Foothills Nature Preserve Program * (11,000) - CSD Administrative Support for new Citywide Special Events & Programming (1 FTE) - (125,000) CSD JMZ additional staffing, new ticketing system and promotion $ (498,000) $ (665,000) FIR Upstaff Fire Engine 62 with 3 Sworn Staff instead of Overtime (60,000) (80,000) PWD Public Services Streets 311 Requests to support catch-up & keep-up (100,000) (100,000) UTL Sustainability Program Customer Service Support (1.0 FTE Electric Fund) - - SUMMARY MINUTES Page 9 of 11 Finance Committee Special Meeting Summary Minutes: 5/21/2024 OOT Review an alternative service approach for PA Link with reduced net costs (proposed FY2025 budget funds $900,000) 400,000 400,000 CIP Study of artificial turf replacement with grass at up to 4 fields (recommend use of current CIP to fund a study) - - Subtotal Use (Expense) $ (3,154,000) $ (4,305,000) Potential Funds Remaining surplus/(deficit) $ - $(2,857,000) MOTION PASSED 3:0 The Committee took a break until 3:45 P.M. 2. Review Wastewater Treatment Fund Cashflow and Recommend to the City Council Authorization of the Negotiation and Execution of a Line of Credit Jamie Allen, Manager of Water Quality Plant, described the Wastewater Treatment Fund negative cashflow issue. The typical cash balance is $13M on a $40M operating budget, which covers debt service coverage, cashflow, and missing payments from partners. Cash dropped below the fund's minimum reserve of $7M at the end of FY 2023 and has been negative every quarter in 2024, down to -$8M at the end of end of Q3. The only cause is delays in the state reimbursement on loans used to repay contractors and engineers. The State cannot speed up the reimbursement progress. The State Water Board has a Division of Financial Assistance that issues low- interest loans for capital projects at wastewater treatment plants. The City is currently using two of those loans, the Primary Sedimentation Tank Project and the Secondary Treatment Upgrades Project. Rolling the line of credit SUMMARY MINUTES Page 10 of 11 Finance Committee Special Meeting Summary Minutes: 5/21/2024 bridge financing being recommended into the Secondary Treatment loan would cause the interest rate to go from 0.8% to 0.88%, a very small increase. The worst-case negative cash balance is expected in about September 2024 at -$31M. The fund will get back to its routine balance, but the line of credit is needed in the interim to stay above the minimum reserve guidelines and avoid continued drawdown of the City's pooled treasury. Christine Paras, Assistant Director of ASD, presented a graphic of the consultant's projection of the future construction cost schedule. She discussed the interim financing options and the decision for a line of credit. The line of credit could be extended or increased as needed. Council Member Veenker clarified that the normal balance is achieved in September 2028, with a 4½-year line of credit if everything stays on schedule and the timing from the State does not improve. Council Member Lauing noted the graph going down again after recovering when the construction is done. He asked if there were more projects that would be started. Assistant Director Paras explained that it was assumed there would be bond proceeds and utility revenue bond for the outfall pipeline, causing the cash to around the 0 balance. In that time, there is spending on the bond proceeds and continuation of the Secondary Treatment Plant Upgrade, which drives it to the negative cash balance. She felt the line of credit was the most efficient and flexible way to go. Chair Burt questioned if it was felt the State would actually get slower given budgetary problems. Manager Allen stated the State has averaged about three months for reimbursement timing, and four months was used for the estimates to be conservative. If the State pays on a faster basis, the trough will not be as deep. If they started paying on a slower timeline, a bigger line of credit may be needed. MOTION: Council Member Lauing moved, seconded by Council Member Veenker, to recommend that the City Council 1. Direct Staff to pursue negotiating a line of credit, totaling $31M 2. Authorize the City Manager or designee to negotiate and execute the line of credit MOTION PASSED: 3-0 SUMMARY MINUTES Page 11 of 11 Finance Committee Special Meeting Summary Minutes: 5/21/2024 ITEMS HEARD OUT OF ORDER. ITEM 3 HEARD BEFORE ITEM 2 3. Recommend the City Council Adopt the Fiscal Year 2025 Investment Policy; CEQA Status - Not a Project Christine Paras, Assistant Director of ASD, explained there were two changes made to the Investment Policy in order this year to align with a recent investment management audit. The report of what the City has purchased or any investment activity will be transitioned to a monthly rather than quarterly basis, and brokers and dealers will be required annually to provide documentation of their financial condition and relevant registration. These changes and processes are planned to be implemented in July 2024. Council Member Lauing questioned the motivation for the changes. Assistant Director Paras described that it was found during the investment audit that parts of the California State Government Code required monthly reports to the governing body. Secondly, it was thought that an annual review of brokers and dealers to determine whether they have solid financial footing and relevant registration was a best practice to include in the policy. Chief Financial Officer Lai added that Staff was looking at leveraging the City's website for of submitting informational reports to the Council and Committee. MOTION: Council Member Veenker moved, seconded by Council Member Lauing, to recommend the City Council adopt the Fiscal Year 2025 Investment Policy. MOTION PASSED 3:0 It was discussed that June 4 would be the last meeting before the end of the Fiscal Year, with some utility items as well as the OPEB actuarial report. Any budget changes as a result of the Cubberley meeting will likely be brought directly to the full Council. ADJOURNMENT: The meeting was adjourned at 4:11 P.M.