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HomeMy WebLinkAboutStaff Report 132-08 CMR:132:08 Page 1 of 10 TO: HONORABLE CITY COUNCIL ATTN: FINANCE COMMITTEE FROM: CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE: FEBRUARY 5, 2008 CMR: 132:08 SUBJECT: 2007-08 ADJUSTED BUDGET – SECOND QUARTER (Q2) FINANCIAL RESULTS, MIDYEAR AMENDMENTS AND CAPITAL IMPROVEMENT PROGRAM STATUS RECOMMENDATION Staff recommends that the Finance Committee recommend to the City Council adoption of the attached Budget Amendment Ordinance (BAO) (Attachment 1) and Resolution (Attachment 4), which includes: a. Proposed midyear adjustments to the 2007-08 Budget for the General Fund, Enterprise Funds, Special Revenue Funds, Internal Service Funds, and Capital Improvement Projects Fund (Exhibit A). b. 2007-08 Midyear CIP Adjustments (Exhibit B). c. Amendments to the 2007-08 Adopted Municipal Fee Schedule (Exhibit C). d. Amendments to the 2007-08 Table of Organization (Exhibit D). e. Amendments to the 2007-08 Management and Professional Compensation Plan (Attachment 4). The 2007-08 midyear Capital Improvement Program (CIP) Projects Status Report is attached as an informational item (Attachment 2). A list of continuous projects follows this summary (Attachment 3). No action is required on these two items. Staff also recommends the Finance Committee review and comment on the preliminary financial condition of the City as of December 31, 2007 (Exhibit A to BAO). BACKGROUND This report summarizes the changes to the 2007-08 Adopted Budget necessary as part of the normal course of business through December 2007. Where possible, adjustments are held until this midyear report is brought to Council in an effort to consolidate changes and streamline the Budget Amendment Ordinance (BAO) process. The discussion in this report is organized by fund with a primary focus on major changes in the General Fund. Details of these changes, as well as all fund summaries, are included in Exhibit A. The midyear CIP Program Project Status Report (Attachment CMR:132:08 Page 2 of 10 2) provides the Finance Committee with information on the status of the City’s CIP projects as of December 31, 2007. DISCUSSION Update to First Quarter Financial Report – The adjusted budget numbers presented to the Finance Committee for the first quarter financial report did not include $3.4 million as a source of funds for the reappropriations and encumbrances. The midyear/second quarter financial report includes these funds as represented in Exhibit A. General Fund – MidYear Financial Report The following is a summary of major revenue and expenditure adjustments in the General Fund as detailed in Exhibit A. At midyear, General Fund operating revenues and expenditures are at 43 and 54 percent of budget, respectively. The difference between these numbers reflects timing issues with tax revenue collections and contract encumbrances. By year-end, total General Fund expense is projected to be less than total revenues. As a consequence of revenue results at the end of 2006-07, performance in the first half of 2007-08, and the voter-approved, 2 percent increase in the Transient Occupancy tax rate; staff is recommending a number of midyear adjustments. It is important to note, however, that a slowing in sales tax receipt growth has occurred and that consumers have been retrenching on their spending. Moreover, staff is concerned that the housing and credit crisis could have an impact on future property tax receipts. • Transient occupancy taxes (TOT) are being increased by $0.72 million to $7.7 million. This increase is mainly due to the 2 percent rate increase that went into effect in January 2008. It also is a consequence of continuing strong activity in this sector. In the first five months of the fiscal year, average citywide occupancy and room rates rose by 4.6 percent and 6.7 percent, respectively. The average occupancy rate went from 74.4 percent to 77.8 percent while the average daily room rate went from $134 to $143. The table below shows the TOT statistics for occupancy and per-diem rates for the past 10 years. CMR:132:08 Page 3 of 10 Fiscal Year Avg. TOT Occupancy Rate Avg. Per Diems % $ 2007-08* 77.8 142.88 2006-07 72.4 136.69 2005-06 70.5 130.72 2004-05 61.0 119.22 2003-04 56.8 117.03 2002-03 54.2 122.19 2001-02 58.0 136.02 2000-01 73.2 155.71 1999-00 79.2 135.62 1998-99 73.7 120.96 * First five months of year • Property taxes are being increased by $0.70 million to $22.7 million. The local commercial real estate market has been a strong factor in rising property taxes while the residential market has continued to demonstrate resiliency in the face of a weakening California and national market. Secured property rolls rose by 7.2 percent in 2007-08. • Documentary transfer taxes (DTT) are a highly volatile revenue source that fluctuates with the volume and mix (commercial and residential) from year to year. Since the City has had early and significant property transactions in the first half of the year, this revenue category is being increased by $0.31 million to $5.4 million. • Sales tax revenues for 2007-08 are being increased by $0.36 million to $22.4 million at midyear. This adjustment is a result of the method used by the State to make its “triple- flip” payments and the solid performance of one vendor within the City. Given the anemic growth in the first quarter of this fiscal year 1.5 percent above the prior year’s first quarter rate and the emerging restraint of consumers on spending, this adjustment does not incorporate much growth over the next 6 months. Economic segments showing particular strength were business-to-business (e.g., electronic equipment), and department and drug stores. Those showing weakness included new furniture/appliance outlets and new auto sales. • Interest income has been stronger than expected and a positive $0.28 million adjustment is recommended. The City’s investment portfolio yield has risen as a consequence of higher rates and the increased duration of investments. • Utility user tax revenue is being adjusted by $0.39 million. This is a consequence of a surge in revenues from one of the major service providers. • Other revenue projections are being increased by $0.4 million due primarily to various donations and grants received. For example, the Police Department received reimbursements for public safety training and a DUI enforcement program; and the Community Services CMR:132:08 Page 4 of 10 Department received grants for a number of programs or projects. Additionally, the Planning and Community Environment Department is moving a $0.1 million deposit from Stanford for residential parking permits into revenue, with offsetting expenditures. Expense Highlights for 2007-08 Mid-year Financial Results In many departments, expenditures are cyclical in nature; a department’s commitments in the first half of the year may include items for the entire fiscal year. Keeping this in mind, departments are within their expected expense target range. The table below summarizes the total midyear budget revenue and expenditure changes and the impact to the Budget Stabilization Reserve (BSR). General Fund MidYear Revenue and Expenditure Summary 2007-08 (in thousands of dollars) Grant and Reimbursement Revenues 289$ Grant Expenditure (289)$ General Fund Revenue - Increase 3,403$ General Fund Expenditure Increases Salary & Benefit-Related (505)$ Allocations from ISF/Enterprise Funds (38)$ Other Expenditures (600)$ MidYear change to BSR -Increase 2,260$ General Fund department expenditures are being increased by $1.4 million of which approximately $0.3 million is grant-funded spending. The Community Services Department received $0.1 million in grants from the Arts Council Silicon Valley, Art Center Foundation, and from other agencies. The Police Department received $0.2 million in grants and reimbursements from county and federal agencies. Other expenditure increases included, $0.5 million for prior Council-approved negotiated salary increases for the Palo Alto Police Officers Association (PAPOA) and $0.6 million for other operating expenditures which include the City Manager’s recruitment cost and the custodial services contract. General Fund Overtime Analysis: The following chart shows total overtime expenditures reaching 89 percent of the adjusted budget. Although most of the General Fund departments are on track or below their overtime budget, the Fire and Police Departments exceed their budgets for the following reasons: • The Fire Department is at 108 percent of its adopted budget for overtime. The main factors (with associated costs) contributing to overtime usage are backfills for disability leave, vacancies and high vacation use during summer months ($523,000), staffing of Station 8 ($200,000), staffing of Medic-1 ($206,000), in and out-of-county mutual aid Strike Team responses ($125,000), mandated training and other personnel leave ($25,000). Currently, there are 4 personnel on long-term disability leave and 1 vacant position (as of January 2008). However, there were 8 vacancies during this period; 5 were filled in late August and an additional 3 in mid-December and overtime was used to backfill for these new positions prior to them beginning their employment. Further, there were 2 additional personnel on CMR:132:08 Page 5 of 10 disability leave during this period who both returned to work in December 2007. Beginning July 1, 2007 there were 8 vacancies and 6 personnel on disability. • The Police Department is at 89 percent of the adopted budget for overtime. The main factors contributing to overtime use are staffing shortages due to disability leave, vacancies in Patrol and the 9-1-1 Dispatch Center, and academy and field training programs ($734,000). Also overtime was incurred in the response and investigation of the fire on University Avenue ($38,000), the investigation of a sexual assault case ($44,000), and traffic control services at Stanford Football games ($106,000) which is partially offset by the university, and other city-sponsored events. Overtime usage will be partially offset with salary savings. With the Police and Fire Departments removed from the overtime analysis, General Fund overtime expense is at 48 percent of budget at midyear. CITY OF PALO ALTO 2007-08 MIDYEAR FINANCIAL REPORT GENERAL FUND OVERTIME (in thousands of dollars) Adopted Midyear Midyear % of (as of 12/31/07) Budget Budget Changes Actuals Budget City Attorney -- - - 0% City Auditor --- - 0% City Clerk 7 7 - - 6% City Council --- - 0% City Manager 3 3 - - 9% Administrative Services 45 45 -13 30% Community Services 185 185 -90 49% Library 58 58 - 21 36% Fire 893 997 - 1,079 108% Human Resources 4 4 -- 6% Planning 67 67 - 44 66% Police 1,037 1,042 - 922 89% Public Works 113 113 -62 55% Total Overtime 2,410 2,519 0 2,233 89% Total Overtime Excluding Public Safety 480 480 0 232 48% Enterprise Funds Please refer to the detailed fund summaries in Exhibit A for more information on Enterprise Fund midyear changes and to the CIP section of this report. • Electric Fund (Net reserve reduction of $8.1 million) – The Electric Fund reserve is reduced by appropriations of $8.0 million for increases in commodity costs due to reduced hydroelectric and landfill gas generation, and to cover local capacity purchases. CMR:132:08 Page 6 of 10 • Water Fund (Net reserve reduction of $0.4 million) – An increase of $0.3 million in water commodity purchases is due to a rate increase by the San Francisco Public Utilities Commission. • Refuse Fund (Net reserve reduction of $0.5 million) – A transfer of $0.4 million to the Capital Projects Fund is made for CIP PE-08005 Municipal Service Center (MSC) Resurfacing. Capital Improvement Program Adjustments to the City’s 2007-08 Capital Plan are noted in Exhibit A, with specific project adjustments described in Exhibit B. All of the CIP changes fall into three basic categories: projects requiring additional appropriations, projects necessitating reduction in appropriations and other miscellaneous adjustments such as transfer of funding within projects. Highlights of CIP changes are as follows: General Fund • Street Maintenance – CIP PE-86070 – Increase revenue by $1.0 million and increase project cost by the same amount. Adjustment is made to reflect revenue allotted from the State of California Proposition 1B allocation. • Municipal Service Center (MSC) Resurfacing Project – CIP PE-08005 - To create a new project and provide funding of $1.1 million. This project will provide complete resurfacing and restriping of the vehicle lanes, parking areas and storage areas at the Municipal Service Center (MSC). Funding will be provided by: Electric Fund ($270,000); Wastewater Collection Fund ($150,000); Water Fund ($100,000); Gas Fund ($40,000); Refuse Fund ($390,000), and by a transfer of funding from Street Maintenance CIP PE-86070 ($170,000). • Animal Shelter Expansion & Renovation – CIP PE-04014 - Reduce revenue by $1.3 million and reduce project cost by the same amount. Adjustment is made to reflect the withdrawal by the City of Sunnyvale from participating in the expansion and renovation of the City of Palo Alto animal shelter facilities. • Street Maintenance – CIP PE 86070 – Transfer funding of $0.2 million to the MSC Resurfacing Project PE-08005. The transfer will provide additional funding to MSC Resurfacing Project. • Homer Undercrossing Project – CIP PE-01021- Return funding balance of $0.2 million to infrastructure reserve. The project is now complete and is ready to be closed. • Crime Scene Evidence Collection Vehicle – CIP PD-08000 - To create a new project and provide funding of $0.1 million. Funding will be provided by the State of California COPS Fund. • SWAT Van – CIP PD-07001 - Increase revenue by $0.1 million and increase project cost by the same amount. Adjustment is made to reflect revenue received from the County of Santa Clara and a private donation. CMR:132:08 Page 7 of 10 • Open Space Trails and Amenities – CIP OS-00001- Increase revenue by $48,000 and increase project cost by the same amount. Adjustment is made to reflect grant received from the State of California Non-motorized Trail Grant. The grant will fund the improvement of trails at the Pearson Arastradero Preserve. Enterprise Funds • San Francisquito Creek Storm Water Pump Station – CIP SD-06102 – Return funding of $0.6 million to the General Fund Budget Stabilization Reserve (BSR). This is a partial payment of the amount loaned by the General Fund BSR to the Storm Drainage Fund in connection with the award of the construction contract (CMR 314:07). • Sewer Systems Extension – CIP WC-80020 – Increase revenue by $0.5 million and increase project cost by the same amount. Adjustment is made to reflect increased use of laterals due to increase in housing activity. Increase in revenue is due to increase in capacity fees from larger multi-family developments. • Electric Utility GIS – CIP EL-02011 - Increase funding by $50,000 due to additional contract with GIS Data Experts to add connectivity data and clean up text data in the new 4DL Mapping system. (Electric Fund Distribution RSR: $50,000 reserve funding required). • Disinfection Facility Improvement Project – CIP WQ-06014 - Increase funding by $0.3 million to pay for the change order in the design cost of the project. Design services change order authorization was granted by Council (CMR 322:07). A state loan is being worked out to provide funding for this project. Once the loan proceeds are received, the Wastewater Treatment Fund rate stabilization reserve will reimbursed. (Wastewater Treatment Fund RSR: $0.3 million reserve funding required). Amendments to the 2007-08 Adopted Municipal Fee Schedule Staff is proposing to amend the 2007-08 Municipal Fee Schedule as shown in Exhibit C. There is one new fee for the Comprehensive Plan Maintenance which is anticipated to generate $30,000 of revenue from construction valuations for the rest of fiscal 2007-08 and $120,000 in 2008- 09. There is also a textual change to the definition of single-family residences. Table of Organization Changes The proposed adjustments to the Table of Organization (Exhibit D) include one position unfreeze, one add/drop, five reclassifications, and one reallocation. • City Manager: Unfreeze 1.0 FTE Public Communications Manager; freeze 1.0 FTE Manager, Communications, to align position with consolidated job responsibilities. Public Communications Manager is responsible for and oversees general City and utilities communication matters. • Fire: Reclassification of 1.0 FTE Administrative Associate I to Administrative Associate II. To correct a classification error during the recent clerical study changes. CMR:132:08 Page 8 of 10 • Fire: Reclassification of 1.0 FTE Executive Assistant to Office of Emergency Services (OES) Coordinator to align position with actual job responsibilities. • Human Resources: Add 0.4 FTE HR Assistant due to additional required responsibilities. • Human Resources: Reclassification of 1.0 FTE Manager, Risk & Benefits to Assistant Director – Human Resources. Due to the complexity of projects and issues encountered in the Human Resources department, a position at the level of Assistant Director is needed. The position will oversee daily operations and serve as Director in the absence of the Human Resources Director • Public Works/Waste Water Treatment Fund – Reallocate one Storekeeper from the Wastewater Treatment Fund to Utilities. • Utilities Department: Reclassification of 1.0 FTE Mgr, Supply Resources to 1.0 FTE Senior Resource Planner to align the position with department reorganization and allow for greater flexibility in task assignment. • Utilities Department: Reclassification of 1.0 FTE Mgr, Utility Rates to 1.0 FTE Senior Resource Planner to align the position with department reorganization and allow for greater flexibility in task assignment. • Utilities Department: Addition of 1.0 FTE Install/Repair Welding – Lead, elimination of 1.0 FTE Install/Repair – Welding. Corrects the number of positions for Install/Repairers Leads with a Welding certification. 2007-08 Midyear Capital Improvement Program Projects Status Report: This report provides the Finance Committee with information on the status of the City's Capital Improvement Program (CIP) projects as of December 31, 2007. In the attached matrix (Attachment 2), all City departments have submitted information on their projects and commented on any issues that might cause a change in the scope or timing of the projects. Information in this report is intended to update Council on the status of all CIP projects that were open at the beginning of the 2007-08 fiscal year and on those projects which were added or completed during the current year. The matrix categorizes CIP projects into minor projects (projects which can be completed within a one-year period) and multi-year projects (projects which have multi-year budgets and/or complex implementation schedules with identifiable phases). The projects status portion of the matrix identifies the phase the project was in as of December 31, 2007, to give Council a perspective on how much progress was made on a project. Three distinct phases are defined, as follows: CMR:132:08 Page 9 of 10 Phase: Activities: Pre-Design • Preparation of a feasibility study • Development of a master plan • Definition of a project scope • Preparation of an Environmental Impact Report Design • Hiring a design consultant • Completion of project design • Soliciting bids or proposals Construction • Acquisition of major equipment • Installation • Implementation of a project Projects are listed by department for the General Fund and by fund for the Enterprise and Internal Service Funds. The matrix also includes information on the total budget from inception for each project, the available budget as of the beginning of the fiscal year, the fiscal year expenditures through December 2007, including commitments (encumbrances), and the remaining balance in the project budget as of midyear. The comment section of the matrix clarifies the status of certain projects. At the inception of the 2007-08 Adopted CIP Budget, the General Fund labor costs associated with the projects are budgeted at a fund level and will be allocated to individual projects as part of the year-end close process. For midyear reporting, the actual labor costs incurred by each project as of the date of the report are removed from total current expenditures to make expenses align with the budget amount. The matrix does not include "continuous" projects. These projects, such as water meter replacement, have no definitive beginning or end dates and receive ongoing funding to reflect the continuing replacement cycles or commitments. During the first half of 2007-08, progress was made on all of the "continuous" projects (Attachment 3). RESOURCE IMPACT Adoption of the attached ordinance will allow for adjustments to the fiscal year 2007-08 budget, along with amendments to the Table of Organization, the Municipal Fee Schedule and 8 General Fund CIP projects. With the approval of this ordinance, the projected ending balance of the General Fund Budget Stabilization Reserve is $25.7 million, an increase of $2.3 million. This results in a BSR level of 17.4 percent of budgeted expenditures. The Capital Fund Infrastructure Reserve is projected to end with a balance of $16.5 million, an increase of $1.4 million. The projected ending Rate Stabilization Reserve total for all Enterprise funds decreases by $9.4 million mainly due to additional appropriations for various capital improvement projects and commodity cost increases. POLICY IMPLICATIONS These recommendations are consistent with existing City policies. CMR:132:08 Page 10 of 10 ENVIRONMENTAL ASSESSMENT This is not a project for purposes of the California Environmental Quality Act (CEQA). PREPARED BY: DAVID RAMBERG Budget Manager DEPARTMENT HEAD APPROVAL: LALO PEREZ Director, Administrative Services CITY MANAGER APPROVAL: EMILY HARRISON Assistant City Manager ATTACHMENTS Attachment 1: Budget Amendment Ordinance with the following exhibits: Exhibit A Fund Summaries and detail changes to the General Fund, Enterprise Funds, Special Revenue Funds, Internal Service Funds, and Capital Improvement Fund Exhibit B 2007-08 Midyear CIP Adjustments Exhibit C Amendments to the 2007-08 Adopted Municipal Fee Schedule Exhibit D Amendments to the 2007-08 Table of Organization Attachment 2: 2007-08 Midyear Capital Improvement Program Projects Status Attachment 3: List of Continuous Capital Projects Attachment 4: Resolution of the Council of the City of Palo Alto amending the Compensation Plan for Management and Professional Personnel and Council Appointees Adopted by Resolution No. 8748 to add two new classifications Exhibit A: 2007-08 Compensation Plan Changes for Management/Professional Personnel