Second, the City Council must adopt the FY 2003/2004 Budget by June 30. This has traditionally been done by resolution. It is recommended that Council adopt the budget as presented at the June 3^rd public hearing, along with amendments as prescribed by Council at the public hearing. These amendments are discussed in detail in the Summary of Recommended Budget section below and incorporated as part of Alternative 1. The Budget Resolution, as well as exhibits depicting the appropriations by fund, fund transfers and reserve increases and decreases necessary for implementation of the budget as recommended in this report, is presented as Attachment B.

A separate action on each item is not necessary, unless the City Council wishes to change any recommendation. It is recommended that the budget be approved as described in Alternative 1, with Council’s desired changes being dealt with as amendments to Alternative 1.

Third, the City Council must adopt, by resolution, the FY 2003/2004 Appropriations Limitation. The calculations and the detailed supporting information are contained in Attachment C. A discussion concerning each of the three actions required by Council is described below.

The Public Hearing on the proposed fee changes was held as part of the Public Hearing for the Recommended FY 2003/2004 Budget on June 3, 2003. As part of the City Manager’s 6-Point Action Plan to address the budget crisis, staff conducted a comprehensive review of the City’s Fee Schedule to ensure all fees and charges were aligned with the cost of service. The results of staff’s analysis indicated a growing disparity between revenue collection and cost of service. The single largest factor associated with the disparate nature of fee revenue to cost of service was higher than anticipated salary costs.

To address this growing disparity, fees that were not labor based were inflated by a standard percentage of 3% except for those fees that are legally limited. Fees that were labor based were increased by approximately 9%. This increase is in direct correlation with the average salary adjustments approved by Council through the adoption of the FY 2002/2003 Salary Resolution. Staff has also factored in administrative overhead costs to certain fees that were previously not included in the fee structure.

As part of the 6-Point Action Plan, staff reviewed city services for potential cost recovery. As a result of this review, staff has proposed new fees for services that were previously not recovered and therefore subsidized by the City. These new fees were incorporated into the Recommended FY 2003/2004 Budget as part of the proposed Fee Schedule. For ease of reference, a copy of the recommended Fee Schedule for FY 2003/2004 is included as an attachment to this report in Exhibit A of Attachment A. 

On June 10, 2003, Council approved a contract to enter into a short-term agreement with the Humane Society Silicon Valley for animal shelter services. The fees associated with this agreement were itemized as an attachment to the staff’s report. These fees have been added to the FY 2003/2004 Fee Schedule as shown in Exhibit A of Attachment A.

Article XIIIB of the California Constitution established an appropriations limitation on government agencies within California. Attachment C provides information on the appropriations limitation, which is a calculation of how much the City is allowed to spend. Calculations for FY 2003/2004 indicate that the City will be below the appropriations limitation by approximately $36 million based on the Recommended FY 2003/2004 Budget. State legislation requires that the City annually adopt an appropriations limitation for the coming year. Also, Council must select one factor from each component below by which to calculate the limit. The options available are as follows:

Inflation Factors

1. California per capita income
2. Increase in non-residential assessed valuation due to new construction

Population Factors

1. City population growth
2. County population growth

Staff recommends that Council select the combination of factors that yields the most favorable amount under the appropriations limitation. Those factors for FY 2003/2004 are the California per capita income and the County population growth. Based on this selection, the appropriations limitation for FY 2003/2004 is calculated to be $119,902,964. Expenditures subject to the appropriation limit exclude Redevelopment Agency activity, Enterprise and internal service activity, debt service payments and capital outlay projects including all infrastructure projects. Revenues related to these projects are also excluded from the calculation. In future years, the factors may be changed by a vote of the City Council.

Although the City is well below the limitation, it is beneficial in the long run to select the growth-rate option that maximizes the amount under the appropriations limitation.

As presented in the recommended budget, the total revenue for FY 2003/2004 is approximately $197 million, and total expenditures are approximately $209 million. The total recommended budget for operating expenditures is approximately $180 million. The total project and equipment budget is approximately $22 million. Debt Service totals approximately $7 million. Details of the revenues and expenditures are contained in the Recommended FY 2003/2004 Budget and Resource Allocation Plan, distributed on May 13, 2003.

Since the distribution of the recommended budget, staff determined that the Public Safety Expanded Recruitment Project was not correctly identified in the above totals. While correctly identified in the financial plan, the total project budget should be increased by $2 million to approximately $9 million and therefore total expenditures are approximately $211 million to accurately account for this project. This revision will be reflected in the adopted budget.

On June 3, 2003, the City Council held a Public Hearing on the recommended FY 2003/2004 Budget. The hearing was formally closed on that date. Upon close of the public hearing, Council provided policy direction on the following items:

• Council approved FY 2003/2004 funding for the special extension of benefits and supplemental salary to employee reservists called to Active Duty. This extension increased the length of the benefit from six months to one year. The additional one-time costs will be funded from savings associated with the cancellation of management bonuses for FY 2002/2003.
• Council directed staff to remove $350,000 in the Budget for sidewalk repair fee revenue and to propose equivalent funds in its place. Staff recommends the following expenditure reductions or revenue increases:
• Eliminate 1,800 hours of a Transportation Planner from Program 115, Transportation Operations. This reduction will impact the department’s capacity for legislative/IGR reviews, planning studies, traffic design, citizen and non-citizen issues and intergovernmental coordination. Total savings of $120,420 will be realized by this reduction.
• Reduce the annual concrete replacement contract budget by 20%. This reduction will increase wait times for sidewalk repairs. Last year, the service level was changed from a one-year waiting period to three years. This reduction will potentially lengthen the waiting period to five years. Total savings of $97,723 will be realized by this reduction.
• Eliminate 900 hours of a Senior Office Assistant from Program 302, Public Works Support Services. This reduction will reduce service levels associated with administrative support of Project Administration staff, and increases in response times for encroachment inquiries and scheduling of inspections will occur. Total savings of $35,793 will be realized by this reduction.
• Eliminate 350 hours of a Civil Engineering Assistant from Program 306, Engineering Services. This reduction will reduce the engineering staff’s ability to review development plans; answer general engineering inquires and support utility agreements. Total savings of $20,789 will be realized by this reduction.
• Increase the proposed rent amount charged to SMaRT Station® by $75,000. This would increase the total estimated revenue to $325,000 per year. The initial estimated rental revenue of $250,000 was based upon rented received by Raisch Concrete and Asphalt Recycling for land located on actual landfill. Analysis by Public Work’s staff indicates that the land that the SMart Station occupies is not landfill and therefore has a higher market value. As a result, staff has increased the estimated revenue to account for this differential in land quality.

Alternative 1, of this report, includes two recommended changes for the FY 2003/2004 Adopted Budget. In addition, Council requested further information on the following items:

• Council asked staff to provide more detail on the proposed reduction of one Public Safety Officer Vice/Narcotics Detective from within the Investigations unit and to research potential alternatives to this cut. The reduction of this position would be in addition to the reduction of 1 Lieutenant and 1 Detective position currently included in the recommended budget. The Vice/Narcotics Investigations Unit is budgeted for 1 Lieutenant and 3 Detective positions, but is currently staffed at 3 positions, due to 1 vacancy. The total reduction proposal would reduce staffing to 0.5 detective and would potentially reduce the number of actual investigations from 253 (FY 2001/2002 actual) to approximately 60. The restoration of one detective would add back 1,900 budgeted hours to the Department of Public Safety’s Budget at a cost of $153,577, and would enable the department to conduct an additional 120 investigations for an estimated total of 180. While staff recognizes that this is a reduction in the number of cases investigated, staff believes it can satisfactorily respond to community needs in this area, mostly due to the fact that vice/narcotics cases tend to be more regional in nature (than strictly local) and dependent upon multi-jurisdictional coordination. To that end DPS staff is working toward strengthening its partnerships with neighboring cities to effectively respond to these types of offenses.

In order to restore the 1 Vice/Narcotics Detective staff recommends the following alternative reduction:

• Eliminate 1,900 hours of a vacant Crime Scene Investigations Coordinator position from Program 412, Police Services. The Department of Public Safety has determined that the duties and responsibilities assigned to this position could be absorbed by the department without a direct impact on current service levels. Both the Vice/Narcotics Detective and the Crime Scene Investigations Coordinator are budgeted at the same rate and therefore there would be no change in the fiscal amount associated with the Department of Public Safety’s operating reductions.
• Council directed staff to identify the fiscal impact of restoring a cut from the Wastewater Management Program that eliminated the service to repair, replace or install clean-outs or sewer laterals on private properties. The budgeted reduction for this service is $275,321. Previous estimates of the cost for this service did not include a variety of indirect costs, and only covered the repair of laterals and not other closely related services. This cost includes all budgeted hours and materials related to the total reduction, including administrative support, purchased goods and services, and management costs.

In addition to the aforementioned items staff would like to alert Council on an issue that may have an impact on the FY 2003/2004 Budget, the contract for janitorial services for City buildings. As Council is aware, service levels associated with janitorial services are to be reduced by approximately 40% as part of the City Manager’s 6-Point Action Plan. At Council’s direction staff recently completed a request for proposal for contracting janitorial maintenance of city buildings. Staff requested that bidders submit two proposals, one that maintains current service levels and one that reflects a 40% reduction in service levels. While the bids associated with current service levels were consistent with the FY 2002/2003 budget of $348,000; the bids associated with the 40% reduction did not reflect a corresponding 40% reduction in cost. Bids submitted at the reduced service level were only 15% less than those received for maintaining current service levels. This has produced a potential funding gap of $91,000 as staff had anticipated lower costs for the reduced services. Staff is currently re-evaluating the service levels and contract proposals as well as the Facility Management’s operations for additional savings. Staff will be presenting a report to Council regarding this matter in July 2003.

On June 03, 2003, staff presented a report to Council regarding potential alternatives for budget appropriation and amendment policies. At the conclusion of this report Council voted in favor of amending the current appropriation control policy. The revised policy places thresholds on reappropriations between programs. These thresholds have been defined as follows:

• For reappropriations between programs where the annual program budget is equal to or greater than $500,000, Council approval is required for reappropriations between programs that exceed $100,000 or 5% of the annual program budget, whichever is greater, up to a maximum of $250,000
• For reappropriations between programs where the annual program budget is less than $500,000, the maximum reappropriation threshold is limited to $50,000 or 50% of the annual program budget, whichever is less.

In addition, Council requested clarification of the appropriation policy for Enterprise Funds. As Enterprise and Internal Service Funds are business type activities that are controlled by available revenue and demand for service, staff recommends that the following language be added to the budget resolution:

• If the expenditures for the Proprietary Funds and Internal Service Funds for the fiscal year exceed actual revenues plus the planned appropriation from the Rate Stabilization Reserve Account or the Resource Allocation Plan Reserve Account, as the case may be, on an annualized basis, Council approval shall be required.