April 10, 2004

SUBJECT: Presentation of the FY 2004/2005 Preliminary, Unbalanced Annual Budget and Long-Term Financial Plans, Development of City Council's Vision for Sunnyvale, and Discussion of Revisions to City Services and Levels of Service

This Report to Council describes three issues that will be addressed at two special City Council meetings scheduled in April 2004. These issues are:

• presenting next fiscal year's preliminary, unbalanced annual budget and long-term financial plans,

• developing City Council's vision for Sunnyvale, and

• setting priorities for City services and making revisions to service levels.

The new process for developing and presenting the annual budget and long-term financial plan can be used for several purposes: to inform the public about the services provided by the City, to allow Council more involvement in preparing the annual budget and long-term financial plan, to prioritize services and revise service levels, and to address any budget gaps that emerge.

The report provides an overview of the financial information that will be included in the preliminary, unbalanced annual budget. It also outlines a suggested approach Council may use to reach a common understanding and consensus on its vision for the community. Finally, several alternative methods are described to assist Council in establishing or determining service priorities and for reviewing and revising service levels for existing services.

Following the April special meetings, staff will identify the effects of Council's preliminary policy direction. City staff will incorporate Council's preliminary policy direction into the development and presentation of the FY 2004/2005 recommended budget and long-term financial plans. Council's final policy direction will be implemented through the adoption of the final FY 2004/2005 annual budget, and any budget modifications that are presented during the first six months of FY 2004/2005.

The City Council held three special meetings in March 2004 to review the services currently provided by the City, and to begin a process of prioritizing and potentially revising these services and service levels. Council assigned about 600 services or groupings of services to one of five service ranking categories. Council also directed staff to provide additional information regarding the types of populations that are using City services and an estimated number of customers using these services.

Two additional special meetings are scheduled on April 10 and April 17, 2004. These special meetings, and the ones held in March, are part of a new process for preparing and presenting the City's annual budget and long-term financial plans. The process has been designed so that it can be used for several different purposes. These are:

• to provide the public with a more complete understanding of the types of services and service levels that are provided by the City,

• to allow the City Council with earlier and more direct involvement in the preparation of the recommended annual budget and long-term financial plan,

• to provide an approach Council may use to set priorities for City services and to revise current service levels, and

• to provide preliminary policy direction on methods to resolve any gap between available revenues and projected costs in any of City fund.

It should be noted that there are significant limitations on transferring assets or monies between City funds in order to resolve a budget gap. These limitations will be discussed in more detail at the April 10, 2004 special Council meeting.

Staff will use Council's initial policy direction to prepare next fiscal year's recommended annual budget and long-term financial plans. Multiple methods have been used to inform the public about the special meetings and to encourage their involvement and participation in the revised budget process.

Goal 7.1B: Financial Practices: Maintain Sound Financial Practices Which Meet All Applicable Standards and Direct the City's Financial Resources Toward Meeting the City's Long-Term Goals.

Policy 7.1B.5: Performance Budget System: Maintain and refine the Performance Budget System to assure its use for multi-year planning, full cost accounting, and budget monitoring.

This report is intended to be used at both the April 10 and April 17, 2004 special City Council meetings. The topics that will be addressed at each special meeting are listed on Attachments A and B. Two topics are listed on the agenda for the April 10^th special meeting They are:

1. Presentation and Discussion of the Preliminary, Unbalanced Annual Budget and Long-Term Financial Plans for FY 2004/2005 for certain City funds.

2. Development of the City Council's Vision for Sunnyvale.

Several public hearings will also be included on the meeting agenda to allow for public comment and discussion on these topics.

Only some City funds will be presented on April 10^th as part of the presentation of the preliminary, unbalanced budget. The remaining City funds will be presented and discussed at the April 17^th special meeting. In addition, it may require most of the April 10^th special meeting to present and discuss the preliminary, unbalanced budget. If so, the discussion of the City Council's Vision for Sunnyvale will be carried over to the April 17^th special meeting.

The tentative agenda for the April 17^th special meeting includes the following topics:

1. Presentation and Discussion of the Preliminary, Unbalanced Annual Budget and Long-Term Financial Plans for the for certain City Funds

2. Development of the City Council's Vision for Sunnyvale.

3. Development of Preliminary Policy Direction Regarding City Services and Service Levels.

Public hearings will also be included at the April 17^th special meeting to encourage public participation and involvement as next year's annual budget and long-term financial plans are developed.

A. Preliminary, Unbalanced Annual BudgetStaff will present the FY 2004/2005 preliminary, unbalanced annual budget and long-term financial plans for several key City funds at this special meeting. Staff has been working since September 2003 to prepare next year's recommended annual budget and long-term financial plans. Traditionally, this work has been completed so that the recommended annual budget is distributed to Council in May. The customary, complete, three-volume annual budget will not be presented at the April 10^th special meeting. Rather, staff will use the revised 20-year long-term financial plans to present the preliminary, unbalanced annual budget. Long-term financial plans for the following City funds will be presented:

• General Fund

• Gas Tax Fund

• Youth and Neighborhood Services Fund

• Community Recreation Fund

• Patent Library Fund

• Redevelopment Agency Fund

These financial plans will indicate the size of the financial gap (if any) in next fiscal year's annual budget, if the long-term financial plans remain balanced to the 20^th year.

At the special meeting, staff will review the revenue sources that are used to support these funds. Staff will present key cost and revenue assumptions that were used to prepare the preliminary, unbalanced annual budget. Staff will also review the legally accepted relationships that govern transferring assets between City funds, and will review the legal limitations for using revenues generated through services provided by a specific fund to pay for services located in a different City fund. It is anticipated that the staff presentation, Council discussion, and comments from the public on the preliminary budget and long-term financial plans could consume the majority of the April 10^th special meeting.

B. City Council's Vision for Sunnyvale

If time permits, Council will discuss its vision for Sunnyvale at this special meeting. The City Council's vision for the community can serve as a backdrop or reference point as it makes decisions regarding increases or decreases to City services and service levels. Council may find it helpful to keep its vision for Sunnyvale clearly in mind in making these difficult budget decisions. That way, Council can consider whether its decision to increase or decrease a specific City service will help to implement its vision for the community or will be more likely to detract from its vision for Sunnyvale.

There is a tremendous amount of work to complete at the April 10^th and 17^th special meetings. As a result, a limited amount of time (about one hour) can be devoted for Council to build a shared understanding regarding its vision for Sunnyvale. At future meetings, Council could address additional topics that will more fully address its vision for the community.

Staff has developed a suggested approach Council could use to develop its vision for the community. This suggested approach focuses on the services that Council would like to insure are available in the community 10 years from now. Council's vision for Sunnyvale can extend to any length of time. Ten years was chosen to establish a common point in the future.

There are a number of ways to "look at" or "vantage points" for developing a vision for Sunnyvale. This approach suggests three vantage points for describing what Sunnyvale "looks like" now, and what Sunnyvale will "look like" 10 years from now. These vantage points are:

• The City's current physical development or redevelopment and the new physical development or redevelopment projects that may happen during the next 10 years.

• The current services being provided by public agencies and private businesses, and the new services that may be provided by public agencies and private businesses during the next 10 years.

• The current "communities" (lower case "c") that make up Sunnyvale now, and the changes to these communities or new communities that will evolve to make up the complete Sunnyvale "Community" (upper case "C") during the next 10 years.

There are four parts to the suggested approach.

Part One: Sunnyvale 2004

In thinking about the future, it is important to first focus on the present. Staff will show a short video that portrays Sunnyvale as the community exists in 2004. The video contains pictures that describes Sunnyvale in terms of its existing residential, commercial, office and industrial development, and City facilities. There are also pictures of the current development and redevelopment projects that are underway.

Next, the video contains pictures that describe the broad range and mix of services that are provided by the City, by other public sector agencies such as schools, and by private businesses. Finally, the video shows pictures that describe the residents, businesses, neighborhood groups, and community groups that can be found in Sunnyvale today.

The pictures shown in the video will also be displayed in Council Chambers so that Council may add to, revise, or delete pictures. This will allow Council to select the images that represent what it believes the community "looks like" in 2004.

Part Two: Emerging Changes

Staff will very briefly describe current trends and issues that may change the make up of the community in the future. This presentation will address demographic trends, economic and fiscal issues, land use development and redevelopment trends, and the changing demands for City services.

Part Three: Sunnyvale 2014

Through this part of the suggested approach, Council will discuss what Sunnyvale will "look like" in 2014, and the directions it may want to undertake in order to reach its vision. Given the limited time available, this discussion will focus only on the new services or revisions to existing services that Council would like to see made available in the community by 2014. Attachment C contains questions regarding services that the Council may want to use as it discusses this issue. Council members may want to independently consider these questions prior to the April 10^th meeting. Not all the questions will need to be addressed at the special Council meeting. Rather, they are designed to guide and frame the discussion at the April 10^th meeting regarding the services that should be available to residents, businesses, and visitors to Sunnyvale during the next 10 years.

This discussion may also produce an inventory of issues that will either assist in helping the Council's vision for the community become a reality or serve to prevent the vision from happening if these issues are not addressed.

Part Four: Presenting Council's Vision for Sunnyvale

Staff will record issues or areas where Council reaches an agreement or a shared understanding on revisions to existing services or new services that will be available by 2014. Following the special meeting, staff will match pictures to these areas of agreement and prepare a mosaic of what Sunnyvale may "look like" in 2014. This new mosaic will be available at the April 17^th special meeting, or a future City Council meeting, if the Council discusses its vision for Sunnyvale only at the April 17^th meeting. Staff will also summarize in writing Council's vision for Sunnyvale, based on the agreements and shared understandings reached when discussing its vision for Sunnyvale.

If directed by Council, staff can prepare similar discussion questions that Council could use to examine the two remaining vantage points: new development or redevelopment projects and the communities that make up the larger Community. These topics can be addressed at future Council meetings. Again, staff could prepare additions to Council's written and pictorial vision for Sunnyvale, and present these at future Council meetings.

The written and pictorial vision for Sunnyvale's future can serve as an important reference point as Council considers changing the services or the levels of service that the City provides. Council's vision can help to shape its decisions regarding increasing or decreasing existing service levels, adding new services, or eliminating existing services. Council's vision can also be used in the future in providing policy direction on other policy-related issues.

The Deputy City Manager can serve as a facilitator to Council if it decides to use this four-part approach for developing its vision for Sunnyvale.

A. Preliminary Policy Direction Regarding City Services and Levels of Service

The focus of the April 17^th special meeting will be to prioritize existing City services and service levels. As stated earlier, some time will also be devoted to presenting preliminary long-term financial plans for the remaining City funds, and on Council's vision for Sunnyvale.

During the special meetings held in March, Council assigned about 600 services or groupings of service to one of five service ranking categories. These categories are: legally mandated/required by contract, core external service, core internal service, expected/traditional service, and option service. In addition, Council also determined whether a specific service or grouping of services is "scalable". It is staff's understanding that Council used the term "scalable" to identify services where the service level or quality level can be adjusted.

Two sets of worksheets will be included in the binder for the April 17, 2004 special meeting. The binder will be distributed to Council prior to the April 17^th special meeting. Section 1 will contain the Service Review Process Summary Worksheets. These worksheets organize City services by the category assignments made by Council. These worksheets will be photocopied on green paper. These worksheets group City services into one of ten categories assigned by Council. These categories are:

• Legally Mandated/Required by Contract: Not Scalable

• Legally Mandated/Required by Contract: Scalable

• Core External Service: Not Scalable

• Core External Service: Scalable

• Core Internal Service: Not Scalable

• Core Internal Service: Scalable

• Expected/Traditional Service: Not Scalable

• Expected/Traditional Service: Scalable

• Optional Service: Not Scalable

• Optional Service: Scalable

These worksheets also include information describing the department that provides the service, the budget cost for the service, the fund that pays for the service and any cost recovery. The worksheets also provide information regarding the types of customer(s) and an estimated number of customers that use the service.

Section 2 in the binder will contain the revised Department Summary Review Worksheets. These worksheets (photocopied on blue paper) will organize City services by departments, and will include a more thorough description than provided on the previous department summary worksheets of the customer group(s) and an estimated number of customers that are using these department services.

Section 3 in the binder contains memos and other information to respond to motions approved by Council or information requests made by Council at the March special meetings.

Staff suggested whether services were "scalable" or "not scalable" in presenting the Department Summary Service Review Worksheets at the March Special meetings. Many times, Council's motions made reference to staff's recommendations. Services included in either the "scalable" or "not scalable" categories on both the green and blue worksheets are based on staff's verbal presentations at the March special meetings, and any specific direction provided in Council's motions that were approved at the March meetings.

There are two steps involved in order for Council to prioritize City services and to revise service levels. First, Council will need to identify or select the services that will be prioritized. Second, Council will need to prioritize the selected services or consider whether to revise service levels.

There are several methods or approaches that could be used to select City services to be prioritized. For example, Council could select a specific service ranking category (i.e. optional services: scalable) and prioritize all services in this category. Or, Council could select specific services assigned to any of the 10 service ranking categories, and prioritize those services. Or, Council could prioritize all City services or groupings of services listed on the green worksheets.

Space has been provided on the green worksheets for Council to prioritize City services and revise existing service levels. Again, several methods or approaches could be used to prioritize services and revise service levels. For example, Council could discuss a specific service and then consider a motion assigning the service to one of the eight priority categories listed below:

1. No change to existing service level

2. Low increase to existing service level (5%)

3. Medium increase to existing service level (10%)

4. High increase to existing service level (15%)

5. Low decrease to existing service level (5%) 

6. Medium decrease to existing service level (10%)

7. High decrease to existing service level (15%)

8. Eliminate service

This method could be repeated until Council has prioritized all the services that it chooses to prioritize. The percentage increase or decrease represents service levels, not the budget for the service. Budget increases or decreases would be determined by staff following Council's preliminary policy direction, and would be used to prepare the recommended FY 2004/2005annual budget and long-term financial plans.

Another approach for prioritizing services and revising service levels would be for Council to address each green worksheet individually. A motion could be made to consider assigning one or more services to a specific priority category (such as medium decrease to existing services level or high increase to existing service level, and making no changes to the existing service levels for the balance of the services included on the worksheet.

Or, Council could choose the method it uses for ranking study issues at the annual Study Issues workshop. For this approach, each Council member would write a priority category number (1-8) on his/her green worksheet during the special meeting for each service. These worksheets would be collected by staff at the special meeting and then tabulated. These results would be reported at the subsequent special or regular Council meeting.

Regardless of the method used by Council to prioritize services or to revise service levels, it will be important for staff to report back to Council the effects of its initial policy direction. This will allow staff the opportunity to determine how a change to a service or service level will reduce or increase the annual budget cost for the specific service. Staff will also be able to determine the effect on staffing levels and will be able to identify possible effect(s) on services provided by other City departments. It will be counter productive to reduce service levels within one department in order to close the City's overall budget gap, if this action results in higher costs or reduced productivity within another City department.

The effects of Council's initial policy direction will be identified by staff, and reported to Council as part of developing and presenting the recommended annual budget and long-term financial plans. Council's initial policy direction will be incorporated into the recommended budget. The effects of the initial policy direction will be discussed as part of the presentation of the recommended annual budget and long-term financial plans at the May 25, 2004 budget workshop. This discussion will include suggested strategies that could be used to close the anticipated budget gap in the General Fund.

At this point, staff anticipates implementing all Council final policy direction regarding service prioritization and/or revisions to service levels no later than January 1, 2005. This implementation process will be completed through either the adoption of next year's annual budget, or through one or more budget modifications that will be presented to Council for its consideration during the first six months of FY 2004/2005.

B. Preliminary Long-Term Financial Plans

Staff will present for discussion by Council the preliminary long-term financial plans for these funds at the April 17^th special meeting:

• Housing Fund

• Community Development Block Grant Fund

• Public Safety Forfeiture Fund

• Police Services Augmentation Fund

• Parking District Fund

• Doralou Swirsky Youth Opportunities Fund

• Fremont Pool Trust Fund

• Utilities Fund

• SMaRT Station Fund

Staff will review the revenue sources that are used to support these funds. Staff also will present key cost and revenue assumptions that were used to prepare the long-term financial plans. Finally, staff will review the legally accepted relationships that govern transferring assets between City funds, and will review the legal limitations for using revenues generated through services provided by a specific fund to pay for services located in a different City fund.

C. Council's Vision for Sunnyvale

This topic will be addressed if not discussed and completed at the April 10^th special meeting, using the suggested process described earlier in this report.

There is no direct fiscal impact from assigning City services to priority categories or to revise service levels. There will be a fiscal impact if Council provides policy direction to add new services, to eliminate existing services, and/or to increase or decrease service levels for existing services. These fiscal impacts will be identified by City staff and reported back to Council at future regular or future meetings, or as part of the process of preparing and presenting the recommended annual budget and long-term financial plans for FY 2004/2005. Implementation of final Council policy direction regarding service additions, deletions, and/or changes to service levels will be accomplished either through

• The adoption of next year's annual budget and long-term financial plans, or

• budget modifications approved by Council during the first six months of FY 2004/2005, or

• some combination of the foregoing.

The public was notified of this item through publication of the Council Agenda (public hearing items) in the San Jose Mercury News and the posting of the Council Agenda and report on the City of Sunnyvale internet home page. Staff will also use the following methods to publicize Council's review and prioritization of City services: issuing news releases, providing KSUN announcements, including articles on the City's Web Site, providing copies of Reports to Council at the Library, and making announcements at neighborhood outreach and City Council meetings.

Several methods or approaches for selecting City services to be prioritized, for prioritizing services, and for revising service levels were described earlier. Additional alternatives may emerge at the April special meetings, based on Council's discussion.

It is recommended that Council:At the April 10, 2004 special meeting:

1. Receive and discuss the preliminary, unbalanced annual budget and long-term financial plans for FY 2004/2005 for certain City funds, and provide any initial policy direction that it wants staff to incorporate in preparing the recommended annual budget and long-term financial plans for FY 2004/2005.

2. If time permits, develop Council's vision for Sunnyvale, using the process described in this report, or changing the process and using it to develop its vision.

At the April 17, 2004 special meeting:

1. Receive and discuss the preliminary, unbalanced annual budget and long-term financial plans for FY 2004/2005 for any remaining City funds not addressed at the April 10^th special Council meeting

2. Provide any initial policy direction that the City Council wants staff to incorporate in preparing the recommended annual budget and long-term financial plans for FY 2004/2005.

3. Develop Council's vision for Sunnyvale, if not completed at the April 10^th special meeting, using the process described in this report or changing the process and using it to develop its vision for the community.

4. Prioritize City services and/or revise service levels, by first reviewing and revising service levels for one or more services included in the Optional: Scalable category. Repeat this process for the remaining rating categories in the following order until Council completes its work to prioritize City services and revise service levels:

• Optional Service: Not Scalable

• Expected/Traditional Service: Scalable

• Expected/Traditional Service: Not Scalable

• Core Internal Service: Scalable

• Core Internal Service: Not Scalable

• Core External Service: Scalable

• Core External Service: Not Scalable

• Legally Mandated/Required by Contract: Scalable

• Legally Mandated/Required by Contract: Not Scalable

5. Direct City staff to identify the effects of Council's preliminary policy direction, and incorporate Council’s direction as part of preparing and presenting the FY 2004/2005 recommended annual budget and long-term financial plans.

Prepared by:

Charles J. Schwabe
Deputy City Manager

Approved by:

Amy Chan
City Manager

Attachments

1. Attachment A: Agenda for the April 10, 2004 Special City Council Meeting
2. Attachment B: Discussion Topics for the April 17, 2004 Special City Council Meeting
3. Attachment C: Framework Questions for City Council's Vision for Sunnyvale