June 1, 2004

SUBJECT: Public Hearing - FY 2004/2005 Budget and Resource Allocation Plan, Establishment of Appropriation Limitation and Proposed Fee Increases

REPORT IN BRIEF

The City Charter requires that a Public Hearing be held prior to the adoption of the FY 2004/2005 Budget and Resource Allocation Plan. A Public Hearing is also required on proposed adjustments to fees or service charges. As part of this hearing, staff has included the annual establishment of the appropriation limitation. No action is required on the part of the City Council other than what City Council itself initiates during the Public Hearing. Staff is requesting Council give direction on an additional budget request submitted by Councilmember Miller regarding additional travel funding for FY 2004/2005. Adoption of the Budget and Fee Schedule is scheduled for June 15, 2004.

BACKGROUND

Section 1303 of the City Charter states that "At the time so advertised, or at any time to which Public Hearing shall from time to time be adjourned, the City Council shall hold a Public Hearing on the proposed budget, at which interested persons desiring to be heard shall be given such opportunity."

Article XIIIB of the California Constitution established appropriation limitations on government agencies within California. Section 7910 of the Government Code requires that the City annually adopt an appropriation limitation for the coming year. Any challenges to the declared limit must be brought within 45 days of its adoption. The supporting documentation for the establishment of the limitation must be available for public review at least 15 days prior to the adoption of the appropriation limitation resolution. The required material, Attachment A, that provides detailed information on the appropriation limitation, has been available since May 18, 2004 as included in Volume I of the recommended FY 2004/2005 Budget and Resource Allocation Plan.

Section 66016 (a) of the Government Code provides that, prior to levying a new fee or service charge, or approving an increase in an existing fee or service charge, the City shall hold at least one public meeting at which time oral or written presentations can be made.

EXISTING POLICY

In accordance with the City Charter, California Constitution and State Code, a public hearing has been held annually for public comment on the budget and resource allocation plan, appropriation limitation and proposed increase in fees or service charges for the upcoming fiscal year.

DISCUSSION

The purpose of the hearing is to furnish an opportunity for citizens to be heard on the City's budget, the appropriation limitation, and the proposed increase in fees and charges. No action is required on the part of the City Council except for what the Council itself initiates. The FY 2004/2005 Budget and Ten-Year Resource Allocation Plan is scheduled for adoption on June 15, 2004.

Appropriations Limit

Article XIIIB of the California Constitution established appropriation limitations on government agencies within California. Section 7910 of the Government Code requires that the City annually adopt an appropriations limit for the coming year. The appropriations limit is set on an annual basis and is dependent upon the change in population within the jurisdiction and the change in the cost of living as determined by the State.

As shown in Attachment A, the appropriations limit for FY 2004/2005 is approximately $125 million. Expenditures subject to the appropriation limit exclude Redevelopment Agency activity, Enterprise and internal service activity, debt service payments, and capital outlay projects that have a useful life of 10 years or more and a value which exceeds one hundred thousand dollars. Non-Tax revenues, such as federal and state grants, fees for service, or revenues restricted for particular purposes, are also excluded from the calculation.

As a result of the calculations, the City will be under the allowable appropriations limit by approximately $46 million for FY 2004/2005.

Recommended FY 2004/2005 Budget and Budget Workshop

On May 25, 2004, the City Council held a Budget Workshop to review in detail the City Manager's recommended FY 2004/2005 Budget and Ten-Year Resource Allocation Plan. Although City Council is only required to adopt an annual budget, staff presented a ten-year resource allocation plan and a twenty-year financial plan for approval in concept as well.

In summary, the total recommended revenue for FY 2004/2005 is approximately $206 million, and total expenditures are approximately $220 million. The total recommended budget for operating expenditures is approximately $189 million. The total project budget is approximately $26 million. Debt Service totals approximately $7 million. Details of the revenues and expenditures are contained in the recommended FY 2004/2005 Budget and Ten-Year Resource Allocation Plan, distributed on May 18, 2004.

Over the last several years the City’s General Fund revenues have declined, while costs have risen faster than inflation. This situation has led to a continuing structural imbalance between revenues and expenditures in the General Fund, over the first part of the Ten-Year Financial Plan. To address this imbalance several strategies have been developed and included in the General Fund Long-Term Financial Plan.

On the revenue side, two fiscal strategies have been included. First, $1.7 million has been anticipated beginning in FY 2004/2005 to reflect the implementation of the proposed Emergency/911 Fee that was approved in concept during last year’s budget process. This fee will be brought to Council for consideration on June 8, 2004. Second, the Long-Term Financial Plan anticipates that development of the Sunnyvale Town Center will generate approximately $1 million in new Sales Tax net of new costs beginning in FY 2007/2008.

On the expenditure side, a $1.1 million reduction is included under fiscal strategies for FY 2004/2005 and an additional $2.3 million reduction annually through FY 2011/2012. To fund these reductions, staff will be exploring a number of fiscal strategies and cost savings ideas detailed in Appendix A of the recommended budget’s transmittal letter. Staff will also be analyzing the service level reductions identified in April by Council, which are detailed in Budget Supplement #3 in the Recommended Budget. The City Manager recommends review and prioritization of the potential reductions in December when the City’s economic picture and the State budget situation become clearer.

At the Budget Workshop, the City Manager reviewed fiscal strategies and action items that staff will be exploring in the next year. Council added one additional fiscal strategy in conjunction with the Community Recreation Fund fiscal strategies: while maximizing revenues by charging market based fees wherever possible, and provide consideration for those who cannot pay market rates.

The City Council also reviewed the staff responses to Council questions from the March and April budget meetings. Vice Mayor Chu requested the addition of total General Fund revenues in the chart containing historical General Fund Reserve data. The chart has been updated with this information and is included as Attachment B to this report.

Fees and Charges

The proposed fee schedule has been included in the recommended budget. Fees that were not labor based have been inflated by a standard percentage of 3% except those fees that are legally limited. Fees that are labor based are proposed to increase by approximately 6.5%. This increase is in direct relation to the average salary and benefit adjustments approved by Council through the adoption of the FY 2003/2004 Salary Resolution. Staff has also factored in administrative overhead costs to certain fees where these costs were previously not included in the fee structure.

As part of the annual fee review process staff has proposed new fees and has adjusted a number of fees in order to more closely recover costs associated with the delivery of service. These new fees and any fees that are proposed to be increased beyond the standard mentioned above are discussed in detail in Volume I of the FY 2004/2005 Recommended Budget in the User Fees section.

Several years ago, when under contract with the City, Santa Clara County Housing Authority maintained the wait list for the BMR Home Ownership program. Applicants for homeownership were charged a $550 processing fee by the Housing Authority, in addition to a fixed fee of $12,000 per year paid by the City. In June, 2002 the City terminated the contract with the Santa Clara County Housing Authority for administration of the BMR Waiting List for the BMR Ownership Program.

Staff is requesting the inclusion of three new fees associated with the City’s BMR Housing Program. These new fees have been developed to recover costs from services provided to process BMR purchase applications, process BMR re-finance requests, and process certification of eligibility for BMR renters. Staff anticipates the proposed fees will generate $40,000 in revenue during FY 2004/2005. In order to be able to collect these fees a change to the current City Ordinance will be required. The Department of Community Development staff will present a report detailing the ordinance change on tonight’s agenda

Due to the timing associated with the development of these fees they were not included in the FY 2004/2005 Proposed Fee Schedule provided in the FY 2004/2005 Recommended Budget. The amendment to the proposed fee schedule is detailed in Appendix C of this report.

Staff surveyed other local jurisdictions operating similar programs to determine the level of support charged for similar fees, as well as analyzing the estimated amount of staff time necessary to accomplish the specific tasks. Currently Mountain View, under contract with the Housing Authority, is charged $500 per sale, $150 per tenant monitoring, and pays a monthly service fee. Palo Alto’s contract for services with the Palo Alto Housing Corporation, a non-profit agency, is over $100,000 per year, with city staff providing additional programmatic support. Santa Cruz County has fees of $500 to process refinance requests and $700 for processing sales. Lastly, Santa Clara County charges $300 to process refinance requests on mortgages with tax credits and staff gas determined that amount is comparable to other jurisdictions throughout the state.

Staff time to review and verify the documentation submitted on eligibility and preference points is considerable. With the submittal of their application to purchase, an applicant would pay a non- refundable filing fee for processing their application. Staff recommends a fee of $700 per application. The homeownership program targets households from 80% to 120% of median. Staff believes that the proposed fee is reasonable, within the same range as fees charged by other entities and below the actual cost for processing.

Staff recommends a fee of $300 to process requests for refinance. BMR owners who wish to refinance are required to attend an educational workshop and work with City staff to record a new Deed of Trust to replace the prior deed restriction, and a Request for Notice of Default. Nine units have been refinanced since June 2003. At least 6 hours of City staff time is required to process a refinance from the initial request to the close of escrow and receipt of the Recorded Deed of Trust. Requests have increased significantly from prior years since interest rates have remained at historic low levels. Again, staff believes that the proposed fee is reasonable, within the same range of fees charged by other entities and below the actual cost for processing.

Staff recommends a fee of $100 to process applications for BMR renters. In the BMR Rental Program, each property owner/manager maintains a waiting list for their property. However, the Administrative Procedures for the Rental Program have been revised so that each applicant is granted preference points to determine their priority placement on the waiting list. The City will issue a "Certification of Eligibility" to each applicant so that there is uniformity in the review of documentation and assignment of preference points using the City’s database. Again, staff believes that the proposed fee is reasonable, within the same range of fees charged by other entities, below the actual cost for processing and should not act as an economic deterrent to those households in need of affordable housing.

Additional Budget Requests

As per the City Council travel policy Councilmember Miller has submitted a request for an increase of $2,236 in her travel budget for FY 2004/2005. The justification for this increase is detailed in Attachment D. If approved, funds can be taken from Non-Recurring Events Reserve. Staff is requesting Council policy direction on this issue.

FISCAL IMPACT

There is no fiscal impact to this public hearing. Budget adoption is scheduled for June 15, 2004.

PUBLIC CONTACT

Legal ads were published in The Sunnyvale Sun on May 12, 2004, May 19, 2004 and May 26, 2004. (Attachment E). Notice of the hearing has also been provided to those persons specifically requesting notice pursuant to the provision of the Government Code on fee increases. All potential recipients of the City's outside funding provisions were notified through the City's outside funding procedures. In addition, copies of the budget are available for review at the public library, Finance Department, and City Clerk’s Office. Finally, the City’s website has included the entire Recommended FY 2004/2005 Budget and Resource Allocation Plan since May 20, 2004.

RECOMMENDATION

1. It is recommended that the Public Hearing be held in order to meet the aforementioned requirements. Council should direct staff as to any issue requiring further review prior to the budget adoption on June 15, 2004.

2. Staff is requesting Council give direction on Councilmember Miller’s additional budget request regarding additional travel funding for FY 2004/2005.

Prepared by:

Mark Eyrich
Management Analyst/Budget

Reviewed by:

Grace Kim
Finance Manager/Budget

Reviewed by:

Mary Bradley
Director of Finance

Approved by:

Amy Chan
City Manager

Attachments

A. Appropriations Limit (.pdf format)
B. General Fund Reserves and Revenues, 7-year Historical Data (.pdf format)
C. Proposed Section 3.14 of FY 2004/2005 Master Fee Schedule (.pdf format)
D. Memo from Councilmember Miller re: Additional Funds for Travel Budget (.pdf format)
E. Legal Notice of Public Hearing (.pdf format)