June 15, 2004

SUBJECT: Adoption of the FY 2004/2005 Budget, Master Fee Schedule and Appropriations Limit

This report outlines the required actions for adoption of the proposed FY 2004/2005 Master Fee Schedule, Recommended FY 2004/2005 Budget and the FY 2004/2005 Appropriations Limit. It is recommended that the City Council adopt each of the resolutions as presented in this report. A separate action on each budget component is not necessary, unless the City Council wishes to change any recommendation. It is recommended that the FY 2004/2005 Budget be approved as described in Alternative 1, with Council’s desired changes being dealt with as amendments to Alternative 1.

BACKGROUND

On May 25, 2004, City Council held a Budget Workshop to review in detail the Recommended FY 2004/2005 Budget and the Ten-Year Resource Allocation Plan. On June 1, 2004, City Council held a Public Hearing on the Recommended FY 2004/2005 Budget, Establishment of Appropriations Limit, and Master Fee Schedule. At this hearing, members of the public offered comments regarding the Recommended FY 2004/2005 Budget. Notice of the Public Hearing was sent to those persons specifically requesting notice pursuant to the provisions of the Government Code on fee increases.

Section 1304 of the City Charter requires the City Council to adopt the budget for the upcoming fiscal year on or before June 30. State legislation requires that the City annually adopt an appropriations limit for the coming year.

Three actions by the City Council are required at the meeting of June 15, 2004. First, the City Council must consider and take action on proposed fee changes. It is recommended that the Council adopt the fees as presented in this report. The Fees, Rates and Charges Resolution is provided as Attachment A.

Second, the City Council must adopt the FY 2004/2005 Budget by June 30. This has traditionally been done by resolution. It is recommended that Council adopt the Budget as presented at the June 1^st public hearing. 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.

Third, the City Council must adopt, by resolution, the FY 2004/2005 Appropriations Limit. 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.

Fees and Charges

The Public Hearing on the proposed fee changes was held as part of the Public Hearing for the Recommended FY 2004/2005 Budget on June 1, 2004. Staff has conducted a comprehensive review of the City’s Master Fee Schedule to ensure all fees and charges were aligned with the cost of service.

Fees that were not labor based have been inflated by a standard percentage of 3% except for those fees that are legally limited. Fees that are labor based are proposed to increase by approximately 6.5%. This increase is in direct correlation with 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 that were previously not included in the fee structure.

Any new fees have been incorporated into the Recommended FY 2004/2005 Budget as part of the proposed Master Fee Schedule. As was discussed at the June 1^st Council meeting, new fees associated with the City’s Below Market Rate (BMR) program have been added to the Master Fee Schedule.

Upon further review by city staff one of the proposed fees has been removed from the Master Fee Schedule. The Citation Processing Fee that would have enacted a charge of $10 from each person cited and released by any officer upon conviction of any criminal offense has been removed. The legislation that regulates this fee stipulates that counties are authorized to impose fees but does not provide an authorization for cities to impose such a fee. Based upon direction received from the City Attorney staff has removed this fee from the proposed Master Fee Schedule. Due to the potential difficulty in collecting this revenue staff anticipates that this action will have a negligible fiscal impact to the Recommended FY 2004/2005 Budget and Ten-Year Resource Allocation Plan.

For ease of reference, a copy of the revised recommended Master Fee Schedule for FY 2004/2005 is included as an attachment to this report as Exhibit A in the FY 2004/2005 Fees, Rates and Charges Resolution.

Operating and Project Budgets

Article XIIIB of the California Constitution established an appropriations limit on government agencies within California. Attachment C provides information on the appropriations limit, which is a calculation of how much the City is allowed to spend. Calculations for FY 2004/2005 indicate that the City will be below the appropriations limit by approximately $46 million based on the Recommended FY 2004/2005 Budget. State legislation requires that the City annually adopt an appropriations limit 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

3) City population growth

4) County population growth

Staff recommends that Council select the combination of factors that yields the most favorable amount under the appropriations limit. Those factors for FY 2004/2005 are the California per capita income and the County population growth. Based on this selection, the appropriations limit for FY 2004/2005 is calculated to be $124,727,399. 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.

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

Summary of Recommended Budget

As presented in the recommended budget, the total 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 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, an additional $1.7 million has been anticipated beginning in FY 2004/2005 to reflect the implementation of the proposed Emergency/911 Fee that was approved for further study during last year’s budget process. This amount, when combined with last year’s original estimate of $250,000, would total $2 million in revenue on an annual basis. On June 8, 2004 staff presented its findings to Council and Council approved the proposed Emergency/911 Fee in concept. Based upon policy direction received from Council staff will begin work on a draft ordinance to amend the Sunnyvale Municipal Code. Staff will present the draft ordinance and associated fee structure alternatives once the legal issues surrounding this fee have been decided. As the timeframe for implementation remains unclear it is highly probable that the $2 million in revenue projected for FY 2004/2005 will not be realized. On an annualized basis this represents a $100,000 reduction in planned revenue over the Long-Term Financial Plan. Based upon this information staff will decrease the FY 2004/2005 revenue projection for the Emergency/911 Fee in the Adopted Budget.

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 FY 2004/2005 Budget 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, provide consideration for those who cannot pay market rates.

During the development of this report staff discovered that the re-imbursement for operating costs associated with the Multimodal Transit Station by the Pennisula Joint Powers Board had been accidentally omitted from the General Fund Financial Plan. The anticipated re-imbursement for FY 2004/2005 is approximately $93,000 and will be included for each year of the General Fund Financial Plan in the FY 2004/2005 Adopted Budget.

Public Hearing

On June 1, 2004, the City Council held a Public Hearing on the recommended FY 2004/2005 Budget. The hearing was formally closed on that date. Upon close of the public hearing, Council provided policy direction on the following item:

Upon the conclusion of FY 2003/2004, any Council member that has unexpended funds in their travel budget may carryover those funds into the next fiscal year either into their own travel budget or they may elect to transfer their residual balance to a fellow Council member. This process of carrying over unexpended funds will be re-evaluated on an annual basis.

The various fiscal impacts of the budget have been outlined throughout this report and in the materials previously provided to the City Council. Staff recommends that any amendment approved by Council contain a corresponding reduction or revenue to ensure there is no impact to the fund balance.

The Public Hearing on the recommended FY 2004/2005 Budget was conducted on June 1, 2004 and was formally closed on that date. Over the past four months numerous Community and Special Council Meetings have been held allowing citizens several opportunities to provide input for this year’s budget.

City boards and commissions have been provided the budget for their review. Additionally, public contact has been accomplished through publication and posting of the Council agenda. Further, Reports to Council are available in the Library and on the City’s web page. Finally, the entire budget has been posted on the City’s web page. Copies of the budget are also available for review at the Library, Finance Department, and City Clerk’s Office.

1. Approve the Recommended FY 2004/2005 Budget, Master Fee Schedule, and Appropriations Limit as presented in this report.

2. Approve the Recommended FY 2004/2005 Budget, Master Fee Schedule, and Appropriations Limit as presented in this report with modifications. It is recommended that these changes be included as separate amendments to Alternative 1.

RECOMMENDATION

It is recommended that Alternative 1 be approved.

Prepared by:

Mark Eyrich
Management Analyst - Budget

Reviewed by:

Grace Kim
Finance Manager - Budget

Reviewed by:

Mary J. Bradley
Director of Finance

Approved by:

Amy Chan
City Manager

Attachments

A. FY 2004/2005 Fees, Rates and Charges Resolution (.pdf format) 
     
     Exhibit A. Proposed FY 2004/2005 Master Fee Schedule (.pdf format) 

B. FY 2004/2005 Budget Resolution (.pdf format)

     Exhibit A. Appropriations General Fund, Special Revenue Funds, Enterprise Funds (.pdf format)

     Exhibit B. Appropriations – Internal Service Funds (.pdf format)

     Exhibit C. Transfers – To/From All Funds (.pdf format)

     Exhibit D. Appropriations To/Deductions From Reserves – All Funds (.pdf format)

C. FY 2004/2005 Appropriations Limit Resolution (.pdf format)