April 5, 2005

SUBJECT: Fee Waiver Program – Budget Issue (RTC 05-090)

REPORT IN BRIEF

The City’s Recreation Fee Waiver Program was created in 1981 to provide disadvantaged families with access to City recreation programs and services. With the establishment of the Community Recreation Fund in fiscal year 1991/1992, and development of a marketing based pricing strategy for recreation programs and services, the value of the fee waiver program as a safety net for low income families was made more important. Staff monitors fee waiver usage on a period by period basis and at the current rate of use, staff projects that the budget for the fee waiver program in FY2004/2005 will be exceeded by somewhere between $51,000 and $76,000 at the end of the fiscal year. If spending continues at the current rate, the allocated budget for this activity is expected to be exceeded beginning somewhere between mid-February and early April, 2005.

Use of the Recreation Fee Waiver Program fluctuates widely from year to year, making it difficult to project fiscal year expenditures in advance. A nine year historical chart depicts dramatic variances in fee waiver program costs. Please refer to the chart included in the Background Section on Page 3 of this report. Staff is bringing the issue to City Council’s attention at this time so that if use of the fee waiver program continues at its current pace the issue will not be raised at the last minute. However, because of wide variations in the use of the fee waiver program from year to year it is difficult to project a specific amount, which is why a range of between $51,000 and $76,000 has been identified.

Staff is working on two other issues that are related to, although distinctly different from, the current budget issue with the Recreation Fee Waiver Program. Council may recall that in August 2004, an agreement was approved to authorize a payment of $10,000 to Sunnyvale Community Services for administering the fee waiver program from July 1, 2004, through June 30, 2005. The process for administering the fee waiver program is currently being studied to determine if there may be a more cost effective way for the program to be operated. A report will be brought back to City Council before the end of this fiscal year.

Additionally, the overall status of the Community Recreation Fund and the existing structural imbalance between revenues and expenditures is being analyzed. Staff has committed to returning to Council with strategies to address the imbalance and the fee waiver program will again be reviewed with all other recreation programs in the context of the Community Recreation Fund. During this review, staff will explore what other cities are doing with fee waivers, how Sunnyvale compares, and other possible options for greater efficiency and effectiveness. For example, the fee waiver program could be limited to youth and/or senior programs only, or the maximum fee waiver amount available to each eligible individual could be reduced.

The purpose of this report is to give City Council adequate notice of the potential budget issue in the fee waiver program even though projections made at this time could change by year-end. Staff is requesting Council direction as to how to address the potential over-expenditure in the Recreation Fee Waiver Program. A number of strategies are presented in the Discussion Section of this report, along with the pros and cons of each option. Given the City’s existing fiscal situation, staff is recommending that the Recreation Fee Waiver Program be put on hold immediately so that the fee waiver budget is not exceeded. The program would be reopened as of July 1, 2005, when the new fiscal year begins. Staff will also be preparing a Study Issue Paper for 2006 to consider the efficacy of the Recreation Fee Waiver Program and to determine if the program should be modified in any way. This would be separate from the report that staff has committed to bring back to Council this fiscal year regarding administration of the Recreation Fee Waiver Program.

The Parks and Recreation Commission held a public hearing on this item on March 9, 2005, and recommended Alternative No. 2, to direct staff to prepare a Budget Modification in the amount of $76,000 and adjust the General Fund subsidy to the Community Recreation Fund by the same amount.

BACKGROUND

The Parks and Recreation Department provides a wide range of high quality recreation programs and activities to the community. The majority of these services have some sort of fee attached to them. Participant fees range from no cost (programs such as the mobile recreation program), to $5 for drop-in activities, to several hundred dollars for summer youth camps. In order to assure that economically disadvantaged Sunnyvale residents have access to recreation programs, the City of Sunnyvale has offered a fee waiver program to individuals and families since 1981.

Currently, eligible Sunnyvale residents are granted a waiver in Recreation fees up to $250 per family member. As established by City Council action in October 1990, the maximum fee waiver amount per eligible individual is determined using a base figure of $180 in 1990, adjusted annually by the Consumer Price Index (CPI). Eligibility for the Recreation Fee Waiver program is determined by Sunnyvale Community Services using the income guidelines and definition of low income established by the Community Development Block Grant Program (CDBG). Eligibility for the Recreation Fee Waiver Program is met by any individual or family in the “Low Income” category and below:

Sunnyvale Community Services (SCS) plays a major role in the administration of the Recreation Fee Waiver Program. SCS qualifies eligible fee waiver participants based on the CDBG guidelines shown above. Any Sunnyvale resident, and their family members, whose household income meets the “Low Income” category or below is eligible for fee waiver assistance.

Once individuals have been screened for eligibility, SCS staff and volunteers provide information about available City recreation program and services. Once a recreation activity has been selected, SCS staff prepares a fee waiver authorization form that allows the individual to participate in the City recreation activity of their choice. SCS tracks how much of the fee waiver amount is used each time until the individual reaches the $250 maximum for the fiscal year.

The initial budget for the Recreation Fee Waiver Program in FY1980/1981 was $1,000. This budget has been periodically increased to the current level of $113,022; however, use of the fee waiver program fluctuates dramatically from year to year making it difficult to project demand in future years. The following chart shows how demand for the Recreation Fee Waiver Program has varied since FY1995/1996:

In FY2002/2003, 1,313 fee waiver authorization forms were processed, which resulted in an expenditure of $80,451 in fee waivers. 14,782 participant hours resulted from the use of fee waivers that year. The following year, FY2003/2004, 1,837 fee waiver authorization forms were processed and $118,103 was spent on fee waivers. This resulted in 16,852 participant hours.

EXISTING POLICY

DISCUSSION

As noted earlier in this report, staff is projecting that the Recreation Fee Waiver Program will exceed its FY2004/2005 budget of $113,022 if fee waiver authorization and use continues at their current pace. The current projection represents an anticipated over-expenditure of anywhere from $51,000 to $76,000. Staff is bringing the situation to City Council’s attention at this time to request direction as to how to address the potential over-expenditure in the Recreation Fee Waiver Program. A number of strategies for dealing with this situation may be considered.

Current Practice

There are no limitations currently placed on the number of individuals that Sunnyvale Community Services may qualify for the Recreation Fee Waiver Program each year. Anyone who is identified as being eligible for the fee waiver program is provided with information about City recreation programs and services. Qualified individuals may request fee waiver authorizations for any amount up to the maximum established for that year. The current maximum is $250 per eligible Sunnyvale resident. For FY2003/2004, fee waiver recipients may be broken into three, age categories:

No distinction is made between the level of fee waiver support available to adults, children or seniors. Records are not available to show how many eligible individuals use the full value of their fee waiver in any given year and how many people use only a portion of what they are eligible for. Fee Waivers may be used for any City provided recreation program or service. In addition, fee waivers are provided to participants in youth sports leagues operated by the City’s community partners, activities at the Sunnyvale Tennis Center and aquatics programs at the Fremont High School pool. The youth sports leagues promote the Recreation Fee Waiver Program to their participants. The California Sports Center at Fremont High School did not turn in fee waivers for reimbursement until February 2005.

Two-Year Historical Analysis

Peak use of the fee waiver program occurs during the Pop Warner football season and the last two to three months of each fiscal year as families use their fee waivers to register for summer camps. In FY2003/2004, 44% of fee waiver expenditures for that year were reported during the last three months of the year when summer registrations are taken. 38% of expenditures were reported during the last three months of FY2002/2003. It is important to note that use of fee waivers increases at the end of the fiscal year, because the current minimum projection of $51,000 for FY2004/05 is based on year-to-date figures only. If the pattern of increased fee waiver use in the spring occurs this year and no action is taken now to control costs, the projected over-expenditure of the Recreation Fee Waiver Program budget is likely to exceed the current projection of $51,000. Staff believes that if the increased demand in the spring is taken into account, the over-expenditure may be as high as $76,000, bringing the total projected expenditure for fee waivers in FY2004/2005 to $189,022.

As shown in the 9-year historical chart located on page 3 of this report, use of the Recreation Fee Waiver Program fluctuates widely from year to year. This makes it difficult for staff to make budget projections for future years. The budget for the fee waiver program is adjusted every two years based on actual use during the previous two years; however, demand for fee waivers does not follow any particular trend and may increase or decrease dramatically from one year to the next.

How the Program is Publicized

The fee waiver program is referenced on all City generated flyers and brochures publicizing recreation programs. General information about the fee waiver program is included on the Registration Information page of every Recreation Activity Guide and Senior Activity Guide. The Summer 2005 Quarterly Report included an article about the Recreation Fee Waiver Program.

Options for City Council Consideration

There are four options that City Council may want to consider at this time:

1. Direct staff to maintain expenditures for the Recreation Fee Waiver Program within the $113,022.

2. Approve a Budget Modification in the amount of $76,000 and adjust the General Fund subsidy to the Community Recreation Fund by the same amount.

3. Approve a Budget Modification in the amount of $76,000 and direct staff to offset this amount by an equal reduction in recreation service levels.

4. Direct staff to continue monitoring the Recreation Fee Waiver Program and take no action at this time.

Option 1 - Direct staff to maintain expenditures for the Recreation Fee Waiver Program within the $113,022.

There is no way to accurately predict outstanding liabilities from individuals who have been qualified by Sunnyvale Community Services, but have not turned in their fee waiver authorization forms to the City. Staff would notify Sunnyvale Community Services to stop issuing fee waiver authorization forms. Any outstanding fee waivers issued by Sunnyvale Community Services prior to this notification would be reviewed by City staff on a case by case basis and honored if the expenditure will not cause the Recreation Fee Waiver Program to go over budget.

The City currently reimburses fee waivers that are accepted by the youth sports leagues that have community partnership agreements in place, as well as, those that are accepted by the contractors operating the Tennis Center and the Fremont High School Pool. These organizations would also be notified that the City will not reimburse them for fee waivers that have not been turned in by a certain date. It would be up to the management of these organizations to determine whether or not they want to continue to accept fee waivers for low income participants even if they are not going to be reimbursed by the City for their cost.

Promotional information about the Recreation Fee Waiver Program currently states that eligible Sunnyvale residents may apply to have fees waived up to $250 per family member each fiscal year, as resources are available.

Pros:

• This strategy would ensure that the budget of $113,002 is not exceeded in FY2004/2005.
• Revenue from golf play was down by $160,711 last fiscal year and staff projects lower than planned revenue this fiscal year as well. There is no surplus to absorb an increase in the budget for the fee waiver program.
• No funds would be required from the General Fund, nor would other recreation programs need to be eliminated to maintain the budgeted subsidy in the Community Recreation Enterprise Fund.

Cons:

• The Recreation Fee Waiver Program is the “safety net” that allows economically disadvantaged members of the Sunnyvale community to participate in a wide variety of recreation programs and activities. Potentially, a large number of low income families will not be able to register their children for summer recreation programs and camps, which are the programs that a large majority of fee waiver dollars go towards.
• Although this strategy would effectively ensure that the budget for fee waivers is not exceeded, it is quite possible that the full budgeted amount would not be used as there is no way to know exactly how many fee waivers will be outstanding once Sunnyvale Community Services is instructed to stop giving out fee waiver authorizations.
• There could be a significant community outcry from those families and individuals who have not already used their full fee waiver allocations or have been saving it to use for spring and summer activities.

Option 2 - Approve a Budget Modification in the amount of $76,000 and adjust the General Fund subsidy to the Community Recreation Fund by the same amount.

This alternative would provide funds to offset the current projected over-expenditure and allow for continued use of the fee waiver program at its current rate.

Pros:

• Fee waivers would continue to be processed and low income individuals and families would continue to be able to participate in the recreation programs of their choice. 

Cons:

• Given the City’s fiscal situation, increasing the subsidy to the Community Recreation Fund would require budget and service level reductions in other City programs within the General Fund unless reserves were tapped.
• As stated earlier in the report, there is no effective way to accurately project the demand for fee waivers in any given year. City Council could approve a Budget Modification and there may still be the potential of demand exceeding the revised budget.

Option 3 - Approve a Budget Modification in the amount of $76,000 and direct staff to offset this amount by an equal reduction in recreation service levels.

This alternative would allow for continued use of the fee waiver program at its current rate; however, other recreation programs and services would need to be cut or eliminated in order to maintain the budgeted subsidy from the General Fund.

This alternative would offset the projected over-expenditure and allow for continued use of the fee waiver program at its current rate; however, significant and immediate reductions in recreation programs would be required to offset the increase in the fee waiver allocation. Any reduction would need to come from those activities in the Community Recreation Fund that are subsidized. These include programs for youth, seniors and the disabled.

Pros:

• No additional funds would be required from the General Fund.

Cons:

• Given that the fiscal year is almost complete, the service level reductions that would be required to offset the Budget Modification would be very difficult to achieve. The programs that would most likely be affected would be those with the highest subsidies including, but not limited to, the mobile recreation program, senior lunch program, after school activities at Sunnyvale Middle School and withdrawal from the KLAS program at Columbia Middle School, Bishop and Lakewood Elementary Schools. Numerous part-time staff and recreation instructors would be laid off as a result of closing those programs down.
• Additionally, resources would no longer be provided to support the youth employment program through the Employment Development Department and to supplement the 2005 State of the City event on the 4^th of July.
• As stated earlier in the report, there is no effective way to accurately project the demand for fee waivers in any given year. City Council could approve a Budget Modification and there may still be the potential of demand exceeding the approved budget.

Option 4 - Direct staff to continue monitoring the Recreation Fee Waiver Program and take no action at this time.

This alternative would not disrupt the Recreation Fee Waiver Program and the service the program provides to economically disadvantaged Sunnyvale residents. It is certain that the fee waiver budget will be exceeded if no action is taken at this time, so a Budget Modification would still be required at the end of the fiscal year; however, the Budget Modification would be for the specific amount of the over-expenditure in the fee waiver budget.

Pros

• None have been identified by staff. 

Cons

• This alternative would only postpone the inevitable. The budget for the Community Recreation Fund would be exceeded at the end of the year and a transfer from the General Fund would still be required.
• Taking no action at this time would result in an outstanding financial liability of an unknown amount.

Inter-Department Coordination

This report was prepared in collaboration with Finance staff.

FISCAL IMPACT

If City Council determines that the Recreation Fee Waiver Program should not exceed the existing budget of $113,022, there will be no fiscal impact. However, should Council decide to pursue either Option 2 or Option 4, than there will be a fiscal impact to the General Fund of anywhere between $51,000 and $76,000.  If Option 2 is selected, significant service level reductions and/or elimination of programs in the Recreation Division would have to occur in a very short period of time in order to make up the difference of the Budget Modification. This would be difficult to do so late in the fiscal year and the programs that would be affected would be those with the highest subsidies including, but not limited to, the mobile recreation program, senior lunch program, after school activities at Sunnyvale Middle School and withdrawal from the KLAS program at Columbia Middle School, Bishop and Lakewood Elementary Schools. Additionally, resources would no longer be provided to support the youth employment program through the Employment Development Department and to supplement the 2005 State of the City event on the 4^th of July.

Conclusion

The Recreation Fee Waiver Program is the “safety net” that allows economically disadvantaged members of the Sunnyvale community to participate in a wide variety of recreation programs and activities. This year there appears to be a significant increase in fee waiver use that exceeds demand over any of the past nine years. Staff is projecting that if fee waiver use continues at its current pace the Recreation Fee Waiver Program will exceed its FY2004/2005 budget of $113,022 by a minimum of $51,000 and an estimated maximum of $76,000.

As demonstrated by the 9-year historical chart located on Page 3 of this report, use of the Recreation Fee Waiver Program fluctuates widely from year to year. Demand for fee waivers does not follow any particular trend and may increase or decrease dramatically from one year to the next. This makes it almost impossible to accurately project how much the budget for fee waivers could potentially be exceeded in FY2004/2005. One thing is certain, unless some action is taken at this time to either curtail the cost of the Recreation Fee Waiver Program or to approve a Budget Modification to increase the fee waiver budget, the budget will be exceeded by no less than 45%. City Council could approve a Budget Modification and there may still be the potential of demand exceeding even the adjusted budget unless some action is taken to limit use of fee waivers for the remainder of the fiscal year.

Since FY2000/2001, the number of golf rounds each year has slowly, but steadily decreased. Last year revenue collection was down $160,711 and this year is likely to be lower than planned by approximately $200,000-$500,000. While there have been savings in the Community Recreation Fund, which may be primarily accounted for by vacancies, there is no surplus within the Community Recreation Fund to absorb an increase in the budget for the fee waiver program. Given the City’s fiscal situation, General Fund resources are not readily available to supplement the fee waiver budget in the Community Recreation Fund and significant and immediate reductions in recreation programs would be required to offset any increase in the fee waiver allocation without a corresponding increase in the subsidy provided by the General Fund. Any service level reductions would need to come from those activities in the Community Recreation Fund that are subsidized. These include programs for youth, seniors and the disabled.

Should Council decide that the most prudent course of action is to immediately restrict further use of the Recreation Fee Waiver Program until the end of the fiscal year, many low-income families and individuals will not be able to participate in recreation programs and activities until July 1, 2005, the beginning of the next fiscal year. This could be particularly difficult for families who may be planning to use their fee waiver allocations to register their children for summer recreation programs and camps, which are where a significant amount of fee waiver dollars are used every year.

PUBLIC CONTACT

Public contact was made through posting of the Council agenda on the City’s official notice bulletin board, posting of the agenda and report on the City’s web page, and the availability of the report in the City Clerk’s office, Library, Parks and Recreation Administration office, Corporation Yard, Community Center and Senior Center.

On