REPORT IN BRIEF

The City Charter requires that a Public Hearing be held prior to the adoption of the FY 2005/2006 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.  Adoption of the Budget and Fee Schedule is scheduled for June 21, 2005.

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 for public review since May 16, 2005 as included in Volume I of the recommended FY 2005/2006 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 2005/2006 Budget and Ten-Year Resource Allocation Plan is scheduled for adoption on June 21, 2005.

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 2005/2006 is approximately $133 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 $100,000.  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 $50 million for FY 2005/2006.

Recommended FY 2005/2006 Budget

On May 23, 2005, the City Council held a Budget Workshop to review in detail the City Manager's recommended FY 2005/2006 Budget and Ten-Year Resource Allocation Plan. Although Council is only required to adopt an annual budget by Charter, Council policy calls for a ten-year resource allocation plan.    Staff presented the 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 2005/2006 is approximately $216 million, and total expenditures are approximately $227 million. The total recommended budget for operating expenditures is approximately $197 million. The total project budget is approximately $23 million.  Debt Service totals approximately $7 million.  Details of the revenues and expenditures are contained in the recommended FY 2005/2006 Budget and Ten-Year Resource Allocation Plan, distributed on May 13, 2005.

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, three revenue enhancements have been included.  Approximately $1 million in additional Sales Tax revenues net of new costs from the Town Center Mall Development have been included beginning in FY 2007/2008.  The SMaRT Station rent of $334,000 and Water Pollution Control Plant (WPCP) Rent of $297,000 have also been included in the FY 2005/2006 Budget.  The rent payments from the Utilities Funds to the General Fund are for the use of the land by the SMaRT Station and WPCP.

Other revenue enhancements may be pursued but are currently not included in the Budget.  These include implementation of the Emergency 911 Fee and an increase to the Transient Occupancy Tax and/or the Business License Tax.    We have not included the revenues from the Emergency 911 Fee in the recommended FY 2005/2006 Budget because of the uncertain legal status. When the issues are resolved, implementation as per Council direction will provide approximately $2 million in new revenues to the General Fund.  The City's Transient Occupancy Tax and Business License Tax rates are lower than those of most of our surrounding communities.  An increase in our Transient Occupancy Tax from 8.5% to the County average of 10% would generate about $900,000. The Business License Tax, which currently ranges from $10 to $325, is among the lowest in the County and is significantly lower than San Jose's high of $25,000. Raising this tax could provide $750,000 - $1 million in additional funds. These tax rate increases are not included in the recommended FY 2005/2006 Budget because they require voter approval for adoption.  If approved, these two revenue increases would provide additional financial flexibility as the City addresses its future financial challenges.

On the expenditure side, a $1.1 million reduction is included under fiscal strategies beginning in FY 2006/2007 through FY 2011/2012, increasing with inflation.  To fund these reductions, staff is pursuing a three pronged approach: revenue enhancements as detailed above, service level reductions and continuous improvement within the organization.  Service level reductions were proposed last year but deferred.  Staff will be bringing proposed reductions back to Council for review and direction with the mid-year update of the FY 2005/2006 Budget.  Staff is pursuing continuous improvement within the organization by exploring a number of fiscal strategies and cost savings ideas detailed in Appendix B of the recommended Budget’s Transmittal Letter. 

At the Budget Workshop, the City Manager reviewed fiscal strategies and action items that staff will be exploring in the next year and provided a detailed review of all the City’s funds.  Council requested additional information on various items presented at the Workshop.  Staff’s responses to Council questions are detailed in Attachment B of this report.

Fees and Charges

The proposed fee schedule has been included in the recommended FY 2005/2006 Budget.  The current fees and charges of the City have been reviewed in accordance with the Fiscal Sub-element of the General Plan.  Staff has made adjustments to the proposed fee schedule as necessary to ensure that all fees and charges are aligned with the cost of service, except for those fees that are legally limited.  For those fees that are adjusted by inflation, a standard percentage of 3% has been applied. 

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 a detailed Report to Council (05-153) contained in Volume I of the recommended FY 2005/2006 Budget in the User Fees section.

Boards and Commissions Budget Review

All of the City’s Boards and Commissions have had the opportunity to review the recommended FY 2005/2006 Budget since May 16, 2005.  Boards and Commissions wishing to make comments, suggestions or recommendations will be testifying at the public hearing on June 7, 2005.  Testimony from June 7^th as well as draft Board and Commission meeting minutes that discuss the Budget will be included in the Budget Adoption Report to Council scheduled for June 21, 2005. 

FISCAL IMPACT

There is no fiscal impact to this public hearing.  Budget adoption is scheduled for June 21, 2005.

PUBLIC CONTACT

Legal ads were published in The Sunnyvale Sun on May 18, 2005, and May 25, 2005 (Attachment C). 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 2005/2006 Budget and Resource Allocation Plan since May 16, 2005.

RECOMMENDATION

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 21, 2005.

Prepared by:

Charlene Sun

Management Analyst/Budget

Reviewed by:

Mary J. Bradley

Director of Finance

Approved by:

Amy Chan

City Manager

ATTACHMENTS

A.    Appropriations Limit (.pdf)

B.    Staff Responses to Council Questions (.pdf)

C.    Legal Notice of Public Hearing (.pdf)