October 25, 2005

SUBJECT:    FY 2004/2005 PROJECT & EQUIPMENT CARRYOVER REPORT AND BUDGET MODIFICATION NO. 6

REPORT IN BRIEF

Each year, as a part of the year-end closing process, it is necessary to adjust appropriations for projects and equipment accounts.  By City Charter, the FY 2004/2005 appropriations have lapsed at year-end and therefore need to be re-appropriated for the current fiscal year.  Attachment A contains the proposed schedule of project and equipment carryovers from FY 2004/2005 to FY 2005/2006 for all funds.  Attachment B contains the proposed schedule of transfer carryovers for projects by fund.  Attachment C contains the proposed schedule of revenue carryovers for projects by fund.  Attachment D contains the proposed operating carryovers for select funds.  Staff recommends approval of Budget Modification No. 6 appropriating funds outlined in this report and detailed in Attachments A, B, C and D.  Funds not carried over will be returned to their respective fund balances.

BACKGROUND

Each year, as a part of the year-end closing process, it is necessary to adjust appropriations for projects and equipment.  The FY 2004/2005 appropriations have lapsed at year-end and projects that are ongoing or works in progress need to be re-appropriated for the current fiscal year.  This carryover report outlines all projects that require carryovers of project costs, transfers, and/or revenues from FY 2004/2005 to FY 2005/2006.

The year-end report based on the audited Comprehensive Annual Financial Report (CAFR) will be submitted to Council separately to present the final results for all funds for FY 2004/2005.

EXISTING POLICY

The following documents contain policy direction on this issue:

Planning and Management Element 7.1B: Maintain sound financial practices, which meet all applicable standards and direct the City’s financial resources toward meeting the City’s long term goals.

Fiscal Administration Article XIII, Section 1305 City Charter: From the effective date of the budget, the several amounts stated therein as proposed expenditures shall be and become appropriated to the several departments, offices, and agencies for the respective objects and purposes therein named.  All appropriations shall lapse at the end of the fiscal year to the extent that they shall not have been lawfully expended.  At any meeting after the adoption of the budget, the City Council may amend or supplement the budget by motion adopted by the affirmative votes of at least four members so as to authorize the transfer of unused balances appropriated for one purpose, or to appropriate available revenue not included in the budget.

DISCUSSION

Project Carryovers

Staff has reviewed the expenditures and revenues associated with the City’s projects and equipment accounts for FY 2004/2005.  As is the normal process, staff conducted a detailed analysis of all projects and equipment accounts to review their status and identify any funds available to return to fund balance.

As outlined in Table 1 below, a total of $2,462,482 of disencumbered funds will be available to return to the City’s General Fund 20-Year Resource Allocation Plan Reserve.  This was not anticipated in the FY 2005/2006 Financial Plan.  This total represents the fact that projects have either been completed under budget, ahead of schedule, received higher than anticipated revenues, or are no longer needed.  This total also includes $1,771,745 in General Fund savings due to changing the funding source for Parks-related projects to Park Dedication funds.  This is consistent with the fiscal strategy for the Park Dedication Fund as outlined in the FY 2005/2006 Budget Transmittal Letter.  This strategy transfers the total responsibility for the City’s Parks-related capital and infrastructure projects to the Park Dedication Fund, thereby relieving the General Fund of these costs.

* Includes General Fund savings due to changing the funding source for Parks-related projects to Park Dedication funds

The details of the proposed project and equipment carryovers for all funds are included in Attachment A.  The items that warrant further discussion are highlighted below:

General Fund

·         The Human Services Outside Group Funding Support project (819720) has a budget to actual variance of $18,481 for FY 2004/2005.  This amount was set aside as “outside group contingency” by Council action on October 14, 2003 (RTC 03-354).    Staff does not recommend carrying over the FY 2004/2005 contingency because a contingency in the amount of $2,542 has already been established for FY 2005/2006.

·         The Murphy Avenue Tree Lights Maintenance project (824940) was funded in FY 2004/2005 by contributions from Murphy Avenue business entities.  The contributions were to pay for maintenance and power costs associated with operating the Murphy Avenue decorative tree lights.  During the year, the maintenance costs were incorrectly charged to the Downtown Area Maintenance project (820610), which is also accounted for in the General Fund.  To offset the charges to the General Fund, no carryover is required for the Murphy Avenue Tree Lights Maintenance project. 

·         The total expenditures for the Fair Oaks Industrial Complex Maintenance project (808100) and City Owned Properties – Downtown project (821010) exceeded budget.  These projects are fully supported by rental revenues. The expenditures were for necessary repairs scheduled in future years but required in FY 2004/2005 due to faster than anticipated wear and tear.  To offset the City’s overall costs, the FY 2005/2006 budget for these projects will be reduced by the amount of the overage. 

·         The total expenditures for the Weapons of Mass Destruction Training project (825020) exceeded budget.  This project is fully funded by the Office of Homeland Security Grant.  The overage is offset by additional grant revenues received from the Office of Homeland Security. 

Community Development Block Grant (CDBG) Fund

A total of $379,017 in CDBG grant funds are recommended to be disencumbered.  Most of the CDBG projects receive annual funding and do not require carryovers of unspent funds.  Funds not carried over for the Paint Program ($116,332) and CDBG Housing Acquisition ($213,336) projects were anticipated and have already been reappropriated to the Murphy/Evelyn Avenues Sewer Infrastructure Improvements project and the Manhole Reconditioning project as part of the adopted FY 2005/2006 Projects Budget. 

The remaining $49,349 in disencumbered funds are available for appropriation to other CDBG eligible projects.  Staff recommends appropriating $15,000 to the Development of Indirect Cost Allocation Plan project.  The remaining $34,349 will be returned to the CDBG Fund balance. 

The total budget for the Development of Indirect Cost Allocation Plan project is $30,000.  It was originally established in FY 2004/2005 funded by $15,000 in CDBG funds and $15,000 in Housing Mitigation fee revenues.   

Staff recommends changing the funding source for this project to CDBG funds only, thereby relieving the Housing Mitigation fee revenues.  The Development of Indirect Cost Allocation Plan project will provide a framework for the City to estimate and recover indirect costs associated with operating federal grant funded programs such as the CDBG program. 

Park Dedication Fund

The total expenditures for the City Owned Properties - Adjacent to Parks project (821000) exceeded budget.  This project is fully supported by rental revenues. The expenditures were for necessary repairs scheduled in future years but required in FY 2004/2005 due to faster than anticipated wear and tear.  To offset the overall cost to the City, the FY 2005/2006 budget will be reduced by the amount of the overage.

Redevelopment Agency Fund (RDA)

The original budget for the Downtown Public Improvements Project is $1,562,000, of which a total of $1,402,920 has been reappropriated to the following projects as part of the adopted FY 2005/2006 Projects Budget:   

Downtown Wayfinding System                  $  300,000

Directional Signs to Downtown                 $  100,000

Murphy Avenue Enhancements, Phase I     $  275,000

Downtown Block 2 Completion                  $  695,000

Downtown Area Maintenance                             $    12,420

Murphy Avenue Tree Lights Maintenance    $    20,500

Total                                                            $1,402,920

The remaining $159,080 was set-aside for unspecified downtown purposes including matching funds per Council direction made at its February 1, 2005 meeting (RTC 05-017).  The carryover of the set-aside monies after accounting for actual expenditures of $402 in FY 2004/2005 is $158,678.

Capital Projects Fund

Per Council action on October 5, 2004 (RTC 04-350), a project update was submitted to VTA to reflect the updated cost and scope for the Bernardo Ave. Caltrain Under-crossing project.  The updated cost estimates were significantly higher than the original specification ($6.5 million vs. $1.3 million).  Due to budget constraints, this project was defunded until 2016 or beyond as part of the FY 2005/2006 Projects Budget.  This resulted in a savings of $178,420 in Gas Tax funds, and the defunding of $1,040,000 in VTA grant funds.  VTA will re-program these funds to other projects; the City does not have an entitlement to these funds.

 General Services Fund

·         In the Fleet Services Sub-Fund, the equipment replacement carryover of $594,942 is needed to replace or refurbish several pieces of equipment scheduled in FY 2004/2005.  The replacement was postponed to FY 2005/2006 since it was determined that the life of this equipment could be extended by one more year. 

A total $592,987 will be disencumbered and returned to the Fleet Equipment Replacement Reserve.  This is a result of extending the life of several other vehicles and equipment by two or more years.

·         In the Facilities Maintenance Services Subfund, $38,780 will be carried over from the equipment replacement account for necessary repairs due to safety issues and/or wear and tear.  A total of $1,243,320 will be disencumbered from this Subfund.  This carryover savings has already been incorporated into the 20-year facilities replacement schedule and rental rates in the adopted FY 2005/2006 Financial Plan.  This was done to more accurately reflect the actual replacement history of the City’s furniture and facilities equipment.

·         In the Technology and Communication Services Subfund, $1,082,993 will be disencumbered from the equipment replacement account.  This carryover savings has already been incorporated into the 20-year equipment replacement schedule and rental rates in the adopted FY 2005/2006 Financial Plan.   This is to reflect the continued decline in hardware acquisition costs and anticipated reductions in the level of equipment to be replaced in future years due to operating reductions implemented in FY 2003/2004 to address the long term structural gap in the City’s budget.

·         In the Wastewater Equipment Subfund, approximately $1.2 million will be disencumbered from the equipment replacement account.  It has been determined that the planned annual equipment rental rates are sufficient to cover the ongoing replacement costs and it is not necessary to carry over the unexpended balance from prior years. 

 Infrastructure Fund

·         The Public Safety Buildings-Roofs project was created based on building assessments conducted in 1998.  In FY 2003/2004, $75,572 was utilized to patch and repair the roof underlayment at Public Safety Headquarters in various areas to provide a short term fix. This fix allows the full replacement to be postponed until FY 2008/2009 at an estimated cost of $500,000.  Staff proposes to set aside $500,000 in a special reserve account in the Infrastructure Fund for appropriation in FY 2008/2009 to fund the Public Safety Buildings roofs replacement.

·         As stated earlier, a number of parks related infrastructure projects were funded by General Fund monies in FY 2004/2005.  As part of the carryover process, staff recommends changing the funding sources for all Parks-related projects to Park Dedication Funds.  This will save the General Fund approximately $1.7 million that was not anticipated in preparing the FY 2005/2006 Financial Plan. 

Operating Carryovers

Normally the operating budget is appropriated annually and any unspent funds at year end are disencumbered and returned to the fund balance.  However, a few special circumstances warrant an operating carryover for select programs.  The FY 2004/2005 operating carryover requests are outlined in the following section and included in Attachment D of this report.

In the General Fund, the following programs are requesting carryovers:

·         The Council Policy Assistance and Support program in the Office of the City Manager is requesting a carryover of $15,000 to cover expenses for the State of the City event which was held on July 4, 2005.  Council previously approved the carryover of unexpended State of the City funds at the May 17, 2005 Council meeting. 

·         The Organizational Effectiveness Program in the Office of the City Manager is requesting a carryover of $25,000 for payment of the resident satisfaction survey.  The survey was initiated in FY 2004/2005 and will be completed in FY 2005/2006.

• The Personnel and Training Services program in the Department of Public Safety is requesting a carryover of $15,000 for an independent operational audit of the Department of Public Safety SWAT function for best practices and management effectiveness.  A purchase order has been issued to a law firm from Los Angeles (Manning and Marder, LLC) who specializes in SWAT best practices.  The operating carryover is needed to complete the work in FY 2005/2006. 

·         The Street Tree Services program in the Department of Public Works is requesting a carryover of $50,000 for payment of the tree pruning services contract.  The contract work began in FY 2004/2005 and will be completed in FY 2005/2006.

·         The Pavement Operations Program in the Department of Public Works is requesting a carryover of $263,969 for the Mary Avenue Reconstruction Project.  These funds along with the funds budgeted for FY 2005/2006 in the Reconstruct Streets and Asphalt Overlay Streets activities will be used as maintenance of effort monies for this project.  The scope of this project and the funding requirements were presented to Council at the July 12, 2005 Council meeting (RTC 05-201). 

·         The Legal Services program in the Office of the City Attorney is requesting a carryover of $142,723 for the legislative policy manual printing costs ($4,104) and additional one-time legal expenditures ($138,619) in FY 2005/2006 which are related to the transition to the new City Attorney.

The carryover of $315,844 in the Employee Benefits Fund is to fund the extension of military reservist benefits that Council had previously approved at its June 14, 2005 meeting (RTC 05-176).

FISCAL IMPACT 

Budget modification No. 6 appropriates unspent funds to the projects, equipment and operating accounts as detailed in this report and Attachments A, B, C and D. Attachment A contains the proposed schedule of project and equipment carryovers from FY 2004/2005 to FY 2005/2006 for all funds.  Attachment B contains the proposed schedule of transfer carryovers for projects by fund.  Attachment C contains the proposed schedule of revenue carryovers for projects by fund.  Attachment D contains the proposed operating carryovers for select funds.

Based upon this carryover schedule, the total FY 2004/2005 funds to be returned to the General Fund is $2,462,482.  This total represents the fact that projects have either been completed under budget, ahead of schedule, received higher than anticipated revenues, received an alternate funding source (ie. Park Dedication) or are no longer needed.  This was not anticipated in the FY 2005/2006 Budget.  These funds will be returned to the General Fund 20 Year Resource Allocation Plan Reserve.  

As stated earlier, the General Fund savings total includes $1,771,745 due to changing the funding source for Parks-related projects to Park Dedication funds.  The Park Dedication Fund has sufficient funds to support these projects.  The projected FY 2004/2005 20 Year Resource Allocation Plan Reserve for the Park Dedication Fund is approximately $2.5 million.  This is sufficient to fund the project carryovers and the expenditures budgeted for FY 2005/2006.

The total amount disencumbered in each of the City Funds is summarized in Table 2 below.  All disencumbered funds will be returned to their respective fund balance, with the exception of the CDBG Fund.  Staff recommends reappropriating $15,000 in disencumbered CDBG funds to the Development of Indirect Cost Allocation Plan.  As discussed earlier, this allows the City to fully fund the project with CDBG monies and relieves Housing Mitigation monies previously budgeted in the project.  It should also be noted that $329,668 of the disencumbered CDBG funds have already been reappropriated to the Murphy/Evelyn Avenues Sewer Infrastructure Improvements project and the Manhole Reconditioning project as part of the adopted FY 2005/2006 Projects Budget. 

 Conclusion

Staff recommends approval of Budget Modification No. 6 appropriating funds outlined in this report and detailed in Attachments A, B, C and D.  Funds not carried over will be returned to their respective fund balances.

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 Library and the City Clerk’s Office.

ALTERNATIVES

1.    Approve Budget Modification No. 6 appropriating funds outlined in this report and detailed in Attachments A, B, C and D. 

2.    Approve Alternative 1 with any Council-initiated changes.

3.    Do not approve Budget Modification No. 6.

RECOMMENDATION

It is recommended that Council approve Alternative 1 and Budget Modification No. 6.

Prepared by:

Charlene Sun, Budget Analyst

Reviewed by:

Mary Bradley

Director, Finance

Approved by:

Amy Chan

City Manager

Attachments

A. Project and Equipment Appropriations by Fund (.pdf format)

B. Project Transfers by Fund (.pdf format)

C. Project Revenues by Fund (.pdf format)

D. Operating Program Carryover (.pdf format)