SunnyvaleRTC

June 20, 2006

SUBJECT: Adoption of the FY 2006/2007 Budget, Master Fee Schedule and Appropriations Limit

REPORT IN BRIEF

This report outlines the required actions for adoption of the proposed FY 2006/2007 Master Fee Schedule, FY 2006/2007 Budget and the FY 2006/2007 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 2006/2007 Budget be approved as described in Alternative 1, with Council’s desired changes being dealt with as amendments to Alternative 1.

BACKGROUND

On May 23, 2006 City Council held a Budget Workshop to review in detail the recommended FY 2006/2007 Budget and the Twenty-Year Resource Allocation Plan. On June 13, 2006 City Council held a Public Hearing on the recommended FY 2006/2007 Budget, Establishment of Appropriations Limit, and Master Fee Schedule. At this hearing, members of the public offered comments regarding the recommended FY 2006/2007 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.

EXISTING POLICY

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.

Although budgets are required by the Charter only on an annual basis, the Fiscal Sub-Element requires a multi-year plan. Since FY 1993/1994, Council has approved a financial plan that has been balanced to the twentieth year. The Fiscal Sub-Element of the General Plan requires under action statement 7.1B.5i that the City Manager "Present a balanced Ten-Year Resource Allocation Plan to the City Council annually . . .”

DISCUSSION

Three actions by the City Council are required at tonight’s meeting. 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 2006/2007 Budget by June 30. This has traditionally been done by resolution. It is recommended that Council adopt the Budget as presented in this report. The Budget Resolution, including 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 2006/2007 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 current fees and charges of the City have been reviewed in accordance with the Fiscal Sub-element of the General Plan. After an extensive and detailed staff review of fees, adjustments have been made to the proposed fee schedule as necessary to ensure that all fees and charges are aligned with the cost to provide each service, except for those fees that are legally limited or market based. Based on staff’s detailed review, a majority of fees have been adjusted to recover cost of service where appropriate. For those fees that are adjusted by inflation, a standard percentage of 2% has been applied. Fees related to utilities services (water, refuse, and sewer) have been adjusted by the corresponding increase in those utilities’ rates. Details of the proposed fee changes are discussed in the Report to Council (06-153) contained in Volume I of the recommended FY 2006/2007 Budget in the User Fees section.

As was noted in the Public Hearing Report to Council, staff distributed an addendum to the fee schedule for three fees related to the removal of trees at the Budget Workshop on May 23, 2006. At the Public Hearing, Council noted that the addendum contained erroneous information regarding the size specification for the Street Tree Removal Permit. The three tree removal fees and the correction for the size specification of the Tree Removal Permit have now been incorporated into the FY 2006/2007 Master Fee Schedule included in Attachment A, Exhibit A of this report for Council adoption.

Summary of Recommended Budget

On May 23, 2006, the City Council held a Budget Workshop to review in detail the City Manager's recommended FY 2006/2007 Budget and Twenty-Year Resource Allocation Plan.

As stated at the June 13, 2006 Public Hearing, the recommended FY 2006/2007 Budget was revised to include the reclassification of several expenditures as part of the budget restructure and to improve accountability. The revised total recommended expenditures for FY 2006/2007 is approximately $239 million. The recommended revenue is approximately $232 million and the projected use of reserves is approximately $7 million. The total recommended budget for operating expenditures is approximately $208 million which includes approximately $3.3 million for ten budget supplements recommended by the City Manager for funding. The total project budget is approximately $23 million. Debt Service totals approximately $7 million, General Equipment totals $100,000, Wastewater Equipment totals $663,050 and the Service Level Set-Aside totals $500,000. Details of the revenues and expenditures are contained in the recommended FY 2006/2007 Budget and Twenty-Year Resource Allocation Plan. The appropriations by Fund for all City Funds excluding the Redevelopment Agency Fund are included in Attachment B of this report. The FY 2006/2007 Budget for the Redevelopment Agency is scheduled for adoption by the Agency Board tonight.

Changes to the Recommended Budget

At the Budget Workshop on May 23, 2006 Council provided direction on four items:

· Provide funding options for Budget Supplement # 6 (Restoration of Street Sweeping Level) Alternative B for inclusion in the adopted FY 2006/2007 budget.

· Include Budget Supplement # 7 (Construct Restrooms Building at San Antonio Park) in the adopted FY 2006/2007 budget with construction costs funded with Park Dedication monies and operating costs funded from the General Fund Service Level Set-Aside. Council directed the City Manager to recommend the year that design and construction on this project would occur.

· Add money that may be awarded to the City as a result of litigation on the Senior Center to the General Fund Service Level Set-Aside. These one-time monies would only increase the Service Level Set-Aside for the year they are received.

Explore two options for decreasing the City’s subsidy for the Fremont Pool over the long term.

Information on those items requiring follow up was provided at the Public Hearing. Staff recommends not funding Budget Supplements #6 and #7 at this time, but rather, to make funding decisions on these two items following the completion of the Public Works optimal staff study and as part of the Projects Budget process respectively.

Four changes have been made to the recommended FY 2006/2007 Budget. As detailed in the Report to Council “Request for additional funding in the amount of $84,000 to complete the sale of City owned property at 388 Charles Street and Budget Modification No. 29”, which is scheduled for Council action tonight, the maintenance and operating costs for this property is estimated at approximately $4,725. This is higher than the recommended budget which only included $2,500 starting in FY 2006/07. These costs are accounted for in the Housing Fund/Housing Mitigation Sub-Fund.

The second change is for the Downtown Parking Maintenance Assessment project. The FY 2006/2007 Budget for this project has been reduced down to $3,500 based on a more detailed review of the prior year actual expenditure pattern. This represents a cost saving to the Parking District Fund. Additional details of the Parking Maintenance Assessment project are included in the Report to Council “Resolution of Intention to Levy and Collect Assessment for the Downtown Parking Maintenance District and Approval of the Preliminary Engineer’s Report” (May 30, 2006, RTC 06-174).

The third change is a one year budget reduction for the Department of Public Safety animal shelter services contract for FY 2006/2007 due to the construction delay of the Palo Alto Animal Services facility expansion. This reduces the FY 2006/2007 budget for the Community Safety Services program by $112,950, from $342,950 down to $230,000. This is a one time cost saving for the General Fund. Details of this issue are included in the Report to Council “Amendment to the Animal Shelter Services Agreement with the Humane Society Silicon Valley” (June 13, 2006, RTC 06-189).

The final change is for the Local Business Preference Outreach special project. A one time cost increase for the General Fund in the amount of $50,000 in contract hours is added to the FY 2006/2007 Budget. This project was approved by Council on June 13, 2006 based on the Report to Council “Study Issue – Local Business Preference Policy relative to City Purchases (F0505-92)” (RTC 06-187)

The changes outlined above are incorporated into the FY 2006/2007 Budget Appropriations Schedule in Attachment B, Exhibit A of this report for Council adoption.

Appropriations Limit

Article XIIIB of the California Constitution passed by the voters in 1979 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 2006/2007 indicate that the City will be below the appropriations limit by approximately $51 million based on the Recommended FY 2006/2007 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

1) City population growth

2) 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 2006/2007 are the California per capita income and the County population growth. Based on this selection, the appropriations limit for FY 2006/2007 is calculated to be $139,644,308. 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.

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.

Public Hearing

On June 13, 2006 the City Council held a Public Hearing on the recommended FY 2006/2007 Budget. At this hearing, members of the public offered comments regarding the recommended FY 2006/2007 Budget. A few questions were raised which were answered by Council and City Staff. The hearing was formally closed on that date.

Boards and Commissions Budget Review

All of the City’s Boards and Commissions have had the opportunity to review the recommended FY 2006/2007 Budget since May 23, 2006. Draft meeting minutes from Boards and Commissions that held meetings to discuss the Budget prior to submission of this report are included in Attachment D of this report.

FISCAL IMPACT

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 expenditure reduction or revenue to ensure there is no impact to the fund balance.

Conclusion

This report outlines the required actions for adoption of the proposed FY 2006/2007 Master Fee Schedule, recommended FY 2006/2007 Budget and the FY 2006/2007 Appropriations Limit. It is recommended that the City Council adopt each of the resolutions as presented in this report.

As mentioned earlier in this report, Council provided direction on four items at the Budget Workshop. Detailed information on these items was provided in the Public Hearing Report to Council (June 13, 2006, RTC 06-203). Staff recommends not funding Budget Supplement #6 (Restoration of Street Sweeping Level) and Budget Supplement #7 (Construct Restrooms Building at San Antonio Park) at this time, but rather, to make funding decisions on these two items following the completion of the Public Works optimal staff study and as part of the Projects Budget process respectively.

PUBLIC CONTACT

The Public Hearing on the recommended FY 2006/2007 Budget was conducted on June 13, 2006 and was formally closed on that date. City Boards and Commissions have had the opportunity to review the budget. 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.

ALTERNATIVES

1. Approve the recommended FY 2006/2007 Budget, Master Fee Schedule, and Appropriations Limit as presented in this report.

2. Approve the recommended FY 2006/2007 Budget, Master Fee Schedule, and Appropriations Limit with modifications as directed by Council including a corresponding expenditure reduction or revenue to ensure there is no impact to the fund balance.

RECOMMENDATION

It is recommended that Alternative 1 be approved.

Prepared by:

Charlene Sun, Management Analyst - Budget

Reviewed by:

Mary J. Bradley, Director, Finance

Approved by:

Amy Chan

City Manager

Attachments

A. FY 2006/2007 Fees, Rates and Charges Resolution (.pdf format)

1. Exhibit A. FY 2006/2007 Master Fee Schedule (Part 1-Pages 1-39) (.pdf format)