March 7, 2006

SUBJECT: FY 2005/2006 Mid-Year Budgetary Adjustments and Budget Modification No 19

REPORT IN BRIEF

The current budget as adopted by Council in June 2005 was developed based on the best available information at the time.  Through the course of the year, several programs that are demand-driven have experienced higher than expected demand and require additional resources to meet the Council set service levels.  In addition, the cost for materials and labor for some programs are higher than initially projected.  Staff has performed detailed reviews of the year-to-date demand and expenditure level for the first 8 months of the fiscal year through February 11, 2006.  Staff has also reviewed the City’s major revenue sources and identified additional revenues that are not included in the current budget.  Staff recommends that Council approve Budget Modification No. 19 to recognize revenues and appropriate the resources necessary to meet the service levels for the various programs as outlined in this report.  The adjustments by Fund are summarized below:

General Fund

Revenues

• Increase the budget for Construction and Permit Fee revenues by $906,310, from the current budget of $5,693,686 to $6,599,996.  This presents a 15.92% increase over the current year budget.

• Increase the budget for Engineering Fee revenue by $625,330, from the current budget of $124,670 to $750,000. 
• Accept the Satterberg Grant in the amount of $40,000 and appropriate the funds to a special project for Community Gardens.

Expenditures

• Increase the budget for the Community Development Department by $151,107 for Development Services.
• Increase the budget for the Human Resources Department by $70,000 for Personnel Services.
• Increase the budget for the Office of the City Manager by $20,000 for Official Records and Elections.
• Reduce the budget for the Public Safety Department by $211,258 to reflect cost savings in charges for Booking Fees and Animal Control Shelter.
• Increase the budget for the Public Works Department by $157,230 for Engineering Services. 
• Reduce the General Fund support for the Pavement Operations program in the Public Works Department by $556,172. The funding source for this program will be replaced by Proposition 42 funds accounted for in the Gas Tax Fund. 

With the adjustments outlined above, the net impact to the General Fund 20 Year Resource Allocation Plan Reserve is an increase of $1,900,733.

Gas Tax Fund

• Recognize Proposition 42 funds in the amount of $556,172 and appropriate it to the Pavement Operations program in the Public Works Department. 

General Services Fund/Project Management Services Sub-Fund

• Reduce the budget for the Public Works Department by $106,191 for Engineering Services

Housing Fund

• Recognize Below Market Rate (BMR) In-Lieu Fee revenue of $708,326, and increase BMR Code Violation Fee revenue by $45,338, from the current budget of $40,720 to $86,058.

• Increase the budget for the Housing and Human Services Program in the Community Development Department by $83,513; reduce the budget for the BMR Compliance Enforcement project by $5,339 and the First Time Homebuyer Support project by $14,544. 

With these adjustments, the net impact to the Housing Fund BMR In-Lieu Reserve is an increase of $690,034.

General Services Fund/Fleet Services

• Increase the budget for the Public Works Department by $185,501 for Fleet Services.

BACKGROUND

The current budget as adopted by Council in June 2005 was developed based on the best available information at the time.  Through the course of the year, several programs that are demand driven have experienced higher than expected demand and require additional resources to meet the Council set service levels.  In addition, the cost for materials and labor for some programs are higher than anticipated.  Staff has performed detailed reviews of the year-to-date demand and expenditure level for the first 8 months of the fiscal year through February 11, 2006, and recommends additional resources be added to the operating programs as outlined in this report.  In addition, staff has reviewed the City’s major revenue sources and identified additional revenues that are not included in the current budget.  Budget Modification No. 19 recommends that these revenues be recognized and appropriated as outlined in this report.

EXISTING POLICY

7.1A: Revenue:  Maintain and enhance the City’s revenue base.

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

7.3E:  Provide appropriate facilities and equipment in order to ensure that City employees function in a safe, effective manner.

DISCUSSION

Detailed below are the various programs which require additional resources in FY 2005/2006 in order to maintain adopted service levels.  Staff has also identified additional revenues that are not in the current budget and are proposed to be recognized by Budget Modification No. 19.

Community Development

Housing and Human Services Program

Revenue Adjustments:

The current year budget for BMR Code Violation Fee revenue is $40,720. Currently the City is expecting to receive another $45,338 in BMR Code Violation Fee revenue that is not budgeted for a total of $86,058.

The City has also received an unanticipated payment of $708,326 in BMR In-Lieu Fee.  The developer for the 612 Ahwanee Rockwell Homes project has decided to pay BMR In-Lieu Fee instead of providing BMR housing units per the City ordinance. 

Budget Modification No. 19 recognizes additional revenues of $45,338 in BMR Code Violation Fee revenue and $708,326 in BMR In-Lieu Fee. 

Expenditure Adjustments:

Currently, the Housing Division of the Community Development Department is experiencing significantly higher than anticipated activity in the BMR program.  The FY 2005/2006 budget was developed with the assumption that the City would complete the purchase and/or sale of 10 BMR housing units.  The current projection based on the developments that are underway is 50 units; the year-to-date actual is 23 units as of February 11, 2006 (Accounting Period 8).  In order to maintain the current service level of maintaining at least 12.5% of new housing units as affordable, staff recommends adding 756 work hours for the Senior Management Analyst position; 500 hours is proposed to be budgeted in the ‘BMR Program Implementation’ activity, and the remaining 256 hours in the First Time Homebuyer project (824471).

The current budget for the ‘BMR Program Implementation’ activity is $53,947.  To meet the spike in demand, a total increase of $85,969 is requested.  This includes the addition of the following resources:

• 500 hours for the Senior Management Analyst position at a cost of $35,175,
• 374 hours for an Administrative Aide at a cost of $19,968
• 357 hours for a Housing Program Analyst at a cost of $20,381, and
• $10,445 for purchased goods and services to provide the necessary training and support for the BMR homebuyers. 

With these adjustments, the average cost to process each unit of BMR housing is approximately $2,798, which is consistent with the FY 2004/05 actual experience.

The increase in Administrative Aide and Housing Program Analyst work hours for the ‘BMR Program Implementation’ activity will be offset by equal reductions in the ‘Provide Management of BMR Program for Compliance’ activity, ‘BMR Compliance Enforcement’ project, and the ‘First-Time Homebuyer Support’ project.  The workload in these areas can be managed with the reduced staffing while meeting Council set service levels.  The changes to each of these areas are summarized below:

• BMR Program Implementation Activity - reduce the hours budgeted for the Administrative Aide position by 46 hours.  This results in a reduction to the current budget of $2,456.
• BMR Compliance Enforcement Project– reduce the hours budgeted for the Administrative Aide position by 100 hours.  This results in a reduction to the current budget of $5,339.
• First-Time Homebuyer Support Project – reduce the hours budgeted for the Administrative Aide position by 228 hours and the Housing Programs Analyst by 357 hours.  This results in a total reduction to the current budget of $32,554.

As stated above, staff also proposes to add 256 Senior Management Analyst work hours in the First Time Homebuyer project, at a cost of $18,010.  The total fiscal impact to the Housing Fund/Other Housing Sub-fund of the expenditure adjustments as outlined above is a net increase in expenditures of $63,630.

The budgetary adjustments for all housing related activities and revenues are summarized below:

The BMR program is supported by fund balance accumulated from fee revenues collected for the various aspects of the BMR program and other non-federal housing programs.  Should the funding level and/or the overall demand for the BMR program decrease in the future, staff will seek Council's direction on alternatives to adjust the staffing level and/or strategies to address any funding issues. 

Development Services Program

Revenue Adjustments

Due to higher than anticipated development activity in the City, total Construction and Permit Fee revenues are projected to be $906,310 higher (or approximately 16%) than the current budget.  The breakdown of the specific revenue accounts is summarized in the table below.

Expenditure Adjustments

As a result of the higher than anticipated construction business volume, a total of $197,819 in additional resources is requested for the Development Services Program.  This includes $44,642 for the ‘Close Building Permits’ activity and $153,177 for the ‘Review Land Use Permit Applications’ activity.  The Development Services Program is currently experiencing higher than anticipated demand for building permits and land use permits.  Based on the current activity level, staff expects to close 4,200 building permits for the fiscal year, which is 400 permits more than the current budget of 3,800.  Staff proposes to meet the additional demand with 850 contract hours.  This will increase the total number of hours budgeted for the ‘Close Building Permits’ activity to 10,297 and increase the total cost by $44,642 to $717,662.

For the ‘Review Land Use Permit Applications’ activity, staff expects to complete 1,200 permits for the fiscal year, which is 230 permits higher than the current budget of 970.  Staff proposes to increase the work hours budgeted for this activity by 2,650 hours, bringing the total hours to 12,797 and increase the total cost by $153,177 to $831,782.

Staff proposes to partially offset the cost of the additional hours by reducing 675 hours from other programs within the Community Development Department where the workload can be managed with a slight reduction in resources.  The hours to be reduced are Planner hours that are currently budgeted in the Community Planning and the Economic Prosperity programs.  These adjustments result in a total reduction of $46,712.

With the adjustments outlined above, staff anticipates to achieve productivity levels that are better than the actuals reported for FY 2004/2005 for these two activities:

The adjustment of work hours is summarized in the table below.