CC 2017-03-28_12b FY 2017-18 Pre_Budget Discussion
MEMORANDUM
TO: CITY COUNCIL
FROM: BOB MCFALL, INTERIM CITY MANAGER
DEBBIE MALICOAT, DIRECTOR OF ADMINISTRATIVE SERVICES
SUBJECT: FISCAL YEAR 2017-18 PRE-BUDGET DISCUSSION
DATE: MARCH 28, 2017
RECOMMENDATION:
It is recommended the City Council receive information and provide direction to staff for the
preparation of the Fiscal Year 2017-18 Budget regarding:
1) Status quo budget concept
2) Updating the fund balance policy for the General Fund
3) Opportunities for policy or procedural shifts in responsibility
4) Reaffirm City Council Goals
5) Future consideration of accelerated funding of CalPERS liabilities
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
There is no direct financial impact to receiving the attached information. Significant personnel
resources will be utilized in preparing the Fiscal Year (FY) 2017-18 budget.
BACKGROUND:
One of the typical steps in preparing the City’s budget is to provide the City Council with
information regarding current financial conditions, identification of fiscal challenges or
opportunities and other non-financial information that will assist the Council in their policy
and decision making role in the upcoming budget process. In addition to providing an
update to the General Fund Ten Year Forecast, this report addresses a number of
challenges facing the City in the next few years including:
Pension Costs – the implications of the CalPERS discount rate change and unfunded
liability
Securing a long-term, drought resistant water supply
Eventual closure of the Diablo Nuclear Power Plant
Overall economic development and revenue generation
Long-term infrastructure maintenance
Sustainability of ongoing operational needs
ANALYSIS OF ISSUES:
As discussed in the Mid-Year Budget Report, the City is currently facing a mixed fiscal
picture. Revenues in many General Fund categories are increasing and economic indicators
are generally favorable. However, there continue to be challenges ahead.
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The current projected available General Fund Balance for June 30, 2017 is $5.6 million,
which represents approximately 34% of appropriations; this exceeds the City Council fund
balance goal of 20%. This fiscal strength will provide the City Council with some time to work
toward solutions, rather than requiring an immediate response. However, the use of fund
balance to support ongoing operations is a short-term solution and unsustainable in the long-
term.
CalPERS Issues
In an ongoing effort to ensure that the pension plan is viable and sustainable, the CalPERS
Board of Directors has approved a number of policy changes. The first one that will begin
impacting the City in FY 2017-18 is a change to the amortization policy. This policy is
designed to pay down the unfunded liability faster and has a 5 year “ramp up” and 5 year
“ramp down” feature. This means that during the first 5 years (FY 17-18 to FY 21-22)
contributions will increase, then they will remain relatively steady for 20 years before
beginning to slowly decline for the final 5 year period. This phased approach is an attempt to
provide agencies time to adapt to the change. In the end, this will result in higher
contributions in the short term, lower contributions in the long term (25+ years) and the
pension program will be better funded in the long term.
The CalPERS Board also adopted a new asset allocation policy, which impacts how the
pension system invests its money. This was a response to market volatility and the Board’s
attempt to stabilize agency contributions by providing for a less risky portfolio of investments.
In addition, the Board approved new actuarial assumptions based on an experience study
that showed retirees were retiring earlier and living longer, among other economic and
demographic assumptions. Both of these changes had the effect of increasing the City’s
contribution rates beginning in FY 2016-17.
The most recent change approved by the CalPERS Board was a change in the investment
return assumption, sometimes referred to as the “discount rate”. This is the rate of return that
the retirement system expects its investments to earn in the market. Currently, the assumed
rate of return is 7.5% annually. Based on the asset allocation policy and capital market
assumptions, the Board has been discussing a possible change to the “discount rate” for
several months. Ultimately, the Board has adopted another phased approach – lowering the
investment return assumption from 7.5% to 7.375% for the June 30, 2016 valuation reports,
to 7.25% for the June 30, 2017 valuation reports and to 7.00% for the June 30, 2018 reports.
The chart below reflects the historical net rate of return on investments.
Year End 6/30 Rate of Return Year End 6/30 Rate of Return
2015 2.40% 2010 11.10%
2014 18.40% 2009 -23.60%
2013 12.50% 2008 -2.90%
2012 1.00% 2007 18.80%
2011 20.70% 2006 11.90%
CalPERS Historical Net Rates of Returns
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What does this mean to the City of Arroyo Grande?
As a reminder, the City pays its CalPERS contributions in two parts: the normal cost and the
payment on the unfunded liability. The normal cost (NC) is defined as the amount needed to
fund benefits in the upcoming year for active members. It is expressed as a percentage of
payroll and is relatively stable over time. The second component is the payment on the
unfunded accrued liability (UAL), which is expressed as a fixed dollar amount and represents
the amount that needs to be contributed in order to pay off the unfunded liability in 30 years.
In terms of a household, the normal cost could be viewed as the electric bill, groceries and
insurance – the cost for things that provide benefits for this year. The UAL is like the
mortgage – the cost for having an asset that will provide benefits into the future. Even if your
mortgage is paid off, you still incur “normal costs” to live in a house; normal costs for the
pension system are ongoing and will never end as long as the pension system exists. But
the UAL is the mortgage debt, and there is a point in time when it is paid off. In a pension
system, the UAL is recalculated every year for changes in assumptions and market gains or
losses, which are then amortized for 20 or 30 years. It is similar to taking out a home equity
loan or a second mortgage, as your circumstances change your total mortgage debt might
increase or decrease, but there is still a goal of paying off the mortgage someday.
Based on the decision to reduce the investment return assumption from 7.5% to 7.0%,
CalPERS has provided a spreadsheet for agencies to use to estimate the impact to their
contributions for the next five years. The tables on the following pages show the estimated
impact on the City’s miscellaneous and safety plans, based on “middle of the range”
assumptions. The ultimate impacts could be higher or lower, depending on the City’s unique
circumstances and decisions.
At the current discount rate of 7.5%, the City’s Normal Cost (NC) for miscellaneous
employees is projected to remain at approximately 10.1% of payroll. As payroll increases, so
will the total amount of the contribution, but the rate remains level. However, the payment on
the UAL grows from $851,937 in 2017-18 to $1,285,785 in 2021-22 before declining to
$958,279 in 2022-23 due to paying off the “side fund” which is a separately calculated debt.
This results in an overall contribution to the retirement system that is approximately $1.1
million to $1.2 million or 46.2% to 45.1% of payroll.
However, with the revised discount rates phased in over the same five year time period, the
Normal Cost increases from 10.110% to 12.1%, before remaining level at 12.1%. The
payment on the UAL increases to $1.5 million in 2021-22, with a total contribution of $1.8
million required that year as compared to $1.6 million with the current discount rate.
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For Miscellaneous Plans
2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23
NC Rate 10.110% 10.1% 10.1% 10.1% 10.1% 10.1%
NC 239,000$ 246,000$ 253,000$ 261,000$ 269,000$ 277,000$
UAL 851,937$ 977,342$ 1,109,504$ 1,194,565$ 1,285,785$ 958,279$
TOTAL 1,090,937$ 1,223,342$ 1,362,504$ 1,455,565$ 1,554,785$ 1,235,279$
Projected Payroll 2,363,000$ 2,434,000$ 2,507,000$ 2,582,000$ 2,659,000$ 2,739,000$
Current "Rate" 46.2% 50.3% 54.3% 56.4% 58.5% 45.1%
7.375% 7.25% 7.00% 7.00% 7.00%
2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23
NC Rate 10.110%10.6% 11.1% 12.1%12.1% 12.1%
NC ‐ New 239,000$ 258,000$ 278,000$ 312,000$ 322,000$ 331,000$
UAL Factor 1.00 1.025 1.050 1.125 1.175 1.225
UAL ‐ New 852,000$ 1,002,000$ 1,165,000$ 1,344,000$ 1,511,000$ 1,174,000$
TOTAL ‐ New 1,091,000$ 1,260,000$ 1,443,000$ 1,656,000$ 1,833,000$ 1,505,000$
Increase in cost 0.0% 3.0% 5.9% 13.8% 17.9% 21.8%
Revised "Rate" 46.2% 51.8% 57.6% 64.1% 68.9% 54.9%
Difference 0.0% 1.5% 3.2% 7.8% 10.5% 9.8%
Current Discount Ra te ‐ 7.50%
Revised Discount Rates
Similarly, the safety plan will see an increase in the Normal Cost from 19.723% to 23.7% and
the UAL payment. The safety plan has a “side fund” that will be paid off in 2018-19, which is
why the UAL payment reduces in 2019-20. Even with the payoff of the side fund, the UAL
payment ultimately increases from $1.1 million to $1.3 million in 2022-23.
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For Safety Plans
2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23
NC Rate 19.723% 19.7% 19.7% 19.7% 19.7% 19.7%
NC 301,000$ 309,000$ 319,000$ 328,000$ 338,000$ 348,000$
UAL 884,034$ 996,190$ 544,313$ 606,320$ 671,123$ 718,575$
TOTAL 1,185,034$ 1,305,190$ 863,313$ 934,320$ 1,009,123$ 1,066,575$
Projected Payroll 1,523,700$ 1,569,000$ 1,616,000$ 1,664,000$ 1,714,000$ 1,765,000$
Current "Rate" 77.8% 83.2% 53.4% 56.1% 58.9% 60.4%
7.375% 7.25% 7.00% 7.00% 7.00%
2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23
NC Rate 19.723%20.7% 21.7% 23.7%23.7% 23.7%
NC ‐ New 301,000$ 325,000$ 351,000$ 395,000$ 407,000$ 419,000$
UAL Factor 1.00 1.025 1.050 1.125 1.175 1.225
UAL ‐ New 884,000$ 1,021,000$ 572,000$ 682,000$ 789,000$ 880,000$
TOTAL ‐ New 1,185,000$ 1,346,000$ 923,000$ 1,077,000$ 1,196,000$ 1,299,000$
Increase in cost 0.0% 3.1% 6.9% 15.3% 18.5% 21.8%
Revised "Rate" 77.8% 85.8% 57.1% 64.7% 69.8% 73.6%
Difference 0.0% 2.6% 3.7% 8.6% 10.9% 13.2%
Current Discount Rate ‐ 7.50%
Revised Discount Rates
The total UAL payment will increase from $2,276,000 in FY 2017-18 to $2,804,000 in FY
2022-23. Previous estimates indicated that the FY 2022-23 UAL payment would be
approximately $2,301,900, therefore the change in the discount rate will increase the City’s
required contributions by about $500,000. These estimates represent significant increases in
the required contribution to CalPERS and must be considered a major challenge when
developing the 2017-18 budget and beyond.
Long Term, Drought-Resistant Water Supply
Despite recent rains, the City’s water supply remains a topic of concern for the community.
The capacity to provide adequate water to residents and businesses in the City during times
of drought has direct impacts on quality of life issues as well as economic and service
delivery issues. During the 2017-18 fiscal year, resources will continue to be spent in pursuit
of several projects and programs aimed at securing a long term, drought-resistant water
supply. These efforts include a recycled water project in conjunction with regional partners.
The recycled water projects are long-range effort and while considerable staff resources will
be spent in the upcoming year, no immediate expenditures are necessary at this time.
However, security of our water supply is critically important options for funding a recycled
water project that will bolster the City’s water supply must be kept in mind when developing
future budgets to ensure that the Water and Wastewater Funds are positioned to achieve the
goal.
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Diablo Nuclear Power Plant Closure
The communities along the Central Coast will be impacted by the closure of the Diablo
Nuclear Power Plant in many ways, some of which aren’t perfectly clear at this point in time.
The City has partnered with other cities in the County (Coalition of Cities) to engage Pacific
Gas & Electricity (PG&E), the County, San Luis Coastal Unified School District and other
interested parties in gaining a better understanding of the impacts and devising strategies to
mitigate those impacts. This work is still in its beginning stages and more will be known in the
coming months, however, it is prudent to remain cautious regarding property tax and sales
tax generation in future years.
The County, Coalition of Cities and San Luis Coastal Unified School District have reached a
tentative agreement with PG&E that establishes a $10 million Economic Development Fund
to help mitigate some of the fiscal impacts expected from the closure. Arroyo Grande’s share
of the economic development fund is $747,422; however, the agreement must still be
reviewed and approved by the California Public Utilities Commission (CPUC). The $10 million
Economic Development Fund is in addition to the original $49.5 million that PG&E proposed
as a Community Impact Mitigation Fund. The tentative agreement also permits the Coalition
of Cities to participate in the CPUC’s review of any additional economic mitigation that might
result from the economic impact report required by SB 968, authored by Senator Bill
Monning.
Infrastructure Maintenance and Operational Needs
Council has received several informational items related to the City’s investment in
infrastructure and the estimated cost of maintaining those assets. As reflected in the table
below, in order to maintain these City facilities, the City should be spending over $4.4 million
annually. To put this in perspective, over the last three years, the City has spent about $2.5
million per year on these activities. Infrastructure maintenance needs and operational needs
far exceed the City’s available funding and priority decisions must be part of the budget
process. (A report on the City’s sidewalks will be presented to the Council in April.)
Infrastructure System Approximate
Value/Replacement Cost
Annual Depreciation
Parks, Landscape & Open Space $4,900,000 $210,000
Government Buildings $4,700,000 $121,000
Drainage $3,360,000 $238,100
Streets $180,000,000 $3,600,000
Sidewalks $34,912,500 $232,750
Total* $227,872,500 $4,401,850
*Fleet and technology systems have not yet been analyzed.
In addition to the $4.4 million identified in the table above, there are improvements to the
infrastructure systems and capital improvement projects that support the water and
wastewater activities that are identified in their respective master plans, but are not reflected
in the totals above. These systems represent approximately $700,000 in annual
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depreciation, which is factored into the rates charged for water and sewer services in order to
fund necessary replacements.
From an operating budget perspective, the cost of doing business continues to grow as the
City experiences pressure for higher salary and benefits to remain competitive in the labor
market, workers’ compensation and liability insurance premiums escalate, there is an
increased reliance on technology and software to perform critical functions, utility costs rise,
aging fleet and equipment replacements are needed, and, as mentioned, pension
contributions increase.
Also, technology is changing the way cities provide services, the way cities communicate and
even the services demanded by constituents. Just a few years ago, the concept of having
publically available Wi-Fi in City buildings was relatively rare, now it is virtually expected;
communicating via electronic methods was limited to posting announcements on the website,
now social media blasts and “tweets” are the accepted (for some, even preferred) methods of
communication. Constituents increasingly want to be able to access and interact with their
government via electronic methods (websites, phone applications, etc.) to do anything from
looking at an agenda to renewing their business license and paying their water bills.
Implementing and maintaining the systems, policies and staffing to support technological
changes is expensive and has become an increasingly larger portion of the City’s budget.
Meanwhile, staffing levels have remained relatively constrained since the Great Recession.
Although the departments have since been reorganized, the chart below shows staffing
levels in FY 2007-08 compared to FY 2015-16. After accounting for Fire Department
employees being reassigned to the Five Cities Fire Authority, there were 92 full-time and 37
part-time employees prior to the recession, as compared to 74 full-time and 45 part-time
employees now. The City continues to rely heavily on part-time staffing and has generally
not restored employee counts to pre-recession levels.
Citywide Staffing Levels 07/08 15/16
ACTUAL ACTUAL
Administration 3.0 1.0
City Clerk 1.0 2.0
Administrative Services 5.0 6.0
Community Development 13.7 8.0
Information Technology 1.5 2.0
Police 36.0 31.0
Community and Maintenance Services 31.0 24.0
Redevelopment Agency 0.5 0.0
Redevelopment Set Aside 0.3 0.0
TOTAL FULL TIME POSITIONS 92.0 74.0
Administration 6.0 5.0
City Clerk 0.0 1.0
Police 13.0 8.0
Community Development 0.8 4.0
Community and Maintenance Services 17.2 27.0
TOTAL PART TIME POSITIONS 37.0 45.0
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Economic Growth Opportunities
Maintaining or increasing City operations relies on increasing revenues that support those
operations. Some revenues are generated specifically by the users of the service, such as
child care fees or building permits. Other revenue, such as property tax and sales tax is
generated by the community at large. Increasing these general revenues is largely a function
of economic development, whether developing land that is currently vacant or intensifying the
revenue generating capacity of developed land. Transient Occupancy Tax (TOT) is
generated by hotels, motels, vacation rentals and homestays. Increasing the number of
available rooms and/or the room rate will result in additional TOT generation.
The City Council has previously provided direction on a Revenue Plan, many actions of
which have been deferred during the past year. Staff will continue to work toward achieving
the actions identified in that Plan as resources permit. However, without dedicated staffing or
consultant resources, significant economic development activities must be balanced with
other priorities and daily operations.
Ten Year Forecast
With the above mentioned factors in mind, the General Fund 10 Year Forecast has been
updated and presented in Attachment #1. The forecast provides a view of the financial
condition of the General Fund based on a number of assumptions. Key in those assumptions
is an economic contraction similar to, but not as severe as, the last recession. The Forecast
assumes sales tax generation will slow in 2018-19 and 2019-20 and will decline in 2020-21.
Property taxes do not see an actual decline until 2022-23, which is a typical lag time for these
revenues due to the way they are assessed and collected.
Based on the assumptions in the Forecast and shown in the table below, expenditures
exceed revenues each of the ten years and by the end of the sixth year, 2022-23, all General
Fund reserves would be depleted.
General Fund Financial Forecast
In Thousands 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
Total Revenues 16,380 16,918 17,372 17,580 17,526 17,281
Total Expenditures 17,177 17,977 18,165 19,036 19,657 19,690
Rev Over/(Under) Expend. (797) (1,059) (793) (1,456) (2,131) (2,409)
421 437 441 370 - -
AVAILABLE FUND BALANCE
START OF YEAR 5,789 5,413 4,791 4,439 3,353 1,222
END OF YEAR 5,413 4,791 4,439 3,353 1,222 (1,186)
Ending Fund Balance %32% 27% 24% 18% 6% -6%
Exp savings (incr. fund bal)
It is important to note that the Forecast is not a budget. It does not prioritize programs and
projects for expenditure. It is a tool to provide the City Council, staff and the community with
information regarding how easy or difficult it might be to expand services, add new programs,
or increase revenues.
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It is also important to note that the forecast is based on a set of assumptions that will not turn
out to be reality. Ultimately, the annual budget presented to Council for consideration will be
balanced and a reflection of current revenue projections, prioritizing operational needs and
Council priorities. The assumptions are based on consultation with economists, advisers and
analysts but ultimately are the result of staff’s best estimates of trends, opportunities and
threats to the General Fund. Undoubtedly not all of the assumptions will be accurate, which
is one reason why staff closely monitors revenues and expenditures throughout the year and
brings forward recommendations for adjustments to the budget as needed.
Recommendations and Solutions
Given all these challenges, there is no single solution that will address the financial
sustainability of the General Fund; however there are a number of actions to be pursued in
the coming months and years.
First, as the City Council has already approved, it is recommended that the City proceed with
a one-year budget for Fiscal Year 2017-18 before resuming the two-year budget model. This
will provide the new City Manager with the opportunity to be part of the entire budget process,
from goal setting and community engagement through budget adoption. The
recommendation is to essentially view the 2017-18 budget as a “status quo” budget, with only
minor adjustments or critically necessary changes and defer the discussion of any new or
major changes to the development of the 2018-20 biennial budget. However, it will be
important to begin identifying long term expenditure reduction strategies in recognition that
the General Fund is facing a long term structural deficiency and this effort should occur
during FY 2017-18. If it is the desire of Council, this would also be the opportunity to engage
the community in a strategic planning, community priorities process.
Next, an updated fund balance policy for the General Fund is recommended. The policy
should consider a minimum and maximum reserve for economic stability and provide
additional guidance on setting aside funding for infrastructure, payment of liabilities and how
to address one-time windfall events.
Further, it is recommended that the City Council consider opportunities to modify existing
policies or practices, where possible, to transfer responsibility for infrastructure maintenance
or operational programs from the City to other parties. This could include anything from
sidewalk maintenance to sports league management.
Given the limited resources available, it is important that the City identify the highest priority
work efforts and remain focused on achieving those items. The City Council adopted a list of
goals at the August 9, 2016 meeting (Attachment #2). It is recommended that the City
Council reaffirm these as goals for FY 2017-18 or provide direction on modification of goals.
Lastly, a strategy for accelerated funding of CalPERS liabilities should be explored and
considered by the City Council. There are essentially three options available: making ad hoc
payments when circumstances permit; formally entering into a “Fresh Start” with CalPERS; or
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PAGE 10
implementing a Section 115 Trust. Each of these strategies requires more investigation and
discussion than this report can provide at this time.
ALTERNATIVES:
The following alternatives are provided for City Council consideration:
1. Receive information and provide direction regarding recommendations for budget
preparation, fund balance policy development, transfer of liabilities, Council Goals, and
accelerated funding of CalPERS liabilities;
2. Receive information and do not provide direction to staff.
ADVANTAGES:
The City Council has the opportunity to provide direction and feedback to staff based on
information available at this time. Staff will proceed and use this feedback while preparing
the Preliminary Budget.
DISADVANTAGES:
No disadvantages are noted to receiving the information and providing direction.
ENVIROMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The Agenda was posted at City Hall and on the City’s website in accordance with
Government Code Section 54954.2.
Attachment:
1. General Fund Ten Year Forecast
2. August 9, 2016 City Council Report: Consideration of Approval of City Council Goals for
FY 2016/17.
Item 12.b. - Page 10
General Fund Ten Year Financial Forecast
(Minimum 15% Fund Balance Policy/20% Fund Balance Goal)
Actual Budget
In Thousands 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
REVENUES & OTHER SOURCES
Sales Tax - General 3,769$ 3,632$ 3,777$ 3,815$ 3,853$ 3,738$ 3,551$ 3,373$ 3,373$ 3,407$ 3,441$ 3,493$
Sales Tax - Proposition 172 148 120 125 126 127 123 117 111 111 113 114 115
Property Tax 4,442 4,499 4,679 4,866 5,036 5,137 5,137 4,983 4,983 5,033 5,083 5,159
Property Tax in lieu of VLF 1,419 1,487 1,546 1,608 1,665 1,698 1,698 1,647 1,647 1,663 1,680 1,705
Transient Occupancy Tax 966 1,000 1,030 1,061 1,093 1,109 1,109 1,109 1,109 1,109 1,142 1,177
Transient Occupancy Tax - Village Hotel 100 135 175 175 175 175 175 180 186
Transient Occupancy Tax - Cherry Hotel 175 250 250 250
Business Licenses 87 92 94 97 99 102 105 108 112 115 118 122
Franchise Fees 614 600 612 624 637 649 662 676 689 703 717 731
Real Property Transfer Tax 128 100 103 105 108 111 114 118 121 125 129 133
Aid From Other Governments
Other Subventions & Grants 195 115 117 118 120 123 125 128 130 133 135 138
Service Charges
Recreation Fees 705 720 738 757 776 799 823 848 874 900 927 955
Permits & Licenses 270 371 380 390 400 412 424 437 450 464 478 492
Community Development Charges 195 253 259 263 267 272 278 283 289 295 300 307
Other Service Charges 253 75 81 82 83 85 87 89 90 92 94 96
Other Revenues
Fines & Forfeitures 47 42 43 43 44 45 46 47 48 48 49 50
Use of Money & Property 380 364 369 375 381 388 396 404 412 420 429 437
Other Revenues 333 20 21 21 22 22 23 24 24 25 26 27
Transfers
Transfer from Local Sales Tax Fund 262 71 283 290 297 305 312 320 328 335 342 349
Personnel, Cost & Operating Transfers 2,317 2,278 2,123 2,176 2,230 2,286 2,343 2,402 2,462 2,524 2,587 2,651
Total Revenues 16,530$ 15,839$ 16,380$ 16,918$ 17,372$ 17,580$ 17,526$ 17,281$ 17,603$ 17,929$ 18,222$ 18,573$
EXPENDITURES & OTHER USES
Salary & Benefits 9,501$ 10,312$ 10,921$ 11,368$ 11,365$ 12,033$ 12,510$ 12,427$ 12,595$ 12,736$ 13,088$ 13,456$
PERSable compensation 4,943 5,301 5,576 5,688 5,801 5,942 5,966 5,989 6,011 6,032 6,174 6,319
PERS Costs 1,855 2,115 2,325 2,587 2,382 2,805 3,172 2,992 3,078 3,165 3,272 3,390
Part Time/non-PERSable compensation 1,046 1,152 1,179 1,209 1,245 1,289 1,327 1,361 1,388 1,402 1,444 1,487
Insurance (including Workers Comp)1,232 1,313 1,366 1,401 1,443 1,493 1,538 1,576 1,608 1,624 1,673 1,723
Medicare, FICA, other 425 431 474 483 493 505 507 509 511 513 525 537
Pre-fund Retiree Medical Costs 205 205 205 205 205 205 205 205 205 205 205 205
Operating Programs 5,018 5,864 5,720 5,892 6,068 6,250 6,375 6,471 6,568 6,634 6,766 6,902
Debt Service 201 246 246 77 77 77 77 77 77 77 77 66
Minor Capital Outlay 345 92 60 60 65 65 75 75 75 75 75 75
Capital Improvement Projects 20 20 30 30 40 40 50 50 50 50
Vehicle Replacements 250 250 260 260 270 270 280 290 300
Technology Replacements 100 100 110 110 120 120 130 140 150
Transfers Out 147 208 5 5 5 5 5 5 5 5 5 5
Total Expenditures 15,417$ 16,927$ 17,177$ 17,977$ 18,165$ 19,036$ 19,657$ 19,690$ 19,965$ 20,191$ 20,691$ 21,204$
ATTACHMENT 1
Item 12.b. - Page 11
Revenues Over (Under) Expend.1,113$ (1,088)$ (797)$ (1,059)$ (793)$ (1,456)$ (2,131)$ (2,409)$ (2,362)$ (2,263)$ (2,469)$ (2,630)$
421 437 441 370 - - - - 401 411
AVAILABLE FUND BALANCE
START OF YEAR 5,947$ 6,877$ 5,789$ 5,413$ 4,791$ 4,439$ 3,353$ 1,222$ (1,186)$ (3,549)$ (5,812)$ (7,879)$
Reserve for carryover (183)
END OF YEAR 6,877 5,789 5,413 4,791 4,439 3,353 1,222 (1,186) (3,549) (5,812) (7,879) (10,098)
Fund Balance Goal-20% Expend 3,083$ 3,385$ 3,435$ 3,595$ 3,633$ 3,807$ 3,931$ 3,938$ 3,993$ 4,038$ 4,138$ 4,241$
Ending Fund Balance %45%34%32%27%24%18%6%-6%-18%-29%-38%-48%
PROJECTION FACTORS 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
DEMOGRAPHICS
Population 1.0%1.0%1.0%1.0%1.0%1.0%1.0%1.0%1.0%1.0%
Housing Units 1.0%1.0%1.0%1.0%1.0%1.0%1.0%1.0%1.0%1.0%
Inflation 1.5%1.5%1.5%2.0%2.0%2.0%2.0%2.0%2.0%2.0%
Compound Pop & Inflation 2.5%2.5%2.5%3.0%3.0%3.0%3.0%3.0%3.0%3.0%
KEY REVENUES
Sales Tax 4.0%1.0%1.0%-3.0%-5.0%-5.0%0.0%1.0%1.0%1.5%
Property Tax 4.0%4.0%3.5%2.0%0.0%-3.0%0.0%1.0%1.0%1.5%
TOT 3.0%3.0%3.0%1.5%0.0%0.0%0.0%0.0%3.0%3.0%
Business License/Tax
Franchise Fees 2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%
Property Tax in lieu of VLF 4.0%4.0%3.5%2.0%0.0%-3.0%0.0%1.0%1.0%1.5%
Development Review Fees
Recreation Fees
EXPENDITURES
Salary 2.0%2.0%2.0%2.0%0.0%0.0%0.0%0.0%2.0%2.0%
PERS Benefits 10.0%11.3%-7.9%17.7%13.1%-5.7%2.9%2.8%3.4%3.6%
Non-PERS Benefits 2.5%2.5%3.0%3.5%3.0%2.5%2.0%1.0%3.0%3.0%
Operating Programs 3.0%3.0%3.0%3.0%2.0%1.5%1.5%1.0%2.0%2.0%
Debt Service
Unspent appropriations (incr. fund bal)
TEN YEAR FINANCIAL FORECAST
Based on Lease Purchase Contract for Vehicle Replacement
2016-17 Projection Plus Compound Population and Inflation
2016-17 Projection Plus Compound Population and Inflation
2016-17 Projection Plus Compound Population and Inflation
Item 12.b. - Page 12
ATTACHMENT 2
MEMORANDUM
TO: CITY COUNCIL
FROM: GEOFF ENGLISH, ACTING CITY MANAGER
SUBJECT: CONSIDERATION OF APPROVAL OF CITY COUNCIL GOALS FOR
FY 2016/17
DATE: AUGUST 9, 2016
RECOMMENDATION :
It is recommended the Council approve the City Council Goals prepared for FY
2016/17 .
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
A majority of the costs to implement these goals were included in the FY 2016/17
budget. The cost to secure the services of the facilita tor, Don Maruska was
$5,000.00.
BACKGROUND:
In 2010 , the City Council approved the City's Critical Needs Action Plan . These
goals provided City staff with guidance and direction for budget preparation and the
policy development to achieve these City Council established priorities. Since 2010,
the Critical Needs Action Plan has been periodically modified as goals were achieved
and priorities changed.
Most recently, on June 9, 2015, the City Council modified the Critical Needs Action
Plan as follows during the development and adoption of the Fiscal Year 2015/16 and
2016/17 biennial budget:
• Refocused comprehensive Economic Development Plan
• Complete design and approval of the Brisco Road Interchange projec t
• Fully fund and construct the pavement management program to establish and
maintain a schedule of improving all streets in the City on a 7-year cycle
• Continue an escalated sidewalk repair program
• Address the Recreation Services Department's facility needs
• Implement recommendations to address the City's water needs through a
combination of conservation measures, potential re cycl ing efforts and additional
water supply sources that may become available
• Prepare asset replacement schedules for all City infrastructure including
buildings , drainage facil ities , parks , vehicles, information technology and other
infrastructure
Item 12.b. - Page 13
CITY COUNCIL
DRAFT CITY COUNCIL GOALS
AUGUST 9, 2016
PAGE2
• Develop a long range financial plan w ith a focus on ensuring operational
effectiveness and reve nue generation opportun ities to help ensure long term
fiscal sustainabi li ty
On June 13, 2016 , the City Council conducted the first of a two part City Council Goal
Setting session , during which the City Council heard presentations from all of the City
Departments. On July 18, 2016 , the City Council conducted a follow-up Goal Setting
Workshop at the City of Arroyo Grande Woman's Club and Community Center .
ANALYSIS OF ISSUES:
Goal setting is a common practice for municipal agencies and is often completed with
the assistance of a facilitator and often in conjunction with budget development. In
this particular case, the City Council has initiated a goal setting process in advance of
the 2017/18 and 2018/19 budget process that will allow staff to use these goa ls as a
guide for budg et developme nt. The process for the establishmen t of the current
goals was described by faci litator Don Maruska during the June 13, 2016 workshop.
The individual Council members were asked to submit seven goals which were then
co-m ingled into one document that was distributed as part of the agenda packet for
the July 18, 2016 Goal Setting Workshop (Attachment 1 ). At th is public workshop ,
the City Council accepted public comment and worked closely with Don Maruska to
craft eight (8) revised goals. The goals were crafted to include a descriptive title with
a more detai led description. Below are the City Council Goals which were drafted
and which to a large extent incorporate most of the items listed in the previous
Critical Needs Action Plan:
FINAL CITY COUNCIL GOALS -2016
(Prepared at the Goal Setting Workshop on July 18, 2016)
Support City infrastructure: Comp lete asset replacement schedules for City
infrastructure including buildings , drainage fa ci lit ies, parks, vehicles , sidewalks, fire ,
and information technology and identify funding options .
Improve cost-recovery on services: Comp lete user fee study.
Retain and attract employees: Complete a comparison study of all departments:
sa lari es, benefits and job descriptions. If there is a measurable way t o establish
service levels, e.g. crime rate adjusted for demographics, we should include it.
Make decision about Brisco ramp: Complete environmental analysis and decision
about overall project and address issues regarding Brisco ramp temporary closure.
Increase water security: Continue implementation of Water Shortage Contingency
Plan whi le focusing upon loca l and regional water recycling efforts and committing to
desired project(s).
Enhance parking : Complete Parking Study w ith consultant support and review and
modify policies.
Item 12.b. - Page 14
CITY COUNCIL
DRAFT CITY COUNCIL GOALS
AUGUST 9, 2016
PAGE3
Maintain cost-effective fire service : Finish Five Cities Fire Authority Strategic
Study, return to Council for review and prioritization, including incorporation into City
budget.
Improve financial sustainability through economic development: Complete
Economic Strategic Plan , with particular attention to business retention , targeted
opportunities , and realistic projections of revenue impacts .
Staff commented at the July 18 , 2016 workshop that the goals are realistic and
achievable within the current budget framework and is recommending t hat the City
Council approve the City Council Goals prepared for FY 2016/17. If approved by the
City Council, the goals will be printed in large print format and mounted in the Council
Chambers (Attachment 2).
ALTERNATIVES:
The following alternatives are prov ided for the Council's consideration:
1. Approve the City Counci l goals as developed;
2. Make changes to the draft Ci ty Council goals as appropriate and approve; or
3. Provide direction to staff.
ADVANTAGES:
The early establishment of City Council goals will assist in the development of the
next City budget and provide focus for the City's work plan and efforts during the
current budget cycle.
DISADVANTAGES:
Current workloads and limited staffing levels will make it challenging to achieve the
goals within the expected time f rames if there are any additional demands or projects
assigned to staff.
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The agenda was posted in front of City Hall on Thursday , August 4 , 2016 and the
agenda and staff report were posted on the of City 's website on Friday , August 5,
2016 .
ATTACHMENTS:
1. Goals submitted by Council
2. Goals for FY 2016/17
Item 12.b. - Page 15
ATTACHMENT 1
CITY COUNCIL SUGGESTIONS for CITY GOALS
The following consolidates the 2016-17 City Goal submittals from the Mayor and Council Members. In order to
aid Council discu ss ion, staff organized the suggestions verbatim into categories by topic and arranged the topics
in order of magnitude by number of submittals in the topics . As several goals were a combination of different
topics, we tried to place them in the most logical topic area.
We provide the information formatted as a working document in large font so that what you see on the page is
what you will be viewing on the screen during the Goal-Setting Workshop on Monday, July 18, 2016.
Item 12.b. - Page 16
Financial Sustainability
• New reserve policy, with an emergency reserve plus a working
reserve that is not budgeted but would be available if there is an
economic downturn or a significant unanticipated expense. Kind of
like a rainy day fund.
• Complete asset replacement schedules for all city infrastructure
including buildings, drainage facilities, parks, vehicles, and
information technology.
• Finish asset replacement Report (roads and sidewalks, recreation
facility report).
• Identify and .create set aside funds for infrastructure, repair,
maintenance and asset replacements i.e. fire authority apparatus,
technology and equipment.
Item 12.b. - Page 17
• Asset replacement fund including Fire Dept.
• Complete economic development, revenue generation, and financial
sustainability plans.
• Create implementation plan for economic development, revenue
generation, and financial sustainability plans.
• Balanced budget policy.
Item 12.b. - Page 18
General Government
• Evaluate the cost of City programs and services -perform a cost
service analysis.
• Working toward these important goals while at the same time being
sure we preserve our small town character and quality of life.
• Maintain high quality, cost effective services PW /Rec/ Admin.
Objectives:
-Set asides for maintenance of public facilities and infrastructure
-Payment plan for PERS, OPEB
-Minimize consultant contracts
• Comp study all departments: salaries, benefits and job descriptions . If
there is a measurable way to establish service levels, i.e. crime rate
adjusted for demographics, we should include it.
Item 12.b. - Page 19
• Comp study in order to retain and attract employees.
• City Council retreat and team building workshop ..
Item 12.b. - Page 20
Transportation
• Maintain Brisco ramp temporary closure and construction funding
allocation, consider alternatives.
Objectives:
-Extend temporary closure in parallel with extended delays in project
funding
-Use funding delay period to consider additional options, e.g., off
ramp only; widening underpass
• Complete Brisco process (environmental, funding strategy and
decision)
• Traffic solutions for addressing increase traffic.
• Finish Brisco Road Interchange.
Item 12.b. - Page 21
Water
• Provide reliable, economical, long term water supply.
Objectives:
-Work with Northern Cities Management Area partners and South
San Luis Obispo County Sanitation District to initiate full advanced
treatment recycling
-Define costs and prerequisites for potential backup sources
• Complete studies for the south county regional recycled water project
and provide recommendation; promote and achieve a successful 2016
ballot initiative to allow the consideration of procuring state water.
• Expand our water portfolio.
• Water crisis plan.
Item 12.b. - Page 22
Development Processes and Policies
• Simplify and streamline the permitting process and provide
predictable, fair, impartial and consistent treatment for development
applicants.
Objectives:
-Provide single point of contact with city
-Establish comprehensive requirements checklist
-Plan adequate parking to minimize internal and external impacts
-Eliminate arbitrary and subjective requirements and enforcement
• Concrete plan to attract attainable/workforce housing to be built.
• Parking Study.
• Revise sign ordinance and parking regulations
Item 12.b. - Page 23
Public Safety
• Develop sustainable success path for Five Cities Fire Authority
including full cost accounting of all aspects.
Objectives:
-Direct inclusion in city budget process on city budget schedule (2
year) -OR-
-Separate independent agency
• FCF A strategic and funding plan.
• In addition to the Strategic Plan, compare service levels for FCF A to
City of Paso Robles, Atascadero, and Los Osos. For example,
. available personnel per resident, response time, property damage,
negative medical results;
• Fully staff Police Department.
Objectives:
Item 12.b. - Page 24
-Continue to attract highest qualified candidates in market
-Expand promotional opportunities (administrative sergeant)
Item 12.b. - Page 25
Economic Development & Vitality
• Significant business attraction, recruitment and retention efforts.
Objectives:
-Focus areas, e.g., Grand Ave, Halcyon, West Branch
-Hotel developments
-Grocery stores
-Major retail
• Economic Development Plan, focusing heavily on East Grand
Avenue.
• True Economic Plan.
Item 12.b. - Page 26
Capital Projects/Other
• Complete Council Chamber repairs, Swinging Bridge, and Heritage
Square Restrooms.
• Explore the possibility of selling the small park property in Tiger Tail
and reallocate it -50% improving the drainage basin and adding
some more useful facilities and 50% to the Elm Street Recreation
Center. This property was considered for an affordable housing
project with Habitat for Humanity and rejected but it may work better
as parkland for park improvements.
• Fund Pavement Management Plan; also put double the money into
sidewalk repair.
Item 12.b. - Page 27
City of Arroyo Grande
{DRAFT} FINAL CITY COUNCIL GOALS -2016
Established at Goal Setting Workshop on July 18, 2016
ATTACH M EN T 2
Support City infrastructure: Complete asset replacement schedules
for City infrastructure including buildings, drainage facilities, parks,
vehicles, sidewalks, fire, and information technology and identify
funding options.
Improve cost-recovery on services: Complete user fee study.
Retain and attract employees: Complete a comparison study of all
departments: salaries, benefits and job descriptions. If there is a
measurable way to establish service levels, e.g. crime rate adjusted
for demographics, we should include it.
Make decision about Brisco ramp: Complete environmental
analysis and decision about overall project and address issues
regarding Brisco ramp temporary closure.
Increase water security: Continue implementation of Water Shortage
Contingency Plan while focusing upon local and regional water
recycling efforts and committing to desired project(s).
Enhance parking: Complete Parking Study with consultant support
and review and modify policies.
Maintain cost-effective fire service: Finish Five Cities Fire Authority
Strategic Study, return to Council for review and prioritization,
including incorporation into City budget.
Improve financial sustainability through econom1ic development:
Complete Economic Strategic Plan, with particular attention to
business retention, targeted opportunities, and realistic projections of
revenue impacts.
Item 12.b. - Page 28