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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. Item 12.b. - Page 1 CONSIDERATION OF FISCAL YEAR 2017-18 PRE-BUDGET DISCUSSION MARCH 28, 2017 PAGE 2 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 Item 12.b. - Page 2 CONSIDERATION OF FISCAL YEAR 2017-18 PRE-BUDGET DISCUSSION MARCH 28, 2017 PAGE 3 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 $1.6 million with the current discount rate. Item 12.b. - Page 3 CONSIDERATION OF FISCAL YEAR 2017-18 PRE-BUDGET DISCUSSION MARCH 28, 2017 PAGE 4 For Miscellaneous Plans  2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 NC Rate 10.110% 10.1% 10.1% 10.1% 10.1% 10.1% NC 239,000$        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 $1.3 million in 2022-23. Item 12.b. - Page 4 CONSIDERATION OF FISCAL YEAR 2017-18 PRE-BUDGET DISCUSSION MARCH 28, 2017 PAGE 5 For Safety Plans  2017‐18 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 NC Rate 19.723% 19.7% 19.7% 19.7% 19.7% 19.7% NC 301,000$        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. Item 12.b. - Page 5 CONSIDERATION OF FISCAL YEAR 2017-18 PRE-BUDGET DISCUSSION MARCH 28, 2017 PAGE 6 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 Item 12.b. - Page 6 CONSIDERATION OF FISCAL YEAR 2017-18 PRE-BUDGET DISCUSSION MARCH 28, 2017 PAGE 7 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 Item 12.b. - Page 7 CONSIDERATION OF FISCAL YEAR 2017-18 PRE-BUDGET DISCUSSION MARCH 28, 2017 PAGE 8 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. Item 12.b. - Page 8 CONSIDERATION OF FISCAL YEAR 2017-18 PRE-BUDGET DISCUSSION MARCH 28, 2017 PAGE 9 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 Item 12.b. - Page 9 CONSIDERATION OF FISCAL YEAR 2017-18 PRE-BUDGET DISCUSSION MARCH 28, 2017 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