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Item 10 - 2021-23 Financial Plan - Strategic Budget Direction and Major City Goal Work Program Review (2)
Item 10 �t�x ofi Council- d. Report ti ttjs o Department Name: Cost Center: For Agenda of: Placement: Estimated Time: FROM: Derek Johnson, City Manager Prepared By: Brigitte Elke, Finance Director Natalie Harnett, Principal Budget Analyst Finance 2002 April 20, 2021 Business Item 120 minutes SUBJECT: 2021-23 FINANCIAL PLAN - STRATEGIC BUDGET DIRECTION AND MAJOR CITY GOAL WORK PROGRAM REVIEW RECOMMENDATION 1. Review the strategic budget direction report (Attachment A); and 2. Provide feedback and guidance to the City Manager regarding the recommended strategic budget direction and proposed budget allocations to commence budget adoption on June 1, 2021. REPORT -IN -BRIEF The City of San Luis Obispo's two-year budget approach has a long tradition of involving the community in its goal setting process, emphasizes long-range financial planning, and supports effective program management. Despite the Covid-19 pandemic, the City was able to continue its commitment to community involvement with multiple public City Council sessions, an online survey, and the first virtual Community Forum on January 19, 2021. Strategic Budget Direction is a critical next step in the development of the two-year Financial Plan for all of the City's major funds (General, Water, Sewer, Parking and Transit Funds) and is based on the highest priorities determined through the community and the Council Goal -Setting process. The primary purpose of Strategic Budget Direction is for the Council to provide direction on: 1. Major City Goal Work Programs. 2. Significant Operating Budget Changes (SOBCs). 3. Capital Improvement Plan (CIP) with projects focused on asset maintenance, replacement, and new assets. This critical juncture affords the City Council an early review of key budget allocations and proposed work programs to accomplish ongoing services as well as Major City Goals established by the City Council in February 2021. Strategic Budget Direction therefore gives the City Council an opportunity to provide direction on any refinements to the work programs and resource allocations to fully achieve the Council's desired outcomes over the next two-year Financial Plan period. Packet Page 97 Item 10 This report also provides an updated long-term fiscal forecast and the City's financial position under which the Major City Goals, the City's ongoing community services, and CIP will be implemented. The forecast incorporates all financial obligations to fully operate the City and implement the recommended Major City Goal objectives. Within the report, staff has summarized information and recommendations for Council to review and provide guidance to the City Manager in the development of the Financial Plan and budget. The individual sections of the report are intended to provide detailed information on each topic and cover: A. Financial Forecasts. The City's long-term financial outlook including an updated' five-year forecast. B. Major City Goals (MCG). Proposed work programs for MCGs including resource allocations. C. Ongoing Community Services. Proposed budget allocations. D. Local Revenue Measure Revenues and Uses. Proposed use of the local revenue measure that reflects recommendations by the Revenue Enhancement Oversight Commission. E. Significant Operating Budget Changes (SOBC). Proposed SOBCs for optimal service and Major City Goal work program delivery for the General Fund. F. Capital Improvement Plan (CIP). Five -Year CIP Projects for the General Fund including projects funded through the Local Revenue Measure. G. Enterprise Funds. The four Enterprise Funds' long-term forecasts and work programs including SOBCs and CIP. H. Policy Changes. Recommended policy changes or amendments for long-term fiscal health. DISCUSSION The development of the two-year financial plan began in October 2020 and included numerous informational meetings and presentations with the community and Council to "set the stage" and lay the budget foundation. Extensive public engagement included a community survey, outreach to community groups, and a first virtual Community Forum due to the restriction of the Covid-19 health emergency. These efforts resulted in direction and feedback from the City Council that shaped the strategic planning and the Major City Goal priorities for the 2021-23 Financial Plan period. Based on the input and feedback received, the Council met on February 6, 2021, and after thoughtful deliberation, selected four strategic goals and gave direction to staff to establish appropriate work programs to achieve the desired outcome. Each of the four goals was to be crafted through the lens of the defined Vision Statement and each work program endeavored to leverage the synergies and nexus between each respective goal and the City's ongoing service delivery. 1 The National, State and Local economy forecasts are being closely monitored and have been adjusted to incorporate the latest actual economic data and related revenue projections. A 2020-21 3' quarter Financial Report will be presented in May 2021 that compares the latest budget to actual for the current fiscal year. Packet Page 98 Item 10 Fiscal Outlook The goals were crafted in consideration of the fiscal realities facing the City, its long-term financial well-being, the services the City provides the community on an ongoing basis, as well as its recovery from the pandemic. It is important to consider program and operating budget requests within the context of the realities the City has experienced since late 2019 and early 2020. The worldwide pandemic brought on by Covid-19 required the City to freeze budgets for the last quarter of fiscal year 2020 and continue with similar budget appropriations in 2020-21 as the previous fiscal year. It also delayed or removed funding for capital infrastructure projects to balance the budget due to anticipated revenue loss. This loss, due to the shelter -in -place orders and related restrictions in the economy, amounted to $4.5 million revenue loss in 2019-20 and is expected to yield a similar loss for the current fiscal year largely due to declines in sales and lodging tax as well as Parks & Recreation fees. However, the swift action by the City Council and City management as outlined above kept the City in positive fiscal standing, allowing the Council to make investments in the community and support the economic recovery from unassigned fund balance. As staff expects a return to "normal" over the remainder of the 2021 calendar year, the need to address resource deficiencies and catch up on programs addressing pent-up customer demand manifests itself in requests for operating budget and capital infrastructure funding for the next two-year Financial Plan. American Rescue Plan — Federal Stimulus Funding As a small city with under 500,000 in population, San Luis Obispo did not receive any direct CARES act funding from the Federal Government. It did receive $566,236 from the State that was appropriated towards emergency measures in response to the Covid-19 pandemic. These funds were roughly split to reimburse the City for emergency expenses which amount to over $2.1 million and fund homeless response and economic recovery efforts. On March 6, 2021, the Federal Government released a second stimulus bill known as the American Rescue Plan (ARP), releasing $1.9 trillion in funding. In a historic move, the bill includes direct payments to 19,000 municipalities in the nation and San Luis Obispo will receive $8.93 million to counter -act the far-reaching effects of the pandemic on the community's well- being. For a jurisdiction such as the City, funding will come through the State which has 60 days to release the first half with the second 50% being distributed a year later. Jurisdictions have until December 31, 2024 to spend the funding. The restrictions on the use of funds are few, but it clearly denotes that it cannot be used to fund pension obligations. Staff recommends using the funding pursuant to: "For the provision of government services to the extent of the reduction in revenue of such State, territory, or Tribal government due to the Covid-19 public health emergency relative to revenues collected in the most recent full fiscal year of the State, territory, or Tribal government prior to the emergency. " Packet Page 99 Item 10 Considering the City's revenue in sales tax, transient occupancy tax, and Parks & Recreation fees in 2018-19, $4.4 million were lost in 2019-20 and a further loss of $4.5 million is expected in 2020-21 in those three revenue categories. The ARP funding will therefore assist in reinstating frozen positions, provide funding for homelessness and housing, and invest in capital projects that had to be defunded due to the revenue shortfall. It will therefore allow the City to remove Fiscal Health Contingency Plan restrictions earlier than otherwise possible. STRATEGIC BUDGET DIRECTION REPORT LONG-TERM FISCAL FORECAST — SECTION A This section contains the five-year forecasts for the City's five major funds. It leads with the 1) General Fund, followed by 2) Water, 3) Sewer, 4) Parking, and 5) Transit. Per the City's fiscal policies, the two-year budget proposal within the Financial Plan must be balanced 2. The forecast can indicate potential issues in the outer years to alert the City Council of potential structural corrective measures, should the assumptions hold true. However, if 2020 has showcased anything, unpredictability and forecasting of longer -term assumptions are difficult and subject to change. Nonetheless, Staff is committed to provide the Council the most professional and judicious assessment for informed financial decision making. Fiscal Year 2021-22 will mark the first full year with revenue from the November 2020 voter - approved sales tax measure. This can be seen in the increase in sales tax revenue projections as well as in the investment in infrastructure under Capital expenditures. The measure will also support operating budgets in the areas that correspond with the measure language to increase services to the community. For the upcoming two-year financial plan, increases in operating budgets are also made possible due to the American Rescue Plan (ARP) stimulus funding made available by the Federal Government to counteract the devastating revenue losses experienced during the Covid-19 pandemic. The local sales tax measure became effective on April 1, 2021, and funding received during the first quarter was dedicated to economic recovery and reopening efforts as recommended by the Revenue Enhancement Oversight Commission and approved by the City Council. 2021-22 1 2022-23 2023-24 1 2024-25 1 2025-26 Revenue $99,801 $103,748 $101,410 $103,412 $105,315 Expenditure $98,849 $103,717 $100,542 $103,178 $105,157 Over/Under $951 $32 $868 $234 $158 *all numbers shown in thousands The City's four enterprise funds for the Water and Sewer Utilities, Parking, and Transit also prepare a long-term forecast which can be found under Section G of the Strategic Budget Direction report. 2 City of San Luis Obispo Budget Policies: A. Balanced Budget. The City will maintain a balanced budget over the two-year period of the Financial Plan. Packet Page 100 Item 10 MAJOR CITY GOALS FOR 2021 THROUGH 2O23 — SECTION B City Council Vision for its 2021-23 Major City Goals The City of San Luis Obispo is a dynamic community embracing its future while respecting its past with core values of civility, sustainability, diversity, inclusivity, regionalism, partnership, and resiliency. Major City Goals Work Programs The major city goal work programs identify the fiscal resources for programmatic and capital efforts to achieve the recommended milestones within each goal. The four goals are largely a continuation along the trajectory of previous Council goals established during the last financial plan except for Diversity, Equity, and Inclusion (DEI). Each work program has been uniquely crafted to respond to discrete direction while continuing efforts that span multiple financial plans. The investments have also considered the City's current service levels to the community to assess investments in the established work programs. As such, the budget included in the strategic budget direction is balanced between current services to the community and the program cost included in each major city goal. Council review is now requested to ensure that staff s proposed work programs appropriately fulfill the Council's vision for the established goals over the next two years. Section B of the report includes the strategic approach and individual work efforts. ' Economic Recovery, Resiliency & Fiscal Sustainability — Goal Statement In collaboration with local partners, continue to support economic recovery for all from the Covid-19 pandemic and support a thriving local economy by supporting local businesses, arts and culture, downtown vitality, practicing fiscal responsibility, paying down unfunded pension liabilities, and investing in critical infrastructure. Outcomes and Expectations The City will: 1. Engage and expand upon community partnerships and invest in infrastructure, promotion, programs, and polices that support the economic and social recovery and resiliency of the community while ensuring fiscal sustainability. 2. Additional focus will be placed on the retention of existing businesses, the recovery of arts and culture, the vitality of the downtown, and supporting underserved groups and populations. 3. Additionally, all actions will be viewed through the lens of the City's sustainability and DEI efforts. The outcomes associated with this goal are the retention and attraction of business, fiscal sustainability, support of arts and culture projects, a vibrant and active downtown, pre- payment of unfunded pension liabilities, and investment in key infrastructure. Packet Page 101 Item 10 Investment in the Economic Recovery, Resiliency, & Fiscal Sustainability Major City Goal Table 1: 1 I Ongoing Community Services $6,522,764 $6,357,764 2 1 New Operating Investments $2,592,968 $1,865,440 3 Ca ital Infrastructure Projects $3,462,500 $8,089,500 Housing and Homelessness — Goal Statement In order to expand housing options for all, continue to facilitate the production of housing, including the necessary supporting infrastructure, with an emphasis on affordable and workforce housing. Collaborate with local non-profit partners and the county, the state, and federal governments to discover and implement comprehensive and effective strategies to reduce chronic homelessness. Outcomes and Expectations The City will: 1. Prioritize new and ongoing Housing Element policies and programs that focus on facilitating the increased production of affordable and workforce housing, in addition to market rate housing. 2. Engage with the community, regional agencies, local non-profit partners, and the Federal government to leverage resources to be utilized to implement strategies that reduce homelessness. The outcomes will be new housing production, infrastructure that supports housing, affordable housing partnerships, less persons that are unhoused, pilot programs that can be supported on an ongoing basis and increased funding and engagement from state and county governments in support of these outcomes at a local level. Investment in the Housing and Homelessness Major City Goal Table 2: I ' 1 Ongoing Community Services $1,155,364 $1,131,324 2 New Operating Investments $1,133,597 $1,077,226 3 Capital Infrastructure Projects $9,090,100 $25,105,817 Diversity, Equity, Inclusion (DEI) — Goal Statement In response to our commitment to making San Luis Obispo a more welcoming and inclusive city for all, continue to develop programs and policies to support diversity, equity, and inclusion initiatives and advance the recommendations of the DEI Task Force. Packet Page 102 Item 10 Outcomes and Expectations The City will engage in initiatives that advance DEI within the organization and community: 1. Develop and implement strategies, programs and policies that build a workplace culture and community of inclusion, fairness and belonging for all. 2. Involve marginalized communities and diverse voices in program development and delivery to ensure current lived experiences are understood, priorities are addressed, and the City's efforts are relevant and meaningful. 3. Partner with proven community providers and utilize best practice models to leverage City resources and maximize effectiveness and impact of initiatives. 4. Identify and track measurable results as the City progresses in maturing diversity and inclusion efforts. The outcomes associated with this goal are a more welcoming organization, community, and an improved sense of belonging by marginalized groups. The City will have a richer and more thorough understanding of the challenges that many are experiencing in San Luis Obispo and implement best practices to measure and adjust practices to advance DEI efforts. Investment in the Diversity, Equity, Inclusion Major City Goal Table 3: I Ongoing Community Services $180,500 7Capital $191,000 perating Investments $588,630 $650,097 Infrastructure Projects $345,000 $95,000 TotalI $936,097 Climate Action, Open Space, & Sustainable Transportation - Goal Statement To proactively address the climate crisis, continue to update and implement the Climate Action Plan for carbon neutrality, including preservation and enhancement of open space and the urban forest, alternative and sustainable transportation, and planning and implementation for resilience. Outcomes and Expectations The City will engage in projects and initiatives that contribute positively toward: 1. Reducing greenhouse gas emissions at both the municipal and community level on a trajectory consistent with the Climate Action Plan target of carbon neutrality by 2035. 2. Achieving the vision to complete and sustain the San Luis Obispo Greenbelt. 3. Integrating best practices for urban forestry throughout the community and City landscape in order to accrue the multiple benefits that trees provide including shading and cooling, beautification, habitat, stormwater retention, and carbon sequestration. Packet Page 103 Item 10 4. Implementation of Tier 1 projects identified in the Active Transportation Plan (ATP), and planning and investment in transit service enhancements and transit fleet electrification, in order to achieve the mode -share split objectives identified in the Circulation Element of the General Plan. 5. Adapting and becoming more resilient to the impacts of climate change through the Resilient SLO planning process and through increased implementation efforts that address public health and safety. In addition, it is expected that this work must necessarily be integrated and cohesive with the parallel Major City Goals of Diversity, Equity, and Inclusion; Housing and Homelessness; and Economic Recovery, Resilience, and Fiscal Sustainability. The outcomes are reduced community wide and municipal emissions, expanded electrical charging network, more electric city vehicles, expanded open space areas, an improved and increased urban forest, and a community that is better prepared to respond to the vagaries and unpredictability of climate change. Investment in the Climate Action Major City Goal Table 4: I Ongoing Community Services $203,500 1 $228,500 2 New Operating Investments $667,376 $454,702 3 Capital Infrastructure Proiects $14,592,660 $14,397,731 Overall Investment in all Major City Goals for 2021-23 Combined, the investment over the next two years for the four defined Major City Goals are as follows: Table 5: Total Major City Goal Investment era ing $ 870,876 apital $ 14,592,660 TotalRatiing Investmen.11F $ 15,463,536 $ 683,202 $ 14,397,731 Investment $ 15,080,933 Climate Action, Open Space, Sustainable Transportation DEI $ 769,130 $ 345,000 $ 1,114,130 $ 841,097 $ 95,000 $ 936,097 Economic Recovery $ 9,115,732 $ 3,462,500 $ 12,578,232 $ 8,223,204 $ 8,089,500 $ 16,312,704 Housing & Homelessness $ 2,288,961 $ 9,090,100 $ 11,379,061 $ 2,208,550 $ 25,105,817 $ 27,314,367 27,490,260 40 04 ONGOING COMMUNITY SERVICES — SECTION C The City of San Luis Obispo, like most incorporated cities, provides services to the community on an ongoing basis. Those services are adjusted to the needs of the community and span from parks and recreation services, police and fire departments, housing services, transportation services (including public transportation), and public works (streets and related infrastructure such as multiuse paths, streetlights, bridges, parks maintenance, signage, and so forth). Packet Page 104 Item 10 Those established programs must be considered when budgeting and generally form the base and largest share of the City's expenditures. Core or ongoing program deliveries are what the community has come to most rely on to meet its day-to-day needs and desired services. To a degree, the goal setting process allows for the discussion on those services and considers trade-offs when new initiatives are desired and the community's needs change over time. The proposed budget for the 2021-23 Financial Plan considers the following community services that have been established over many years of community input: Graphic 1: Core Services aParks & Recreation • Youth and Senior Services • Aquatics & Golf Course • Public Art ■ Ranger Services • Sports Events Public Safety • Emergency Response ■ Hazard Prevention • Disaster Preparedness • Patrol & Traffic Safety • Investigations Public Works ■ Parks & Streets Maintenance • Urban Forest Services • Fleet • CIP Engineering ■ Transportation Planning (multi -modal) • Stormwater and Flood Control ■ Parking & Transit Community Development ■ Planning & Engineering • Building and Safety ■ Commissions & Committees 11 Utilities • Water Treatment & Distribution • Water Resources • Wastewater Treatment & Collection • Recycled Water 0 Administrative Services • City Administration incl. Natural Resources and Economic Development • City Attorney • Human Resources • Finance • IT Services The table below shows the draft budget allocations by department. These allocations do not include the proposed SOBCs that are listed in Section E. Preliminary budget allocations fluctuate each year due to current employee costs and changes in costs of services and supplies. Historically, the City experiences a 2-5% increase in total operating budget year -over -year. Some outliers include: • Community Services Administration includes the addition of a Public Communications position approved on February 2, 2021 (R 11223). • Parks & Recreation experienced a particularly high increases in their FY 21-22 budgets due to the re -activation of frozen positions that were eliminated in the FY 20-21 supplemental budget due to Covid-19 uncertainties. These expenditure increases are offset by increases in projected revenue for the 21-23 Financial Plan years. • Finance Non -departmental includes contingencies for future wage increases in FY 22-23. Packet Page 105 Item 10 Table 6: Core Services Operating Budget Allocations (before recommended SOBCs) 2021-23 Financial Plan Years 1 Administration & IT $ 7,697,781 $ 7,821,976 2 City Attorney_ * $ 778,167 $ 703,157 3 Finance $ 2,054,424 $ 2,036,560 4 Finance Non -Departmental $ 730,358 $ 730,358 s Human Resources* $ 1,350,586 $ 1,182,348 6 Police $ 17,802,862 $ 18,960,959 7 Fire $ 12,615,778 $ 13,404,792 s Community Services Group: 9 Community Services Admin $ 404,998 $ 480,349 10 Community Development * $ 5,325,811 $ 5,229,559 11 Works $ 13,196,459 $ 13,595,504 _Public 12 Utilities - Solid Waste $ 159,318 $ 170,699 13 Parks and Recreation $ 4,274,301 1 $ 4,737,956 14 Total 9 66.390.843 2% -10%__ $ 8,187,589 $ 735,588 5% 5% -1% 0% -12% $ 2,111,580 $ 2,161,928 $ 1,212,569 $ 19,823,240 --------------- $ 13,644,858 4% 196% 3% 5% 2% 7% -------- 6% 19% $ 491,351 2% -2% $ 5,366,891 $ 14,067,284 $ 176,280 $ 4,944,660 3% 3% 3% 4% 3% 7% 11% * 20-21 Adopted Budget includes approved one-time SOBCs from the 19-21 Financial Plan; therefore, a reduction is seen in FY 21-22 from the removal of these budget items. **Adopted budget does not include carryover or budget amendments The budget recommendations for the Utilities, together with Parking and Transit, can be found in Section G — Enterprise Funds LOCAL REVENUE MEASURE — SECTION D The proposed 2021-23 Local Revenue Measure (LRM) operating and capital expenditures were developed using input from the Community Forum, the Major City Goals established by the City Council, updated revenue projections, and the funding priorities developed from the ballot language. This planning was extensive as, with the voter approval in November, the revenue from this measure will grow to $24 million over the next Financial Plan period. On March 31, 2021, the Revenue Enhancement Oversight Commission (REOC) met to review the proposed expenditures and recommended approval by the City Council as presented and outlined in Section D. Based on community input used to create the ballot language for Measure G-20, at the February 18, 2021 meeting, the REOC approved the following ten spending priorities that were used to create the recommended projects and services to be included in the 2021-23 Financial Plan: l . Protect Financial Stability 2. Community Safety and Emergency Preparedness 3. Creek and Flood Protection 4. Address Homelessness 5. Safe and Clean Public Areas 6. Economic Development and Business Retention 7. Youth/Senior Services and Recreation Facilities 8. Street Maintenance and Transportation (includes bicycle and pedestrian improvements) 9. Open Space/Natural Areas Preservation and Maintenance 10. Other Services and Projects Packet Page 106 Item 10 Previous input from the community and REOC has been to prioritize Local Revenue Measure funds for capital improvement program (CIP) projects. In recent years, expenditures have been split approximately 70% to capital infrastructure and 30% to operating costs. Operating program costs frequently follow and/or support the implementation of CIP projects; for instance, the construction of a new park will require staff to maintain it. In addition, operating programs deliver essential services that align with Local Revenue Measure priorities. Given this interrelationship, it would not be sustainable to allocate all Local Revenue Measure dollars solely to CIP projects without related operating program support to implement the projects nor would this approach address some of the expectations from the public for services to maintain and safeguard community programs and assets. In the 2021-23 Financial Plan, expenditures are proposed to be budgeted at 75% capital and 25% operating costs, with an expectation of a range in future years of approximately 85% capital and 15% operating costs in order to meet the non -fair requirements of the City's AB 1600 Development Impact Fee Program and keep up with maintenance. The reason for the increased operating allocation during the 2021-23 Financial Plan is two -fold. First, there is an increase of one-time funding that will help provide immediate economic recovery resources and other operating resources needed to help the community's recovery from the Covid-19 pandemic and other emergent priorities. Second, it allows the City time to ramp -up the operating resources necessary to deliver on the ambitious Capital Improvement Plan. The split between CIP and operating costs for the 2021-23 Financial Plan are listed below: Table 7.- ,JMLInvestment in Capital Investment in Operating Projects programs © 1$17,866,400 $6,285,392 © 1$18,763,050 $6,273,051 A full breakdown of budget allocations and LRM uses can be found in Attachment A under Section D. SIGNIFICANT OPERATING BUDGET CHANGES — SECTION E As a cost control measure, the City requires increases to departmental budget line items in the programs above $7,500 to be justified and approved by the City Manager before being brought forward for Council consideration. A request can be brought forth for a variety of reasons, but is generally considered under the following circumstances: A. Essential for the protection of health and safety. B. Needed for the advancement of Major City Goals. C. Needed to provide ongoing services to the community. D. Realign ongoing services after budget cuts due to Covid-19. Packet Page 107 Item 10 SOBC requests are divided into two categories: 1) one-time for specific deliverables without ongoing service requirements; 2) ongoing to adjust the operating program budget for long-term service delivery. Given the short-term saving measures required due to the onset of the Covid-19 health emergency, a multitude of requests were submitted to bring service levels back to pre -pandemic levels and adjust to forecasted workload and service level requirements. A detailed listing of the requests can be found in Section E of the attached report. The City's Financial Plan Steering Committee reviewed the requests and recommends the following investments in SOBCs. Connected to delivery of MCGs: Table 8: • .. .:Md 1 One-time $ 2,966,886 $ 2,026,009 2 Climate Action $ 349,972 $ 127,437 3 DEI $ 389,732 $ 435,102 4 Economic $ 1,564,857 $ 867,644 s Housing & Homelessness $ 662,326 $ 595,826 6 Ongoing $ 2,015,686 $ 2,021,455 7 Climate Action $ 317,405 $ 327,265 8 DEI $ 198,898 $ 214,995 9 Economic $ 1,028,112 $ 997,795 10 Housing & Homelessness $ 471,271 $ 481,400 11 1 Total4,047,465 Connected to Ongoing Community Service Delivery: Table 9: 1. One-time $ 985,554 $ 473,774 2. Ongoing $ 1,771,899 $ 2,410,341 CAPITAL IMPROVEMENT PLAN — SECTION F The Capital Improvement Program (CIP) and its annual implementation of projects is one of the primary functions of local government. Through its adopted CIP, the City meets community needs by providing the infrastructure required for economic vitality, neighborhood wellness, housing, transportation, sustainability, active and passive recreation, public safety, cleanliness, and other basic amenities. Packet Page 108 Item 10 City staff engage in a rigorous ranking and review process to develop a Capital Improvement Project Plan for Council consideration that both aligns with MCGs and addresses ongoing maintenance needs, and infrastructure improvements to support the orderly development of the community in alignment with mitigations, policies, and other development standards. The program now considers the new local sales tax measure that will provide an additional $13 million for infrastructure maintenance and improvements bringing the total infrastructure investment from this revenue source to about $18 million for the financial plan years. Through the CIP, the City systematically plans, schedules, and finances capital projects to ensure cost-effectiveness and conformance with established policies. With each two-year Financial Plan, the City prepares five-year CIP program recommendations for Council consideration and approval. Even though only the first two years are funded within the Financial Plan, five-year planning is a best practice and is recommended to achieve long-term objectives of the Capital Improvement Program. Comprehensive policies governing the development and management of the CIP are set forth in the fiscal policies. All the City's construction projects, and equipment purchases costing $25,000 or more are included in the Capital Improvement Plan. To assist the City Manager in developing the recommended CIP for the 2021-23 Financial Plan, a designated CIP Review Committee evaluated all departmental requests to determine priority, timing, and cost. In doing so eight key questions served as a framework for this extensive analysis and included focus on DEI, Sustainability and implementation of community priorities associated with the local revenue sales tax measure. Based on prior Council direction and public input regarding the importance of maintaining existing infrastructure, City staff put all project requests in the following three categories. 1. Annual Asset Maintenance 2. Asset Replacement 3. New Assets Table 10: MMM VFY 21/22 =I FFY 23/241K7/25 FY 25/26 Sum of 5 Year Total 1 Annual Asset Maintenance $19,738,490 1 $23,033,876 $18,692,315 $19,103,830 1 $17,807,501 $98,376,012 2 Asset Replacement $27,634,664 $22,686,846 $11,255,001 $2,920,001 $63,182,001 $127,678,513 3 New Asset $13,019,500 $20,243,597 $46,902,000 $67,555,000 $6,265,000 $153,985,097 4 CIP Project Delivery Augmentation $500,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $4,500,000 5 Grand Total $60,892,654 $66,964,319 $77,849,316 $90,578,831 $88,254,502 $384,539,622 As mentioned above, the City's capital budget has grown significantly as a result of the local sales tax measure and the potential for leveraging capital budget dollars further with federal government grants. To deliver these projects, the City may need additional engineering and/or project delivery staffing resources. The City is currently working in partnership with a consultant to analyze the project staff and structure required to deliver the projects over both the two -year and the five- year time horizon. As identified in the table above, a general cost estimate for this consideration is provided. Packet Page 109 Item 10 ENTERPRISE FUNDS — SECTION G G-1: Water Fund Fund Overview & Forecast The Water Fund safely and continuously provides water to the community. This requires securing raw water from three surface reservoirs, treating it to potable water standards, and delivering it to nearly 16,000 water service accounts, while continually maintaining and improving infrastructure. These City water operations rely on service rate revenue to cover almost all costs for operations and maintenance, infrastructure replacement, debt service, and payment for general City services provided to the fund (cost allocation). Taxes, including the Utility User Tax, do not support these services. Despite the uncertainty created by the Covid-19 pandemic, the Water Fund's financial position is currently stable. At the onset of the pandemic, and associated stay-at-home order and business closures, the potential impact to the Water Fund was uncertain. The Utilities Department has closely monitored revenue since March 2020 and, while there has been some shift in usage patterns in residential and commercial sectors, overall, there has been no significant net impact to Water Fund revenue. Overall, the Water Fund's long-term fiscal outlook is in line with original forecasts and can be found in Section G-1 of Attachment A. Rate Increases The Water Fund will be requesting a rate increase of 3.5% effective July 1, 2021 and 3.5% effective July 1, 2022. The most recent rate study, conducted in 2018, projected the water rate increase would be 5.5% in 2021 and 5.5% in 2022. The City's rate consultant recently completed a rate confirmation study to confirm or modify these rate increase estimates. As a result of additional revenue expected from Cal Poly and refined investment and impact fee revenue projections, the rate consultant has recommended lower than previously forecasted rate increases. Table 11: Water Rate Increases 202122 Proposed 2022 23 Proposed 2023-24 Projected 3.5% 3.5% 3.5% Operating Expenditures Overall, operating expenditure budgets are changing very little in 2021-22 and 2022-23. The Water Fund is requesting some SOBCs as summarized below and detailed in Section G of the attached report: Table 12: One-time $ 80,000 $ 80,000 Ongoing $ 147,221 $ 132,902 $ 280,123 132,902 $ 360,123 Packet Page 110 Item 10 Capital Projects Below is a highlight of the 2021-23 Water Fund capital projects: 1. Reservoir 2 Cover Replacement. This project will replace the floating cover on the City's largest treated water storage tank. This cover has reached its expected useful life and needs replacement. This project will cost $10,000 in 2021-22 and $950,000 in 2022- 23. 2. California — Stafford to Mill Waterline Project. This project replaces segments of a 16-inch water main that supplies water to roughly half of the City. This segment of pipeline runs through the bridge deck over Highway 101 and has a high consequence of failure. This project will cost $140,000 in 2021-22 and $1,650,000 in 2022-23. 3. Broad Street — Tank Farm to Aerovista Recycled Water Expansion Project. This project will extend recycled water lines from the intersection of Tank Farm and Broad Streets to Aerovista where this water can be utilized within the Airport area. This project will cost $45,000 in 2020-21 and $1,040,000 in 2021-11. 4. Water Treatment Plant Infrastructure Renewal Strategy. The renewal strategy will allow plant staff to prioritize Water Treatment Plant related capital improvement projects for the next decade. This project will cost $150,000 in 2020-21. G-2: Sewer Fund Fund Overview & Forecast The Sewer Fund safely and continuously provides wastewater service to the community. This requires delivering wastewater from its various sources to the Water Resource Recovery Facility (WRRF), ensuring compliance with the Clean Water Act, and treating an average of three million gallons of wastewater per day, while maintaining and improving wastewater infrastructure. These City sewer operations rely on service rate revenue to cover almost all costs for operations and maintenance, infrastructure replacement, debt service, and payment for general City services provided to the fund (cost allocation). Taxes, including the Utility User Tax, do not support these services. Despite the uncertainty created by the Covid-19 pandemic, the Sewer Fund's financial position is currently stable. At the onset of the pandemic, and associated stay-at-home order and business closures, the potential impact to the Sewer Fund was uncertain. The Utilities department has closely monitored revenue since March 2020 and, while there has been some shift in usage patterns in residential and commercial sectors, overall, there has been no net impact to Sewer Fund revenue. Overall, the Sewer Fund's long-term fiscal outlook is in line with original forecasts and can be found in Section G-2 of Attachment A. Packet Page 111 Item 10 Rate Increases The Sewer Fund will be requesting a rate increase of 3.5% effective July 1, 2021 and 3.5% effective July 1, 2022. The most recent rate study, conducted in 2018, projected the sewer rate increase would be 6.5% in 2021 and 6.5% in 2022. The City's rate consultant recently completed a rate confirmation study to confirm or modify these rate increase estimates. As a result of additional revenue expected from Cal Poly and refined investment and impact fee revenue projections, the rate consultant has recommended lower than previously forecasted rate increases. Table 13: Sewer Rate Increases 2021-22 Proposed 2022-23 Proposed 2023-24 Projected 3.5% 3.5% 3.5% Operating Expenditures Overall, operating expenditure budgets are changing very little in 2021-22 and 2022-23. The Sewer Fund is requesting some SOBCs as summarized below: Table 14: One-time $ 57,517 $ 11,865 $ 691,381 Ongoing $ 252,381 $ 413,087 $ 665,468 Total $ 0• Capital Projects Below is a highlight of the 2021-23 Sewer Fund capital projects: 1. Water Resource Recovery Facility (WRRF) Project. The WRRF will continue construction through the 2021-23 Financial Plan with project completion estimated in late 2023, early 2024. This is an ongoing project with a total construction budget of $140,000,000. 2. Calle Joaquin Lift Station Replacement. This project will replace the aging lift station and sewer line crossings at San Luis Obispo Creek and Highway 101. The new station will meet the demands of the Froom annexation and new development in the Laguna area. Recent bids received for this project exceeded the budget and staff will return to Council with a request to rebid with modified scope and additional funding in Fall of 2021. 3. Airport Gravity Mainline. This project will replace the existing airport lift station with a gravity sewer. The new mainline will serve existing customers, recent annexations, and future development in the airport area. This project will cost $2,020,000 in 2021-22. Packet Page 112 Item 10 4. Mainline Replacements. Replacements on Morro Street, Mill Street and Santa Rosa Street along with replacement of mainlines in the capacity constrained areas of Sierra Way, Henry, and Islay Street. These projects will cost $1,571,000 in 2021-22 and $5,345,000 in 2022-23. 5. Inflow and Infiltration. Ongoing funding for voluntary sewer lateral replacements and mainline repairs to reduce the Inflow and Infiltration (I/I) of stormwater into the wastewater collection system. This project will cost $200,000 in 2021-22 and $250,000 in 2022-23. G-3: Parking Fund Fund Overview & Forecast The fiscal outlook for the next two years shows the Parking Fund's working capital balance significantly reduced because of lower -than -expected revenues, planned expenditures associated with the Palm-Nipomo Parking Structure project, the continued loss of high rate of return meter spaces for parklets (approximately $350,000 a year 3), and a series of needed parking structure annual maintenance projects. Additionally, demand for long-term parking spaces has reduced significantly due to impacts from the pandemic and continue to trend in a lower occupancy caused by new health guidelines. The prolonged impacts from the pandemic and the support efforts provided to the Downtown's recovery efforts have strained the Parking Fund. End of year unreserved working capital is projected to be $11.4 million, representing a $3 million loss during the fiscal year, with revenues below the coverage ratio requirements for debt service. This debt service ratio coverage is a critical component for future funding and could jeopardize the Fund's ability to receive an I - Bank loan to fund the needed Palm/Nipomo parking structure. As such, based on current revenue and expenditure projections, the Parking Fund as of the writing of this report is projecting the year end need for $1.23 million (subject to change as revenues are collected) to support the Fund's ability to meet debt service requirements for FY 2020-21. Addressing this short-term need will occur at the June 15th Council meeting when more information is known. To achieve short -and long-term goals and objectives of the Parking Fund, while continuing to support the economic recovery of the City's downtown core, staff are proposing a multi -part strategy. This multi -part strategy includes changes in staffing and operating, to reduce expenditures alongside increases to revenues to cover the required debt service ratio for planned structure expansion in future years. The continued pandemic impacts and project development/timeline of the Palm-Nipomo Parking Structure necessitate several significant program changes and Council's feedback. 3 This is the estimated annual amount based on historical revenue by on street parking space, exclusive of any parking citation receipts. Packet Page 113 Item 10 Direction is sought from Council to address long term needs on the specific proposed rate and program changes (outlined below). The additional revenue from the program and fee changes is anticipated to be $1, 796, 600IYr. If they are not accepted as proposed, the Parking Fund will not present a balanced budget. Without program and fee adjustments, it is likely that the full buildout of the Palm/Nipomo Garage will be delayed and could impair economic recovery. Rate and Program Changes Staff is recommending a combination of long-term revenue enhancement strategies focused on three areas: 1) parking garages, 2) on -street and lot parking, and 3) enforcement with the objective of stabilizing and positioning the parking fund to timely construct needed parking facilities and manage and incentivize desired parking behaviors. These behaviors include disincentive short driving trips, walking, biking, parking in neighborhoods, and encouraging parking in structures rather than on surface streets. Parking Garages 1. Eliminate 1st Hour of Free Parking in Parking Garages 2. Implement Deferred Rate Increase in Parking Garages (Approved for July 2020) 3. Reduce Parking Garage Max Daily Rate On -Street & Lot Parking 4. Implement Paid Parking in Upper Monterey Area 5. Implement Paid Parking in Railroad Square 6. Implement Deferred Rate Increase for On -Street and Lot Parking (Approved for July 2020) 7. Expand Enforcement Hours from 6:00 pm to 9:00 pm for On -Street and Lot Parking 8. Transition to Tier -Based Pricing for On -Street and Lot Parking Enforcement 9. Expand Enforcement Hours from 6:00pm to 9:00pm 10. Increase Penalty Schedule for Safety Violation Fine Amounts 11. Implement and Establish Residential Parking Permit District in Old Town and Upper Monterey Area Districts 12. Enforcement of the Old Town Parking District Table 1 S: Parkin to Wurrent Proposed* Proposed** g Parking Rates Effective Effective Proposed** Effective Changes (Mo./Qtr.) July 1, 2021 July 1, 2023 July 1, 2025 Parking © , Tier I (Super • ing ©utlyAreas)Tier 3 Packet Page 114 Item 10 Parking Rate Current Proposed* Proposed" Proposed" �kan ,. - - Rates (Mo./Qtr.)i Effective Effective i2025 Effective Parking S Structures 6 Hourly/Daily Max $1.25/$12.50 $1.50/$6.00 $1.75/$7.00 $2.00/$8.00 7 Month l /Quarterl $85/$255 $85/$255 TBD TBD DROP (Overnight s parking for DT $125/$375 $125/$375 TBD TBD residents 9 Permits 10 Residential $20 $20 $25 $25 Parking Permit 11 DT Residential $20 $20 $25 $25 Parking Permit 12 10-Hour Meter $60 $60 TBD TBD Permit 13 Other 14 Parking Structure $75 for 100 $90 for 100 $100 for 100 $100 for 100 Validations *Previously approved by Council to take effect July 1, 2020 but was deferred due to Covid-19 pandemic **Not part of the action items for Council but are included in the Long -Term Forecast and will be addressed in future budget discussions. Operating Expenditures - with Net Reductions The proposed parking fund budget includes a series of Significant Operating Budget Changes necessary to address daily needs of the Parking operations for the City. These enhancements are necessary to ensure that the Parking Fund can effectively expand operations to cover the Fund's debt service even during times of economic uncertainty. These requests are offset by a reduction of contracted services. 1 Ongoing 2 Parking Enforcement (3 FTE Additions) $ 220,927 $ 230,947 $ 451,874 3 Parking Maintenance (2 FTE Additions) $ 138,187 $ 144,392 $ 282,578 4 Revenue and Contract Services Reductions Offset $ (558,123) $ (645,114) $ (1,203,237) 5 00: Capital Projects The Palm-Nipomo parking structure construction cost is currently estimated at $43.5 million with initial work beginning in FY 2021-22. A $6.5 million contribution from working capital for phase 1 that will occur in FY 2021-22 and FY 2022-23 and $37 million from bond issuance for phase 2 of construction that will begin in FY 2023-24. Packet Page 115 Item 10 The phase 2 of construction is estimated to take 18-24 months with the structure opening for operation at the beginning of FY 2025-26. These amounts are subject to change based upon revised project estimates and final ratio of cash versus debt financing amounts. Additionally, gateless parking structure upgrades, fleet replacement, HVAC air handler replacement and miscellaneous information technology requests are included within the capital improvement plan budget. G-4: Transit Fund Fund Overview & Forecast The Transit Fund has endured the pandemic with a balanced budget largely because of federal funding assistance and reduced costs from reduced operations. The Fund also holds a healthy working capital balance. The fiscal outlook for the next five years and the uncertainty in future ridership post pandemic (affecting all public transportation services) has resulted in restrained projections. At this time, revenues are projected to sufficiently keep pace with escalating costs. However, any significant changes, such as the expansion of the transit program, will require additional funding sources or an increase in rates in addition to rate increase discussed below. Part of this strategy includes negotiating a new agreement with increased cost of service recovery from Cal Poly. Rate Increases On April 4, 2017, the Council adopted the transit fare and interior bus advertisement rates which included annual rate increases. This is critically important to achieve the SLO Transit's 20% Local Revenue requirements. To better support SLO Transit's customers during the pandemic, in between March 2020 and July 2020 SLO Transit went fare -free and delayed the planned July 2020 rate increases. This action helped to protect both SLO Transit customers and staff. In July 2021, delayed rate increases will go into effect. A Regular Pass will increase from $38 to $40 and Senior and Disabled Pass will increase from $18 to $20. Capital Projects Capital projects continue to be a challenge for the Transit Fund which is highly reliant on discretionary grants. Proposed projects are limited to those that are essential and that can be funded from grants. Of those projects, the replacement of diesel buses with electric vehicles are the highest priority as well as the installation of necessary charging infrastructure to support electric vehicles. And while discretionary grant awards have been less than previously anticipated, the recently passed American Rescue Plan (ARP) includes enhanced federal transit funds that may be used for capital expenditures and that coupled with the infusion of CARES Act will assist SLO Transit meeting operational and capital needs. Programming of ARP funding to SLO Transit will be completed in conjunction with the San Luis Obispo Council of Governments (SLOCOG) and will be present to City Council at a future date anticipated to be at the Mid -Year Budget Review in 2022. Packet Page 116 Item 10 RECOMMENDED POLICY CHANGES FOR LONG-TERM FISCAL HEALTH — SECTION H The City has developed comprehensive budget policies to guide its ongoing financial processes, ability to react to extraordinary circumstances and maintain the long-term health of the City. The policies are constantly reviewed for best practices, continued practical application, and are amended when emerging issues warrant. Staff is currently working on updates to the City's debt management policy and the City's adopted fund balance and reserve levels that will be presented to Council in May. Under the latter, staff recommends incorporating language for the remaining funding set aside under the non -departmental contingency at year-end to carry over to the new fiscal year, so that only the difference between the balance and required budget has to be appropriated. This would eliminate the funding to return to fund balance and having to be appropriated again the next year. Policy Context The City Charter under Article VIII, Section 802, 803, and 804, requires the City Manager to present an annual budget to the City Council, for the City Council to hold a public hearing on the budget, and to adopt a budget. California Government Code Sec 53901 requires each local agency to file its budget with the county auditor within 60 days after the beginning of its fiscal year. If an agency does not have a "formal budget" it must "file a listing of its anticipated revenues, together with its expenditures and expenses for the fiscal year in progress" which amounts to much the same thing as a budget. The City's budget and fiscal policies are included in each budget document and changes and revisions recommended by staff considered by the City Council during the public hearing. Public Engagement The City's two-year financial plan process includes a high degree of public engagement and input ranging from community surveys, outreach to community groups and organizations, a Community Forum, and several public hearings before the City Council that commence in September and end with the adoption of the financial plan in June. CONCURRENCES All departments participated in the development of the 2021-23 financial plan and submitted SOBCs, CIPs and Major City Goal Work Programs to accomplish the City Councils goals and desired accomplishments. ENVIRONMENTAL REVIEW Adoption of a budget is not a project as defined under the California Environmental Quality Act. Packet Page 117 Item 10 FISCAL IMPACT Budgeted: Yes Budget Years: 2021-23 Funding Identified: Yes Fiscal Analysis & Fiscal Forecast In preparing the forecast for "Strategic Budget Direction," all City departments reviewed and projected expenditure and revenue budgets for the next two financial plan years. The updated five-year forecast considers a realistic approach to revenue assumptions, expenditures, required investments in the City's Major City Goal Work programs, and an ambitious capital improvement plan. Additionally, the long-term forecast includes a payments schedule towards the City's unfunded liability, funding for a 115 Pension Trust fund, and is fully funding the reserve requirements. Full budget detail is found within each fund's forecast (Attachment A — Sections A, C & G) Significant Operating Budget Changes (SOBCs) Table 17: ' Total Changes, by Fund 21-22 22-23 Total 1 One-time $ 3,952,440 $ 2,499,783 $ 6,452,224 2 General Fund $ 3,764,923 $ 2,487,918 $ 6,252,842 3 Sewer $ 57,517 $ 11,865 $ 69,382 4 Transit Fund $ 50,000 $ 50,000 5 Water $ 80,000 $ 80,000 6 Ongoing $ 3,787,585 $ 4,431,797 $ 8,219,382 7 General Fund $ 3,571,819 $ 4,137,607 $ 7,709,426 8 Parking Fund $ (199,008) $ (269,775) $ (468,784) 9 Sewer $ 252,381 $ 413,087 $ 665,468 10 Water $ 147,321 $ 135,232 $ 282,553 11 Whale Rock $ 15,073 $ 15,646 $ 30,719 12 Total $ 7,740,026 $ 6,931,580 $ 14,671,606 1 2 3 4 5 6 7 8 Table 18: Transfers into CIP FUND General Fund F 21-22 Transfer Out (7,362,916) 1 22-23 Out Transfer In (7,949,558) LRM (17,866,400) (18,763,050) Capital Outlay 16,003,023 16,967,220 Fleet 1,265,000 1,045,000 IT Replacement 988,973 564,777 Major Facilities Maint 867,500 593,200 Infrastructure Investment 5,662,320 7,099,911 Public Art Fund 442,500 442,500 Packet Page 118 Item 10 ALTERNATIVES The Strategic Budget Direction report provides the Council with budget recommendations based on the community input and the Council's strategic planning direction through the major city goal process. As such, direction should be given to the City Manager for desired changes and budget reallocations. This guidance will then be incorporated into the preliminary Financial Plan that will be presented to Council on June 1, 2021. Attachments: a - COUNCIL READING FILE - Strategic Budget Direction Report Packet Page 119 offMm. ir:r. April 20, 2021 CITY 4F SMI LUIS OBISPO L�Ig 04 I SIP The Art of the Longview • Requires Disciplined Focus (Culture of Discipline) • Can be complex when everything seems both "urgent" and "necessary" • Major City Goals • Combination of "wicked problems" • Confront Brutal Challenges • Systemic Racism • Climate Crisis • Housing/Homelessness • Economic Disruptions • Civic understanding and Community engagement are critical • Balancing expectations with resources Characteristics of a "Wicked Problem" Difficult to clearly define Many interdependencies and often multicausal Attempts to address the problem often lead to unforeseen consequences Frequently not stable Usually no clear solution Socially complex Rarely is the responsibility of only one stakeholder Solutions involve changing behaviors Can be characterized by chronic policy failure City Manager Budget Message • Balanced Budget (Forecast supports ongoing) R s* I�Af* • F F F d-1VSrqv1yh ocus, ocus, ocus • Recovery from Covid-19 ambitious • Address resource deficiencies in operating functions C*r In _ • Investment in capital — facilities, transportation, parks • Thoughtful and strategic investment in Major City Goals based on feedback from Council • Address Local Revenue Measure Spending priorities • New challenges, new opportunities • Continued payments to CaIPERS • Considerations of fiscal realities • Ongoing Monitoring, Reporting & Adjustment X 1\ 3 Recommendations 1. Review the strategic budget direction report (Attachment A) A. Long Term fiscal forecast B. Major City Goal Programs & Deliverables C. Ongoing Community Services D. Local Revenue Measure Uses E. Significant Operating Budget Changes F. Capital Improvement Plan G. Enterprise Funds 2. Provide feedback and guidance ("direction") to the City Manager regarding the recommended strategic budget direction and proposed budget allocations to commence budget adoption on June 1, 2021. FOCUSED QUESTIONS FOR COUNCIL 1. Do the major city goal work programs include tasks, budget and timing to address Council and community expectations. 2. Does the CIP include projects and budget allocations to address Council and community expectations? 3. Does the Council support the REOC recommendations and determine that the proposed uses for capital and operations fit into the priorities as identified by the REOC and Council? 4. Does the Council support the reduced rate changes for water and sewer funds? 5. Does the Council support the recommended program changes and proposed rate structure for parking? COUNCIL NEXT STEPS 1. Approve -Financial Plan and Budget Appropriations 2. Advocate (Housing, Homeless, DEI, Climate) @ Federal, State, County and Community Partner Level 1. Community Partnerships, Regionalism, Governance, Etc. 3. Monitor -Impact and Outcomes of Work programs 4. Adjust -Work Programs A: General Fund Forecast Financial Forecast Balanced budget based on current assumptions. • Assumption of return to "normal" through 2021 calendar year into 2022 • Most revenues to return to pre-covid levels ���, modest long-term growth • Right -size operating budgets with modest growth • One-time allocation of resources to advance Major City Goals • Unpredictability and forecasting longer -term assumptions are difficult and subject to change. $8.9 million One-time allocation to offset revenue losses Slide 7 JD1 [@Harnett, Natalie], [@Elke, Brigitte], lets be clear about the timing of return to pre-covid levels. Johnson, Derek, 4/19/2021 $120,000 $100,000 $80,000 c 0 $60,000 c $40,000 $20,000 General Fund Five Year Forecast Revenue over $951 $32 $868 $234 $158 Expenditures (thousands) Local Sales ' Tax Measure 1 Actual FY20 Budget FY21 Budget FY22 Budget FY23 Projected FY Projected FY Projected FY 24 25 26 OpEx* Capital Total Revenue *including debt & transfers Detailed Forecast on Council Reading File Pg. 25 Considerations Focus and discipline fiscal In Thousands Undesignated Fund Balance (Estimated) needed for long-term health. $4,320 $2,205 $1,755 $736 ($351) PCouncil Reading File Pg. 25, line 44 B: Major City Goals Major Goa ECONOMIC RECOARY, RESILIENCY, AND FLSGAL SUSTAINABILLTY HOUSING AND HOMELEBSNE85 MCG — Economic Recovery Expectations and Outcomes: ➢ Engage and expand community partnerships and invest in infrastructure, and efforts that support the economic and social recovery and resiliency of the community while ensuring fiscal sustainability. ➢ Focus on business retention, the recovery of arts and culture, the vitality of the downtown, and support to underserved groups and populations. ➢ All actions will be viewed through the lens of the City's sustainability and DEI efforts. Total Investment Table 1.- 1 Economic Recovery, Resiliency & Fiscal Sustainability 1 I Ongoing Community Services $6,522,764 $61357,764 2 New Operating Investments $2,592,968 $1.865,440 3 1 Capital Infrastructure Froiects $3,462,500 $8.089,500 IR Council Reading File Pg. 28 A: ;enera Fund Dreca: MCG — Diversity, Equity, Inclusion Expectations and Outcomes: ➢ Develop and implement strategies, programs and policies that build a V ot workplace culture and community of inclusion, fairness and 4* belonging for all. Diversity, Equity, ➢ Involve marginalized communities and diverse voices in program Inclusion (DEI) development and delivery to ensure current lived experiences are understood, priorities are addressed, and the City's efforts are relevant and meaningful. ➢ Partner with proven community providers and utilize best practice models to leverage City resources and to maximize effectiveness and impact of initiatives. ➢ Identify and track measurable results in maturing diversity and inclusion efforts. Total Investment Table 3. 1 Financial Dngaing Community Set -vices $180,500 S191,000 New Operating Investments $588,G30 56�0,097 3 Capital Infrastructure Projects $35,000 $95,000 Council Reading File Pg. 46 MCG — Housing and Homelessness Expectations and Outcomes: ➢ Prioritize new and ongoing Housing Element policies and programs that focus on facilitating the increased production of affordable and workforce housing, in addition to market rate housing. ➢ Engage with the community, regional agencies, local non-profit partners, and the Federal government to leverage resources to be utilized to implement strategies that reduce homelessness. J Total Investment Fable 2. j Housing and Homelessness I Ongoing Community Seivices $151555364 $1,131,324 ? New OperatingOpei-ating Investments $111335597 $110771226 3 Capital Infi•astructme Projects $9,090,100 $25,105,817 A: Genera Fund Foreca: 14 Council Reading File Pg. 37 MCG — Climate Action Expectations and Outcomes: ➢ Reduce greenhouse gas emissions at both the municipal and community level on a trajectory consistent with the Climate Action Plan target of carbon neutrality by 2035. ➢ Achieve the vision to preserve and enhance the San Luis Obispo Greenbelt ➢ Integrate best practices for urban forestry throughout the community and City landscape to accrue the multiple benefits that trees provide including shading and cooling, beautification, habitat, stormwater retention, and carbon sequestration. ➢ Implement Tier 1 projects identified in the Active Transportation Plan (ATP), and planning and investment in transit service enhancements and transit fleet electrification, in order to achieve the mode -share split objectives identified in the Circulation Element of the General Plan. ➢ Adapt and become more resilient to the impacts of climate change through the Resilient SLO planning process and through increased implementation efforts that address public health and safety. Total Investment Table 4: I Financial i r ■ .r OAR 1 Ongoing Community Sei-ices $203,500 $2281500 ? New Opei-ating Investments $667,376 $454,702 3 Capital Infrastructure Projects $14,592,660 $14,397,731 Ger FL For( Climate Action, Open Space & Sustainable Transportation $15,463,536 $15,080,933 CouncilReading - 0 C: General Fund Community Services Ongoing Community Services a Parks & Recreation ■ Youth and Senior Services ■ Aquatics & Golf Course ■ Public Art ■ Ranger Services ■ Sports Events aPublic Safety ■ Emergency Response ■ Hazard Prevention ■ Disaster Preparedness ■ Patrol & Traffic Safety ■ Investigations 0 Public Works ■ Parks & Streets Maintenance ■ Urban Forest Services ■ Fleet ■ CIP Engineering ■ Transportation Planning (multi -modal) ■ Stormwater and Flood Control ■ Parking & Transit ® Community Development ■ Planning & Engineering ■ Building and Safety ■ Commissions & Committees 13 Utilities ■ Water Treatment & Distribution ■ Water Resources ■ Wastewater Treatment & Collection ■ Recycled Water Administrative Services ■ City Administration incl. Natural Resources and Economic Development ■ City Attorney ■ Human Resources ■ Finance ■ IT Services R Council Reading File Pg. 66 D: Local Revenue Measure Local Revenue Measure Uses Community Priorities: 1) Protect Financial Stability 2) Community Safety and Emergency Preparedness 3) Creek and Flood Protection 4) Address Homelessness 5) Safe and Clean Public Spaces 6) Economic Development and Business Retention 7) Youth/Senior Services and Recreation Facilities 8) Street Maintenance and Transportation 9) Open Space/Natural Areas Preservation and Maintenance 10) Other Services and Projects. no 2021-22 LRM Uses ($24.1 M) .1% ■ Protect Financial Stability ■ Community Safety and Emergency Preparedness a Creek and Flood Protection Address Homelessness ■ Safe and Clean Public Areas ■ Economic Development and Business Retention ■ Youth/Senior Services and Recreation Facilities ■ Street Maintenance and Transportation (includes bicycle and pedestrian improvements) ■ Open Space/Natural Areas Preservation and Maintenance ■ Other Services and Projects Capital to Operating Split is approximately 75/25 during 2021-23 with ramp up to 85/15 split in outer years. Council Reading File Pg. 72 E: Significant Operating Budget Changes 2� Significant Operating Budget Changes (SOBCs) Opportunity for departments to propose one-time or ongoing changes that help support Major City Goal efforts or augment ongoing community services. Considerations: • The Fiscal Health Response Plan and Fiscal Health Contingency Plan have stalled the growth of base budgets. • Ongoing community services must be offset by expected ongoing revenue Two -Year Combined SOBC Investment by Type ■ Community Services Economic Recovery MCG Housing & Homelessness MCG ■ DEI MCG ■ Climate Action MCG Council Reading File Pg. 83 on 22 SOBC Summary — General Fund One-time $ 3,764,923 $ 2,487,918 Ongoing Community Services $ 848,037 $ 461,909 Major City Goal Related $ 2,916,886 $ 2,026,009 Ongoing $ 3,571,819 $ 4,137,607 Ongoing Community Services $ 1,377,124 $ 1,866,376 Major City Goal Related $ 2,194,695 $ 2,271,231 ■ Emergency Management Services ■ Fire Training & Safety Captain ■ Safety Equipment replacement ■ Data processing enhancements ■ Youth Services Staff ■ Development Review Resources (offset by revenue) ■ Housing Support ■ Infrastructure/ Facility Maintenance ■ City Attorney resources ■ Human Resources Support ■ Finance Support ■ IT Support Council Reading File Pg. 85 Open Space Information Technology Multimodal Transportation Stormwater 0l r6 Ah CIP P Ah utility Services roject Categories Neighborhood Wellness ,Vff o� Police o CITY OF SPITZ LUIS OBISPO Protection Leis o� Roadway Infrastructure Nroar� TO i Fire Safety Environmental Protection Recreation Services Governance Capital Improvement Plan — Project Selection Criteria 1 2" Council Reading File Pg. 100 q2 0 Capital Improvement Plan — Project Categories Two-year total Five-year total :$1E27,678,513 21,510 • Two-year total Five-year total Project Delivery Operating Budget Augmentation =a $1,500,000 • :V] $4,500,000 Council Reading File Pg. 104 Capital Improvement Plan — Major City Goal CIP Combined Two- Year Investment in MCGs ■ Climate Action, Open Space, Sustainable Transportation ($2.9 million) Diversity, Equity, Inclusion ($440 thousand) Economic Recovery, Resiliency and Fiscal Sustainability ($11.6 million) Housing & Homelessness ($3.4 million) Council Reading File Pg. 114 Capital Improvement Plan — Calendar Year 2021 Projects 1 Sinsheimer Hardscape Replacement $135,000 2 Mission Plaza Railing Replacement $80,000 3 Meadow Park Pathway Maintenance $250,000 4 Sinsheimer Irrigation and Drainage $650,000 5 Broad & Leff Culvert Repair $500,000 6 Downtown Paving Repairs 2021 $3,434,000 7 Laguna Lake Dredging 2021 $840,000 8 Parks and Recreation Interior Office Rehabili $500,000 9 North Broad Street Neighborhood Park $845,000 10 Swim Center Boiler Replacement $85,000 11 City Hall Landing Repair $60,000 12 French Park Parking Lot Maintenance $110,000 13 Curb Ramps at Galleon and Newport $40,000 14 Tank Farm / Orcutt Roundabout Construction $3,600,000 15 Total $11,129,000 own 27 Council Reading File Pg. 116 "E: General Local Fund Major City Community Revenue Enterprise SoBCs Goals Services Funds Forecast Measure G: Enterprise Funds Water Fund Forecast $60,000 $50,000 $40,000 c $30,000 0 c $20,000 $10, 000 Actual 2019-20 FFinancial Plan Years Budget 2020-21 on 29 2023-24 Forecast 2024-25 Forecast 2025-26 OpEx* Capital � Unreserved Working Capital - Year End Revenue * Revenue and expenditures include debt service payments & proceeds Detailed forecast on Council Reading File Pg. 120 Water Fund FY 21-22 Operating Budget Water Water Admin/Engineering Resources 6% Water Distribution 11% Water Treatment 18% Source of Supply 62% -------------------------------------, Total: $16.85 Million Significant Operating Budget Changes Council Reading File Pg. 121 Sewer Fund Forecast $120, 000 $100, 000 $80,000 U) CO $60,000 0 c $40,000 $20,000 Actual 2019-20 Budget 2020-2 OpEx* Financial Plan Years 1 I Budget 2021-22 Forecast 2022-23 I Forecast 2023-24 Forecast 2024-25 Forecast 2025-26 Capital � Unreserved Working Capital - Year End Revenue * Revenue and expenditures include debt service payments & proceeds i� Detailed Forecast on Council Reading File Pg. 127 Sewer Fund FY 21-22 Operating Budget Utilities Revenue 7% Environmental Programs 3% Wastewater Collection 15% u Wastewater Admin/Engineers 16% -------------------------------------, Total: $7.92 Million L_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ no 32 Significant Operating Budget Changes Council Reading File Pg. 128 Utility Rates • Utility rates determined by operational costs and necessary reserve levels to keep the funds healthy • Proposed rate increases scheduled for public hearing on June 15, 2021 • More robust and accessible rate assistance program also proposed • Latest rate confirmation study shows lower than previously recommended rate increases Water Rate Increases 2021-22 2022-23 Original Forecast Proposed S.5% 3.5% 5.5% 3.5% Sewer Rate Increases 2021-22 2022-23 Original Forecast Proposed C73.5% 6.5% 6.5% 3.5% Council Reading File Pg. 121 & 128 A: General Fund -orecast 0 /. WRRF Project N Airport Gravity Sewer Reservoir 2 Cover I Recycled Water Replacement Expansion Project GYCY O� CITY OF SHn Luls OBISI'O Leis o4 Mainline Replacements Water Treatment Plant Infrastructure Renewal Strategy Inflow and Infiltration California Waterline Project G: Enterprise Funds $45,000 $40,000 $35,000 $30,000 CO cu w $25,000 c $20,000 $15,000 $10,000 $5,000 0 Actual 2019-20 Parking — Long Term Forecast Current Forecast with No Action 35 Budget 2020-21 Budget 2021-22 Forecast 2022-23 Forecast 2023-24 Forecast 2024-25 Forecast 2025-26 � Revenue* Expenditure Unreserved Working Capital - Year End * Includes debt proceeds in FY 23-24 A: ;eneral Fund Drecast B: Major City Goals R Detailed forecast on Council Reading File Pg. 138 $50,000 $45,000 $40,000 $35,000 $30,000 _ $25,000 $20,000 $15,000 $10,000 $5,000 Actual 2019-20 Revenue* Parking — Long Term Forecast With Proposed Revenue Strategy and Budget Changes Palm-Nipomo 10- 11 on 36 PO Re -balancing fund to healthy level pill r- Budget 2020-21 Budget 2021-22 Forecast 2022-23 Forecast 2023-24 Forecast 2024-25 Forecast 2025-26 Expenditure — — Unreserved Working Capital - No changes Unreserved Working Capital w/ Enhancements * Includes debt proceeds in FY 23-24 Detailed forecast on Council Reading File Pg. 138 A:C. D: eneral Major City Co munity Local E: F: Fund Goals Services Revenue SOBCs Capital Drecast Measure Parking — Revenue Enhancement Strategies 1 37 ' 53/33 ' :8; /9'4;5 -6 -8./93 3 • �c� O O Garages: On -Street & Enforcement: Districts: 1. Phase Out of 1st Lots: 10. Expansion of 14. Establish Old Free Hour 4. Expansion of Enforcement Town Parking Enforcement Hours Hours (6p-9p) District 2. Reduction of (6p-9p) Max Daily Rate 5. Rate Increase 11. Sate/County 3. Rate Increase (Approved for July Surcharge (Approved for July 2020) 12. Penalty 2020) 6. Tier Based Pricing Schedule Fine 7. Paid Parking at Amounts Railroad Square 13. Old Town 8. Paid Parking in District Upper Monterey Area Enforcement 9. Loss of Meters for Old Town District Detailed strategies included on Council Reading File Pg. 137 A: eneral =und )recast Parking — Operating Budget Changes Ongoing Parking Enforcement (3 FTE Additions) Parking Maintenance (2FTE Additions) Revenue and Contract Services Reductions Offset A: General Fund Forecast $ 220,927 $ 138,187 $ (558,123) $ 230,947 $ 144,392 $ (645,114) $ 451,874 $ 282,578 $ (1,203,237) IR Council Reading File Pg. 141 Parking — CIP Why are these projects are important? • New garage will bring efficiencies with SLOREP • Activation of downtown • Balance supply and demand • New technologies allow for convenience and additional time and flexibility via mobile apps A: General Fund Forecast Parking Fund 5-Year CIP Council Reading File Pg. 142 Transit Fund • Maintains balanced budget thanks to support from federal funding and conservative spending • Approximately $2.7 million in working capital • Proposed rate increases are needed to fund service and help achieve 20% local revenue requirements. Originally scheduled for July 2020 — postponed by Covid • Transportation Development Act (TDA), and American Rescue Plan (ARP) July 2020 Rate Increases -------- 10. Postponed due to covid Transit Innovation Study A: General Fund Forecast Activate Rate Increases in July 2021 $50,000 14 Council Reading File Pg. 144 Transit Fund - Capital Capital Projects are highly reliant on future discretionary grant funding ImprovementCapital Bus Shelter Replacement $ 105,000 $ - Bus Replacement with Electric Vehicles $ 1,854,000 $ 1,910,000 Bus Yard Parking Lot Maintenance $ 5,000 $ 500,000 EV Bus Infrastructure' $ 715,000 $ - Bus Wash Replacement' $ 75,000 $ 450,000 Vault Room Addition Study' $ - $ 15,000 Replace Supervisor ADA Van with EV2 $ 70,000 $ - TaTAL $ 3,214,000 $ 2,375,000 Footnotes 1 & 2: dependent on specific grant funding. A: General Fund Forecast I'M Council Reading File Pg. 144 42 Next Steps ■ Review &Adoption of 2021-23 Financial Plan 6/1 ■ Enterprise Fund Review 6/1 ■ Continued 2021-23 Financial Plan (if needed) 6/15 ■ Water &Sewer Rates —Proposition 218 Hearing 6/15 ■ Review &Adoption of 2021-23 Financial Plan 6/29 (If needed) ON 43 Recommendations 1. Review the strategic budget direction report (Attachment A) A. Long Term forecast B. Major City Goals C. Ongoing Community Services D. Local Revenue Measure Uses E. Significant Operating Budget Changes F. Capital Improvement Plan G. Enterprise Funds 2. Provide feedback and guidance ("direction") to the City Manager regarding the recommended strategic budget direction and proposed budget allocations to commence budget adoption on June 1, 2021. FOCUSED QUESTIONS FOR COUNCIL 1. Do the major city goal work programs include tasks, budget and timing to address Council and community expectations. 2. Does the CIP include projects and budget allocations to address Council and community expectations? 3. Does the Council support the REOC recommendations and determine that the proposed uses for capital and operations fit into the priorities as identified by the REOC and Council? 4. Does the Council support the reduced rate changes for water and sewer funds? 5. Does the Council support the recommended program changes and proposed rate structure for parking? COUNCIL NEXT STEPS 1. Approve -Financial Plan and Budget Appropriations 2. Advocate (Housing, Homeless, DEI, Climate) @ Federal, State, County and Community Partner Level 1. Community Partnerships, Regionalism, Governance, Etc. 3. Monitor -Impact and Outcomes of Work programs 4. Adjust -Work Programs Pique fil Il Parking Garages M 1.3. Parking Garages 1, Eliminate 1st How & Free Parking in Parking Garages _ 4, Upper Montr rcy Paid Perking 2, Implement Deferred Rate lncmase in Parking Garages (Approved 5. Ranlroad Square Paid Parfono for 3,ily 20M) 3, RCdLMC Perking Onrege Max Daily Rate - 6-9. On Sheri # Lot Parking On -Street& Lot Parking 10. Citywide 4, Implorr, v Paid Parkin � in Upper Morph cy Area - 11. New Re.Owbal Parking Distrmt . 5, YMIen gnt Paln Parkh.l in Ra"d Square Q L2. Did Torun Parking District 6. YhpldrrLvll DOl Trod Retc MC94m&e frsr On-5trett anKi Lot Parking (approved for jur, 2uzD) 7, Etrpand Enfwetwit Houm Frpm own to Spit, Fpr On.5treet and Lot Parking L TIrmuluon to Tier -Based Pricing forUo-Street and Lot Parking Enforcement 9. Expand Entorcernew lmurs from dpm to 9pm 10. Lrvease Penalty Schedule for Safety Vnoktun Fine Amour" - City-wide, nat shown on mp. 11. Implement and Establish Reslden[lal Parking Pemnit Drstrict In CM Tmm and Upper Monterey Area Districts 12. Enforcement of the Old Town Parking District