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Home My WebLink About5/7/2024 Item 8a, Jackson - Staff Agenda CorrespondenceCity of San Luis Obispo, Council Memorandum City of San Luis Obispo Council Agenda Correspondence DATE: May 7, 2024 TO: Mayor and Council FROM: Emily Jackson, Finance Director VIA: Whitney McDonald, Interim City Manager SUBJECT: ITEM 8A – FY 2023-24 Q3 BUDGET REPORT AND SUPPLEMENT PREVIEW Staff received several questions from Council in advance of the Fiscal Year 2023-24 Third Quarter Budget Review and Fiscal Year 2024-25 Supplemental Budget Preview. The questions are below with staff’s response shown in italics: 1) Is it possible to utilize interest income from our investments (part of the "other revenue" category, described on page 274) to address future projected deficits? Or to fund priority projects in the coming year? Staff incorporate conservative forecasts of investment income in the budget and that forecasted interest income is used to fund the operations of the City like any other revenue stream. Investment income includes interest and fair market value adjustments. The Third Quarter Budget Report reflects fair market value adjustments through December 31, 2023. Since then, yields on representative securities (the two-year US Treasury note) have increased by more than 50 basis points. Fair market value has an inverse relationship with interest rates, meaning we would expect a negative fair market value adjustment at year end. Staff would not recommend significant increases to the interest income forecast to help close projected deficits due to the volatile nature of interest rates and their impact on the fair market value of the portfolio. 2) What are the added numbers to the Fire budget, reflective of the equity adjustments in the recently approved Memorandum of Understanding? The table below is pulled from the December 5, 2023 Council Agenda Report seeking approval of the successor Memorandum of Understanding with the International Association of Firefighters, Local 3523 and shows the annual cost of the recently approved agreement. Item 8a – FY 2023-24 Q3 Budget Report and Supplement Preview Page 2 3) Is it possible to get better numbers for the budgetary implications of long- term growth given the increase in housing and population over the next few years in order to understand the practical down-stream costs of approving more housing? Staff are currently working on a project to better understand the long-term cost implications of our growing community and look forward to sharing with Council when ready. Initial analysis has shown that while certain costs can be directly tied to population growth generally, some of the largest projected costs are binary in nature and triggered by individual development agreements. 4) Please provide some explanation on the below slide related to the CIP “true up” that was included in last week’s meetings with Councilmembers. This slide illustrates the total funding requested versus the funding recommended for transfer or reallocation to support these requests, categorized by funding type. It showcases how staff has identified sufficient budgetary resources to cover the requested funding in the CIP true-up process. Notably, it emphasizes that two funds are transferring or reallocating more than they are requesting, and there are compelling reasons for this decision. Item 8a – FY 2023-24 Q3 Budget Report and Supplement Preview Page 3 Firstly, the Parking fund anticipated the need for potential offsets at the November 7, 2023 City Council meeting which discussed parking rate reductions. During that session, Council acted on providing the first hour of parking free and making Sundays free in parking structures. To help offset the costs associated with these changes, staff recommended reallocating $600,000 from the Parking Pay Station Installation Project account. This strategic move aligns with the ongoing parking rate study, which has temporarily halted the expansion of paid parking areas pending the completion of the Parking Rate Study and a comprehensive evaluation of city-wide technologies. Secondly, the Utilities Department is opting to reallocate funding that would otherwise have received additional allocations this fiscal year, supporting the WRRF and Wastewater Collection Maintenance Facility. Given that this project is currently in the design phase, funds for construction will not be required until the 2025-27 financial plan. This proactive strategy enables the Utilities Department to redirect additional contributions back into Unreserved Capital for planning purposes in the 2025-27 Financial plan, foreseeing substantial projects in the pipeline. 5) The table on page 316 of the agenda packet, pulled from the General Plan, includes projections of housing units and population in the city over the next several years. How do these estimates compare to where we actually were in 2020? The United States Census provides population and housing unit estimates. According to the Census, the population estimate for the city in April 2020 was 47,063 and in July 2022 it was 48,3411. According to Table H1 of the 2020 Decennial Census there were 21,562 housing units in the City in 20202. The General Plan Annual Report presented to the City Council earlier this year included 1 https://www.census.gov/quickfacts/fact/table/sanluisobispocitycalifornia/PST040223#PST040223 2 https://data.census.gov/profile/San_Luis_Obispo_city,_California?g=160XX00US0668154 Item 8a – FY 2023-24 Q3 Budget Report and Supplement Preview Page 4 City data that states there were a total of 23,402 units in the City in 2023 (note: this is all units, including those that do not count as units under the Growth Management Ordinance, such as ADUs, Below Market Rate units, and units in the Downtown Commercial Zone). 6) On page 317 of the agenda packet, what is the “restricted based on audit” number, at the bottom of the forecast table? (it’s roughly 11,000 in the current and next year, and $10,500 in the next several years of the forecast). The restricted based on audit section of the fund balance includes a number of items which are included in fund balance but earmarked for specific purposes, and therefore not counted in the undesignated fund balance. Some examples include amounts either non-spendable or restricted for debt service, transportation projects, or specific projects like housing loans and impact fee deferrals to low- income housing developers. Staff expect this amount to be relatively consistent from year to year. 7) On page 322 of the agenda packet, the report notes: “Staff are also recommending to not allocate $600,000 into the Parking Pay Station project account and to leave the funding in the Parking Enterprise Fund. This modification to the current financial plan was proposed but not officially adopted at the November 7, 2023 City Council meeting updating council on the parking program and parking rate study.” Can you please clarify what this means and provide a little context as to why staff are altering their recommendation on the $600,000? During the City Council meeting held on November 7, 2023, Councilmembers were briefed by staff regarding the parking program. Several options were presented to provide immediate relief on parking rates, notably including considerations such as offering free parking on Sundays and providing the first hour free in parking structures. In the fiscal impact section of the staff report, the potential financial consequences of each option were outlined, with a caveat that assumptions were made anticipating Council's agreement with proposed Capital Improvement Program (CIP) reductions for Parking Structure Asset Maintenance should they opt for these measures. Following deliberations, Council instructed staff to proceed with implementing both the Sunday parking and the first-hour free policy in parking structures. Presently, staff is recommending reallocating funds from the Parking Pay Station Installation Project account in the amount of $600,000. This decision is prompted by the ongoing parking rate study, which has put this project on hold pending a comprehensive assessment of city-wide technologies. These funds will also address the offsets identified during the November 7th City Council meeting, playing a crucial role in replenishing the Parking Fund.