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HomeMy WebLinkAbout6/4/2024 Item 6a, Hermann and Jackson - Staff Agenda CorrespondenceG1`t Y O� Council Agenda Correspondence ter s o4 DATE: June 3, 2024 TO: Mayor and Council FROM: Emily Jackson, Finance Director Greg Hermann, Interim Assistant City Manager VIA: Whitney McDonald, Interim City Manager SUBJECT: ITEM 6a - ADOPTION OF THE FY 2024-25 SUPPLEMENTAL BUDGET Staff received the following questions, regarding the request from SLO REP. The questions are below with staff's response shown in italics: 1) What was the original one-time City support for the Performing Arts Center and what is the current ongoing support? According to information provided by the Performing Arts Center (PAC), total costs for construction of the PAC were $30 million in 1996 and the City contribution at that time was $5 million. The City makes an ongoing commitment to fund a portion of operational costs per a set formula in the operating agreement with Cal Poly and the Foundation for the Performing Arts Center. The contribution for Fiscal Year 2023-24 was $334, 269. The City also sits on various PAC subcommittees and has two voting members on the Central Coast Performing Arts Center Commission. 2) When does SLO REP plan to start construction and what is the expected duration? SLO REP is planning to construct a building on the same property and directly adjacent to the City's Cultural Arts District Parking Structure which is currently under construction with a planned completion date of January 2026. SLO REP has stated that the expected start of construction is January 2026 upon completion of the structure and is expected to last 18 months. 3) When would City funds be needed by SILO REP to fund construction, and could that cost be split over multiple years? In the current grant agreement with SLO REP, the funding distribution timing from the City to SLO REP was stipulated as the last dollars spent to fund construction costs. Meaning that all other SLO REP construction contributions from the funding campaign are to be expended prior to City funds being used for the project. Given the expected timing of construction and associated spending, City funds are not anticipated to be needed until early 2027. City of San Luis Obispo Page 283 of 430 ITEM # 6.a ADOPTION OF THE FY 2024-25 SUPPLEMENTAL BUDGET Page 2 That would mean the Council would have the opportunity to identify funding sources at subsequent Mid -year budget updates or with development of the 2025- 27 Financial Plan. 4) What amount of one-time funding is typically available as a part of the year end report process and what commitments are already in place for that funding? In a strong economy, the City generally ends the year with both operating savings and over -realized revenue, leaving an unassigned balance for potential one-time funding use. In the last three years this unassigned General Fund balance has averaged over $7 million, driven largely by macroeconomic factors including elevated employee turnover causing staffing savings, increased consumer spending benefiting sales tax and transient occupancy tax revenues, and market conditions lifting property tax revenues. These factors may not present or of the same magnitude in the current fiscal year. To the extent that year-end undesignated fund balance is a result of operating budget savings, City fiscal policy allows flexibility for departments to carry over unspent budget to the second year of the financial plan, which reduces the amount of available year-end unassigned General Fund balance. At this time, staff have identified a number of potential uses for unassigned FY 2023-24 fund balance: 1. In the FY 2024-25 Supplemental Budget process, General Fund departments requested $2.2 million in Significant Operating Budget Changes. Because the General Fund operating reserve was utilized to fund Winter 2023 storm repairs and the forecast suggests deficits beginning in FY 2026-27, departments were asked to defer their requests to consideration as part of development of the 2025-27 Financial Plan or propose to use carryover from current year savings if available, to fund one- time requests in FY 2024-25. Many departments therefore have plans for year-end fund balance derived from budget savings to address current Major City Goal work programs as well as core service needs. 2. Council approved allocation of $4 million of FY 2022-23 unassigned fund balance to repay a portion of the funding pulled from the Infrastructure Investment Fund (IIF) to purchase 1166 Higuera. As indicated in the FY 2023-24 Mid -Year Budget Report, staff is planning to recommend allocation of FY 2023-24 unassigned fund balance to repay the IIF the remaining $845,000, contingent upon availability of funding. 5) Should Council choose to fund this request, what options are available for funding the SLO REP request? The Council may direct staff to: Page 284 of 430 ITEM # 6.a ADOPTION OF THE FY 2024-25 SUPPLEMENTAL BUDGET Page 3 a. Fund all or part of the request by designating a portion of Infrastructure Investment Fund for the Prado Bridge project to support SLO REP theater construction. Staff would then return to Council in September (upon completion of the unaudited year-end report) with an amended grant agreement. Staff would also recommend that the Council prioritize backfilling the funding for the Prado Bridge project using any one-time funds available as a part of the Mid -year budget update in February 2025. The tradeoff would be limited or no additional funding for other one-time needs. If sufficient one-time funds are not available, Council would need to consider reducing funding elsewhere in the capital budget or providing funding through subsequent Mid -year budget updates or the development of the 2025-27 Financial Plan to ensure that sufficient funding exists to move forward with construction of the Prado Bridge project in late Fall 2025. b. Create a new project for the 2025-27 Financial Plan Capital Improvement Plan budget to fund all or part of the request to support SLO REP Theatre construction. Staff would then return to Council in September with an amended grant agreement. Tradeoffs for other projects that would not receive funding would be determined as a part of the 2025-27 Financial Plan development process. c. Prepare proposed amendments to the grant agreement with SLO REP for consideration in September, with funding for the request, or some portion of this request from one budget action or across several different budgets that Council will have before them for consideration prior to funding being necessary for SLO REP construction needs. Based upon the anticipated start of construction and duration of construction for the SLO REP Theatre, Council will have the following budget opportunities. i. 2024-25 Mid -Year, ii. 2025-27 Financial Plan, iii. 2025-26 Mid -Year, and iv. 2026-27 Budget Supplement Typically, both Mid -Year and Budget Supplements processes are intended to represent minor course corrections throughout the fiscal years to align more exacting information of revenue received and expenditures as well as available resources with emergent needs. Tradeoffs in funding could be considered with each budget opportunity, including consideration of available year-end funding and needs for funding for the Prado Bridge project. Page 285 of 430