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HomeMy WebLinkAbout1/14/2025 Item 7c, Jackson - Staff Agenda CorrespondenceCity of San Luis Obispo, Council Memorandum City of San Luis Obispo Council Agenda Correspondence DATE: January 14, 2025 TO: Mayor and Council FROM: Emily Jackson, Finance Director VIA: Whitney McDonald, City Manager SUBJECT: ITEM 7C – 2025-27 BUDGET FOUNDATION Staff received the following questions regarding the recommendations included in the staff report for Budget Foundation. The questions are below with staff’s response shown in italics: 1. What is referred to as the “modal split” allocating General Fund transportation funding is presently located in the Land Use and Circulation Element (LUCE). Why is this policy contained in the LUCE, and not the Financial Plan policies, which are updated more regularly? Does the existing policy provide sufficient flexibility? Staff Response: The Circulation Element includes support for transportation funding proportionality with the “modal split” objectives as detailed in the following: Circulation Element Section 7.1.4 Transportation Funding: In order to increase support for non-automobile travel, the City shall strive to allocate transportation funding across various modes approximately proportional to the modal split objectives for 2035… This policy is included in the Circulation Element as a guiding principle but not as a fixed percentage allocation for each budget cycle since there will be variation from year to year based on current project priorities and funding resources. The performance monitoring for this policy is reported as a four-year running average based on the adopted budget of each two-year fiscal cycle and is included in the Active Transportation Plan Progress Report Card. The latest report card shows that transportation funding has been generally consistent with the Circulation Element policy. Item 7c. 2025-27 Budget Foundation Agenda Correspondence Page 2 Transportation Funding By Mode (Four-Year Average FY 2019- 2023) Motor Vehicle 35% Walk 27% Bicycle 25% Transit 12% 2. How did the City establish its policy regarding debt capacity? What is our current debt service level? Staff Response: The General Fund’s debt service costs were budgeted at $1,757,889 for Fiscal Year 2024-25, or 1.4% of budgeted revenues. This is well within the policy limit of 10%. This limit is intended to allow the City to finance certain high-cost projects with a long useful life while limiting financial risk to the City. The policy also ensures marketability of future debt issuances by maintaining an attractive credit rating. The City set this standard based on experience from prior issuances where it was noted that a ratio of less than 5% is preferable, but more flexibility may be necessary. 3. Attachment C – Financial Plan Policies includes the following language related to factors favoring high cost recovery levels. The highlighted section below could be revised to indicate “the use or overuse of the service…” If Council would like to update the highlighted language above in D4, Council can provide direction to staff when the Budget Foundation item is presented to Council and staff will make the updates and seek adoption of the revised language with adoption of the 2025-27 Financial Plan on June 3, 2025. Item 7c. 2025-27 Budget Foundation Agenda Correspondence Page 3 4. Will staff provide any written response to the advisory body budget recommendations or these just for our consideration? Staff Response: The input provided by advisory bodies is included in Attachment I to the 2025-27 Financial Plan Budget Foundation item and is included for Council’s consideration as the City finalizes plans for the upcoming Community Forum on January 23rd and Goal Setting Workshop on February 8th. Staff does not provide responses to advisory bodies relative to the input, but Advisory Body members are welcome to attend both upcoming meetings. 5. The Long-Term Capital Improvement Plan describes the ideal annual asset maintenance budget and sets target funding at $29 million. How much of this would be paid for by the General Fund as opposed to other sources? Staff Response: The Council report describes the ideal annual funding target for asset maintenance at $29 million. While achieving this level of funding is a priority, it is carefully evaluated through the CIP process and reviewed by the CIP Review Committee to ensure alignment with overall City priorities. Of the $29 million, approximately $18 million would be funded by the General Fund, with the remaining $11 million coming from other sources. 6. What are the City’s primary revenue streams and are there any opportunities to increase revenues? Staff Response: The City’s General Fund is primarily funded by tax revenues; the City’s largest tax sources are (in order) sales tax (including Local Revenue Measure), property tax, and transient occupancy (hotel) tax. Some programs and services in the General Fund provide an “individual benefit” to certain users (ex. permitting for development, business licenses and certain recreation services) and the cost of those services are intended to be offset by user fees charged for those services. Where user fees are not set at full cost recovery, tax revenues subsidize the cost of providing individual benefit services to the community. Infrastructure costs are partially offset by development impact fee revenue; impact fees will go before Council by the end of FY 2025-26. Similar to user fees, if development impact fees are not set at full cost recovery, tax revenues und a larger share of infrastructure costs (including asset maintenance, asset replacement and development of new assets). The City’s Enterprise funds (Parking, Transit, Water and Sewer) run more like businesses, and the cost of these programs are covered by rates paid by users and do not rely on general purpose taxes paid by residents and visitors. Like other cities in California, the City is limited in its ability to increase revenue streams. Following is some additional information about limitations on various sources of revenue: Item 7c. 2025-27 Budget Foundation Agenda Correspondence Page 4 • Property tax revenues are controlled by Proposition 13, which limits increases to taxable assessed property values to 2% a year. • In 2020, voters supported the Local Revenue Measure (G-20) which increased the City’s local sales tax rate by 1%, bringing the local sales tax rate to 1.5%. The City’s Transient Occupancy Tax (TOT) rate is current set at 10%. Sales tax and TOT rates could be increased, but would require voter approval. In considering tax increases, the City needs to seriously consider the impacts to residents and visitors who are also impacted by the macroeconomic conditions that impact the City’s budget. • The City’s Cannabis Tax rate is currently set at 6% of gross receipts for retailers, however, voters in 2018 approved that this tax rate could be set up to 10%. If Council were interested in pursuing an increase to this tax, it could do so via resolution or ordinance. 7. Public Works and the Police Departments presented staffing studies with this agenda item. What is the impact of additional headcount on the City’s funded status with CalPERS? Staff Response: The impact of adding staff on our pension funded status is difficult to predict. Such an analysis would have to take into account the new employee’s prior years of service, Classic or PEPRA pension plan eligibility, assumptions for future CalPERS investment returns, and more. The primary drivers of our unfunded liabilities as noted in May 2023 by our independent actuarial consultant are below target CalPERS investment returns, changes to CalPERS contributions policies, especially generous benefits offered prior to PEPRA, and a growing share of retired members relative to members still in the workforce. 8. The language proposed below in Attachment C – Financial Plan Policies relates to cost recovery for planning appeal fees. Were fees for appealing planning decisions set at 15% cost recovery? Staff Response: With adoption of the FY 2024-25 User Fee Schedule on July 2, 2024 Council set the cost recovery for appeals of planning decisions at 15% in an effort to not discourage applicants or non-applicants from submitting appeals. Item 7c. 2025-27 Budget Foundation Agenda Correspondence Page 5 9. Attachment C – Financial Plan Policies includes reference to fees for the Skate Park (shown below). Does the City ever collect fees for the Skate Park? Staff Response: The City does not rent out the Skate Park to individual groups or charge for use of the Park in an effort to support general community use of the facility. As a facility that The Skate Park has historically been included in the fiscal policies as an example of a service or facility that falls within the 0-30% cost recovery category. If Council would like to remove reference to the Skate Park from this list, Council can provide direction to staff when the Budget Foundation item is presented to Council and staff will make the updates and seek adoption of the revised language with adoption of the 2025-27 Financial Plan on June 3, 2025. 10. Attachment C – Financial Plan Policies includes the following language: Does this mean full-time and part-time regular positions? Staff Response: Yes. A “Full time equivalent” (FTE) includes both full-time and part-time regular positions. FTE measures hours worked rather than the number of employees, allowing part-time hours to be aggregated into the equivalent of full- time positions for budgeting, forecasting, and staffing purposes. If Council would like to further clarify the meaning of “full time equivalent” in the financial policies, Council can provide direction to staff when the Budget Foundation item is presented to Council and staff will make the updates and seek adoption of the revised language with adoption of the 2025-27 Financial Plan on June 3, 2025. 11. In addition to the questions noted above, staff is recommending renaming a station at the Community Forum: As noted in the agenda report, the stations for the Community Forum were developed based on input from the community survey. Some of the current Major City Goals encompass multiple focus areas listed in the survey options. The purpose of the survey was to identify and prioritize what is most important to the community at a more detailed level than the existing Major City Goals. Staff received a question regarding the absence of "Economic Development" as a station topic or a standalone survey option. In the survey, "Strategic Economic Development" was included as an example under the "Fiscal Sustainability and Item 7c. 2025-27 Budget Foundation Agenda Correspondence Page 6 Responsibility" priority. Because one of the City’s current Major City Goals is titled "Economic Resiliency, Cultural Vitality, and Fiscal Sustainability”, staff recommends that Economic Development be combined with Downtown Vitality for the Community Forum. This station would be renamed to "Downtown Vitality and Economic Development" to better reflect its scope and consistency with existing Major City Goals. This is also the title that was used for that station at the previous Community Forum. The proposed updated stations are listed in the column on the right below: Stations as noted in the Agenda Report Revised Station Topic Areas Homelessness Homelessness Infrastructure and Sustainable/Multi- modal Transportation Infrastructure and Sustainable/Multi-modal Transportation Downtown Vitality Downtown Vitality and Economic Development Housing Housing Climate Action and Open Space Climate Action and Open Space Fiscal Sustainability (including use of LRM) Fiscal Sustainability (including use of LRM) Public Safety Public Safety Other/New Ideas Other/New Ideas