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HomeMy WebLinkAboutItem 08 - 2021-23 Financial Plan Process - Economic Outlook, Budget Policies, and CIP ReviewItem 8 GtT Y O fiCouncil Agenda Report ti Department Name: Finance Cost Center: 2002 For Agenda of: January 12, 2021 Placement: Business Item Estimated Time: 60 minutes FROM: Derek Johnson, City Manager Brigitte Elke, Finance Director Prepared By: Natalie Harnett, Principal Budget Analyst SUBJECT: 2021-23 FINANCIAL PLAN PROCESS: ECONOMIC OUTLOOK, BUDGET POLICES, AND CAPITAL IMPROVEMENT PLAN REVIEW RECOMMENDATION 1. Review and approve the 2021-23 Financial Plan Goal Setting Process; and 2. Review and approve the City's budget and fiscal policies; and 3. Receive and discuss the economic outlook for the 2021-23 Financial Plan development; and 4. Review the current and long-term capital outlook plan review. REPORT -IN -BRIEF The City of San Luis Obispo utilizes a two-year financial planning process to create its budget. This process includes extensive public outreach to assist the City Council in establishing Major City Goals. The benefits of this process are two -fold: 1) it ensures that resources are allocated in the budget to accomplish the community's highest priority, most important objectives; and 2) it assesses the support and maintenance needs of the City's current services, programs, and capital assets (i.e., core services). It therefore provides a process to help create a mutual understanding among community members, decision makers, and City staff through a platform of collaboration toward a common goal. The outreach efforts include a wide -reaching community priorities survey, the Community Forum (virtual), advisory body recommendations, and several other inputs to prepare the City Council for selecting community goals and priorities for the next financial plan during its Goal - Setting Workshop. Subsequent Council meetings will provide direction to City staff for work program development in support of these goals. In order to provide the appropriate framework, the Financial Plan process includes a review of the economic trends and their potential impact to the City's forecasted financial position. City staff utilizes multiple sources for the economic assessment including Beacon Economics, PFM's Market Update, HdL's sales tax forecasts, and the State's Legislative Analyst office to name a few. Packet Page 101 Item 8 A major feature in the City's Financial Plan process is reliance upon clear framework of fiscal and budget policies. The most well -managed cities across the nation have clearly articulated fiscal policies to assist financial decision -making. This report highlights several new policies and policy edits that are recommended for adoption as part of the 2021-23 Financial Plan. DISCUSSION Two -Year Financial Plan Process For over thirty years, the City has used a two-year financial planning process to create its budgets. The benefits of budgeting based on a two-year plan include: 1. Reinforcing the importance of long-range planning in managing the City's fiscal affairs. 2. Concentrating on developing and budgeting and related work programs to accomplish significant objectives to bring resources to focus on those objectives. 3. Establishing realistic timeframes for achieving objectives. 4. Creating a pro -active budget that provides for stable operations and service delivery. 5. Assuring the City's long-term fiscal health. 6. Reducing the amount of time and resources allocated to preparing the annual budgets. The fundamental purpose of the City's budget process is to link, through public engagement and strategic deliberation, the interest of the community to the available financial resources to achieve the desired outcome. The process allows the City Council to engage the community in identifying Major City Goals for the City while also providing information regarding the City's core functions, including the day-to-day work programs and responsibilities carried out by City employees to support residents' quality of life. 2021-23 Goal -Setting Process There are a variety of opportunities to provide input to the City Council to enable them to establish Major City Goals with the community's needs and interests in mind. These opportunities are highlighted on the following chart: Goal -Setting & the Budget Process Q..., =Y­1 TW TB., due �ov+tn Imue eeal t GOAL -SETTING 41M alluurs Wn INPUT Eutlif M* + � ]-YEM LL ILMAIXtl f6CA1 LGY6 lEI1M�Wli IMOMWAL$ fmnfcix57" OO�f56nIXlclix� •.II'w•evfber ! ", '9!d "5'Ming the Singe" II'wbA of "fenury• 27, W �f"BedgN Fonxltllnrt" ifu�hhup Packet Page 102 Item 8 Many of these efforts have been under way since early November 2020. City Advisory Bodies have developed recommended goals provided in Attachment A. The Community Priorities Survey (Attachment B) was mailed out with utility bills, continuously published on social media, and posted on-line at www.slocity.org/opencityhall. The survey was closed on December 15, 2020 and the results are included in Attachment C. The Council held the November 17 "Setting the Stage" meeting with information on the status of the current Major City Goal, the City' core services, and the General Plan and Climate Action Plan update. Notice has also been sent to over 150 community groups and individuals inviting their input and participation (Attachment D). The two principal elements of the City's goal setting process coming up are the Community Forum, to be held virtually on Thursday, January 14, 2021, at 6:00 PM, and the Council Goal - Setting Workshop to be held virtually on Saturday, February 6, 2021. Facilitation: In order to achieve an un-biased process, the City typically contracts with a third - party consultant to facilitate and guide Council and the community through the forum and goal - setting workshops. The City has contracted with the Centre for Organizational Effectiveness (Centre) to assist in a four -phase approach: 1. Phase one -- City Council Interviews: The Centre consultant will conduct virtual one-on- one interviews with each of the five City Council members to gain insights, input, and build connections with each individual. Each interview will be 60 minutes in length with the consultant developing overarching themes afterward to be utilized in the future group session. 2. Phase two — Virtual Community Forum Support: The Centre will provide support for a 2- hour virtual Community Forum to be conducted on January 14, 2021. 3. Phase three — Goal Setting Workshop: The Centre consultant will conduct a half -day goal setting workshop with the City Council Members on February 6, 2021.This virtual session will be designed to create open dialogue, establish consensus, and identify objectives to support the community needs for the Financial Plan. 4. Phase four — City Council Workshop: The Centre consultant will conduct a half -day City Council Workshop in March 2021 (date TBD). This virtual session will be designed to reconnect on the work which was started in February and determine the action items needed to implement and execute effectively on the agreed upon goals. A focus will be made upon collaboration with City staff and how to ensure communication and proper support is provided so that successful outcomes are reached. This approach is more involved than previous financial plan processes, but due to the virtual environment, a new council member, and unprecedented fiscal times this type of facilitation will help build stronger Council relationships and achieve thoughtful collaboration. 1. Results of Community Priorities Survey Citizen feedback and input is a cornerstone of the City' s budget process and an integral part of the decision making on Major City Goals. In addition to encouraging participation in the budget workshops, the community survey asks the City's residents to share their priorities for the City to accomplish over the next two years. Additionally, it asks for feedback on possible program and service adjustment in order to accomplish the goals. Packet Page 103 Item 8 Survey Distribution To reach as many residents as possible, the City utilizes several outreach methods including: • Utility invoice inserts • City website (Open City Hall) • City news & e-notification • Monthly Community Newsletter • Press release • Social media • Outreach to approximately 200 community groups and partners Survey Participation A total of 1,285 individual survey responses were received by December 15, 2020, representing 64 hours of public comment. It is worth noting that this reflects a 17% decrease in participation compared to the same survey conducted two years ago but was nearly identical to the responses received as part of the 2017-19 Financial Plan. Survey Results It is important to point out that this is not a "scientific survey" or statistically representative" and as such caution should be used when interpreting the results. Nonetheless, this has been the historic practice and the results are useful —especially when viewed in conjunction with the other forms of feedback the Council will receive in this process— in gaining additional insight into the wishes, views, and concerns of the community. The following charts summarize the top themes for each question. Together with an `Other' question that was open-ended, it provided participants up to five responses and grouped them into themes where possible. These themes help to identify areas for further consideration and discussion. Additional analysis is available on Open City Hall (www.slocity.org/opencityhall) and all survey responses are included as Attachment C (Reading File). Packet Page 104 Top Prioritlies IDm 870 9 Soo 697 7 620 , 556 544 536 500 434 433 400 343 322 287 ,00 200 !00 0 CP� 13 �°� �` i� * + 4P 5 Packet Page105 Item 8 Themes From the Open Ended 'Other' Questions Laguna Lake Park Dredging/Park Maint. 30 Limit Growth & Development 11 Streets maintenance 9 Bicycle safety 8 Social Services - 7 Climate Action 5 Diversity, Equity and Inclusion 5 Childcare _ 5 Youth and Sports Services/Facilities _ 4 Homelessness 3 Law Enforcement 3 Affordable Housing 3 Sport Facilities 02 Reduce City Services 0 2 Parks Maintenance 0 2 Increase Solid Waste/Recycling Program 0 2 Housing 2 Elections 2 Dog Park 2 COVID Response 2 Water Conservation 1 1 Review City Salaries and Benefits 1 1 Neighborhood Wellness 1 1 Local Business support 1 1 Increase funding for Utilties and.. 1 Increase Emergency Services 1 1 Housing Developments 1 1 Healthcare 1 1 Development regulations 1 1 Citywide Economic Stability 1 1 Packet Page 106 Item 8 2. Community Forum The Community Forum, scheduled on January 14, 2021, is intended to solicit suggestions from residents, community groups, stakeholders, and interested individuals on City goals for 2021-23. It is also intended to meet the requirements regarding the City' s local sales tax, by providing an opportunity for the Revenue Enhancement Oversight Commission (REOC) to "review and discuss the use of the revenue generated by the Local Revenue Measure." As such, the Community Forum will be a joint meeting of the City Council and the REOC. Format. Due to the shelter -in -place orders and the inability to host large in -person gatherings, the community forum will be 100% virtual. The virtual forum will mimic the in -person "workshop" and will still allow for interaction and conversation with staff and the public. The details of the virtual forum include: a. Welcome/Opening by Mayor and City Manager b. Welcome & Explanation of Process for Community Forum (e.g., how the session will work, basics on Zoom and PollEverywhere, timeline, etc.) by Facilitator c. 2021-23 Financial Plan Process and Themes from Pre -Survey Presentation by Finance Director d. Polling to Engage Participants by Facilitator e. Self -Selecting Breakout Sessions on Specific Topics (I hour) {Back to Main Session} f. Reminder on Next Steps (Open City Hall "dot voting" will be available) g. Public Comment h. Closing by Mayor and City Manager 3. Council Pre -Work Based on all the feedback and input received, Council Members will be asked to prepare and submit up to seven candidate goals as Major City Goals by 9:00 a.m. on Wednesday, January 27, 2021 for consideration during the February 6, 2021, Goal Setting Workshop. Council Members are also asked to prepare and submit suggestions for changes in current programs and services that might help fund their desired goals. Templates and specific instructions for Council member input will be distributed via Council correspondence in early January. Without identifying who submitted the statements, staff will compile the feedback verbatim, compose lists and organized by common topics for review and consideration before the workshop. The lists will be distributed to all Council Members and made available to the community at the close of business on Wednesday, February 3, 2021. While staff will retain individual submissions in the working files, it is recommended that Council members refrain from releasing their personal lists so that each Council member can review all of the submissions and discuss them at the Goal- Setting Workshop before taking a position. Packet Page 107 Item 8 Council Goal -Setting Workshop At the February 6, 2021, workshop, the Council will review the consolidated goals presented by Council Members to ensure clarity, completeness and understanding; and then narrow the list to finalist goals that are supported by a majority of Council Members. While the Council proceeds with the discussion outlined above, staff will prepare a final listing that the Council can use in prioritizing goals. In years past, the Council has used a ranking system of 0 through 5 for each candidate goal and staff recommends continuing its use for 2021- 23, summarized as follows: 5 - most important, highest priorities for City to achieve over the next two years. 4 - very important goal to achieve. 3 - important goal to achieve. 2 - address if resources are available. 1 - defer to 2023-25 for consideration. 0 - not a priority goal. The number of points used for ranking is typically figured out through discussion on the day of the workshop. Based on experience, it is likely that two priority "tiers" will emerge from this process: 1. Major City Goals. These represent the most important, highest priority goals for the City to accomplish over the next two years, and as such, resources to accomplish them should be included in the 2021-23 Financial Plan. The initial list of Major City Goals following the ranking will include only those goals where a majority of Council Members rank the goal as a 4 or 5. Subsequent discussion will allow the Council to refine the goal list, however, the list should remain consistent with the "Criteria for Major City Goals" (Attachment E). 2. Other Important Objectives. Goals in this category are important for the City to accomplish, and resources should be made available in the 2021-23 Financial Plan if possible. Staff is highly recommending that the Council focus on the highest priorities given the likelihood of carry over unknown tasks and impacts from COVID-19 and place all priorities in Major City Goal work programs. Core services or the day-to-day operations continue to utilize most of the City's allocated resources and the pandemic is likely to impact available time to take on a broad range of goals. The detailed agenda for the virtual Goal Setting Workshop will be distributed to Council at least one week before the workshop. No follow-up meeting has been needed in the last several goal - setting sessions as the Council concluded all necessary actions at the Goal -Setting Workshop. Continued consideration of goals for 2021-23 can be scheduled for the next regular Council meeting following the workshop if needed. Packet Page 108 Item 8 4. Local Revenue Measure The Community Forum will also be the City's Annual Citizens' Oversight Meeting for the Local Revenue Measure (LRM). This allows for the integration of the LRM into the City's budget and goal -setting process. The estimated revenue and proposed use of the fund generated by LRM shall be an integral part of the City's budget and goal -setting process, and an opportunity for meaningful participation by citizens in determining priority uses of these funds. With the passage of Measure G-20 in the November 3, 2020 election, the LRM was extended at a new, 1.5 cent rate. The language on the Measure G-20 ballot measure provides the types of uses that could be funded. The language on the ballot was: Measure G-20 (Community Services/Investment) Shall an ordinance to provide funding to protect City of San Luis Obispo's financial stability; maintain fire/community safety, health emergency/disaster preparedness; protect creeks from pollution; address homelessness; keep public areas clean/safe; retain local businesses; maintain youth/senior services, streets, open space/natural areas, and other general services, by extending voter -approved funding at a 1.50 rate, providing approximately $21,600,000 annually until ended by voters; requiring audits/all funds used locally, be adopted. While the ballot language provided examples of the types of uses that could be funded - based on community input received before placing the measure on the ballot — the Local Revenue Measure is a general-purpose tax providing Council with flexibility to respond to new circumstances and challenges. The unaudited FY 19-20 total expenditures (operating and capital projects) was approximately $7M and an additional $2.9M in funding was carried over to FY 2020-21 for the use of existing capital projects. The Revenue Enhancement Oversight Commission will hold a meeting on December 17, 2020 to review the preliminary 2019-20 year-end financial report in detail. Though these are still the unaudited results, the final information will be included in the Certified Annual Financial Report, which is scheduled to be presented to the City Council in January 2021. The Local Revenue Measure has been used to support operating and capital projects, based upon the language in the 2014 ballot measure. Below are the unaudited 2019-20 Local Revenue Measure uses. Packet Page 109 Item 8 2019-20 Operating & Capital Use 2% 4% ECONOMIC FORECAST ■ Open Space Preservation ■ Bicycle and Pedestrian Improvements Total ■ Traffic Congestion Relief/Safety Improvements ■ Public Safety ■ Neighborhood Street Paving ■ Code Enforcement ■ Flood Protection ■ Parks & Recreation/Senior Programs and Facilities ■ Other Vital Services & Capital Projects Like most municipalities, San Luis Obispo finds itself in unprecedented and challenging times. In March of 2020, the world, including San Luis Obispo, entered a health emergency -induced shut -down that has had and will continue to have drastic implications for both public health and the economy. While the last nine months' data has provided some clarity, the long-term fiscal ramifications remain largely unknown especially with new shelter -at -homes directives active in December 2020. While economic outlooks range drastically from overly optimistic to "doom and gloom", staff recommends maintaining a forecast with a slight downward adjustment. On November 18, 2020, the annual Central Coast Economic Forecast presented national, state, and countywide economic data and trends. This information, together with PFM's Market Outlook, HdL's sales tax analysis, the City's audited financials and internal analysis will provide the basis for the City's own five-year fiscal forecast which will be presented to Council with the mid -year report on February 2, 2021. Additional information gained after the December shelter - at -home directives through the League of California Cities Municipal Finance Institute and the California Society of Municipal Finance Officers will further refine the analysis. The material provided by the various economic forecast presenters as well as links to other economic data are provided in Attachment F. Overall, the City maintained a stable financial position into this current fiscal year with its reserve levels and unassigned General Fund balance intact. The Fiscal Health Contingency Plan, activated at the onset of the pandemic in March 2020 remains in full effect and will continue hiring, purchasing, and travel chills for the duration of the pandemic and the economic re- opening. Packet Page 110 Item 8 Employment: Employment rate is generally considered as a lagging indicator of the economy. During the initial shutdown, the County saw its highest unemployment rate of 14% in April 2020. The rate has steadily declined as the State allowed the economy to reopen. The California Employment Development Department (EDD) reported the unemployment rate was 6% in October 2020, down from 7.2% in September 2020. SLO County is now ranked the 6th lowest in unemployment in California. The unadjusted Unemployment Rate in California is 9% and 6.6% for the nation during the same period. While the unemployment rate continues to decline, this is still more than 3% higher than the 2019 County rates and is likely to increase with the second Shelter in Home Orders. The industry with the highest unemployment is Leisure and Hospitality and with colder weather and extended shutdowns on the horizon, this industry may face a second wave of challenges. Sales Tax: Overall, sales tax receipts for the last nine months have performed better than adjusted projections across the state. While it is apparent that people are still spending, they are spending in different ways. A record numbers of online customer accounts were created during the initial shutdown and online sales have skyrocketed. Because of the Wayfair decision, the County pools, accounting for online sales, have seen double-digit growth as seen below: State & County Pools 1 +25% +30% 1+43% *statewide data Larger retailers are beginning to change their business model by utilizing their large retail spaces as fulfillment centers and are therefore less impacted by the transition. Of interest in this discussion is that S&P Global Ratings, a national credit rating agency, now recognizes residential areas as retail opportunities due to online shopping activity and may consider it in their credit ratings. On the other hand, small local businesses, the cornerstone of a vibrant community, have felt a negative impact from the Covid-19 closures and shoppers migrating their purchases online. However, once the reopening began, business activity returned, though not to previous levels. The most impacted industry segment continues to be restaurants and hotels which are also the hardest hit with the renewed shelter -at-home directive. This category is followed closely by Fuel and Service Stations that feel the impacts of commuters working from home. General Consumer Goods -12% -14% -8% -40% -50% -46% -12% -33% -31% Restaurants & Hotels Fuel & Service Stations *statewide data Another influencing factor for this revenue source was the weekly unemployment augmentation and the government stimulus during the second quarter of 2020. Though much of the government relief payments to individuals were spent largely on rents, utilities, debt and savings, the money, in addition to savings from put -off travel and entertainment spending, triggered some temporary increases in discretionary income for some beneficiaries. Packet Page III Item 8 Low interest rates and favorable lending practices have encouraged money to be spent on previously postponed items such as home improvements and cars. It is difficult to say if these positive trends will continue, especially with rental protections and government assistance programs reaching sunsets at the end of the year. Much will come down to a second round of federal stimulus to keep consumer confidence high through the first part of 2021. Clarity on Federal legislation and its potential impacts on the local economy might be available for integration into the January 12, 2021, council hearing on this item. Tourism: Tourism and hospitality are an important part of the economy in San Luis Obispo and about 70% of the local sales tax generated is from visitors and day -time commuters. Prior to the pandemic, income from transient occupancy tax had grown over the past five years at an average of 5.5% per year.; however, this rate was expected to slow in FY 19-20 as average daily rates were maxing out. The pandemic all but stopped leisure and business travel, thus devastating the lodging and tourism industry. The San Luis Obispo County Airport was the fifth -fastest growing airport in the nation in 2019, but as of October 2020, its number of passengers was down 50% from the prior year. Fortunately, San Luis Obispo is a drive -to destination for northern and southern California and occupancy rates have steadily increased from 17% (April 2020) to 62% (October 2020). Though a positive trend, these numbers are still more than 10% below 2019 levels. Overall spending by tourists is expected to fluctuate and will largely depend on state orders and the reopening of local universities as well as consumer comfort levels with traveling. Because the downtown area has been identified as a major tourist destination, City staff is working hard and has expended over $1 million to support economic resiliency for the downtown businesses during this time. At its December 8, 2020, public meeting, the City Council approved a second round of business assistance amounting to $3.4 million. Real Estate: The housing market remains strong and is expected to continue largely unaffected by this economic crisis. The biggest challenge in the forecast will be building new inventory to attract buyers. California currently ranks 49d' in housing units to population ratio (2"d lowest) and the housing units that are available are simply unaffordable for first-time home buyers or lower income families. However, with the Orcutt area build -out and Avila Ranch and San Luis Ranch beginning construction, San Luis Obispo will be adding new residential units, consistent with the City's growth management policies, throughout the next financial plan period. Additional in -fill and mixed -use projects are further assisting in adding residential units on the market. The City assumes an annual property tax growth rate of at least 2% due to Proposition 13 adjustments. On top of that, it includes an annual growth factor to project revenue, usually around 1% to 3%. The City has seen about a 5% annual growth rate in property tax revenue over the last few years with a strong housing market and low interest rates. While economists do not expect the housing market to be significantly impacted by the pandemic, the growth rate in San Luis Obispo County is expected to slow down to 3% in FY 2021-22, mostly due to slower growth in property value and low inventory. Packet Page 112 Item 8 This slowing trend was forecasted before the onset of the pandemic. Overall, property tax revenue is one of the less volatile revenue streams and is generally expected to continue growing at a modest rate. Annual property tax assumptions are periodically provided by the County assessor's office and the latest assumptions for the City will be included in the long-term forecast provided at mid -year. Construction Activity: Development permitting activities remain strong in the City of San Luis Obispo, largely due to several big development projects underway. Construction has remained essential during the Covid-19 pandemic and overall construction activity has continued to trend upward (i.e., the number of permits issued, and construction valuation have both increased). There are currently 76 projects on the City's development project map, which includes major projects in all phases of entitlement and construction. Development revenue is expected to continue to be strong as planning and building activity continues into 2021. Economic Development in the age of COVID The economic impact of COVIDI9 and the resulting shut -down of business is unlike anything ever experienced and has accelerated many of the existing challenges that the City has been facing (cost of living, supply constraints, the shrinking market share of traditional retail). It is unique because it is a clear winner and loser economy. The financial markets have been propped up by the Fed and are gaining through companies that are taking advantage of the need for technology, distribution channels, and logistic. On the other hand, small businesses, the corner stone of a community, and certain industries such as restaurants, hotels, and fuel stations have been hit hard. The remainder of the economic recovery will depend on how and when the virus is controlled thus avoiding ongoing or recurring restrictions. The brick -and -mortar retail market might very well have changed and may never return to the pre -pandemic consumer environment. The City of San Luis Obispo together with all municipalities will need to find ways to adapt and the City is currently meeting with property and business owners and a futurist to discuss ways that the City will need to adapt and adjust so that the Downtown and other retail areas remain realistically and financially viable. According to Director of Research at Beacon Economics, Adam Fowler, the future of economic development is attracting and retaining talent, supplying affordable housing, and the adaptive reuse of commercial space. Turning retail districts into destination or an experience to create a sense of community and relaxation will further drive the return of people congregating in town centers. San Luis Obispo obviously has the elements of this type of viable market and will likely need to make further investments such as the cultural corridor to give visitors and residents with a rich experience to compliment retail, dining, etc. After spending decades building local economies on brick -and -mortar retail and sales tax revenue, future efforts need to consider new sources of cultural or experiential "currency" such as Land Use, Zoning, Entitlements and Financing to reposition the community for a sustainable and resilient future. Packet Page 113 Item 8 Long -Term Fiscal Health Fiscal year 2020-21 marks the last year of the Fiscal Health Response plan. Thus far, only one of the planned additional pre -payments to reduce the City's long-term unfunded pension liability has been made due to the pandemic. One additional payment is kept in reserves until the cashflow need can be better assessed and the economy begins to stabilize in earnest. It is clear that the payment anticipated from 2019-20 fund balance will not materialize. This will ultimately set the City back by a few years in its overall goal to pay off the pension liability over 20 instead of 30 years and will need to be considered during financial planning. Nonetheless, the City enters the 2021-23 Financial Planning period with a solid financial foundation despite facing challenges and economic uncertainty. The City continues to have substantial advantages compared with many communities in California due to: 1. A balanced budget and reserves above minimum policy levels. 2. Dedication to fiscal responsibility and long-term sustainability. 3. Strong financial systems, policies and procedures. 4. Strong Council Leadership. 5. Citizens who care deeply about the City's quality of life and services. 6. Staff committed, dedicated, and passionate about achieving the City's mission and serving the community. 7. A great tradition of responsible stewardship; and 8. A successful local transaction and use tax initiative that will bring additional revenue to the General Fund. The civic infrastructure will serve San Luis Obispo well in successfully meeting challenges ahead while addressing the needs of the community. 2021-23 FINANCIAL PLAN POLICIES As noted in the discussion above, Council goal setting is an important "first step" in the City's Financial Plan process. The second major feature is reliance upon clear fiscal and budgetary policies following industry best practices. In looking at cities across the nation that have reputations for being financially well -managed and have maintained their fiscal health, one finds that they all have clearly articulated fiscal policies for financial decision making. The City of San Luis Obispo's policy framework have been repeatedly acknowledged by the bond rating agencies as an important factor in sustaining the City's excellent credit rating. The City's Budget and Fiscal Policies (Attachment G) are traditionally set forth in the reference section of the Financial Plan. The policies cover a broad range of fiscal topics, including: • Financial Plan Organization • General Revenue Management • User Fee Cost Recovery Goals • Enterprise Fund Fees and Rates • Investments • Appropriation Limitations • Fund Balances and Reserves Packet Page 114 Item 8 • Capital Improvement Management • Capital Financing & Debt • Human Resources Management • Contracting for Services • Productivity At the onset of each financial planning cycle, the City reviews the adopted policies to see if any updates are necessary. Changes are generally intended to create consistency amongst City fiscal policies and create a system that is efficient and effective to administer. As staff begins preparing the 2021-23 Financial Plan, other additions or revisions to the City's current policies may arise; if so, these will be presented for Council consideration at this time. The 2019-21 Financial Plan, the City Council approved two new reserve levels with a Revenue Stabilization Fund for the duration of the FHRP and a Capital Reserve. In addition, clarifying language was added to the Insurance Fund to allow applicable annual payments to be made directly from the fund. For the 2021-23 Financial Plan a few additional policies are recommended: Financial Plan Objectives, Pg. 1 a. Integrate climate risk and climate action considerations throughout all financial decisions. b. Integrate Diversity, Equity, and Inclusion (DEI) considerations throughout all financial decisions. Long -Term Financial Planning, Pa. 2 a. Consideration of Climate Risk and Climate Action. The City is aware of the increasingly severe and frequent natural, economic, and social disruptions presented by a rapidly changing climate. The City is also aware of the financial benefits (e.g., reduced operational costs, prudent asset management, access to green bonds, etc.) of managing climate risk and orienting towards a carbon neutral municipal operations and community. The City will include climate risk and climate action considerations in its long-term financial planning. b. Consideration of Diversity, Equity, and Inclusion (DEI). On June 18th, 2020, the City Council took action to affirm racism as a public health crisis and committed to making San Luis Obispo a welcoming, inclusive, and safe community for everyone (R-11132). The City Council also set a vision of a community with core values of diversity and inclusivity in the adoption of its 2019-21 Major City Goals. The City is committed to supporting diversity, equity, and inclusion in is operations and in the community. The City will include DEI considerations in its long-term financial planning. Capital Improvement Management, Pg. 15 a. Climate Action Plan Implementation. Council adopted Resolution No. 11159 (2020 Series) establishes a goal of communitywide carbon neutrality by 2035 and municipal operations carbon neutrality by 2030. The City's Capital Improvement Program is a critical implementation tool, and every CIP will be evaluated for alignment with these climate goals. Examples of ways projects or project components can align the with goals include (but are not limited to): i. Elimination or reduction of vehicle miles traveled (e.g., active transportation Packet Page I IS Item 8 and transit improvements), ii. Elimination or reduction of fossil fueled appliances, vehicles, and equipment, iii. Reduced energy consumption (e.g., efficient mechanical equipment, efficient lighting, etc.) iv. Carbon storage through tree planting or landscape management, and v. Solid waste/ green waste diversion Based on direction from Council, both policies are recommended because they are a step towards integrating core City objectives into financial decisions. Many of the long-term goals included in the Climate Action Plan require climate risk to be considered in annual budget development and financial decisions. There is also a policy change recommended for the Insurance Fund. The Insurance Fund was introduced with the 2019-21 Financial Plan. The changes being recommended are largely administrative in action and help clarify the way that the fund balance is calculated and maintained. The new language reads: Fund Balance and Reserves — Insurance Fund (Pg. 12): The City shall maintain an Insurance Fund to manage payments for liability, workers' compensation, crime, pollution, special events, property, and volunteer insurance. Within the Insurance Fund, a self -insured retention (SIR) will be set aside to cover expenses associated with claims from the Excess Liability Insurance Program. The SIR will be funded based on 150% (75% confidence level) of the previous five-year average claims experience (claims paid, reserves for known claims, and administrative expenses). The Insurance Fund will maintain a reserve sufficient to guard against substantial claims which will be determined based on annual actuarial report information. If required due to depletion of fund balance, sufficient annual appropriations will be transferred to the Insurance Fund from the General Fund in the amount needed to ensure the 150% funding status. Several other additional clarifications and minor edits are made throughout the recommended fiscal and budget policies in Attachment G such as adding the approved policy regarding Environmental, Social, Governance (ESG) investments. Additions are underlined throughout the document and anything removed has been indicated with a strike -through. CAPITAL IMPROVEMENT PLAN (CIP) STATUS As part of the budget process, the City reviews its current capital improvement plan and the long-term maintenance of its assets. Attachment H provides the Council with a summary of the status of the City's Capital Improvement Plan (CIP) projects. While COVID-19 required a thoughtful reprioritization of projects originally approved in the 2019-21 Financial Plan, as discussed in greater detail within the attachment, the City is making excellent progress in achieving its current CIP goals. Of the 110 projects that have been financially active during the 2019-21 Financial Plan period: 1. 29 are complete 2. 13 will be complete within 6 months 3. 32 will be complete within 12 months Packet Page 116 Item 8 4. 26 will be complete in more than 12 months In preparation of the goal -setting process for the 2021-23 Financial Plan, it is important to understand the status of CIP projects, as well as the long-term need of the City's assets (Attachment I). Packet Page 117 Item 8 LONG RANGE CIP The Long -Range CIP provides a glimpse into the future improvement needs of the City as envisioned by the General Plan and other Council adopted plans. Many of the City's current infrastructure assets are not adequate to handle the needs of the future San Luis Obispo. The Long -Range CIP can serve as a guide for required future investments to support the General Plan as well as other Council approved policies, plans, and goals in place today. By considering the Long -Range CIP needs in the context of the Financial Plan process, these projects provide an important starting place in assessing which ones might be a high priority to consider in the next funding cycle. Below is a summary of the methodology behind and the data in the Long -Range CIP: 1. The City's Capital needs are categorized into 1) Maintenance of Existing Assets, 2) Replacement of Existing Assets, and 3) New Assets. 2. The Replacement of Existing Assets and New Assets categories of capital needs are primarily unfunded to the extent that funding for Maintenance of Existing Assets is prioritized. With the passage of Measure G-20, the City could choose to fund projects in the Rehabilitation and New project categories. 3. The Long -Range CIP includes projects that are funded from all City funding sources including General and Enterprise Funds. 4. As a result of extensive review of approved City planning documents, the General Plan, and Area Specific Plans, the total General Fund allocation for Replacement of Existing Assets and New Assets is approximately $412 M and $987M for all funds. 5. The Long -Range CIP includes idealized funding levels of Annual Asset Maintenance. The City has historically funded asset maintenance at a lower level. 6. The Long -Range CIP delivery timeframe extends beyond 2040 with maintenance costs assumed to last in perpetuity. The Long -Range CIP is an important high-level planning tool, but it is important to remember that project costs will change. Project cost estimates are developed from high-level project descriptions and during the scoping, budgeting and implementation of all projects, costs will change based upon increased and refined project data. The Long -Range CIP is presented to Council as part of the Budget Foundation discussion and Goal Setting Process in order to provide context for future capital needs. Historically, the Long - Range CIP is presented without a proposed strategy to address those needs. Policy Context The City's budget polices guide the process and the production of the two- financial plan and the annual budget. In addition to the Council adopted policies, several other codes dictate the need for the governing body to approve the City's budget. Packet Page 118 Item 8 California State Law Though there is no explicit requirement in state law for a California city to adopt a budget, however, there are many laws and charter requirements listed below that establish the budget procedures and actions for every city. 1. A city may not spend public funds without the legal authorization to do so. Among other things, a budget appropriates public funds, thereby requiring the legal authorization from the governing body to expend these funds. 2. Like other California public agencies, each city must annually establish its appropriation limit pertaining to the proceeds from taxes in compliance with Article XIIIB of the California Constitution and California Government Code Sec. 7910. The City of San Luis Obispo uses the annual budget to establish its compliance with this law. 3. The California Constitution (Section 18 of Article XVI) states that no city or county may incur any debt or liability in any year that exceeds the income and revenue anticipated for that year without two-thirds voter approval. By determine the anticipated income and revenue, the budget process verifies these thresholds. 4. California Government Code Section 53901 requires each local agency to file its budget with the county auditor within 60 days after the beginning of its fiscal year. 5. In order to qualify to receive federal funds, a local agency must comply with the federal single audit act and must retain a certified public accountant to prepare an annual audit of its financial records. This compliance would be very difficult without an adopted budget. City Charter Article VIII of the City's Charter contains the requirements for the fiscal administration for the City. The following sections provide guidance regarding the budget: 801. Fiscal Year - determines the City's fiscal year from July through June. 802. Annual Budget - determines the mandate of the City Manager to bring forth an annual estimate of income and expenditures. 803. Public Hearing - sets forth the requirement for a public hearing to adopt the annual budget. 804. Adoption of Budget - requires the Council to adopt the budget after necessary revisions after input from the public hearing. City Budget and Fiscal Policies The City's adopted fiscal policies set forth the purpose of the Financial Plan. They determine under section: A. The Financial Plan Objectives B. The two-year budget C. Measurable objectives D. The Second -Year budget E. Operating Carryover Packet Page 119 Item 8 F. Goal Status Reports G. Mid -Year budget reviews Additionally, under long-term financial planning, the policies stipulate the requirement for a balanced budget and the addressing of long-term liabilities and the maintenance of infrastructure. They also outline the requirements for annual and interim reporting and the City's budget administration in accordance with the City Charter. Public Engagement Public comment on this item can be provided to the City Council through written correspondence prior to the meeting and through public testimony at the meeting. CONCURRENCE The City's internal Financial Plan Steering Committee concurs with the recommendations included in this report. ENVIRONMENTAL REVIEW The California Environmental Quality Act does not apply to the recommended action in this report, because the action does not constitute a "Project" under CEQA Guidelines Sec. 15378. FISCAL IMPACT Budgeted: Yes Budget Year: 2020-21 Funding Identified: Yes Fiscal Analysis: Funding Sources Current FY Cost Annualized On -going Cost Total Project Cost General Fund State Federal Fees Other: Total N/A N/A N/A There is no fiscal impact associated with the conduct of the City's two-year financial planning process. The City budgets for all the planned activities that are part of this process. Preparing budgets are one of the core government functions that the City is responsible for carrying out. Packet Page 120 Item 8 ALTERNATIVES Modify the proposed Goal Setting activities. The Council could direct staff to pursue a different process for goal -setting this year. Staff does not recommend this alternative because there is value in conducting a similar process that residents are familiar with. If the Council is interested in making changes, staff recommends that they be incremental adjustments to the activities planned. If major changes are desired, they should be discussed and planned during the first year of the next financial plan. Attachments: a - COUNCIL READING FILE - Advisory Body Goals b - Community Survey & Utility Bill Insert c - COUNCIL READING FILE - 2021-23-community-priorities-survey d - Community Group Letters e - Major City Goals Criteria f - COUNCIL READING FILE - Economic Forecast Resources g - 2021-23 Financial Plan Policies h - COUNCIL READING FILE - CIP Status Report 2021-23 i - Long Term CIP 2021-23 Packet Page 121 Item 8 Attachment A — Community Survey & Utility Bill Insert 2021-23Communily Priorilies Survey What should the City Council consider as the City's top priorities during the next two years? 11 days left before deadline Inlroduction Feedoack Vour Response Outcome �+ INPUT Dal wrr un..�o riot iii►iw terra rauiw" aru i 2021-23 Financial Plan i •www� f', nn �f w. vq.• i j, �nqr �.�-� rr xn-+.#+r .ate-■-...,p Every two years the City hosts a Community -based goal setting process to establish the tap priori[ es to make San Luis Obispo an even better plate to live, work, and play. Through its budget process, the City Council then matches the resources necessary to achieve these priorities and integrate them into its two-year financial plan. The adapted budget then enables the City to provide high quality services, programs, and projects with the community's priorities in mind_ With the social and economic impacts of COVID-19 on our community, your input on priorities for the 2021-23 Financial Plan are more important than ever In response to these impacts, the Council, inJune 2020, adapted a goal focused on San Luis Obispds economic stability, recovery, and resiliency_ The City is seekingyour input on the most important, highest priorities you wanttheCity to accomplish in the next two years and this survey is the firststepI To learn more abeLit recent Financial Plan presentations to the City Council, click here_ read less Packet Page 122 Item 8 2021-23 Community Prionlies Survey What should the City Council consider as the City's top priorities during the next two years? 11 days left before deadline Inlroduction Feedback Your Response Outcome Which statement best describes you? Click all that apply ❑ 1 live in the Cily of San Luis Obispo_ ❑ I work in the City of San Luis Obispo. ❑ 1 play (recreate_ shop. eat, etc.) in the Ctty of San Luis Obi spo. ❑ Ogler Enter other Text here Characlers left: 255 What should the City Council consider as the City's tap priorities during the next two years? (Select Your Highest Five Priorities}. The following are previous priorities identified by the community (listed in alphabetical order) O Ctimale Action (ex: implement the City% Climate Action Plan for Communily Recovery to reduce greenhouse gas emissions. prepare for the impacts of climate change. and develop the Iocal green economyi ❑ diversity. Equity. and Inclusion efforts (ex: focus on aclivilies and initiatives Thal support marginalized racial. ethnic. and culluraIgroups) ❑ Davmlown Vilality (ex: continue to improve safety and cleanliness; invesl in infrastructure and maintenance in the downtown) ❑ Economic Stability, Recovery and Resiliency (Cunent Major City Goal) (eK conlinue to implement economic recovery strategies Ihat support local jobs and businesses in responsetot:OVIQ19 pandemic) ❑ Fiscal Suslainabilily and Responsibility (ex: continue to implement efficiencies. strategic economicdevelopmenl and plans to address unfunded liabilities) ❑ Homelessness (ex: parinerwilh community -based org an izali ons to implement programsthatprevenl and support people experiencing homelessness. conlinue City Communily Aclian Team efforts) ❑ Housing (ex: facil rialle increased production of all housing types designed to be economically accessible to the area wortforce and low and very love income residents) ❑ Infrastructure Maintenance (ex: maintenance of road& sidewalks. parks. and other Cily infrastructure) ❑ Open Space (ex: preserve and maintain open space and nalural areas) ❑ Public Safety (ex: provide FireiPolice services. response for health emergencies and disaster preparedness) ❑ SuslainaNe and MultF Modal Transportalion (ex: enhance accessibletrans it. bicycle and pedestrian oppodunilies) ❑ Other (ex playgrounds. youthlsenior services. etc.) O Other (eK playgrounds. youthlsenior services. etc.) ❑ Other (e)-- playgrounds. youthlsenior services, etc.) ❑ Other (ex playgrounds. youthlsenior services. etc.) ❑ Other (eK playgrounds. youthlsenior services, etc.) Choose al most 5 options If you selected the option "Other" as a response to the question above, please elaborate here. (Please use one line per "Other" selection). Check Out our guidelines for civility Packet Page 123 Item 8 Every two years the City hosts a community -based goal setting process to establish the top priorities to make San Luis Obispo an even better place to live, work„ and play. Through its budget process, the City Council then matches the resources necessary to achieve these priorities and integrate them into its two-year financial plan. The adopted budget then enables the City to provide high quality services, programs, and projects with the community's priorities in mind. With the social and economic impacts of COVID-19 on our community, your input on priorities for the 2021-23 Financial Plan are more important than ever. Ph Alk AML Your Voice Matters! Complete the Community Survey by visiting slocity.orglopencityhall or on your phone using this QR code. Cada dos ands, la aicaldia organiza un proceso de establecimiento de metas basado en la comunidad para establecer las principales prioridades Para hater de San Luis Obispo un lugar a6n mejcr para vivir, trabajar y diver irse. Cada dos ands, la alcaldia organiza un proceso de establecimiento de metas basado en las necesidades de la comunidad pars establecer las principales prioridades Para hater de San Luis Obispo un lugar aun mejor para vivir, trabajar y divertirse. A traves de su proceso presupuestario, La aicaldia empareja los recursos necesarios para lograr estas prioridades a integrarlas en su plan financiero bienal. El presupuesto adoptado luego permite a la alcaldia brindar servicics, programas y proyectos de alta calidad teniendc en cuenta las prioridades de la comunidad. Con los impactos sociales y eoor16nniGos de COVID-19 en nuestra comunidad, sus comentados sobre Ias prioridades para el Plan Financiero 2021-23 son mas importantes que nunca_ iTu voz importaf Aft ANkk Complete la encuestacomunitariavisitando,slocity.org/opencltvhalI o en su telefono celular usando el codigo QR Packet Page 124 Item 8 Finance Department 990 Palm Street, San Luis Obispo, CA 93401-3218 805.781.7130 slocity.org Address to Business Dear Valued Community Member, The City of San Luis Obispo is seeking community feedback to help establish community -based goals that will be incorporated into the City's 2021-23 Financial Plan. This input will enable the City Council to better prioritize City projects, programs, services and initiatives so that resources and budget can be assigned to those items that are most important to the community. "The coronavirus pandemic has brought about unprecedented times and enormous financial impacts to city budgets across the country, including San Luis Obispo," said Derek Johnson, City Manager. "The feedback we receive from our community will directly influence the programs and services the City is able to deliver over the next couple of years." Community members can weigh in by completing the online 2021-23 Community Priorities Survey at slocity.org/opencityhall. The deadline to submit feedback is December 15, 2020 at 10:00 p.m. In addition to reviewing their own responses on the survey, participants will also be able to review the feedback that the City is receiving in real time. This goal -setting stage in the budgeting process is a critical step to ensuring the City can make San Luis Obispo an even better place to live, work and play. Ir light of the hardships brought about by the COVID-19 pandemic, the City Council, in June 2020, adopted a goal focused on San Luis Obispo's economic stability, recovery, and resiliency. City staff will compile community feedback for the City Council to review in advance of the Community Forum in January and the Council goal -setting workshop in February. During the workshop, council will officially set the goals for the next two years. A preliminary budget will then be presented to the City Council in April and the final 2021-23 Financial Plan adoption in June. To receive updates from the City, please register for City News e-notifications on the City's website at www.slocity.org or follow the City of San Luis Obispo on social media. Link to online survey: Packet Page 125 Item 8 Criteria for Major City Goals 1. Understanding that MCG's are a statement of organizational priorities and that other initiatives have to be set aside. 2. Ground Major City Goals in policies and/or community priorities (real, supported). 3. Agreed upon by a Council majority. 4. Limited in number for comprehension, communication and focus. 5. Set forth in one document —the Financial Plan. 6. Be clear, understandable and actionable. 7. Established as a high priority and a real commitment. 8. Reflect major goals that cannot be achieved without Council support. 9. Can be translated into the performance goals and objectives of employees at all levels of the organization. 10. Created within a supportive atmosphere where participants are not afraid to state their suggestions for improving goals or objectives. 11. Reflect genuine consensus: while unanimous agreement is not required, they should be accepted to the point where resistance to them is reduced or eliminated. Packet Page 126 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan Key: Stfi1'e — removed sections Underlined — administrative changes or clarifications to language Underlined and italicized — significant or key policy additions FINANCIAL PLAN PURPOSE AND ORGANIZATION A. Financial Plan Objectives. Through its Financial Plan, the City will link resources with results by: 1. Identifying community needs for essential services. 2. Organizing the programs required to provide these essential services. 3. Establishing program policies and goals, which define the nature and level of program services required. 4. Identifying activities performed in delivering program services. 5. Proposing objectives for improving the delivery of program services. 6. Integrate climate risk and climate action considerations throughout all financial decisions. 7. Integrate Diversity, Equity and Inclusion (DEI) considerations throughout all financial decisions. 8. Identifying and appropriating the resources required to perform program activities and accomplish program objectives. 9. Setting standards to measure and evaluate the: a. Output of program activities. b. Accomplishment of program objectives. c. Expenditure of program appropriations. B. Two -Year Budget. Following the City's favorable experience, the City will continue using a two-year financial plan, emphasizing long-range planning and effective program management. The benefits identified when the City's first two-year plan was prepared for 1983-85 continue to be realized by: 1. Reinforcing the importance of long-range planning in managing the City's fiscal affairs. 2. Concentrating on developing and budgeting for the accomplishment of significant objectives. 3. Establishing realistic timeframes for achieving objectives. 4. Creating a pro -active budget that provides for stable operations and assures the City's long-term fiscal health. 5. Promoting more orderly spending patterns. 6. Reducing the amount of time and resources allocated to preparing annual budgets. C. Measurable Objectives. The two-year financial plan will establish measurable program and performance objectives and allow reasonable time to accomplish those objectives. D. Second Year Budget. Before the beginning of the second year of the two-year cycle, the Council will review progress during the first year and approve appropriations for the second fiscal year. E. Operating Carryover. Operating program appropriations not spent during the first fiscal year may be carried over for specific purposes into the second fiscal year with the approval from the City Manager. Packet Page 127 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan F. Goal Status Reports. The status of major program objectives will be formally reported to the Council together with the quarterly budget reports. G. Mid -Year Budget Reviews. The Council will formally review the City's fiscal condition, and amend appropriations if necessary, based on the first six months of each fiscal year. LONG - TERM FINANCIAL PLANNING A. Balanced Budget. The City will maintain a balanced budget over the two-year period of the Financial Plan. This means that: 1. Operating revenues must fully cover operating expenditures, including debt service. 2. Ending fund balance (or working capital in the enterprise funds) must meet minimum reserve policy levels. For the general and enterprise funds, this level has been established at 20% of operating expenditures. Additionally, it includes the revenue and rate stabilization reserves as set forth in the City's fiscal policies under the Fund Balances and Reserves section. Under this policy, it is allowable for total expenditures to exceed revenues in a given year; however, in this situation, beginning fund balance can only be used to fund capital improvement plan projects, or other "one- time," non -recurring expenditures. B. Long -Term Liabilities and Maintenance of Infrastructure. The City will give priority to applying unassigned fund -balance due to one-time expenditure savings or one-time increase in revenue to pay down long-term unfunded liabilities and invest in infrastructure and equipment. In applying unassigned fund balances to pay down long- term unfunded liabilities a two-part strategy will be used to address the liability to the greatest extent possible. One, annual payments to Ca1PERS for unfunded liabilities will address interest and principal. Two, a Section 115 Trust will address future pension obligation changes and uncertainties pertaining to Ca1PERS investment losses. C. Consideration of Climate Risk and Climate Action. The City is aware of the increasin-aly severe and frequent natural, economic, and social disruptions presented by a rapidly changing climate. The City is also aware of the financial bene fits (e.z, reduced operational costs, prudent asset management, access to green bonds, etc.) of managing climate risk and orienting towards a carbon neutral municipal operations and community. The City will include climate risk and climate action considerations in its long-term financial planning. D. Consideration of Diversity. Equity, and Inclusion (DEI). On .Tune 18th, 2020, the City Council took action to affirm racism as a public health crisis and committed to making San Luis Obispo a welcoming inclusive, and safe community for everyone (R-11132). The City Council also set a vision of a community with core values of diversity and inclusiviU in the adoption of its 2019-21 Maior City Goals. The City is committed to supporting, diversity, equity, and inclusion in is operations and in the community. The City will include DEI considerations in its long-term financial planning. FINANCIAL REPORTING AND BUDGET ADMINISTRATION A. Annual Reporting. The City will prepare annual financial statements as follows: Packet Page 128 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan In accordance with Charter requirements, the City will contract for an annual audit by a qualified independent certified public accountant. The City will strive for an unqualified auditors' opinion. 2. The City will use generally accepted accounting principles in preparing its annual financial statements and will strive to meet the requirements of the GFOA's Award for Excellence in Financial Reporting program. 3. The City will issue audited financial statements within 180 days after fiscal year-end. B. Interim Reporting. The City will prepare and issue timely interim reports on the City's fiscal status to the Council and staff. This includes on-line access to the City's financial management system by City staff; monthly reports to program managers; more formal quarterly reports to the Council and Department Heads; mid -year budget reviews; and preliminary annual reports. C. Budget Administration. As set forth in the City Charter, the Council may amend or supplement the budget at any time after its adoption by majority vote of the Council members. The City Manager has the authority to make administrative adjustments to the budget as long as those changes will not have a significant policy impact nor affect budgeted year-end fund balances. D. Development Services Revenue. The City Manager may allocate or designate 75% of over -realized Development Services revenues exceeding adopted budget for the current fiscal year for temporary Development Services expenditures for the purpose of timely processing of development permit applications in the current fiscal year or throughout the life of applicable projects. Any and all City Manager authorized allocations and funds set aside in a designation for future use, shall be reported to the Council on a semi-annual basis. GENERAL REVENUE MANAGEMENT A. Diversified and Stable Base. The City will seek to maintain a diversified and stable revenue base to protect it from short-term fluctuations in any one revenue source. B. Long -Range Focus. To emphasize and facilitate long-range financial planning, the City will maintain current projections of revenues for the succeeding five years. C. Current Revenues for Current Uses. The City will make all current expenditures with current revenues, avoiding procedures that balance current budgets by postponing needed expenditures, accruing future revenues, or rolling over short-term debt. D. Interfund Transfers and Loans. In order to achieve important public policy goals, the City has established various special revenue, capital project, debt service and enterprise funds to account for revenues whose use should be restricted to certain activities. Accordingly, each fund exists as a separate financing entity from other funds, with its own revenue sources, expenditures, and fund equity. Any transfers between funds for operating purposes are clearly set forth in the Financial Plan and can only be made by the Finance Director in accordance with the adopted budget. These operating transfers, under which financial resources are transferred from one fund to another, are distinctly different from interfund borrowings, which are usually made for temporary cash flow reasons, and are not intended to result in a transfer of financial resources by the end of the fiscal year. In summary, interfund transfers result in a change in fund equity; interfund borrowings do not, as the intent is to repay the loan in the near term. Packet Page 129 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan From time -to -time, interfund borrowings may be appropriate; however, these are subject to the following criteria in ensuring that the fiduciary purpose of the fund is met: The Finance Director is authorized to approve temporary interfund borrowings for cash flow purposes whenever the cash shortfall is expected to be resolved within 45 days. The most common use of interfund borrowing under this circumstance is for grant programs , where costs are incurred before drawdowns are initiated and received. However, receipt of funds is typically received shortly after the request for funds has been made. 2. Any other interf nid borrowings for cash flow or other purposes require case -by -case approval by the Council. 3. Any transfers between funds where reimbursement is not expected within one fiscal year shall not be recorded as interfund borrowings; they shall be recorded as interfund operating transfers that affect equity by moving financial resources from one fund to another. USER FEE COST RECOVERY GOALS A. Ongoing Review Fees will be reviewed and updated on an ongoing basis to ensure that they keep pace with changes in cost -of - living as well as changes in methods or levels of service delivery. In implementing this goal, a comprehensive analysis of City costs and fees should be made at least every five years. In the interim, fees will be adjusted by annual changes in the Consumer Price Index Los Angeles/Riverside. Fees may be adjusted during this interim period based on supplemental analysis whenever there have been significant changes in the method, level, or cost of service delivery. B. User Fee Cost Recovery Levels In setting user fees and cost recovery levels, the following factors will be considered: 1. Community -Wide Versus Special Benefit. The level of user fee cost recovery should consider the community -wide versus special service nature of the program or activity. The use of general-purpose revenues is appropriate for community -wide services, while user fees are appropriate for services that are of special benefit to easily identified individuals or groups. 2. Service Recipient Versus Service Driver. After considering community -wide versus special benefit of the service, the concept of service recipient versus service driver should also be considered. For example, it could be argued that the applicant is not the beneficiary of the City's development review efforts: the community is the primary beneficiary. However, the applicant is the driver of development review costs, and as such, cost recovery from the applicant is appropriate. 3. Effect of Pricing on the Demand for Services. The level of cost recovery and related pricing of services can significantly affect the demand and subsequent level of services provided. At full cost recovery, this has the specific advantage of ensuring that the City is providing services for which there is genuinely a market that is not overly stimulated by artificially low prices. Conversely, high levels of cost recovery will negatively impact the delivery of services to lower income groups. This negative feature is especially pronounced, and works against public policy, if the services are specifically targeted to low-income groups. 4. Feasibility of Collection and Recovery. Although it may be determined that a high level of cost recovery may be appropriate for specific services, it may be impractical or too costly to establish a system to identify and charge the user. Accordingly, the feasibility of assessing and collecting charges should also be Packet Page 130 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan considered in developing user fees, especially if significant program costs are intended to be financed from that source. C. Factors Favoring Low Cost Recovery Levels Very low-cost recovery levels are appropriate under the following circumstances: 1. There is no intended relationship between the amount paid and the benefit received. Almost all "social service" programs fall into this category as it is expected that one group will subsidize another. 2. Collecting fees is not cost-effective or will significantly impact the efficient delivery of the service. 3. There is no intent to limit the use of (or entitlement to) the service. Again, most "social service" programs fit into this category as well as many public safety and emergency response services (police and fire). Historically, access to neighborhood and community parks would also fit into this category. 4. The service is non -recurring, generally delivered on a "peak demand" or emergency basis, cannot reasonably be planned for on an individual basis, and is not readily available from a private sector source. Many public safety services also fall into this category. 5. Collecting fees would discourage compliance with regulatory requirements and adherence is primarily self - identified, and as such, failure to comply would not be readily detected by the City. Many small-scale licenses and permits might fall into this category. D. Factors Favoring High Cost Recovery Levels The use of service charges as a major source of funding service levels is especially appropriate under the following circumstances: 1. The service is similar to services provided through the private sector. 2. Other private or public sector alternatives could or do exist for the delivery of the service. 3. For equity or demand management purposes, it is intended that there be a direct relationship between the amount paid and the level and cost of the service received. 4. The use of the service is specifically discouraged. Police responses to disturbances or false alarms might fall into this category. 5. The service is regulatory in nature and voluntary compliance is not expected to be the primary method of detecting failure to meet regulatory requirements. Building permit, plan checks, and subdivision review fees for large projects would fall into this category. E. General Concepts Regarding the Use of Service Charges The following general concepts will be used in developing and implementing service charges: 1. Revenues should not exceed the reasonable cost of providing the service. 2. Cost recovery goals should be based on the total cost of delivering the service, including direct costs, departmental administration cost, and organization -wide support costs such as accounting, personnel, information technology, legal services, fleet maintenance and insurance. Packet Page 131 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan 3. The method of assessing and collecting fees should be as simple as possible in order to reduce the administrative cost of collection. 4. Rate structures should be sensitive to the "market" for similar services as well as to smaller, infrequent users of the service. 5. A unified approach should be used in determining cost recovery levels for various programs based on the factors discussed above. F. Low Cost -Recovery Services Based on the criteria discussed above, the following types of services should have very low-cost recovery goals. In selected circumstances, there may be specific activities within the broad scope of services provided that should have user charges associated with them. However, the primary source of funding for the operation should be general-purpose revenues, not user fees. 1. Delivering public safety emergency response services such as police patrol services and fire suppression. 2. Maintaining and developing public facilities that are provided on a uniform, community -wide basis such as streets, parks and general-purpose buildings. 3. Providing social service programs and economic development activities. G. Recreation Programs The following cost recovery policies apply to the City's recreation programs: 1. Cost recovery for activities directed to adults should be relatively high. 2. Cost recovery for activities directed to youth and seniors should be relatively low. In those circumstances where services are similar to those provided in the private sector, cost recovery levels should be higher. Although ability to pay may not be a concern for all youth and senior participants, these are desired program activities, and the cost of determining subsidy need may be greater than the cost of providing a uniform service fee structure to all participants. Further, there is a community -wide benefit in encouraging high - levels of participation in youth and senior recreation activities regardless of financial status. 3. Cost recovery goals for recreation activities are set as follows: High -Range Cost Recovery Activities - (60% to 100016) a. Adult athletics b. Banner permit applications c. Childcare services d. Facility rentals (indoor and outdoor; excludes use of facilities for internal City uses) Mid -Range Cost Recovery Activities - (30% to 60016) e. Triathlon f. Golf g. Summer and Spring Break Camps h. Classes i. Major commercial film permit applications Packet Page 132 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan Low -Range Cost Recovery Activities- (0 to 30%) j. Aquatics k. Community gardens 1. Junior Ranger camp m. Minor commercial film permit applications n. Skate park o. Parks and Recreation sponsored events (except for Triathlon) p. Youth sports q. Teen services r. Senior/boomer services 4. For cost recovery activities of less than 100%, there should be a differential in rates between residents and non-residents. However, the Director of Parks and Recreation is authorized to reduce or eliminate non- resident fee differentials when it can be demonstrated that: a. The fee is reducing attendance. b. And there are no appreciable expenditure savings from the reduced attendance. 5. Charges will be assessed for use of rooms, pools, gymnasiums, ball fields, special -use areas, and recreation equipment for activities not sponsored or co -sponsored by the City. Such charges will generally conform to the fee guidelines described above. However, the Director of Parks and Recreation is authorized to charge fees that are closer to full cost recovery for facilities that are heavily used at peak times and include a majority of non-resident users. 6. A vendor charge of at least 10 percent of gross income will be assessed from individuals or organizations using City facilities for moneymaking activities. 7. Director of Parks and Recreation is authorized to offer reduced fees such as introductory rates, family discounts and coupon discounts on a pilot basis (not to exceed 18 months) to promote new recreation programs or resurrect existing ones. 8. The Parks and Recreation Department will consider waiving fees only when the City Manager determines in writing that an undue hardship exists. H. Development Review Programs The following cost recovery policies apply to the development review programs: 1. Services provided under this category include: a. Planning (planned development permits, tentative tract and parcel maps, rezonings, general plan amendments, variances, use permits). b. Building and safety (building permits, structural plan checks, inspections). c. Engineering (public improvement plan checks, inspections, subdivision requirements, encroachments). d. Fire plan check. 2. Cost recovery for these services should generally be very high. In most instances, the City's cost recovery goal should be 100%. Packet Page 133 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan 3. However, in charging high -cost recovery levels, the City needs to clearly establish and articulate standards for its performance in reviewing developer applications to ensure that there is "value for cost." 4. Building Permit Plan Check Services — The City of San Luis Obispo offers building permit plan check services through consultants at a set price, not to exceed 65% of the City's fee for the service. Building Permit Plan Check Services are offered by the City on a 100% cost -recovery basis, and the service is provided after the fee is paid in full. As a result, the Finance Director is authorized to make appropriations from the related revenue account to cover the cost of services provided. I. Comparability with Other Communities In setting user fees, the City will consider fees charged by other agencies in accordance with the following criteria: Surveying the comparability of the City's fees to other communities provides useful background information in setting fees for several reasons: a. They reflect the "market" for these fees and can assist in assessing the reasonableness of San Luis Obispo's fees. b. If prudently analyzed, they can serve as a benchmark for how cost-effectively San Luis Obispo provides its services. 2. However, fee surveys should never be the sole or primary criteria in setting City fees as there are many factors that affect how and why other communities have set their fees at their levels. For example: a. What level of cost recovery is their fee intended to achieve compared with the City's cost recovery objectives? b. What cost have been considered in computing the fees? c. When was the last time that comparison fees were comprehensively evaluated? d. What level of service do those communities provide compared with the City's service or performance standards? e. Is their rate structure significantly different than the City's and what is it intended to achieve? 3. These can be very difficult questions to address in fairly evaluating fees among different communities. As such, the comparability of the City's fees to other communities should be one factor among many that is considered in setting City fees. ENTERPRISE FUND FEES AND RATES A. Water, Sewer and Parking. The City will set fees and rates at levels which fully cover the total direct and indirect costs —including operations, capital outlay, and debt service —of the following enterprise programs: water, sewer and parking. For Water and Sewer, the rate setting process will be in accordance with Proposition 218 and its notification requirements. B. Transit. Based on targets set under the Transportation Development Act, the City will strive to cover at least twenty percent of transit operating costs with fare revenues. C. Ongoing Rate Review. The City will review and adjust enterprise fees and rate structures as required to ensure that they remain appropriate and equitable. Packet Page 134 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan D. Cost of Service Fees. The City will treat the water and sewer fund in the same manner as if they were privately owned and operated. This means assessing reasonable cost of service fees in fully recovering services costs. The purpose of the cost of service fee is reasonable cost recovery for the use of the City's services such as street right-of-way and public safety. The appropriateness of charging the water and sewer fund a reasonable cost of service fee for the use of the City streets is further supported by the results of studies from Arizona, California, Ohio, and Vermont which concluded that the leading cause of street resurfacing and reconstruction is street cuts and trenching for Utilities. REVENUE DISTRIBUTION The Council recognizes that generally accepted accounting principles for state and local governments discourage the "earmarking" of General Fund revenues, and accordingly, the practice of designating General Fund revenues for specific programs should be minimized in the City's management of its fiscal affairs. Approval of the following revenue distribution policies does not prevent the Council from directing General Fund resources to other functions and programs as necessary. A. Property Taxes. With the passage of Proposition 13 on June 6, 1978, California cities no longer can set their own property tax rates. In addition to limiting annual increases in market value, placing a ceiling on voter - approved indebtedness, and redefining assessed valuations, Proposition 13 established a maximum county -wide levy for general revenue purposes of 1% of market value. Under subsequent state legislation, which adopted formulas for the distribution of this countywide levy, the City now receives a percentage of total property tax revenues collected countywide as determined by the State and administered by the County Auditor -Controller. The City receives 14.9% of each dollar collected in property tax after allocations to school districts. Accordingly, while property revenues are often thought of local revenue sources, in essence they are State revenue sources, since the State controls their use and allocation. With the adoption of a Charter revision in November 1996, which removed provisions that were in conflict with Proposition 13 relating to the setting of property tax revenues between various funds, all property tax revenues are now accounted for in the General Fund. B. Gasoline Tax Subventions. All gasoline tax revenues (which are restricted by the State for street -related purposes) will be used for maintenance activities. Since the City's total expenditures for gas tax eligible programs and projects are much greater than this revenue source, operating transfers will be made from the gas tax fund to the General Fund for this purpose. This approach significantly reduces the accounting efforts required to meet State reporting requirements. C. Transportation Development Act (TDA) Revenues. All TDA revenues will be allocated to alternative transportation programs, including regional and municipal transit systems, bikeway improvements, and other programs or projects designed to reduce automobile usage. Because TDA revenues will not be allocated for street purposes, it is expected that alternative transportation programs (in conjunction with other state or federal grants for this purpose) will be self-supporting from TDA revenues. D. Parking Fines. All parking fine revenues will be allocated to the parking fund, except for those collected by Police staff (who are funded by the General Fund) in implementing neighborhood wellness programs. INVESTMENTS Packet Page 135 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan A. Responsibility. Investments and cash management are the responsibility of the City Treasurer or designee. It is the City's policy to appoint the Finance Director as the City's Treasurer. B. Investment Objective. The City's primary investment objective is to achieve a reasonable rate of return while minimizing the potential for capital losses arising from market changes or issuer default. Accordingly, the following factors will be considered in priority order in determining individual investment placements: 1. Safety 2. Liquidity 3. Yield C. Tax and Revenue Anticipation Notes: Not for Investment Purposes. There is an appropriate role for tax and revenue anticipation notes (TRANS) in meeting legitimate short-term cash needs within the fiscal year. However, many agencies issue TRANS as a routine business practice, not solely for cash flow purposes, but to capitalize on the favorable difference between the interest cost of issuing TRANS as a tax -preferred security and the interest yields on them if re -invested at full market rates. As part of its cash flow management and investment strategy, the City will only issue TRANS or other forms of short-term debt if necessary, to meet demonstrated cash flow needs; TRANS or any other form of short-term debt financing will not be issued for investment purposes. As long as the City maintains its current policy of maintaining fund/working capital balances that are 20% of operating expenditures, it is unlikely that the City would need to issue TRANS for cash flow purposes except in very unusual circumstances. D. Selecting Maturity Dates. The City will strive to keep all idle cash balances fully invested through daily projections of cash flow requirements. To avoid forced liquidations and losses of investment earnings, cash flow and future requirements will be the primary consideration when selecting maturities. E. Diversification. As the market and the City's investment portfolio change, care will be taken to maintain a healthy balance of investment types and maturities. F. Authorized Investments. The City will invest only in those instruments authorized by the California Government Code Section 53601. The City will not invest in stock, will not speculate and will not deal in futures or options. The investment market is highly volatile and continually offers new and creative opportunities for enhancing interest earnings. Accordingly, the City will thoroughly investigate any new investment vehicles before committing City funds to them. G. Authorized Institutions. Current financial statements will be maintained for each institution in which cash is invested. Investments will be limited to 20 percent of the total net worth of any institution and may be reduced further or refused altogether if an institution's financial situation becomes unhealthy. H. Consolidated Portfolio. In order to maximize yields from its overall portfolio, the City will consolidate cash balances from all funds for investment purposes and will allocate investment earnings to each fund in accordance with generally accepted accounting principles. I. Safekeeping. Ownership of the City's investment securities will be protected through third -party custodial safekeeping. Investment Management Plan. The City Treasurer will develop and maintain an Investment Management Plan that addresses the City's administration of its portfolio, including investment strategies, practices and procedures. Packet Page 136 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan K. Investment Oversight Committee. As set forth in the Investment Management Plan, this committee is responsible for reviewing the City's portfolio on an ongoing basis to determine compliance with the City's investment policies and for making recommendations to the City Treasurer (Finance Director regarding investment management practices. Members include the Mayor, one member of the public, the City Manager, the Accounting Manager/Controller, the Principal Budget Analyst, and the Finance Director/City Treasurer serving as the commission chair. Budget Manager. The member of the public shall be appointed by the City Council in accordance with the City's process for appointing advisory body members. L. Reporting. The City Treasurer will develop and maintain a comprehensive, well -documented investment reporting system, which will comply with Government Code Section 53607. This reporting system will provide the Council and the Investment Oversight Committee with appropriate investment performance information. M. Investment Philosophy. The City is dedicated to socially responsible investing and has adopted an ESG investment strategy that excludes investments in tobacco products, weapon production, and fossil fuels. APPROPRIATIONS LIMITATION A. The Council will annually adopt a resolution establishing the City's appropriations limit calculated in accordance with Article XIII-B of the Constitution of the State of California, Section 7900 of the State of California Government Code, and any other voter approved amendments or state legislation that affect the City's appropriations limit. B. The supporting documentation used in calculating the City's appropriations limit and projected appropriations subject to the limit will be available for public and Council review at least 10 days before Council consideration of a resolution to adopt an appropriations limit. The Council will generally consider this resolution in connection with final approval of the budget. C. The City will strive to develop revenue sources, both new and existing, which are considered non -tax proceeds in calculating its appropriations subject to limitation. D. The City will annually review user fees and charges and report to the Council the amount of program subsidy, if any, that is being provided by the General or Enterprise Funds. E. The City will actively support legislation or initiatives sponsored or approved by League of California Cities which would modify Article XIII-B of the Constitution in a manner which would allow the City to retain projected tax revenues resulting from growth in the local economy for use as determined by the Council. F. The City will seek voter approval to amend its appropriation limit at such time that tax proceeds are in excess of allowable limits. FUND BALANCE AND RESERVES A. Minimum Fund and Working Capital Balances. The City will maintain a restricted minimum fund balance of at least 20% of operating expenditures in the General Fund and a minimum working capital balance of 20% of operating expenditures in the water, sewer and parking enterprise funds. This is considered the minimum level necessary to maintain the City's credit worthiness and to adequately provide for: Packet Page 137 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan 1. Economic uncertainties, local disasters, and other financial hardships or downturns in the local or national economy. 2. Contingencies for unseen operating or capital needs. 3. Cash flow requirements. B. Fleet Replacement. For the General Fund fleet, the City will establish and maintain a Fleet Replacement Fund to provide for the timely replacement of vehicles and related equipment with an individual replacement cost of $15,000 or more. The City will maintain a restricted minimum fund balance in the Fleet Replacement Fund equal to $500,000 for the emergency replacement of vehicles that are damaged beyond repair, and are either not covered under the City's property insurance program or the vehicle has a high replacement cost and insurance proceeds will be inadequate to provide for the vehicle's replacement (fire engine). Above this contingency level, the amount retained in this fund, coupled with the annual contributions received by it from any source, shall be adequate to fully fund the equipment replacements approved in the Financial Plan._ If in M given year, the minimum fund balance is depleted for above mentioned uses and as approved by the City Council, it shall be replenished over the next two-year Financial Plan period. Interest earnings and the proceeds from the -sales of surplus equipment as well as any related damage and insurance recoveries will be credited to the Fleet Replacement Fund. C. Information Technology (IT) Replacement Fund. The City will establish an IT Replacement Fund for the General Fund to provide for the timely replacement of information technology, both hardware and software, with an individual replacement cost of $25,000 or more. During the 2015-17 Financial Plan period, the City will establish and maintain a restricted minimum fund balance in this fund equal to $400,000 for the emergency replacement of equipment that is damaged beyond repair and not covered under the City's property insurance program. If in any given year, the minimum fund balance is depleted for above mentioned uses and as approved by City Council, it shall be replenished over the next two-year Financial Plan period. Interest earnings and the proceeds from the sale of surplus equipment as well as any related damage and insurance recoveries will be credited to the fund. D. Major Facility Replacement Fund. The City will maintain a reserve within this fund for the purpose of funding the cost of improvements having a cost of $25,000 or more to city -owned, general government building and structures. The amount retained in this fund, coupled with annual contributions received by it from any source, to adequately fund maintenance and replacement of City facilities. E. Infrastructure Investment Fund. The City will maintain a reserve within this fund for the purpose of funding infrastructure projects that contribute to improved economic development and enhanced quality of life in the City of San Luis Obispo. The following evaluation criteria shall be applied to project eligibility: 1. The use of City funds shall not offset any cost that would be expected to be paid to meet the fair share obligation of any developer. 2. The use of City funds shall not offset a project specific cost identified through the environmental review process or under existing regulations or policies. 3. The use of funds shall support a project that would not otherwise be feasible due to economic, timing or other issues outside control of the project proponents or the City. Packet Page 138 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan 4. The project shall provide public benefit by contributing to economic development and quality of life within the City. Insurance Fund. The City shall maintain an Insurance Fund to manage payments for liability, workers' compensation, crime, pollution, special events, property, and volunteer insurance. Within the Insurance Fund, aself-insured retention (SIR) will be set aside to cover expenses associated with claims from the Excess Liability Insurance Program. The SIR will be funded based on 150% (75% confidence levea of the previous five-year average claims experience (claims paid, reserves for known claims, and administrative expenses). The Insurance Fund will maintain a reserve sufficient to guard against substantial claims which will be determined based on annual actuarial report information. The City will establish an lasu anee Benefit Fund for- the pr-egr-ams. A r-eserve within the histim-nee Benefit Ftmd for- the Liability Exeess lasufanee Pr-egr-afn will - -1 ptir-poses of setting ftmds aside to manage the fluetua4ions in liability and worker's eompensa4ien instwanee F. There will be additional funds set aside in ftind balanee to eever- unantieipated fluetu4ieas in elaims. The ameu*t will be dete .miae,a by aetuarial eot4 in f fm Aie .i required due to depletion o� fund balance. sufficient annual appropriations will be transferred to the Insurance Fund from the General Fund in the amount needed to ensure the 150% funding status. G. Water and Sewer Rate Stabilization Reserves. The City will maintain a reserve for the purposes of offsetting unanticipated fluctuations in Water Fund or Sewer Fund revenues to provide financial stability, including the stability of revenues and the rates and charges related to each Enterprise. The funding target for the Rate Stabilization Reserve will be 10% of sales revenue in the Water Fund and 5% of sales revenue in the Sewer Fund. Conditions for utilization and plan for replenishment of the reserve will be brought to Council for its consideration during the preparation and approval of the Financial Plan or as may become necessary during any fiscal year. H. Future Capital Project Designations. The Council may designate specific fund balance levels for future development of capital projects that it has determined to be in the best long-term interests of the City. For example, replacement of critical information technology infrastructure or other projects. I. Other Designations and Reserves. In addition to the designations noted above, fund balance levels will be sufficient to meet funding requirements for projects approved in prior years which are carried forward into the new year; debt service reserve requirements; reserves for encumbrances; and other reserves or designations required by contractual obligations, state law, or generally accepted accounting principles. General Fund Revenue Stabilization Fund. The City will maintain a restricted reserve for the purposes of offsetting unanticipated fluctuations in general fund revenues to provide financial stability. The funding target for the Revenue Stabilization Reserve will be $1,000,000 during the term of the adopted Fiscal Health Response Plan. Use and allocations of funds of the Revenue Stabilization Fund will be made upon Council approvals of the Financial Plan or as becomes necessary during any fiscal year. K. Capital Projects Reserve Fund. The City will maintain a restricted reserve in its Capital Outl Fund of $500,000 for the purposes of offsetting unanticipated cost increases, unforeseen conditions, and urgent unanticipated projects to provide continued investment in infrastructure maintenance and enhancement. Use and allocations of funds from the Capital Projects Reserve Fund will be made to Capital Projects including Fleet, infefmationTeehnelegy, and Major Facility Replacement upon Council approvals of the Fifianeial Nan o as necessary during any fiscal year. Packet Page 139 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan CAPITAL IMPROVEMENT MANAGEMENT A. Capital Improvement Plan (CIP) Projects: $25,000 or More. Construction projects and equipment purchases which cost $25,000 or more will be included in the Capital T..,pr-e. eme + Plan (CIP and are accounted for in the Capital Outlay Fund. Minor capital outlays of less than $25,000 will be included with the operating program budgets. c,,eh p eets are aeeoupAedf- i the Capital Ou4l y Fund. B. CIP Purpose. The purpose of the CIP is to systematically plan, schedule, and finance capital projects to ensure cost-effectiveness as well as conformance with established policies. The CIP is a five-year plan organized into the same functional groupings used for the operating programs. The CIP will reflect a balance between capital replacement projects that repair, replace or enhance existing facilities, equipment or infrastructure; and capital facility projects that significantly expand or add to the City's existing fixed assets. C. Project Manager. Every CIP project will have a project manager who will prepare the project proposal, ensure that required phases are completed on schedule, authorize all project expenditures, ensure that all regulations and laws are observed, and periodically report project status. D. CIP Review Committee. Headed by the City Manager or designee, this Committee will review project proposals, determine project phasing, recommend project managers, review and evaluate the draft CIP budget document, and report CIP project progress on an ongoing basis. E. CIP Phases. The CIP will emphasize project planning, with projects progressing through at least two and up to ten of the following phases: 1. Designate. Appropriates funds based on projects designated for funding by the Council through adoption of the Financial Plan. 2. Study. Concept design, site selection, feasibility analysis, schematic design, environmental determination, property appraisals, scheduling, grant application, grant approval, specification preparation for equipment purchases. 3. Environmental Review. EIR preparation, other environmental studies. 4. Real Property Acquisitions. Property acquisition for projects, if necessary. 5. Site Preparation. Demolition, hazardous materials abatements, other pre -construction work. 6. Design. Final design, plan and specification preparation and construction cost estimation. 7. Construction. Construction contracts. 8. Construction Management. Contract project management and inspection, soils and material tests, other support services during construction. 9. EquipmentAcquisitions. Vehicles, heavy machinery, computers, office furnishings, other equipment items acquired and installed independently from construction contracts. 10. Debt Service. Installment payments of principal and interest for completed projects funded through debt financings. Expenditures for this project phase are included in the Debt Service section of the Financial Plan. Packet Page 140 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan Generally, it will become more difficult for a project to move from one phase to the next. As such, more projects will be studied than will be designed, and more projects will be designed than will be constructed or purchased during the term of the CIP. F. CIP Appropriation. The City's annual CIP appropriation for study, design, acquisition and/or construction is based on the projects designated by the Council through adoption of the Financial Plan. Adoption of the Financial Plan CIP appropriation does not automatically authorize funding for specific project phases. This authorization generally occurs only after the preceding project phase has been completed and approved by the Council and costs for the succeeding phases have been fully developed. Accordingly, project appropriations are generally made when contracts are awarded. If project costs at the time of bid award are less than the budgeted amount, the balance will be unappropriated and returned to fund balance or allocated to another project. If project costs at the time of bid award are greater than budget amounts, five basic options are available: 1. Eliminate the project. 2. Defer the project for consideration to the next Financial Plan period. 3. Rescope or change the phasing of the project to meet the existing budget. 4. Transfer funding from another specified, lower priority project. 5. Appropriate additional resources as necessary from fund balance. G. CIP Budget Carryover. Appropriations for CIP projects lapse three years after budget adoption. Projects which lapse from lack of project account appropriations may be resubmitted for inclusion in a subsequent CIP. Project accounts, which have been appropriated, will not lapse until completion of the project phase. H. Program Objectives. Project phases will be listed as objectives in the program narratives of the programs, which manage the projects. I. Public Art. CIP projects will be evaluated during the budget process and prior to each phase for conformance with the City's public art policy, which generally requires that 1% of eligible project construction costs be set aside for public art. Excluded from this requirement are underground projects, utility infrastructure projects, funding from outside agencies, and costs other than construction such as study, environmental review, design, site preparation, land acquisition and equipment purchases. It is generally preferred that public art be incorporated directly into the project, but this is not practical or desirable for all projects; in this case, an in -lieu contribution to public art will be made. To ensure that funds are adequately budgeted for this purpose regardless of whether public art will be directly incorporated into the project, funds for public art will be identified separately in the CIP. General Plan Consistency Review. The Planning Commission will review the Preliminary CIP for consistency with the General Plan and provide is findings to the Council prior to adoption. K. Climate Action Plan Implementation. Council adopted Resolution No. 11159 (2020 Series) establishes a goal of communitywide carbon neutrality by 2035 and municipal operations carbon neutrality by 2030. The City's Capital Improvement Program is a critical implementation tool, and every CIP will be evaluated for alignment with these climate goals. Examples of ways projects or project components can align the with goals include (but are not limited to) 1. Elimination or reduction of vehicle miles traveled (e.z, active transportation and transit improvements), 2. Elimination or reduction o�fossil fueled appliances, vehicles, and equipment, 3. Reduced energy consumption (e.g., efficient mechanical equipment, efficient ling, etc.) 4. Carbon storage through three planting or landscape management, and S. Solid waste/green waste diversion Packet Page 141 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan CAPITAL FINANCING AND DEBT MANAGEMENT A. Capital Financing 1. The City will consider the use of debt financing only for one-time capital improvement projects and only under the following circumstances: a. When the project's useful life will exceed the term of the financing. b. When project revenues or specific resources will be sufficient to service the long-term debt. c. When the longevity of the asset will serve current and future populations and should therefore consider spreading the cost to users over the lifetime of the asset. 2. Debt financing will not be considered appropriate for any recurring purpose such as current operating and maintenance expenditures. The issuance of short-term instruments such as revenue, tax or bond anticipation notes is excluded from this limitation. (See Investment Policy) 3. Capital improvements will be financed primarily through user fees, service charges, assessments, special taxes or developer agreements when benefits can be specifically attributed to users of the facility. Accordingly, development impact fees should be created and implemented at levels sufficient to ensure that new development pays its fair share of the cost of constructing necessary community facilities. For Community Facilities Districts please see section E. 4. Transportation impact fees are a major funding source in financing transportation system improvements. However, revenues from these fees are subject to significant fluctuation based on the rate of new development. Accordingly, the following guidelines will be followed in designing and building projects funded with transportation impact fees: a. The availability of transportation impact fees in funding a specific project will be analyzed on a case - by -case basis as plans and specification or contract awards are submitted for City Manager or Council approval. b. If adequate funds are not available at that time, the Council will make one of two determinations: • Defer the project until funds are available. • Based on the high priority of the project, advance funds from the General Fund, which will be reimbursed as soon as impact fee funds become available. Repayment of General Fund advances will be the first use of transportation impact fee funds when they become available. 5. The City will use the following criteria to evaluate pay-as-you-go versus long-term financing in funding capital improvements: a. Factors Favoring Pay -As -You -Go Financing 1. Current revenues and adequate fund balances are available, or project phasing can be accomplished. 2. Existing debt levels adversely affect the City's credit rating. 3. Market conditions are unstable or present difficulties in marketing. Packet Page 142 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan b. Factors Favoring Long -Term Financing 1. Revenues available for debt service are deemed sufficient and reliable so that long-term financings can be marketed with investment grade credit ratings. 2. The project securing the financing is of the type, which will support an investment grade credit rating. 3. Market conditions present favorable interest rates and demand for City financings. 4. A project is mandated by state or federal requirements, and resources are insufficient or unavailable. The project is immediately required to meet or relieve capacity needs and current resources are insufficient or unavailable. 6. The life of the project or asset to be financed is 10 years or longer. 7. Vehicle leasing when market conditions and operational circumstances present favorable opportunities. B. Debt Management 1. The City will not obligate the General Fund to secure long-term financings except when marketability can be significantly enhanced. 2. An internal feasibility analysis will be prepared for each long-term financing which analyzes the impact on current and future budgets for debt service and operations. This analysis will also address the reliability of revenues to support debt service. 3. The City will generally conduct financings on a competitive basis. However, negotiated financings may be used due to market volatility or the use of an unusual or complex financing or security structure. 4. The City will seek an investment grade rating (Baa/BBB or greater) on any direct debt and will seek credit enhancements such as letters of credit or insurance when necessary for marketing purposes, availability and cost-effectiveness. 5. The City will monitor all forms of debt annually coincident with the City's Financial Plan preparation and review process and report concerns and remedies, if needed, to the Council. 6. The City will diligently monitor its compliance with bond covenants and ensure its adherence to federal arbitrage regulations. 7. The City will maintain good, ongoing communications with bond rating agencies about its financial condition. The City will follow a policy of full disclosure on every financial report and bond prospectus (Official Statement). C. Debt Capacity 1. General Purpose Debt Capacity. The City will carefully monitor its levels of general-purpose debt. Because etu- Ci 's general-purpose debt capacity is limited, it is important that the City only use general purpose debt financing for high -priority projects where we the City cannot reasonably use other financing methods for two key reasons: a. Funds borrowed for a project today are not available to fund other projects tomorrow. Packet Page 143 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan b. Funds committed for debt repayment today are not available to fund operations in the future. In evaluating debt capacity, general-purpose annual debt service payments should generally not exceed 10% of General Fund revenues; and in no case should they exceed 15%. Further, direct debt will not exceed 2% of assessed valuation; and no more than 60% of capital improvement outlays will be funded from long- term financings. 2. Enterprise Fund Debt Capacity. The City will set enterprise fund rates at levels needed to fully cover debt service requirements as well as operations, maintenance, administration and capital improvement costs. The ability to afford new debt for enterprise operations will be evaluated as an integral part of the City's rate review and setting process. D. Independent Disclosure Counsel The following criteria will be used on a case -by -case basis in determining whether the City should retain the services of an independent disclosure counsel in conjunction with specific project financings: The City will generally not retain the services of an independent disclosure counsel when all of the following circumstances are present: a. The revenue source for repayment is under the management or control of the City, such as general obligation bonds, revenue bonds, lease -revenue bonds or certificates of participation. b. The bonds will be rated or insured. 2. The City will consider retaining the services of an independent disclosure counsel when one or more of following circumstances are present: a. The financing will be negotiated, and the underwriter has not separately engaged an underwriter's counsel for disclosure purposes. b. The revenue source for repayment is not under the management or control of the City, such as land - based assessment districts, tax allocation bonds or conduit financings. c. The bonds will not be rated or insured. d. The City's financial advisor, bond counsel or underwriter recommends that the City retain an independent disclosure counsel based on the circumstances of the financing. E. Land -Based Financings 1. Public Purpose. There will be a clearly articulated public purpose in forming an assessment or special tax district in financing public infrastructure improvements. This should include a finding by the Council as to why this form of financing is preferred over other funding options such as impact fees, reimbursement agreements or direct developer responsibility for the improvements. New development should generally be expected to "pay its own way," (i.e., provide funding through one mechanism or another that funds its "proportional share" of public improvement and infrastructure costs and ongoing operations and maintenance costs). (1) The City will consider the use of city -based funding sources to fund public facility and infrastructure improvements that provide for the health, safety and welfare of existing and future residents and/or provide measurable economic development and fiscal benefits. In evaluating whether the City will use city -based funding sources, the following evaluation criteria should be considered: Packet Page 144 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan (a) Significant public benefit, demonstrated by compliance with and furtherance of General Plan goals, policies, and programs (b) Alignment with the Major City Goals and other important objectives in place at the time of the application (c) Head of Household Job Creation (d) Housing Creation (e) Circulation/Connectivity Improvements (f) Net General Fund fiscal impact (2) The City generally will not fund or offer public financing for infrastructure improvements that confer only private benefit to individual property owners or development projects. (3) The City shall seek continuity (or improvements to) existing levels of municipal service by assuring adequate funding for the City's operation, maintenance and infrastructure replacement costs." 2. Eligible Improvements. Except as otherwise determined by the Council when proceedings for district formation are commenced, preference in financing public improvements through a special tax district shall be given for those public improvements that help achieve clearly identified community facility and infrastructure goals in accordance with adopted facility and infrastructure plans as set forth in key policy documents such as the General Plan, Specific Plan, Facility or Infrastructure Master Plans, or Capital Improvement Plan. Such improvements include study, design, construction and/or acquisition of: a. Public safety facilities. b. Water supply, distribution and treatment systems. c. Waste collection and treatment systems. d. Major transportation system improvements, such as freeway interchanges; bridges; intersection improvements; construction of new or widened arterial or collector streets (including related landscaping and lighting); sidewalks and other pedestrian paths; transit facilities; and bike paths. e. Storm drainage, creek protection and flood protection improvements. f. Parks, trails, community centers and other recreational facilities. g. Open space. h. Cultural and social service facilities. i. Other governmental facilities and improvements such as offices, information technology systems and telecommunication systems. School facilities will not be financed except under appropriate joint community facilities agreements or joint exercise of powers agreements between the City and school districts. 3. Active Role. Even though land -based financings may be a limited obligation of the City, we will play an active role in managing the district. This means that the City will select and retain the financing team, Packet Page 145 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan including the financial advisor, bond counsel, trustee, appraiser, disclosure counsel, assessment engineer and underwriter. Any costs incurred by the City in retaining these services will generally be the responsibility of the property owners or developer, and will be advanced via a deposit when an application is filed; or will be paid on a contingency fee basis from the proceeds from the bonds. 4. Credit Quality. When a developer requests a district, the City will carefully evaluate the applicant's financial plan and ability to carry the project, including the payment of assessments and special taxes during build -out. This may include detailed background, credit and lender checks, and the preparation of independent appraisal reports and market absorption studies. For districts where one property owner accounts for more than 25% of the annual debt service obligation, a letter of credit further securing the financing may be required. Reserve Fund. A reserve fund should be established in the lesser amount of: the maximum annual debt service; 125% of the annual average debt service; or 10% of the bond proceeds. 6. Value -to -Debt Ratios. The minimum value -to -debt ratio should generally be 4:1. This means the value of the property in the district, with the public improvements, should be at least four times the amount of the assessment or special tax debt. In special circumstances, after conferring and receiving the concurrence of the City's financial advisor and bond counsel that a lower value -to -debt ratio is financially prudent under the circumstances, the City may consider allowing a value -to -debt ratio of 3:1. The Council should make special findings in this case. 7. Appraisal Methodology. Determination of value of property in the district shall be based upon the full cash value as shown on the ad valorem assessment roll or upon an appraisal by an independent Member Appraisal Institute (MAI). The definitions, standards and assumptions to be used for appraisals shall be determined by the City on a case -by -case basis, with input from City consultants and district applicants, and by reference to relevant materials and information promulgated by the State of California, including the Appraisal Standards for Land -Secured Financings prepared by the California Debt and Investment Advisory Commission. 8. Capitalized Interest During Construction. Decisions to capitalize interest will be made on case -by -case basis, with the intent that if allowed, it should improve the credit quality of the bonds and reduce borrowing costs, benefiting both current and future property owners. 9. Maximum Burden. Annual assessments (or special taxes in the case of Mello -Roos or similar districts) should generally not exceed 1% of the sales price of the property; and total property taxes, special assessments and special taxes payments collected on the tax roll should generally not exceed 2%. 10. Benefit Apportionment. Assessments and special taxes will be apportioned according to a formula that is clear, understandable, equitable and reasonably related to the benefit received by —or burden attributed to —each parcel with respect to its financed improvement. Any annual escalation factor should generally not exceed 2%. F. Development Impact Fees Guidelines and Policies Development impact fees are one-time fees levied on new development, typically levied at the time building permits are issued, to fund a range of the City's public facilities and infrastructure. Such fees are levied both on a citywide basis as well as for specific areas (e.g., the Specific Plan Areas). The levy of development impact fees is regulated by the State's Mitigation Fee Act (Government Code Section 66000 et seq.). 1. Development impact fees should be set, consistent with the statutory "nexus" analysis and findings, to fund new development's proportional share of public facility and infrastructure costs. Packet Page 146 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan 2. Improvements funded by development impact fees should be referenced generally in the appropriate planning documents (e.g., General Plan, Specific Plans, etc.) and reflected in the City's Capital Improvement Program. 3. An exception to this policy may be created by a development agreement between the City and a private developer. In this case public investments are offset by measurable public benefits. 4. The City's development impact fees can be "leveraged" through the use of fee credit and reimbursement agreements with developers and landowners. 5. The City's aggregate fee levels should not render new development that is otherwise consistent with City plans and regulations economically infeasible. Aggregate fee levels should be evaluated in terms of a reasonable standard, but not a strict limit (e.g., aggregate fee levels should not exceed an average of approximately 10 to 12 percent of the market value of the new development, either on a per -unit or per -square foot basis). 6. The City may consider reductions or waivers of its development impact fees in cases where a development project meets specific City planning or economic development policies such as affordable housing projects. In such cases the amount of funding foregone must be replaced with other funding sources available to the City. 1. Special Tax District Administration. In the case of Mello -Roos or similar special tax districts, the total maximum annual tax should not exceed 110% of annual debt service. The rate and method of apportionment should include a back-up tax in the event of significant changes from the initial development plan and should include procedures for prepayments. 1. Community Facilities Districts or Assessment Districts offer a way to fund infrastructure, maintenance, or municipal services through special taxes or assessments levied on property owners benefiting from the thus -funded improvements or services. It can be used for both capital improvements and ongoing facility maintenance or services. 2. The City will consider the formation of financing districts using the State's assessment law or the Mello -Roos Community Facilities Act for its newly developing areas on a case - by -case basis, consistent with technical analysis and City priorities (i.e., capital or ongoing funding). 3. The City will consider the effect of the special tax on the City's ability to issue General Obligation bonds or other property -based tax measures. 4. Such districts should fund infrastructure or services serving or otherwise providing benefit to the area subject to the assessment or special tax. 5. Such districts can fund public facilities or infrastructure otherwise funded with the City's development impact fees or project -specific exactions. In such cases the area's development impact fee obligations will be adjusted proportionately. Packet Page 147 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan 6. Within any such districts, property value -to -lien ratio should, consistent with typical underwriting standards, be at least 4.0:1 after calculating the value of the financed public improvements to be installed and considering any prior or pending special taxes or improvement liens. Consistent with underwriting standards and market considerations, and as a matter of policy, the City will limit the maximum amount of special taxes to be levied on any parcel of property within a Community Facilities District, in any given fiscal year, together with the general property taxes, general obligation bonds, and other special taxes and assessments levied on such parcel, shall not exceed an amount equal to one and eight - tenths percent (1.8 percent) of the projected assessed value of the parcel (and improvements if applicable). How the special tax capacity is allocated between capital and ongoing expenditures will depend upon the City's priorities. 8. The City shall have discretion to allow a special tax in excess of the established limits for any lands within the CFD which are designated for commercial or industrial uses. 9. As a part of such district formations, the City will retain a special tax consultant to prepare a report which recommends a special tax rate and method for the proposed CFD and evaluates the special tax proposed to determine its ability to adequately fund identified public facilities, City administrative costs, services (if applicable) and other related expenditures. 2. Foreclosure Covenants. In managing administrative costs, the City will establish minimum delinquency amounts per owner, and for the district as a whole, on a case -by -case basis before initiating foreclosure proceedings. 3. Disclosure to Bondholders. In general, each property owner who accounts for more than 10% of the annual debt service or bonded indebtedness must provide ongoing disclosure information annually as described under SEC Rule 15(c)-12. 4. Disclosure to Prospective Purchasers. Full disclosure about outstanding balances and annual payments should be made by the seller to prospective buyers at the time that the buyer bids on the property. It should not be deferred to after the buyer has made the decision to purchase. When appropriate, applicants or property owners may be required to provide the City with a disclosure plan. G. Conduit Financings 1. The City will consider requests for conduit financing on a case -by -case basis using the following criteria: a. The City's bond counsel will review the terms of the financing and render an opinion that there will be no liability to the City in issuing the bonds on behalf of the applicant. b. There is a clearly articulated public purpose in providing the conduit financing. c. The applicant is capable of achieving this public purpose. 2. This means that the review of requests for conduit financing will generally be a two-step process: a. First asking the Council if they are interested in considering the request and establishing the ground rules for evaluating it. Packet Page 148 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan b. And then returning with the results of this evaluation and recommending approval of appropriate financing documents if warranted. This two-step approach ensures that the issues are clear for both the City and applicant, and that key policy questions are answered. 3. The workscope necessary to address these issues will vary from request to request and will have to be determined on a case -by -case basis. Additionally, the City should generally be fully reimbursed for its cost in evaluating the request; however, this should also be determined on a case -by -case basis. B. Refinancings General Guidelines. Periodic reviews of all outstanding debt will be undertaken to determine refinancing opportunities. Refinancings will be considered (within federal tax law constraints) under the following conditions: a. There is a net economic benefit. b. It is needed to modernize covenants that are adversely affecting the City's financial position or operations. c. The City wants to reduce the principal outstanding in order to achieve future debt service savings, and it has available working capital to do so from other sources. 2. Standards for Economic Savings. In general, refinancings for economic savings will be undertaken whenever net present value savings of at least five percent (5%) of the refunded debt can be achieved. a. Refinancings that produce net present value savings of less than five percent will be considered on a case -by -case basis, provided that the present value savings are at least three percent (3%) of the refunded debt. b. Refinancings with savings of less than three percent (3%), or with negative savings, will not be considered unless there is a compelling public policy objective. C. Enhanced Infrastructure Financing District (EIFD) Guidelines and Policies a. EIFD financing should be considered for public facilities or infrastructure improvements that confer Citywide cibnyide and/or regional benefits. This may include the "City share" of infrastructure included in the City's development impact fees. b. Unless there is a Development Agreement in place that provides otherwise, EIFDs should not be used to fund real estate projects' proportional share of infrastructure costs otherwise included in the City's development impact fees or charged as project -specific exactions (e.g., subdivision improvements). c. City should consider EIFDs when more than one local government jurisdiction is participating to produce maximum benefit. d. At the time of formation of the EIFD (or if changes to the EIFD are contemplated), the City should require a fiscal impact analysis to determine if an EIFD is fiscally prudent and analyze opportunity cost to the City's General Fund. Packet Page 149 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan HUMAN RESOURCE MANAGEMENT A. Regular Staffing 1. The budget will fully appropriate the resources needed for authorized regular staffing and will limit programs to the regular staffing authorized. 2. Regular employees will be the core work force and the preferred means of staffing ongoing, year-round program activities that should be performed by full-time City employees rather than independent contractors. The City will strive to provide competitive compensation and benefit schedules for its authorized regular work force. Each regular employee will: a. Fill an authorized regular position. b. Be assigned to an appropriate bargaining unit, unless designated as an unrepresented management or confidential classification. c. Receive salary and benefits consistent with labor agreements or other compensation plans. 3. To manage the growth of the regular work force and overall staffing costs, the City will follow these procedures: a. The Council will authorize all regular positions. b. The Human Resources Department will coordinate and approve the hiring of all regular and supplemental staff. c. All requests for additional regular positions will include evaluations of: • The necessity, term, and expected results of the proposed activity. • Staffing and materials costs including salary, benefits, equipment, uniforms, clerical support, and facilities. • The ability of private industry to provide the proposed service. • Additional revenues or cost savings, which may be realized. 4. Periodically, and before any request for additional regular positions, programs will be evaluated to determine if they can be accomplished with fewer regular employees. (See Productivity Review Policy) 5. Staffing and contract service cost ceilings will limit total expenditures for regular employees, supplemental staff, and independent contractors hired to provide operating and maintenance services. B. Supplemental Staff 1. The hiring of supplemental staff will not be used as an incremental method for expanding the City's regular work force. 2. Supplemental staff include all employees other than regular employees, elected officials and volunteers. Supplemental staff include seasonal or occasional employees, employees with irregular schedules, limited benefit employees, temporary employees, contract employees, Ca1PERS retired annuitants, and leased employ to er- Fy employees, ir+ofas a,.a en#aet employ Supplemental staff may work on a full- time or part-time basis and will generally augment regular City staffing. Supplemental staff may be used as extra -help during peak workloads, as coverage during extended absences of regular employees, seasonal workforce, as a means to assess ongoing staffing needs, or as the staffing method for program delivery that is most effectively staffed using part-time hours to ensure adequate coverage. Packet Page 150 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan 3. The City Manager and Department Heads will encourage the use of supplemental staff rather than regular employees to meet peak workload requirements, fill interim vacancies, and accomplish tasks where less than full-time, year-round staffing is required. Under this guideline, supplemental staff hours will generally not exceed 50% of a regular, full-time position (1,000 hours annually). There may be limited circumstances where the use of supplemental staff on an ongoing basis in excess of this target may be appropriate due to unique programming or staffing requirements. However, any such exceptions must be approved by the City Manager based on the review and recommendation of the Human Resources Director. 4. Contract employees are defined as supplemental staff with written contracts approved by the Human Resources Director and City Attorney who may receive approved benefits Contract employees will generally be used for medium -term (generally between six months and two years) projects, programs or activities requiring specialized or augmented levels of staffing for a specific period. 5. Leased employees are employed during short-term, peak workload assignments to be accomplished using personnel contracted through an outside employment agency (OEA). In this situation, it is anticipated that City staff will closely monitor the work of leased employees and minimal training will be required. However, they will always be considered the employees of the OEA and not the City. All placements through an OEA will be coordinated through the Human Resources Department and subject to the approval of the Human Resources Director. The services of contract employees will be discontinued upon completion of the assigned project, program, or activity. Accordingly, contract employees will not be used for services that are anticipated to be delivered on an ongoing basis and as such, a determination as to the expected need will be made at the end of each contract term and prior to extending or renewing a contract. C. Overtime Management 1. Overtime should be used only when necessary and when other alternatives are not feasible or cost effective. 2. All overtime must be pre -authorized by a department head or delegate unless it is assumed pre -approved by its nature. For example, overtime that results when an employee is assigned to standby and/or must respond to an emergency or complete an emergency response. 3. Departmental operating budgets should reflect anticipated annual overtime costs and departments will regularly monitor overtime use and expenditures. 4. When considering the addition of regular or supplemental staffing, the use of overtime as an alternative will be considered. The department will take into account: a. The duration that additional staff resources may be needed. b. The cost of overtime versus the cost of additional staff. c. The skills and abilities of current staff. d. Training costs associated with hiring additional staff. e. The impact of overtime on existing staff. D. Independent Contractors Independent contractors are not City employees. They are used j! She14 tefffl, peak weEklead assig men+� Packet Page 151 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan la this situ4ien, it is an4ieipa4ed tha4 City staff will elesely monitor- the work of OEA employees and minimal tfaining wili be r-e"ked. However-, they will alwa-ys be e0nsidefed the effiPleyees of the OEA r,epai4fnef . and .,ubjeet to the . a of the Human Rese -roes r.; -eete, Construction of public works projects and delivery of operating, maintenance or specialized professional services not routinely performed by City employees. Such services will be provided without close supervision by City staff, and the required methods, skills and equipment will generally be determined and provided by the contractor. Contract awards will be guided by the City's purchasing policies and procedures. (See Contracting for Services Policy) PRODUCTIVITY Ensuring the "delivery of service with value for cost" is one of the key concepts embodied in the City's Mission Statement (San Luis Obispo Style— Quality With Vision). To this end, the City will constantly monitor and review its methods of operation to ensure that services continue to be delivered in the most cost-effective manner possible. This review process encompasses a wide range of productivity issues, including: A. Analyzing systems and procedures to identify and remove unnecessary review requirements. B. Evaluating the ability of new technologies and related capital investments to improve productivity. C. Developing the skills and abilities of all City employees. D. Developing and implementing appropriate methods of recognizing and rewarding exceptional employee performance. E. Evaluating the ability of the private sector to perform the same level of service at a lower cost. F. Periodic formal reviews of operations on a systematic, ongoing basis. G. Maintaining a decentralized approach in managing the City's support service functions. Although some level of centralization is necessary for review and control purposes, decentralization supports productivity by: 1. Encouraging accountability by delegating responsibility to the lowest possible level. 2. Stimulating creativity, innovation, and individual initiative. 3. Reducing the administrative costs of operation by eliminating unnecessary review procedures. 4. Improving the organization's ability to respond to changing needs and identify and implement cost -saving programs. 5. Assigning responsibility for effective operations and citizen responsiveness to the department. H. Maintaining City purchasing policies and procedures that are as efficient and effective as possible. CONTRACTING FOR SERVICES A. General Policy Guidelines I Packet Page 152 Item 8 Attachment G - Budget and Fiscal Policies for 21-23 Financial Plan 1. Contracting with the private sector for the delivery of services provides the City with a significant opportunity for cost containment and productivity enhancements. As such, the City is committed to using private sector resources in delivering municipal services as a key element in our continuing efforts to provide cost-effective programs. 2. Private sector contracting approaches under this policy include construction projects, professional services, outside employment agencies and ongoing operating and maintenance services. 3. In evaluating the costs of private sector contracts compared with in-house performance of the service, indirect, direct, and contract administration costs of the City will be identified and considered. 4. Whenever private sector providers are available and can meet established service levels, they will be seriously considered as viable service delivery alternatives using the evaluation criteria outlined below. 5. For programs and activities currently provided by City employees, conversions to contract services will generally be made through attrition, reassignment or absorption by the contractor. B. Evaluation Criteria Within the general policy guidelines stated above, the cost-effectiveness of contract services in meeting established service levels will be determined on a case -by -case basis using the following criteria: 1. Is a sufficient private sector market available to competitively deliver this service and assure a reasonable range of alternative service providers? 2. Can the contract be effectively and efficiently administered? 3. What are the consequences if the contractor fails to perform, and can the contract reasonably be written to compensate the City for any such damages? 4. Can a private sector contractor better respond to expansions, contractions or special requirements of the service? 5. Can the work scope be sufficiently defined to ensure that competing proposals can be fairly and fully evaluated, as well as the contractor's performance after bid award? 6. Does the use of contract services provide us with an opportunity to redefine service levels? 7. Will the contract limit our ability to deliver emergency or other high priority services? 8. Overall, can the City successfully delegate the performance of the service but still retain accountability and responsibility for its delivery? Packet Page 153 Item 8 LONG RANGE CAPITAL IMPROVEMENT PLAN NEEDS 12/3/20 Packet Page 154 Item 8 OVERVIEW The Long -Range Capital Improvement Plan Needs provides a glimpse into the future improvement needs of the City as envisioned by the General Plan or other Council adopted plans. Many of our current infrastructure assets are not adequate to handle the needs of the future. Many streets must be built or widened, intersections improved, bicycle facilities added, water lines and sewer lines extended into new areas, and new parks must be built. The Long -Range Capital Improvement Needs can serve as a guide for required future investments to support the General Plan as well as other Council approved policies, plans, and goals in place today. At the time of General Plan build out, the projects included in the Long -Range Capital Improvement Plan Needs would ideally be built and available for use by the community. Annual maintenance needs for City infrastructure are shown below are represent the ideal annual investment. Annual Maintenance Asset Traffic Management Needs Ideal Annual - Funding$250,000 Pavement Management $4,400,000 Curb, Gutter, Sidewalks $1,000,000 Flood Control $5,300,000 Sidewalk Ramps $580,000 Parks Play Equipment $150,000 Water Systems $3,100,000 Sewer Systems $2,800,000 Buildings $1,570,000 Bike Path Maintenance $100,000 Openspace Maintenance $150,000 Awhidi6 10000= Annual maintenance needs of existing assets are an important consideration when considering the one-time implementation cost of long-range infrastructure expansions projects. While the Long -Range Capital Improvement Plan Needs focuses on the new facilities and infrastructure needed to support the City at build -out, the costs to maintain existing assets should also be considered. Ideally, these projects would be built as part of new development taking place in the City, but this may be unrealistic. The City may need to build some of these projects using grant funds, general funds, or some form of debt financing. There also may be opportunities in the future in which to leverage grant funding to build larger infrastructure maintenance projects to complement what new development provides. By considering the Long -Range Capital Improvement Plan Needs in the context of the Financial Plan process, these projects provide an important starting place in assessing which ones might be a high priority to consider in the next funding cycle. The list is a way 2 Packet Page 155 Item 8 for the Council to see the long-term infrastructure improvements that are needed and have an "order of magnitude" idea of how much it may cost to fully implement. With this understanding, the Long -Range Capital Improvement Plan Needs is one of the pieces of information for the Council to consider in setting goals and priorities. This Long - Range Capital Improvement Plan Needs is conceptual, and in most cases, the projects have not undergone detailed analysis, nor undergone the rigor of the public review process. They represent City staff s best assessment of costs and scope based on what is known today but may undergo changes in scope or importance as new challenges and issues emerge over time. In short, this report focuses on presenting the "inventory" of improvements that may be needed at some time in the future, as a starting point in the goal -setting process. A summary of estimated cost of the Long -Range Capital Improvement Plan Needs by function and anticipated funding source is as follows: • -W I• • General Capital Outlay $3,358,000 COMMUNITYm General Capital Outlay $125,208,000 Impact Fee $6,069,000 General Capital Outlay $82,827,000 Impact Fee $25,808,000 Park In Lieu $7,192,000 • General Capital Outlay $15,723,000 State or Federal Grant GOVERNANCEL FISCAL HEALTH & General Capital Outlay $7,500,000 .0 000 $13,160,000 Airport Area Impact Fee $5,000,000 Debt Financing $18,656,000 Developer Contribution $30,825,000 General Capital Outlay $243,491,000 Parking Fund $10,010,000 Sewer Fund $130,000,000 State or Federal Grant $62,096,000 Transportation Impact Fee $104,694,000 Water Fund Total000 $77,500,000 Existing city funding is available for a portion of the Annual Maintenance needs in the first chart. Those funds are primarily Local Revenue Measure, State Gas Tax, General Fund, Packet Page 156 Item 8 and Water and Sewer funds. As shown in the second chart, funding sources for the Long - Range needs as shown in the chart below include Impact Fees, Developer contributions, enterprise fund sources (Water, Sewer, Parking and Transit), grant funds, and General Fund. A project listing of the Long -Range Capital Improvement Plan Needs by function and estimated project cost is as follows: Emerson Park Rehabilitation $1,276,000 Emerson Park Restroom $638,000 Mission Plaza Restroom Replacements and Enhancements $1,444,000 Fire Station 1: Maintenance Building $2,800,000 Fire Station 1: Provide Additional Operational Area $3,758,000 Fire Station 2 Replacement $11,716,000 Fire Station 3 Replacement $18,548,000 Fire Station 4 Replacement $13,527,000 Fire Station 5: New Fire Station $12,574,000 Police Response Vehicles $399,000 Police Station Replacement $47,435,000 Stormwater Resource Plan Implementation $1,620,000 Waterway Management Plan Implementation $18,900,000 Implementation of Parks Master Plan $49,758,000 Laguna Lake Golf Course Club House $4,681,000 Mitchell Park Senior Center Expansion and Renovation $1,102,000 New Park Amenities $378,000 Orcutt Area Neighborhood Parks $7,192,000 Parks and Recreation Administration Expansion and Renovation $6,780,000 Replacement of the Ludwick Community Center $24,244,000 Sinsheimer Stadium: Concession and Restroom Replacement $3,480,000 Swim Center Site and Deck Improvements $18,212,000 OPEN SPACE�•� Buses to Trails Implementation $44,000 Electric Fleet Vehicle Charging Stations $309,000 Laguna Lake Dredging $13,920,000 Open Space Acquisition $8,950,000 Ilk-IMIXIT11L Bark ("Dog") Park(s) $624,000 Implement Accessibility Improvements $2,016,000 Mission Plaza Revitalization $7,656,000 San Luis Creek Walkway Expansion $2,864,000 El Packet Page 157 Item 8 INFRASTRUCTURE & TRANSPORTATION Bishop and Roundhouse Street Connection $700,511,000 $13,200,000 Bob Jones Trail Connections: Marsh Street to Prado and Los Osos Valley Road to Southern City Limits $11,000,000 Boysen at Santa Rosa Street: Pedestrian and Class I Bike grade separate crossing $3,500,000 Broad at Tank Farm Intersection Improvements $1,500,000 Broad Street Bicycle Boulevard / Anholm Bikeway Including Broad St. Ramp Closure & Bike/Ped Overpass $5,000,000 Broad Street Bike Path: Class I from Rockview to Damon Garcia Sports Fields $800,000 Broad Street Intersection Improvements $6,775,000 Broad/South/Santa Barbara streets Intersection Improvements $300,000 Bus Fleet Expansion: 4 Buses $4,000,000 Cerro Romauldo Bike Path: Class I from Tassajara to Chorro Street $750,000 City Hall Annex Renovation $17,000,000 City Hall Renovation $10,100,000 Citywide Traffic Model Updates and Data Collection $954,000 Class II Bike Lane Installations $3,299,000 Class III Bike Lane Signage and Markings $408,000 Corporation Yard Work Area Rehabilitation $583,000 Creek Walk Expansion under Broad Street Bridge $6,237,000 Downtown Bikeways & Bike Blvds $2,000,000 Downtown Lighting Installations $630,000 Downtown Multimodal Street Conversion (Type A) $53,157,000 Downtown Multimodal Street Conversion (Type B) $7,157,000 Downtown Multimodal Street Conversion (Type C) $5,893,000 Downtown Multimodal Street Conversion (woonerfs) $15,312,000 Downtown Sidewalk Installations $1,159,000 Ella Street Bike Boulevard $50,000 Extend Prado Road: Higuera Street to Broad Street $26,526,000 Fixilini & Flora Bike Boulevard $450,000 Higuera at Tank Farm: Intersection Improvements $2,000,000 Higuera Widening: High St to Marsh St $2,150,000 Higuera Widening: Madonna Rd to City Limits $5,400,000 Horizon Lane Extension South of Tank Farm $3,000,000 Implementation of IT Strategic Plan $17,000,000 Intersection Control Upgrades $20,000,000 Jennifer Street Bridge Morro St. Expansion $500,000 Laguna Lake Bikeways $6,576,000 Los Osos Valley Road Interchange Class I Bike Underpass $1,000,000 Madonna Class I (Hwy 101 to Oceanaire) $1,500,000 Packet Page 158 Item 8 Marsh & Higuera 2-Way Conversion $3,770,000 Marsh at Higuera Intersection Improvements $5,123,000 Water Distributions Master Plan Implementation $50,000,000 Parking Meter Expansion $350,000 Multimodal Street Conversion Studies $477,000 New Street Lights $964,000 Orcutt at Johnson Intersection Improvements $2,000,000 Orcutt at Tank Farm Intersection Improvements $1,700,000 Orcutt Road Bridge over Railroad Tracks $20,000,000 Parking Structure: Palm and Nipomo Street $43,000,000 Pedestrian and Bicycle Bridge: Bullock to Industrial over Railroad Tracks $2,703,000 Pedestrian and Bicycle Bridge: Over Tank Farm along east side of railroad tracks $1,178,000 Pedestrian and Bike Bridge: Penny Lane over railroad tracks $53,000 Prado at Higuera Intersection Improvements $2,500,000 Prado Road Bridge and Road Widening $14,720,000 Prado Road Interchange $58,090,000 Prado Road Widening: West of Higuera Street widening $12,000,000 Property Acquisitions - Lots E/O Santa Rosa and Downtown $3,000,000 Railroad Safety Trail: Class I Bike Path from Cal Poly to Southern City Limits $12,000,000 Railroad Safety Trail: Pepper Street to the Train Station $176,000 Santa Fe Bike Path: Class I Bike Path from Buckley to Tank Farm $2,863,000 Santa Fe Road Connection: Tank Farm to Prado Road $1,080,000 Sewer Collections Master Plan Implementation $35,000,000 Sewer Treatment and Reclamation Master Plan Implementation $95,000,000 South Broad Street Medians $2,708,000 Tank Farm Creek Bike Path: Class I Bike Path from Buckley to Tank Farm $1,800,000 Tank Farm Road Widening: Horizon to Santa Fe $22,000,000 Transit Center $6,428,000 Upgrade of Pedestrian and Bike Crossing Controls $2,389,000 Upgrade Parking Meters: Coin Meter to Credit Card Capable $300,000 Vachell Lane Bike Path: Class II Lanes on Vachell from Buckley to South Higuera Street $650,000 Water Reuse Master Plan Implementation $2,500,000 Water Treatment Plant Master Plan Implementation $25,000,000 West Side of 101 Bike Path: Class I Bike Path from Broad to Marsh Street $2,000,000 Packet Page 159 0 1, VIA :frro Vv y CITY OF SqR DELIS OBISPO City Manager Message Hope on the horizon but it remains a marathon not a sprint. 1. Vaccines 2. Solid Financial Position 3. Organizational Focus 4. Agility and Nimbleness 5. Community Support 6. Strong Regional Partnerships PF-0-mv /00 Conquering the COVID-19 Mountain Feb- March 2020 1. February — The City begins working with the County to monitor the spread of COVID-19 2. March 18 — The City Council proclaims a local emergency due to COVID-19 3. March 19 - Governor Newsom Issues Stay at Home Order 4. City Creates Guide to Support Local Restaurants/Cafes and the Business and Community Hotline 5. City recreation programs are re -imagined on virtual platforms I W Conquering the COVID-19 Mountain April 2020 1. City Council: emergency safety enhancement zone 2. The City begins to plan for Economic Recovery and Resiliency 3. City creates a SLO Virtual Shopping Map 16L IL3 Conquering the COVID-19 Mountain May 2020 1. Free COVID-19 testing begins in the County 2. Some businesses begin to open with modifications 3. The State begins using the Resilience Roadmap 4. Parklets, Private Parking Lots and Downtown Circulation Plans Cl Ul 16L Conquering the COVID-19 Mountain June 2020 1. City continues to address the impacts of COVID-19 while responding to protests 2. First Open SLO Activities begin in Mission Plaza, Monterey and Higuera Streets 3. Public Art to Honor Maxine Lloyd Lewis is unveiled in Mission Plaza o" 16L Conquering the COVID-19 Mountain July 2020 1. July 1 — City takes additional action, Bars to close through Sunday and limit occupancy to 25% on Monday 2. Continued `Your Actions Save Lives' messaging throughout the Downtown 3. Picnic in the Plaza with free parking in Downtown Garages is advertised 4. Installation of parklets begin 0 throughout Downtown 0 11b 5. Safe Parking Program is lk� )� reinstated U 16L Conquering the COVID-19 Mountain August 2020 1. SLO Wellness Business Map is created 2. SLO City Small Business Relief Fund is launched 3. City experiences high-level Air Quality Warnings 4. City Council adopts Climate Action Plan for Community Recovery 5. Governor Newsom announces O the Blueprint for a Safer Economy }) 16L Conquering the COVID-19 Mountain September 2020 1. Evacuations are ordered due to the Bridge Fire 2. Major renovations are completed at Islay Park Playground 3. TIPP-FAST Program is launched 0 NIL Conquering the COVID-19 Mountain October 2020 1. Vote by Mail ballots start arriving 2. Virtual Public Halloween Decorating Contest is launched 3. City of SLO starts seeing an increase in COVID-19 cases p 4. County of SLO begins moving toward the Orange tier U 16L Conquering the COVID-19 Mountain November 2020 1. City of SLO, Downtown SLO and CAPSLO begin additional homeless 2. 3. 4. 5. 6. 7. 8. outreach Additional messaging is conducted to #SLOtheSpread in SLO City County of SLO reaches 5,000 cases State of CA reaches 1 million cases County of SLO falls back to purple tier Mask mandate from the State is updated Limited Stay at Home Order is orde W,,�A Light Up Downtown is unveilPci C LI 16L Conquering the COVID-19 Mountain December 2020 1. State's Regional Stay at Home Order takes effect 2. City Council approves $3.4M in additional funding to support economic development and homeless services 3. Buy Local Bonus Program is announced 4. Pfizer and Moderna Vaccines are approved by the FDA and more vaccine information becomes available 5. #HeIpUsHelpYou campaign is launched 6. Regional Stay at Home Order is extended 0 U L 'I 16L Conquering the COVID-19 Mountain January 2021 1. City's 2nd Round of the `SLO City Small Business Relief Fund' is announced 0 3. Vaccine information continues to be shared and as of January 8t", more than 81000 SLO County residents have been vaccinated against COVID-19 Marsh Street Bridge Opens 0 11 Conquering the COVID-19 Mountain January 2021 and Beyond While the ascent of the COVID-19 Mountain was difficult, sometimes the descent can be just as hard if not harder. We need to maintain vigilance, continue to use our best practices, and support our community! i� log x Recommendations 1. Review the 2021-23 Financial Plan Goal Setting Process 2. Review and approve the City's budget and fiscal policies 3. Receive and discuss the economic outlook for the 2021-23 Financial Plan development 4. Review the current and long-term capital outlook plan review. Goal Setting Process 2021-23 Financial Plan Virtual CGh4AlUNITY Community SURVEYS EPP Forum (T) 1/1 4/21 AIINOES M LETTERS FROM , GOAL —SETTING coCUR Ra► INP4FOKCAST gRCups CURRENT � � 2-VL%A GOALS* LETi ER5 FROM &TERM �iAXBj IMMUMALS S6IOLICR:S ��� City Council Interviews (January): One-on-one with consultant FINANCIAL PLANNING Orel: February 6, 2021 'Nor fnrbrr 1 ", 2020 ".Se ng rllr S1aga" Flo, Woop 1 4: Q 1 T edger FvundAr+aA " Do ks4p City Council Workshop: One-on-one with consultant IM Community Forum Purpose Opportunity to build upon results of community survey and submit public comment Provide opportunity for more focused feedback on Local Revenue Measure uses Interactive group polling with "dot" voting opportunity provided after the forum 0*0 • •� -. Xyi * 00000 000,640 Community Survey Results 1O00 900 800 700 600 Sao 400 300 200 100 D we 697 620 556 Top Priorities 544 536 434 433 Focus areas for Community Forum 343 322 287 O `ate\E k`y�a y� Community Forum —Agenda 1.14.21 6:00-6:15 Welcome/Opening Remarks Mayor Heidi Harmon and Derek Johnson, City Manager 6:15-6:20 Welcome & Instructions Sommer Kehrli, Facilitator 6:25-6:35 2021-23 Financial Plan Process and Fiscal Outlook Brigitte Elke, Finance Director 6:35-7:05 Community Input (Polling) Facilitator 7:05-8:15 Self -Selecting Breakout Sessions 8:15-8:25 Community Input Part two (Polling) 8:25-8:55 Public Comment 8:55-9:00 Closing Remarks The Virtual Platform - Zoom • Designed to mimic in -person format • Conversational • Move between discussion rooms • Impartial facilitation 2021-23 Community Forum • Welcome, opening • Interactive group polling Poll Everywhere Climate Actkon Discussi Capacity: 500 attendees/each Homelessness ff [.P� Hdfk#=p # TTdiing#_' lik# vxen�fkfb drlhL# h �shu'gg# dvvlIT4dgwv Economic Stability ----------- IM, on on on Local Revenue Measure (LRM) • Feedback on the LRM will be a part of the Community Forum • 2021-23 recommended projects and services will incorporate feedback • Identified projects and services will be reviewed by Revenue Enhancement Oversight Commission (REOC) for consistency with priorities in March before final approval by the City Council Measure G-20 (Community Services/Investment) Shall an ordinance to provide funding to protect City of San Luis Obispo's financial stability; maintain fire%ommunity safety, health emergency/disaster preparedness; protect creeks from pollution; address homelessness; keep public areas clean/safe; retain local businesses; maintain youth/senior services, streets, open space/natural areas, and other general services, by extending voter -approved funding at a 1.50 rate, providing approximately $21, 600, 000 annually until ended by voters; requiring audits/all funds used locally, be adopted. Economic CIP Outlook Review & Outlook Council Member Guidelines and Pre -Work 0 Encourage community to submit comments about desired goals • Invite Citizens to participate in Community Forum and listen and learn from their neighbors • Acknowledge input and listen openly to all perspectives ❑ Prepare and submit candidate goals by 2/1/2021. Focus submission of suggested goals on a short list of key priorities to target City Resources (not to exceed five suggested goals) Council Goal -Setting Workshop: February 6t", 2021 ■ Develop Major City Goals and Other Important Objectives for 2021-23, keeping in mind outlined criteria ■ Identify connections between use of LRM Revenues and Major City Goals ■ Identify ideas for changes in programs and services to achieve the highest priorities during the Financial Plan Detailed agenda to be provided at least one week prior to Goal -Setting Workshop 23 CIP Review & Outlook Background/Purpose Budget Foundation '> IL net anti financial N Consistent and comprehensive fiscal policies provide a solid foundation for the long-term fiscal health of a City With each Financial Plan, the Council reviews its fiscal policies to determine if any updating is necessary GYCY O� .. CITY of sH� LuTs oBISPo • B F g atl & Leis o4 • - Policies Financial Plan Policies -Additions ■ Financial Plan Objectives ■ Long Term Financial Planning ■ Capital Improvement Management • Financial Plan Objectives ■ Long -Term Financial Planning For detailed policy changes, see Attachment `g" - Packet pg. 127 on 27 Economic Outlook • Unprecedented events still drive uncertainties • The City entered the pandemic with strong fiscal health policies • Sectors impacted differently • Anticipate strong Q2(Oct-Dec), but how will Q3(Jan-Mar) shape up? • Additional unknown CalPERS adjustments • Maintain a forecast with slight adjustments A look at some economic indicators... ====* Employment —A Lagging Indicator 16.0 14.0 12.0 �-- 10.0 z w U 8.0 ry w We, 2020 SLO County Unemployment Rates* 14.0 3 M Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec * From CA Employment Development Department, www.labormarketinfo.edd.ca.gov Now 28 Ranked 7t" lowest unemployment rate in CA Consumption, tourism (and lack thereof) --------------- Upside t ❖ Quick bounce -back in spending ❖ "Drive -to" destination ❖ Increase in County Pool allocation ❖ Low Interest rates ------------- Downside ❖ Restaurants and hotels impacted ❖ Online shopping hurts local business ❖ Stimulus -funded spending ❖ Additional wave of shutdowns 2020 Sales Tax Growth/Decline Compared to Prior Year Jul-SeptJan-Mar Apr -Jun ConsumerGeneral • • • -12% -40% -12% HotelsRestaurants & -14% -50% -33% • -8% -46% -31 % +25% Packet pg. 111 +30% +43% Goal W Budget & CIP Setting Fiscal Economic Review& Process A& Policies Outlook Outlook Construction, Real Estate, Property Tax LI i California currently ranks 49t" in housing units to population ratio (2nd lowest) and the housing units that are available are often unaffordable for first-time home buvers or lower income families_ Economic Development in the Age of COVID 0 eD / COVID accelerated online shopping trends: E-commerce sales grew more than 30% in the first half of 2020 -144 Capital Improvement Plan Status There are 110 financially active projects during the 2019-21 Mnonr+ini Dinn norinr4 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% on 32 Item 8 — Reading file h Long-Range CIP Many of the City's current infrastructure assets are not adequate to handle the needs of the future San Luis Obispo. The Long -Range Capital improvement needs serve as a guide for required future investments to support the General Plan as well as other Council approved policies, plans, and goals in place today. New Assets (including Development Agreement projects) Asset Replacement Annual Asset Maintenance 0 3 NeedsAnnual Maintenance General Fund CIP Asset Ideal Annual Funding Traffic Management $ 250,000 Pavement Management $ 4,400,000 Curb, Gutter, Sidewalks $ 1,000,000 Flood Control $ 5,300,000 Sidewalk Ramps $ 580,000 Parks Play Equipment $ 150,000 Buildings $ 1,570,000 Bike Path Maintenance $ 100,000 O ens ace Maintenance $ 150,000 Total00 000 Packet pg. 155 Long-Range CIP Community & Neighborhood Livability Community Safety Culture &Recreation ANNE011IMM Environmental Health & Open Space Fiscal Health & Governance Infrastructure & Transportation Importance of Measure G-20 20-year revenue estimate* * In today's value $ 3,358,000 $ 125,205,000 $ 82,827,000 $15,723,000 $ 13,160,000 $ 243,491,000 TOTAL $483,764,000 $420 million Packet pg. 156 on 34 Next Steps January 14t", 2021: Community Forum January 19t", 2021: 2019-20 Audited Financials February 2nd, 2021: Mid -year Review (FY20-21), updated five- year forecasts February 6t", 2021: Council Goal -Setting Workshop Recommendations 1. Review the 2021-23 Financial Plan Goal Setting Process 2. Review and approve the City's budget and fiscal policies 3. Receive and discuss the economic outlook for the 2021-23 Financial Plan development 4. Review the current and long-term capital outlook plan review. 0 1, VIA :frro Vv y CITY OF SqR DELIS OBISPO City Manager Message Hope on the horizon but it remains a marathon not a sprint. 1. Vaccines 2. Solid Financial Position 3. Organizational Focus 4. Agility and Nimbleness 5. Community Support 6. Strong Regional Partnerships PF-0-mv /00 Conquering the COVID-19 Mountain Feb- March 2020 1. February — The City begins working with the County to monitor the spread of COVID-19 2. March 18 — The City Council proclaims a local emergency due to COVID-19 3. March 19 - Governor Newsom Issues Stay at Home Order 4. City Creates Guide to Support Local Restaurants/Cafes and the Business and Community Hotline 5. City recreation programs are re -imagined on virtual platforms I W Conquering the COVID-19 Mountain April 2020 1. City Council: emergency safety enhancement zone 2. The City begins to plan for Economic Recovery and Resiliency 3. City creates a SLO Virtual Shopping Map 16L IL3 Conquering the COVID-19 Mountain May 2020 1. Free COVID-19 testing begins in the County 2. Some businesses begin to open with modifications 3. The State begins using the Resilience Roadmap 4. Parklets, Private Parking Lots and Downtown Circulation Plans Cl Ul 16L Conquering the COVID-19 Mountain June 2020 1. City continues to address the impacts of COVID-19 while responding to protests 2. First Open SLO Activities begin in Mission Plaza, Monterey and Higuera Streets 3. Public Art to Honor Maxine Lloyd Lewis is unveiled in Mission Plaza o" 16L Conquering the COVID-19 Mountain July 2020 1. July 1 — City takes additional action, Bars to close through Sunday and limit occupancy to 25% on Monday 2. Continued `Your Actions Save Lives' messaging throughout the Downtown 3. Picnic in the Plaza with free parking in Downtown Garages is advertised 4. Installation of parklets begin 0 throughout Downtown 0 11b 5. Safe Parking Program is lk� )� reinstated U 16L Conquering the COVID-19 Mountain August 2020 1. SLO Wellness Business Map is created 2. SLO City Small Business Relief Fund is launched 3. City experiences high-level Air Quality Warnings 4. City Council adopts Climate Action Plan for Community Recovery 5. Governor Newsom announces O the Blueprint for a Safer Economy }) 16L Conquering the COVID-19 Mountain September 2020 1. Evacuations are ordered due to the Bridge Fire 2. Major renovations are completed at Islay Park Playground 3. TIPP-FAST Program is launched 0 NIL Conquering the COVID-19 Mountain October 2020 1. Vote by Mail ballots start arriving 2. Virtual Public Halloween Decorating Contest is launched 3. City of SLO starts seeing an increase in COVID-19 cases p 4. County of SLO begins moving toward the Orange tier U 16L Conquering the COVID-19 Mountain November 2020 1. City of SLO, Downtown SLO and CAPSLO begin additional homeless 2. 3. 4. 5. 6. 7. 8. outreach Additional messaging is conducted to #SLOtheSpread in SLO City County of SLO reaches 5,000 cases State of CA reaches 1 million cases County of SLO falls back to purple tier Mask mandate from the State is updated Limited Stay at Home Order is orde W,,�A Light Up Downtown is unveilPci C LI 16L Conquering the COVID-19 Mountain December 2020 1. State's Regional Stay at Home Order takes effect 2. City Council approves $3.4M in additional funding to support economic development and homeless services 3. Buy Local Bonus Program is announced 4. Pfizer and Moderna Vaccines are approved by the FDA and more vaccine information becomes available 5. #HeIpUsHelpYou campaign is launched 6. Regional Stay at Home Order is extended 0 U L 'I 16L Conquering the COVID-19 Mountain January 2021 1. City's 2nd Round of the `SLO City Small Business Relief Fund' is announced 0 3. Vaccine information continues to be shared and as of January 8t", more than 81000 SLO County residents have been vaccinated against COVID-19 Marsh Street Bridge Opens 0 11 Conquering the COVID-19 Mountain January 2021 and Beyond While the ascent of the COVID-19 Mountain was difficult, sometimes the descent can be just as hard if not harder. We need to maintain vigilance, continue to use our best practices, and support our community! i� log x Recommendations 1. Review the 2021-23 Financial Plan Goal Setting Process 2. Review and approve the City's budget and fiscal policies 3. Receive and discuss the economic outlook for the 2021-23 Financial Plan development 4. Review the current and long-term capital outlook plan review. Goal Setting Process 2021-23 Financial Plan Virtual CGh4AlUNITY Community SURVEYS EPP Forum (T) 1/1 4/21 AIINOES M LETTERS FROM , GOAL —SETTING coCUR Ra► INP4FOKCAST gRCups CURRENT � � 2-VL%A GOALS* LETi ER5 FROM &TERM �iAXBj IMMUMALS S6IOLICR:S ��� City Council Interviews (January): One-on-one with consultant FINANCIAL PLANNING Orel: February 6, 2021 'Nor fnrbrr 1 ", 2020 ".Se ng rllr S1aga" Flo, Woop 1 4: Q 1 T edger FvundAr+aA " Do ks4p City Council Workshop: One-on-one with consultant IM Community Forum Purpose Opportunity to build upon results of community survey and submit public comment Provide opportunity for more focused feedback on Local Revenue Measure uses Interactive group polling with "dot" voting opportunity provided after the forum 0*0 • •� -. Xyi * 00000 000,640 Community Survey Results 1O00 900 800 700 600 Sao 400 300 200 100 D we 697 620 556 Top Priorities 544 536 434 433 Focus areas for Community Forum 343 322 287 O `ate\E k`y�a y� Community Forum —Agenda 1.14.21 6:00-6:15 Welcome/Opening Remarks Mayor Heidi Harmon and Derek Johnson, City Manager 6:15-6:20 Welcome & Instructions Sommer Kehrli, Facilitator 6:25-6:35 2021-23 Financial Plan Process and Fiscal Outlook Brigitte Elke, Finance Director 6:35-7:05 Community Input (Polling) Facilitator 7:05-8:15 Self -Selecting Breakout Sessions 8:15-8:25 Community Input Part two (Polling) 8:25-8:55 Public Comment 8:55-9:00 Closing Remarks The Virtual Platform - Zoom • Designed to mimic in -person format • Conversational • Move between discussion rooms • Impartial facilitation 2021-23 Community Forum • Welcome, opening • Interactive group polling Poll Everywhere Climate Actkon Discussi Capacity: 500 attendees/each Homelessness ff [.P� Hdfk#=p # TTdiing#_' lik# vxen�fkfb drlhL# h �shu'gg# dvvlIT4dgwv Economic Stability ----------- IM, on on on Local Revenue Measure (LRM) • Feedback on the LRM will be a part of the Community Forum • 2021-23 recommended projects and services will incorporate feedback • Identified projects and services will be reviewed by Revenue Enhancement Oversight Commission (REOC) for consistency with priorities in March before final approval by the City Council Measure G-20 (Community Services/Investment) Shall an ordinance to provide funding to protect City of San Luis Obispo's financial stability; maintain fire%ommunity safety, health emergency/disaster preparedness; protect creeks from pollution; address homelessness; keep public areas clean/safe; retain local businesses; maintain youth/senior services, streets, open space/natural areas, and other general services, by extending voter -approved funding at a 1.50 rate, providing approximately $21, 600, 000 annually until ended by voters; requiring audits/all funds used locally, be adopted. Economic CIP Outlook Review & Outlook Council Member Guidelines and Pre -Work 0 Encourage community to submit comments about desired goals • Invite Citizens to participate in Community Forum and listen and learn from their neighbors • Acknowledge input and listen openly to all perspectives ❑ Prepare and submit candidate goals by 2/1/2021. Focus submission of suggested goals on a short list of key priorities to target City Resources (not to exceed five suggested goals) Council Goal -Setting Workshop: February 6t", 2021 ■ Develop Major City Goals and Other Important Objectives for 2021-23, keeping in mind outlined criteria ■ Identify connections between use of LRM Revenues and Major City Goals ■ Identify ideas for changes in programs and services to achieve the highest priorities during the Financial Plan Detailed agenda to be provided at least one week prior to Goal -Setting Workshop 23 CIP Review & Outlook Background/Purpose Budget Foundation '> IL net anti financial N Consistent and comprehensive fiscal policies provide a solid foundation for the long-term fiscal health of a City With each Financial Plan, the Council reviews its fiscal policies to determine if any updating is necessary GYCY O� .. CITY of sH� LuTs oBISPo • B F g atl & Leis o4 • - Policies Financial Plan Policies -Additions ■ Financial Plan Objectives ■ Long Term Financial Planning ■ Capital Improvement Management • Financial Plan Objectives ■ Long -Term Financial Planning For detailed policy changes, see Attachment `g" - Packet pg. 127 on 27 Economic Outlook • Unprecedented events still drive uncertainties • The City entered the pandemic with strong fiscal health policies • Sectors impacted differently • Anticipate strong Q2(Oct-Dec), but how will Q3(Jan-Mar) shape up? • Additional unknown CalPERS adjustments • Maintain a forecast with slight adjustments A look at some economic indicators... ====* Employment —A Lagging Indicator 16.0 14.0 12.0 �-- 10.0 z w U 8.0 ry w We, 2020 SLO County Unemployment Rates* 14.0 3 M Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec * From CA Employment Development Department, www.labormarketinfo.edd.ca.gov Now 28 Ranked 7t" lowest unemployment rate in CA Consumption, tourism (and lack thereof) --------------- Upside t ❖ Quick bounce -back in spending ❖ "Drive -to" destination ❖ Increase in County Pool allocation ❖ Low Interest rates ------------- Downside ❖ Restaurants and hotels impacted ❖ Online shopping hurts local business ❖ Stimulus -funded spending ❖ Additional wave of shutdowns 2020 Sales Tax Growth/Decline Compared to Prior Year Jul-SeptJan-Mar Apr -Jun ConsumerGeneral • • • -12% -40% -12% HotelsRestaurants & -14% -50% -33% • -8% -46% -31 % +25% Packet pg. 111 +30% +43% Goal W Budget & CIP Setting Fiscal Economic Review& Process A& Policies Outlook Outlook Construction, Real Estate, Property Tax LI i California currently ranks 49t" in housing units to population ratio (2nd lowest) and the housing units that are available are often unaffordable for first-time home buvers or lower income families_ Economic Development in the Age of COVID 0 eD / COVID accelerated online shopping trends: E-commerce sales grew more than 30% in the first half of 2020 -144 Capital Improvement Plan Status There are 110 financially active projects during the 2019-21 Mnonr+ini Dinn norinr4 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% on 32 Item 8 — Reading file h Long-Range CIP Many of the City's current infrastructure assets are not adequate to handle the needs of the future San Luis Obispo. The Long -Range Capital improvement needs serve as a guide for required future investments to support the General Plan as well as other Council approved policies, plans, and goals in place today. New Assets (including Development Agreement projects) Asset Replacement Annual Asset Maintenance 0 3 NeedsAnnual Maintenance General Fund CIP Asset Ideal Annual Funding Traffic Management $ 250,000 Pavement Management $ 4,400,000 Curb, Gutter, Sidewalks $ 1,000,000 Flood Control $ 5,300,000 Sidewalk Ramps $ 580,000 Parks Play Equipment $ 150,000 Buildings $ 1,570,000 Bike Path Maintenance $ 100,000 O ens ace Maintenance $ 150,000 Total00 000 Packet pg. 155 Long-Range CIP Community & Neighborhood Livability Community Safety Culture &Recreation ANNE011IMM Environmental Health & Open Space Fiscal Health & Governance Infrastructure & Transportation Importance of Measure G-20 20-year revenue estimate* * In today's value $ 3,358,000 $ 125,205,000 $ 82,827,000 $15,723,000 $ 13,160,000 $ 243,491,000 TOTAL $483,764,000 $420 million Packet pg. 156 on 34 Next Steps January 14t", 2021: Community Forum January 19t", 2021: 2019-20 Audited Financials February 2nd, 2021: Mid -year Review (FY20-21), updated five- year forecasts February 6t", 2021: Council Goal -Setting Workshop Recommendations 1. Review the 2021-23 Financial Plan Goal Setting Process 2. Review and approve the City's budget and fiscal policies 3. Receive and discuss the economic outlook for the 2021-23 Financial Plan development 4. Review the current and long-term capital outlook plan review.