HomeMy WebLinkAbout05/27/2003, 1 - PRELIMINARY 2003-05 FINANCIAL PLAN council Mfiq Dai
5-22/5-29-03
aac,Enaa REpont ,�N ,
CITY OF SAN LUIS OBISPO
FROM: Ken Hampian, City Administrative O 4r�
Bill Statler, Director of Finance
SUBJECT: PRELIMINARY 2003-05 FINANCIAL PLAN
CAO RECOMMENDATION
Review and consider the Preliminary Financial Plan for 2003-05 at the budget workshops
scheduled for May 22 and 27, 2003.
DISCUSSION
Enclosed for your review and information in preparing for the May 22 and 27 budget workshops
are the following three documents:
I. Preliminary Financial Plan. This includes:
a. The budget message from the CAO highlighting key issues facing us (Section A)
b. Policies and objectives, including work programs for major City goals (Section B)
c. Simple graphics and charts summarizing the City's budget (Section C)
d. Operating programs (Section D)
e. Summary of capital improvement plan (CIP)projects and funding sources (Section E)
f. Debt service requirements (Section F)
g. Changes in financial position for each of the City's operating funds (Section G)
h. Financial and statistical tables (Section H)
i. Budget reference materials (Section 1)
2. Appendix A: Significant Operating Program These are intended to be used as
Changes. This Appendix provides additional supplemental resources in the
supporting documentation for each of the event that Council members have
significant operating program changes proposed in questions on a program or project
the Preliminary Financial Plan. An overview is as they review the Preliminary
included in the Appendix that further describes its Financial Plan. In short, while the
purpose,organization and content. Council may to choose to read
the Appendices from 0cover-to-
3. Appendix B: Capital Improvement Plan cover,"this same information is
Projects. This Appendix provides supporting summarized in the Preliminary
documentation for each of the CIl' projects
Financial Plan.
proposed in the Preliminary Financial Plan. An
overview is included in the Appendix that further describes its purpose, organization and .
content.
The May 22 and 27 workshops are the first of several study sessions and public hearings
scheduled to review the Preliminary Financial Phan. One of the fundamental purposes of these
Preliminary 2003-05 Financial Plan Page 2
workshops is to review these documents with the Council in some.depth. Accordingly, we do
not anticipate that the Council will have reviewed all of this material in detail by the May 22
workshop.
Best Place to Start. The Budget Message and Financial Highlights (starting on page A-1) are
recommended as a good starting point in reviewing the Preliminary Financial Plan and in
preparing for the May 22 workshop. It has been written with the goal in-mind of discussing all
of the key issues reflected in the Preliminary Financial Plan in a concise but comprehensive
manner.
Focus of the May 22 and.27 Workshops. As summarized below, the primary focus of these
two workshops will be on General Fund programs and projects; a separate public hearing has
been scheduled for May 29 to review enterprise fund programs, projects, revenues and rates.
May 22 Budget Workshop
1. Overview of key budget issues, strategies and fiscal outlook.
2. Fiscal policies and major City goals.
3. General Fund revenues: key assumptions and recommended new revenues..
4. General Fund operating programs.
May 27 Budget Workshop
5. Continued review of General Fund operating programs,if needed.
6. General Fund CIP projects.
7. Follow-up direction from the Council for subsequent workshops and hearings.
Remaining Budget Review Schedule
The following dates have been scheduled for review and adoption of the 2003-05 Financial Plan:
-,,--.Council Budget Review Schedule: Remaining Step
May 22 Preliminary Financial Plan review;General fund operating programs
May 27 Continued review;General Fund CIP projects
May 29 Enterprise fund programs,projects,revenues and rates
June 3 Continued Preliminary Financial Plan review
June 17 Continued review and adoption of the Financial Plan
Major City Goals and Other Council Objectives
Consistent with Council priorities and direction, all efforts have been made to integrate the
results of the Council's goal-setting process into the Preliminary Financial Plan. The way this
has been accomplished is discussed at some length in the Budget Message (beginning on page A-
1) and in the Policies and Objectives section (in the"Overview"beginning on page B-3).
As discussed in the Budget Message, all twelve of the Major City Goals set by the Council are
reflected in the Preliminary Financial Plan based on the work programs approved by the Council
1- 2-
Preliminary 2003-05 Financial Plan Page 3
on April 10, 2003. The Budget Message also discusses how the "Other Council Objectives" are
reflected in the Preliminary Financial Plan (in short, all of these are reflected in some fashion as
well).
Development Review Fee Analysis
Overview. Fee Increases in the Context of Our Overall Budget-Balancing Strategy
As presented to the Council on April 10, 2003, and reflected in the Preliminary Financial Plan,
our budget-balancing strategy in closing a "budget gap" of about $7 million relies primarily on
expenditure reductions, which account for
about 75% of the proposed solution. While
component about 15% , new BUDGET BALANCING STRATEGY
a smaller coin
P ( ) closrrethe Gap
revenues are also an important part of the
budget-balancing strategy: without them, °Reveres
service reductions will have to be even �stis
greater than those already proposed—
keeping in mind that the community input ■Reserves ® ciP
we have received supports limiting service 11% 49%
reductions.
Expentl[tures:74%
And of the new revenues, the proposed m Operadrg '
increase in cost recovery for planning Pwrams
services from 45% to 100% is largest piece: 25%
at $500,000 per year, it accounts for about
50% of the proposed new revenues of$1,059,400. In addition to this, as discussed in-depth with
the Council at the May 6, 2003 meeting, we are also recommending increases in engineering
development review fees.
Given the sensitivity of revenue increases in general, and the special interest that typically
accompanies development-related issues, we have prepared supplemental information about the
impact of the proposed fee increases.
Background
The Preliminary Financial Plan reflects the planning and engineering fee increases that have
been previously discussed with the Council. As noted in these earlier discussions, the
underlying reasons for increases are significantly different for the planning fees versus the
engineering fees:
Planning fees: policy issue. This is a more straightforward issue on how this cost should be
funded: through user fees or general-purpose revenues. We recommend increasing the cost
recovery goal from 45% to 100% (including 25%of long-range planning costs) for two reasons:
1. Itis consistent with existing policy that distinguishes between service beneficiaries (which in
this case is largely the community, not the applicant) and service drivers (those who cause
the need for the service, which in this case is clearly the applicant).
/--3
Preliminary 2003-05 Financial Plan Page 4
2. It is an important component of our overall budget balancing strategy, which the Council
conceptually approved on April 10, 2003. We estimate that this change in policy will result
in additional revenues of $500,000. While expenditure reductions play the largest role in
closing a General Fund "budget gap" of about $7 million—accounting for about 75% of the
overall solution—new planning revenues account for about 7% of the solution.
Removing or reducing this piece of the budget-balancing pie will have two consequences:
given the fiscal challenges facing us, it will mean even deeper cuts in services that rely
heavily on general-purpose revenues, such as police, fire, street maintenance and parks; and
since the General Fund subsidizes such a large portion of planning costs, this means that this
service is subject to cost cuts as well, at a time when development activity is at an all-time
high. For this reason, while it might not appear so on the surface, this will also benefit
applicants by helping to mitigate reductions that might otherwise be required in our
development review services.
As discussed previously with the Council, in implementing this higher cost recovery goal, we
recommend an approach used by many other cities for planning cost recovery: collecting at
the building permit stage (as a percentage of the permit fee) rather than at the planning
permit application stage. This has the benefit of recovering these costs when the applicant
has a `real project" (rather than just the hoped-for one), and the applicant can finance these
fees like other development costs. Using projected"baseline" annual revenues from building
and plan check fees of about $1.3 million, achieving the added revenue of $500,000 for
planning services results in a recommended assessment of 37.5% of the building and plan
check fee.
Engineering fees: analytical issue. As discussed with the Council at the May 6, 2003 meeting,
it is already the City's policy to recover 100% of our engineering development review costs.
However, based on a recent analysis of engineering costs and revenues, it became clear that the
cost analysis prepared in 1999 that underlies our current engineering fees significantly
understated these costs. This was compounded by an over-estimate of engineering "per unit"
volumes. Because of unusually high development review activity, this problem has been masked
over the past several years. To correct for this, the Council conceptually approved increasing
engineering fees. In this case, it is important to note that doing so will not result in additional
revenues compared with prior forecasts; however, not doing so will result in engineering fees
that are about$250,000 less per year than our"baseline"estimate.
Analysis of Fee Increases
Transcending policy and methodological issues, there are two analytical issues not directly
addressed in prior discussions with the Council regarding the proposed fee increases:
1. How will they impact the cost of developing in the City?
2. And how will our fees compare with other local agencies?
The following answers both of these questions.
i^y
Preliminary 2003-05 Financial Plan Page 5
Impact on City development costs. While this is an easy question to ask,preparing an accurate
answer is not quite as simple. The City's development review fees are based on the specifics of
each development proposal. Simply stated, there is no "one-size fits all" development fee. For
this reason, the best way to answer this question is to compare fee impacts based on a "sample
case studies." To do this, we compared current and proposed developed costs for the following
four"Scenarios" that we believe represents a reasonable range of possible development types:
Non-Residential 20,000 square foot office building(Scenario IA)
115,000 square foot retail building(Scenario 1B)
Residential One single family residence(Scenario 2)
10-home subdivision (Scenario 3)
The results of this analysis are presented in Attachment A, which shows that the proposed fee
increases will have a modest impact on total development costs, ranging from an increase of
6.8% to 11.8% depending on the scenario. As reflected in the summaries, the reason for this is
simple: compared with impact fees, development review costs are a much smaller component of
the total development costs. Depending on the circumstances, review fees are 20% to 35% of
the total development costs. As such, relatively large increases in this area will have much less
of an impact than similar increases in impact fees (which are not affected by the proposed fee
increases).
Comparisons with other local agencies. This is an even tougher question to answer, since
every agency has their own unique way of assessing fees. As such, collecting data to ensure an
"apples to apples" comparison can be very difficult. Moreover, as noted in the following excerpt
from the City's Budget and Fiscal Policies, comparisons with other agencies should not be the
driving factor in determining City fees:
1. Fee surveys should never be the sole or primary criteria insetting 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 our cost
recovery objectives?
b. What costs have been considered in computing the fees?
c. When was the last time that their fees were comprehensively evaluated?
d. What level of service do they provide compared with our service or performance
standards?
e. Is their rate structure significantly different than ours and what is it intended to
achieve?
2. These can be very difficult questions to address in fairly evaluating fees among different.
communities. As such, the comparability of our fees to other communities should be one
factor among many that is considered in setting Cityfees.
/-S
Preliminary 2003-05 Flnancial Plan Page 6
With these caveats, provided in Attachment B is a summary of City development review costs—
both current and proposed--compared with those of the other cities in the county and the County
of San Luis Obispo (based on three of the scenarios used in analyzing City development.costs).
The results clearly show that our review fees—both current and proposed—are among the
highest in the County. However, as noted above, we need to be cautious in drawing any
conclusions from these results in setting our own fees. Stated simply, while it is interesting to
know how our fees compare with others, it is important that we set fees in accordance with the
City's circumstances—such as our cost recovery goals and service standards—and not those of
other agencies.
Some may say, however, that higher development review fees will place San Luis Obispo at a
"competitive disadvantage" in attracting desired commercial/industrial projects, and will raise
housing costs. In response to these concerns,staff simply offers that:
1. The City's fees have traditionally been higher than other cities in the county, and yet we
continue to experience a high level of development interest in the community (in fact, in
recent years our permit loads have been record-breaking); and
2. If development fee increases were major factors in housing prices, then housing cost
increases over the last several years should have been modest, since the City's fee increases
have simply reflected cost-of-living-adjustments in the 2% to 3% range. The simple fact is
that there are many forces that determine the market price.of housing, and City fees are a
small part of this. In short, regardless of City fees—or the cost of land, construction,
insurance, marketing or other cost drivers—any financially responsible developer will
always charge the market price for new housing. Stated somewhat differently, if the market
will bear single family housing that costs $500,000, then that is the price a developer will
(and should) set for a new home—regardless of whether City fees are $18,000 per house or
$20,000 per house.
Review Process
There will be ample opportunity over the coming weeks to further consider the consistency of
the proposed fee increases with existing City policy, the need for the added revenues in
maintaining basic service levels given the tough fiscal challenges facing us, and the impact of the
proposed fees on City development costs. As noted above, any fee increases are not scheduled
for formal Council approval until June 17, 2003, when we also plan for Council adoption of the
Financial Plan.
Impact of the Governor's May Revue on the City's Budget
The Governor issued his May Revise just one day before the release of our Preliminary Financial
Plan. As such, it is too soon to analyze its specific impacts on us relative to the revenue
assumptions reflected in the Preliminary Financial Plan. However, we should have an initial
assessment to share with the Council at the May 22 budget workshop.
On the other hand, it is important to remember that the May Revise, while a reasonable
barometer of the fiscal "pressure" in Sacramento and the way the wind is blowing today, is
Preliminary 2003-05 Financial Plan Page 7
news or bad news for us, there is still a long way to go in the State's budget process before
anything is close to being finalized. This is especially true given the magnitude of the State's
fiscal problem, and the highly partisan and political environment in which hard decisions need to
be made. For that reason, other than remaining steadfast in opposing any further State
takeaways from cities in balancing its budget (we have more than paid our fair share of dues to
that endeavor via ERAF and other State budget grabs), we need to avoid over-reacting to day-to-
day changes in the State's budget process.
ATTACHMENTS
A. City Development Costs: Current and Proposed
B. Comparison of City Development Review Costs with Other Agencies
ENCLOSURES
■ Preliminary Financial Plan
■ Appendix A: Significant Operating Program Changes
■ Appendix B: Capital Improvement Plan Projects
G:Budget Folders/2003-05 Financial Plan//Preliminary Financial Plan/Agenda Reports/Preliminary Financial Plan
IV _�
Attachment A: City Development Cost Scenarios
SCENARIO 1 a
,20,000 Square Foot - Building
Current Pro osed
0/0 Of %of
Amount Total Amount Total
Planning Fees
Application Fee 2,187 2% 2,187 1%
Assessment Due with Building Permit Fees 7,824 5%
Building Plan Check& Permit Fees 21,317 15% 21,317 14%
Fire Plan Check& Inspection Fees 3,357 2% 3,357 2%
Engineering Plan Check,
pIIns ectn&Encroachment Fees 1,106 1% 3,040 2%
t` :�:.. J��' , 1,, .'tL. f'. }_•.
Water Impact Fees 16,130 11% 16,130 10%
Water Meter Installation 151 0% 151 0%
Wastewater Impact Fee 6,700 5% 6,700 4%
Transportation Impact Fee 58,440 41% 58,440 38%
Affordable Housing In-Lieu Fee 28,000 19% 28,000 18%
Public Art In-Lieu Fee 1 6,500 5% 1 6,500 1 44*/o
Percentlncrease
Scenario 1(a) Scenario 1(a)
Existing Development Costs Proposed Development Costs
®Impact DReview ®Impact
DReview FeesFees _ Fees
Fees `'' 81%
19°k 25% 75%
c - �
ASSUMPTIONS
■ Exempt from CEQA review
■ Infrastructure largely in-place,so no significant engineering plan check and inspection services
■ 1 inch water meter
■ Construction value of$1.4 million
Attachment A: City Development Cost Scenarios
SCENARIO I(b)
115,000 Square Foot Retail Building
Current Proposed
%of %Of
Amount Total Amount Total
Planning Fees
Application Fee 6,684 1% 6,684 1%
Assessment Due with Building Permit Fees 0% 27,311 4%
Building Plan Check, Permit and Related Fees 74,291 11% 74,291 10%
Fire Plan Check&Inspection Fees 11,722 2% 11,722 2%
Engineering NPlan Check, fnsRectn& Encroachment Fees 118.630 17% 165,837 22%
-0�c
NOW 't 'S
Water Impact Fees 32,260 5% 32,260 4%
Water Meter Installation 378 0% 378 0%
Wastewater Impact Fee 14,868 2% 14,868 2%
Transportation Impact Fee 264,270 38% 264,270 34%
Affordable Housing In-Lieu Fee 139,150 20% 139,150 18%
Public Art In-Lieu Fee 34,287 , 5% 34,287 , 4%
7_ 00%
Me
Percent Increase
Scenario 1(b) Scenario 1(b)
Existing Development Costs Proposed Development Costs
0 Impact El Impact
Fees Fees
DReview 70% DReview 63%
Fees Fees
30% 370/a
ASSUMPTIONS
* Environmental review required;costs for an EIR are not included if one was subsequently needed.
* Significant infrastructure improvements needed for streets,storm drains and water and sewer lines with
an estimated value of$1.1 million
* 1.5 Inch water meter
* Construction value: $7.0 million
Attachment A. City Development Cost Scenarios
SCENARIO 2
,2,000 Square Foot - Family Residence
Current Pro osed
%of %of
Amount Total Amount Total
Planning Fees
Application Fee
Assessment Due with Building Permit Fees 1,516 1%
Building Pian Check& Permit.Fees 4,222 23% 4,222 3%
Fire Plan Check& Inspection Fees 671 4% 671 0%
Engineering Plan Check, Ins ectn& Encroachment Fees 445 2% 1,087 1%
Water Impact Fees 8,065 44% 8,065 5%
Water Meter Installation 151 1% 151 0%
Wastewater Impact Fee 3,236 18% 3,236 2%
Transportation Impact Fee 1,456 8% 1,456 1%
Affordable Housing In-Lieu Fee
Public Art In-Lieu Fee
Percent Increase
Scenario 2 Scenario 2
Existing Development Costs Proposed Development Costs
13ImpactH Impact
Fees Fees
a Review
71% D Review 63%
Fees Fees
29% 370/6
37%
r
ASSUMPTIONS
■ Exempt from CEQA review
■ Infrastructure largely in-place,so no significant engineering plan check and Inspection services
■ 3/4 or one inch meter
■ Construction value:$168,000
Attachment A: City Development Cost Scenarios
SCENARIO 3
tSubdivision
Current Pro osed
%of %of
Amount Total Amount Total
Planning Fees
Application Fee 10,662 4% 10,662 3°/a
Assessment Due with Building Permit Fees 12,446
Building Plan Check&Permit Fees 34,968 12% 34,968 11%
Fire Plan Check& Inspection Fees 5,458 2% 5,458 2%
Engineerinq Plan Check, Ins ectn&Encroachment Fees 33,129 11% 47,330 15%
w �ii�lft?I . Res
Water Impact Fees 80,650 27% 80,650 25%
Water Meter Installation 1,510 1% 1,510 0%
Wastewater Impact Fee 32,360 11% 32,360 10%
Transportation Impact Fee 14,560 5% 14,560 40/6
Affordable Housing In-Lieu Fee 84,000 28% 84,000 26%
Public Art In-Lieu Fee
.. J- A
Percent Increase9.t)%
7 77
Scenario 3 Scenario 3
Existing Development Costs Proposed Development Costs
0 impact G Impact
Fees Fees
72% 66%
OReview x OReview
Fees x. r Fees
28% xJ i 34%
ASSUMPTIONS
■ Exempt from CEQA review
■ Infrastructure largely in-place, but some infrastructure improvements are needed with an estimated value
of$276,500
■ 3/4 or one inch meter
■ Construction value: $168,000 for each home
f_0
Attachment B: Comparison of Development.Review Costs with Other Local Agencies
Includes Planning,Building,Fire and Engineering Development Review Fees
Scenario 1: 20,000 Square Foot Commercial Office Building
$60,000 - ----- --
$52,500 --- --$45,000 ---
$37,500 --$30,000 -
$22,500 -
$15,000
30,000522,500$15,000 RRM�M
$7,600 -
$0
7,500 -$0
Pismo SLO County Paso Atascadero Arroyo Grover San Luis San Luis Morro Bay
Beach Robles Grande Beach Obispo: Obispo:
current Proposed
Fees Fees
f-rte
Attachment B: Comparison of Development Review Costs with Other Local-Agencies
Includes Planning, Building,Fire and Engineering Development Review Fees
$10,000 -
scenario 2: 2,000 Square Foot Single Family Residence
$9,000 - -
$8,000
$7,000 --
$6,000 -
$5,000 -
$4,000
7,o0o$8,000$5,000 -$a,000
$3,000 --
$2,000
$1,000
$0 . -ff- III
Atascadero Arroyo Paso Pismo Grover SLO County Morro Bay San Luis San Luis
Grande• Robles Beach Beach Obispo: Obispo:
Current Proposed
Fees Fees
r �3.
i
I
Attachment B: Comparison of Development Review Costs with Other Local Agencies
Includes Planning, Building,Fire and Engineering Development Review Fees
$140,000 - —
$120,000 -
$100,000
$80,000 -
$60,000 --
$40,00
80,000$80,000$40,00
{p
$20,000 -
$0 --1
20,000$0 -
Atascadero Arroyo Grover Pismo SLO Paso Morro Bay San Luis San Luis
Grande Beach Beach County Robles Obispo: Obispo:
Current Proposed
Fees Fees
1,1q