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HomeMy WebLinkAbout08/20/2002, C13 - CREEK AND FLOOD PROTECTION BUDGET REVISIONS ADcouncil Mcb,D.x 8.20-02 aacEnba RepoRt CITY OF SAN LU I S OB I SPO FROM: Bill Statler, Director of Finance SUBJECT: CREEK AND FLOOD PROTECTION BUDGET REVISIONS CAO RECOMMENDATION Approve budget revisions related to the projected loss of$285,800 in creek and flood protection fee revenues in 2002-03. DISCUSSION Background. Following an extensive series of public meetings, community outreach and Council workshops over the last several years, on March 21, 2002 the Council conceptually approved forming a new Creek and Flood Protection Fund and adopted a multi-year rate implementation strategy that phased-in fees over the next six years, with continuing General Fund subsidies until the sixth year (2007-08). After follow-up community outreach and another public hearing, the Council formally adopted this multi-year program on May 21, 2002. For the first year (2002-03), the fee was set at an "equivalent dwelling unit" rate of$1.00 per month for a single-family residence. At this rate, the new fees would only cover about 40% ($285,800) of program costs in 2002-03, with the remaining funding sources coming from Zone 9 reimbursements ($100,000) and a General Fund subsidy($290,700). However, shortly after Council approval of this new fee program, there was a court decision regarding a similar fee in the City of Salinas that led City staff to recommend deferring implementation of the fee until February 2003, pending a more detailed analysis of the basis for the court's decision, how this might affect our fee program, and changes we might want to consider to address the concerns underlying the court decision. Further, it was likely that the City of Salinas would appeal this decision (which they have), and that the decision might be de- certified or repealed in its entirety. On June 17, 2002, the Council took the more conservative approach of rescinding these fees rather than deferring them. Under either approach—deferring or rescinding the fees—we did not recommend formally modifying the budget at that time, but instead, deferring the enhanced program coordination ($39,900) and all CII' projects ($286,000). We would then follow-up with a more detailed assessment of which projects (if any) needed to go forward, and how to fund them in light of reduced fee revenues. Proposed Strategy. We have completed this analysis, and are now recommending specific budget actions for the Council's approval-in addressing the loss of these fees in 2002-03. As detailed below, our strategy consists of a combination of expenditure reductions and an increase in the General Fund subsidy, which will allow us to move forward with three key CIP projects Creek and Flood Protection Budget Revisions Page 2 previously approved by the Council: Johnson underpass lift station replacement; Morro at Monterey storm sewer replacement; and silt removal from the Laguna Lake Prefumo arm. In addition to moving forward with these three projects, this revised funding strategy also maintains current service levels for operations and maintenance. Specific Recommendations 1. Offset the projected loss of$285,800 in fee revenues in the Creek and Flood Protection Fund in 2002-03 by: a. Reducing appropriations by $117,400 for program coordination ($39.900), utility billing ($46,500) and silt removal at the Tank Farm Road bridge ($31,000). b. Increasing the subsidy transfer from the General Fund by $168,400 and funding this through the Capital Improvement Plan (CIP) reserve account ($147,400), reduced appropriations for the payment of creek and flood protection fees ($18,200) and reduced transfer to the Golf Fund ($2,500). 2. Reduce appropriations in other City funds for the payment of creek and flood protection fees: $300 in the Water Fund; $1,800 in the Sewer Fund; $900 in the Parking Fund and $2,500 in the Golf Fund. 3. Increase the Sewer Fund reimbursement transfer for utility billing services by $46,500 since this cost will no longer be shared with the Creek and Flood Protection Fund. 4. Approve going forward with three high-priority creek and flood protection CIP projects previously approved by the Council: Johnson underpass lift station replacement ($75,000); Morro at Monterey storm sewer replacement ($110,000); and silt removal from the Laguna Lake Prefumo arm ($70,000). Key Assumption: No Fee Revenue in 2002-03. This strategy is based on the key assumption of no fee revenues during 2002-03. We believe this is consistent with the Council's action to rescind these fees rather than to defer them. In the event that they are re-adopted by the Council later in 2002-03, we can revisit these changes at that time. However, given our recommendation to proceed with three high-priority CIP projects totaling $255,000, we believe assuming no fee revenue during 2002-03, and making budget changes accordingly, is the most prudent course of action at this time. FISCAL IMPACT Creek and Flood Protection Fund The following summarizes the fiscal and service impacts of our recommended strategy on the Creek and Flood Protection Fund in offsetting the projected revenue loss in 2002-03 of $285,800. I } Creek and Flood Protection Budget Revisions Page 3 Flood,Creek and 00 • Expenditure Reductions Program Coordination (primarily funding for a new position starting in January 2003) 39,900 Tank Farm Bridge Silt Removal 31,000 Utility Billing Reimbursement Transfer 46,500 Total Expenditure Reductions 117,400 Increased General Fund Subsidy 168,400 Total Revenue Loss Offsets $ 285,800 1. Program Coordination. This deferral will adversely impact our ability to begin implementing National Pollution Discharge Elimination System (NPDES) requirements and other desirable creek and flood protection improvements. However, given our uncertain General Fund revenue outlook, we cannot recommend moving forward with this new initiative without the additional resources that would have been provided from the new fee program. 2. Tank Farm Bridge Silt Removal. Of the four CIP projects scheduled for funding in 2002- 03, this has the lowest priority. While it would be preferable to do this project sooner rather than later, we believe deferring this project is acceptable given our uncertain fiscal outlook. 3. Utility Billing Reimbursement Currently, the Water and Sewer Funds bear the cost for utility billing, for which they reimburse the General Fund through the Cost Allocation Plan. Under the Plan for 2002-03, the Water Fund's share of these costs is $189,000 and the Sewer Fund's is $93,000. While there will be no increased costs in adding creek and flood protection fees to the City's utility billing system, the new fund should pay its fair share of these costs. After analyzing the underlying nature of these costs, we concluded that the effort was similar to that of the Sewer Fund. Accordingly, the Council approved sharing the $93,000 cost previously assigned to the Sewer Fund equally between the Sewer Fund and Creek and Flood Protection Fund ($46,500 each). Since this fee is no longer in place, this reimbursement should also be eliminated. There are no adverse impacts on either the Creek and Flood Protection Fund or the General Fund in making this change. However, as noted below, the reimbursement transfer from the Sewer Fund should be reinstated to its former level and increased by$46,500. For 2002-03, these changes will result in total Creek and Flood Protection Fund expenditures of $559,100 (a reduction of $117,400 from the 2002-03 Supplement), which will be funded by estimated Zone 9 revenues of $100,000 and a General Fund subsidy transfer of $459,100 (an increase from the 2002-03 Supplement of$168,400). General Fund The following summarizes related General Fund changes based on implementing the proposed strategy outlined above: 1. Eliminate the 518,200 appropriation for creek and flood protection fees. In crafting the proposed fee program on an enterprise fund basis, it was important to treat the City like all other customers. This resulted fees to be paid by the General Fund in 2002-03 of$18,200. Ci33 I Creek and Flood Protection Budget Revisions Page 4 2. Reduce the operating transfer to the Golf Fund by $2,500. We estimated that the Golf Fund's fees would be $2,500 annually. These should be eliminated in the Golf Fund, which will in turn reduce the General Fund's subsidy to this fund by the same amount (from $216,300 to $213,800). 3. Increase the General Fund subsidy to the Creek and Flood Protection Fund by $168,100. After reducing expenditures in the Creek and Flood Protection Fund by $117,400, this is the balance remaining to fully offset the $285,800 revenue loss. After adjusting for the reduced appropriations of$20,700 related to paying these related service fees, the net General Fund impact of this subsidy is $147,400. Since this is driven by going forward with the remaining CIP projects, we recommend funding this net amount from the CIP Reserve, resulting in no net impact on the General Fund. Other Funds 1. Capital Outlay Fund Under the recommended budget revisions, the CIP reserve will be reduced by $147,400. The current balance in this account is $253,900, leaving $106,500 to address other CIP contingencies for the balance of the fiscal year. 2. Sewer Fund As discussed above, the Sewer Fund's reimbursement transfer to the General Fund for utility billing services should be restored to its previous level (an increase of $46,500). On the other hand, the appropriation of$1,800 for creek and flood protection fees should be eliminated. 3. Parking Fund. The appropriation of $900 for creek and flood protection fees should be eliminated. 4. Golf Fund The appropriation of $2,500 for creek and flood protection fees should be eliminated. Related to this, the subsidy transfer from the General Fund should also be reduced by this same amount. CONCURRENCES The Departments of Public Works and Utilities concur with these recommendations. ALTERNATIVES Do Not Go Forward with the Other CIP Projects. While this would reduce the General Fund impact, we believe it is important to move forward with these three projects. Each of them address basic, high-priority infrastructure maintenance needs that should not be deferred: 1. Johnson Underpass Lift Station. This lift station helps prevent flooding in the low spot where Johnson Avenue passes under the railroad bride by pumping storm water to a storm drain at a higher elevation. The current pumps and electrical switchgear are original components installed when the lift station was built almost 50 years ago. Over the last five years there have been several pump and switchgear failures attributable to age and wear. Although there are two pumps that are designed to back each other up, they are so old that it C/.? Creek and Flood Protection Budget Revisions Page 5 is possible both could fail, particularly during extended pumping periods after heavy rainfall. Because Johnson Avenue is a major arterial and provides an important northern access to French and General Hospitals, it is important to keep it open and passable at all times. If both pumps failed during heavy storms, Johnson Avenue would remain impassable for an extended period. As such, we believe it is important to move forward in replacing the 50- year-old pumps and switchgear with up-to-date reliable equipment. 2. Morro at Monterey Storm Sewer. This project is needed to correct drainage problems at the intersection of Monterey and Morro Streets. While this could be deferred on its own merits, replacing the wastewater main in Monterey Street between Osos and Chorro is a high- priority project, and these two projects should be built at the same time to minimize disruption to the downtown. Since the wastewater project has previously been deferred in order to coordinate it with this storm drain project,we do not recommend further deferral. 3. Prefumo Arm Silt Removal Previously scheduled for 2003-04, this project was accelerated in the 2002-03 Supplement due to the desirability of maintaining a three-year siltation removal period, which is the optimum cycle calculated by the CIP Project Engineering staff and approved by the Corps of Engineers. Given our past permitting history with the Corps and the need to complete this work before October 15, we recommend moving expeditiously on this project. For this reason, approval of plans for this project is a separate agenda item on the August 20, 2002 Council meeting. Do Not Defer Any of the Current Programs and Projects. We do not recommend this option given its impact on the General Fund. Going forward with all of the programs and projects as planned would require an additional General Fund subsidy of$70,900 in 2002-03, and create an even greater ongoing funding commitment in future years. SUMMARY Assuming that creek and flood protection fees will not be restored in 2002-03 results in a revenue loss for the year of $285,800. To offset this shortfall, we recommend expenditure reductions of$117,400 in the Creek and Flood Protection Fund and an increase in the General Fund subsidy of$168,400. This will allow us to maintain current service levels and go forward with three high-priority CIP projects: Johnson underpass lift station replacement; Morro at Monterey storm sewer replacement; and silt removal in the Laguna Lake Prefiuno arm. However, this is a short-term measure intended to get us through 2002-03 without adverse impacts on the General Fund or current service levels. While this is reasonable in the near term, we should not let it lull us into a false sense of security about the prospects of adequately funding creek and flood protection services in the future. In short, the Council adopted these new fees for a compelling reason: to create a stable and dedicated source of funding to adequately meet the current and future needs of this important service. If we are not able to restore these fees and get back on track with our long-term plans, we will be facing a much more difficult situation as part of the 2003-05 Financial Plan process and beyond. G:Creek and Flood Protection Fund/Budget Revision CAR-8-20-02