The purpose of this City Council item is to receive a report and presentation from staff regarding the FY 2019/20 & 2020/21 biennial budget, receive public comments and provide direction to staff on balancing the General Fund (GF) budget.

The City of Union City has been grappling with the issue of long term projected GF deficits. For FY 2017/18 the City was fortunate to have avoided a deficit GF budget as a result of significant onetime revenues, a continued strong economy, an unanticipated (higher than expected) staff vacancy rate and diligent efforts by staff to curtail expenditures.

For FY 2018/19 it is anticipated that the GF deficit will be $1.5m.  Past reduction efforts have included reducing the FY 2017/18 budget by $1.2m and an additional $600k in FY 18/19.  The City has put in place hiring freezes for certain positions and no cost of living adjustments for employees in the last round of contract negotiations. 

In November of 2018 the City placed two tax measures on the ballot.  The first, Measure DD was a cannabis tax measure that is expected to raise $1.4m per year once all available licenses have been issued and all cannabis operations are a full operating strength.  That measure was passed by the voters and the City anticipates issuing the last of the licenses in later this year.  The second, Measure EE, was a dual Charter City Ordinance/enhanced real estate property transfer tax measure that was expected to raise $5.0m annually.  That measure was rejected by the voters. 

In the fall of 2018 the City contracted with Management Partners to conduct a comprehensive organizational management audit of the entire City organization. The impetus for this study is the City’s financial outlook, and as a general "best practice" review of City structure and operations. Elected and appointed officials wish to ensure that the organization is optimally structured in a way that utilizes resources efficiently to deliver valued community services.  While the results of the audit will be formally presented to the City Council and the public in late June/early July, the recommendations of the draft report have been considered in tonight’s presentation for solutions to solving the budget deficit.

The City has also contracted with the Center for Public Safety Management to conduct a data analysis of the City’s fire-related services provided by Alameda County Fire Department.  The data from that analysis has been compiled and formal recommendations are being developed.  It is expected that this information will be presented to the City Council and the public in July, once the draft report is completed.

Staff have also conducted outreach to both employees and the public in an attempt to hear their thoughts and observations regarding the budgets situation.  Credible suggestions have been considered and included in the development of solutions listed below.  In order to capture the most current data a summary of the public survey will be provided to the City Council on the evening of the budget workshop.

The loss of measure EE combined with continued inflationary pressures, increases in contractual obligation for fire services, impacts of CalPERS and health insurance cost and other increasing obligations are impacting the long term viability of the City’s operations.  The aforementioned items when added to projected revenue streams show the following impacts on the City’s General Fund unassigned fund balance (savings account):

The chart above makes several key assumptions.  The first is that revenue trends will remain strong with moderate growth in all key areas with no adjustment for recessionary concerns. The second is that already reduced staffing levels will be maintained at current salary levels with no cost of living adjustments.  The third is that current expenditure for supplies and services will be maintained.

Obviously, the above trend line cannot be sustained as the City must maintain a certain level of cash in order to maintain operations.  Staff have developed a number of possible budget control options in an attempt to stabilize the City’s budget over the long term which are laid out below by order of their fiscal impact.

Ongoing Expenditure Reduction Items

·         $1,900,000 to $2,400,000 – Closure of Fire Station 30

·         $550,000 to $650,000 – Closure of Mark Green Sports Center

·         $470,000 – "Brown-out" of 100 fire station 24 hour shifts

·         $250,000 to $350,000 each – Other recreation center closures (Holly, Kennedy, Senior)

·         $200,000 to $400,000 – reduction in parks grounds maintenance

·         $50,000 to $255,000 – reduce or eliminate nonprofit subsidies

·         $28,000 to $350,000 – Leaving certain currently vacant positions unfilled

·         $17,000 to $34,000 – Reduction in Library hours

·         $10,000 to $25,000 – Reduction in recreation center hours

·         Undetermined – Reduction in City staffing

·         Closing of City Hall on all Fridays – Not a significant cash saving but would allow staff uninterrupted time to get work assignments completed

One Time Items

Staff are working on a review of all properties help by the City and will be bringing forward a report to the City Council at a later date.  This report will recommend which possibilities might exist to sell underutilized properties.   Due to restrictions on the use of some of the funds used to acquire some of these properties, the use of sales proceeds will be restricted (e.g., for capital and/or redevelopment area uses).

Unassigned General Fund Reserves

The City Council established a policy to maintain unassigned GF reserves equal to 20% of GF expenditures.  It is anticipated that at 06/30/2019 the City will have unassigned reserves of 24.50% or $15.2m.  This represents $2.7m above the policy requirements of 20%.  In addition the City has strong liability reserves (workers comp and general liability) exceeding recommended confidence levels by an estimated two million dollars.

The use of reserves to balance budget deficits is a common methodology for cities.  This practice of “bridging” a budget gap can work when the deficit is short term in nature and there is a known landing spot for the bridge such as a significant debt that will be paid off or a revenue enhancement that will be coming on line.  This temporary use of reserves allows the city to maintain delivery of services to its citizens without significant impacts and interruptions. 

Currently, the City does not have a near term “landing spot” for spending of reserves.  Expenditures are expected to continue on trend with no known reductions until 2026 when the City's Pension Obligation Bonds will be paid off ($2.6m annual savings).  This event has been included in the model above.  Developments in the Station District that have a high degree of certainty to be completed have been included in the 10 year model.  There are several major projects that are being considered that if completed would bring in in excess of $1.5m in annual tax revenues to the City. These projects however, are discussions only at this point and if started would not come on line until 2025 and later at best.  Any other significant revenue enhancement strategies would be in the hands of the City Council via the ballot box and staff are not aware of any discussions at this time.

Even without a “landing spot” the use of reserves is still a valid consideration for the City Council.  It’s important to remember that the use of reserves does not change the trajectory of the budget curve and should be utilized judiciously as once the fund are spent they are gone.

Looming Issues

There are a handful of other fiscal demands that must be considered.

·         Information Technology capital needs are ongoing and increasing.  Over the next 10 years several million dollars will be needed for IT upgrades and maintenance issues. 

·         Fire apparatus replacement are also ongoing with the cost of new equipment ranging from $750k to $1.5m per truck.

·         Continued investment in facility upkeep and replacement is ongoing.

·         Pension costs are based on the most recent information provided by PERS.  If the current assumed earnings rate of 7% is not met it will significantly impact the 10 year model as PERS raises pension rates.

·         Recessionary pressures could be just around the corner.  The current 10 year model has not been adjusted to reflect any downturn in the economy.  Rough internal estimates have shown that a moderate recession could impact the Cities reserves by as much a $10m over the next 10 years.

·         Measure QQ which provides over $4m in public safety funds is up for renewal in 2020.

·         The City is currently in or will be entering labor negotiations with all five of its bargaining groups.

The fiscal impact will be as recommended by the City Council in the final budget document.  No final decisions are requested from the City Council at this meeting, but staff will appreciate any feedback the Council may wish to provide.

Staff is asking the City Council to consider the information presented this evening, receive public testimony and to provide feedback on the budget deficit which will be brought back to the City Council for adoption on June 11, 2019.