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CITY COUNCIL AGENDA ITEM NO. 20

Meeting Date: June 14, 2005

Subject/Title: Approve a resolution adopting the 2005/06-2006/07 Operating Budget for the City of Brentwood

Prepared by: Kerry Breen, Accountant II

Submitted by: Pamela Ehler, Director of Finance and Information Systems

RECOMMENDATION
Approve a resolution adopting the 2005/06-2006/07 Operating Budget for the City of Brentwood.

PREVIOUS ACTION
The Preliminary budget was presented at the May 24, 2005 workshop for City Council comments and review. A copy of the Operating Budget is available for public review in the City Clerk’s office, Engineering Department lobby, Community Development lobby, Parks and Recreation lobby and at the Brentwood Library.

BACKGROUND
As discussed in the Budget Message, the City’s Operating Budget of $172.7 million and the Redevelopment Agency’s Budget of $10.2 million adhere to the City Council’s Goals and Objectives. In accordance with the Budget Development Guidelines, this budget is free from reliance upon non-recurring revenue sources and does not commit to spending more than realistic estimates of revenues. In order to keep up with the fast pace of growth, the Budget will be reviewed quarterly, or sooner if necessary, to allow the City Council to respond to changes in the economy or development community in a timely manner.

FISCAL IMPACT
We recognize that one of the hallmarks of a progressively managed City government is the ability to develop a vision for its long-term financial security. At the same time, it is essential that we meet the immediate demands for outstanding service delivery. To ensure that the City remains financially healthy over the next decade, the Finance Department will annually prepare a 10-year forecast of the City’s revenues, expenses and fund balances. This fiscal model will be updated for the Council each year with recommendations on how any gaps between revenues and expenditures may be closed. The fiscal model will also identify staffing needs and a strategic plan will be developed. The operating budget does not include any new positions so that we can analyze our staff needs at build out and begin to adjust accordingly.

Budget changes for all Funds

In an effort to attract and retain top quality employees, the City contracted with Johnson and Associates to perform a Classification and Compensation study. The classification portion of the study encompassed all City positions and classifications and included a total of approximately 294.75 positions currently allocated to 156 classes. The study was adopted by Resolution 2005-122 on May 24, 2005 and has increased personnel costs to the General Fund in 2005/06 by $359,001, and by $795,494 City-wide, including benefits. The City has incorporated the annual CPI increase of 2.4% for all salaries in the 2005/06 budget numbers, and has also budgeted a 3% CPI increase for salaries in the 2006/07 budget year.

Insurance Fund

In the 2005/06 budget, the City has created an Internal Service fund to handle our PERS contributions, insurance, and retiree medical costs. One of the biggest challenges local governments have faced over the past couple of years has been the rapid increases in our PERS rates. The City’s miscellaneous PERS contribution rate has increase 341% since 2000/01. The City’s safety PERS contribution has risen 472% since 2000/01. In an effort to help contain costs, the City prepaid the employer portion of PERS retirement for the first time in 2004/05, resulting in a budgetary savings of over $1 million. This savings will be transferred to the Insurance Fund.

The Insurance fund will consist of the savings realized from future prepayments of the employer portion of retirement costs, as well as any savings in worker’s compensation and PERS charges associated with having approved positions which go unfilled. These savings, estimated to be around $1.5 million per year, will then be used to pay for the increasing retiree medical costs facing the City. In an effort to raise public awareness of the true costs and rising liabilities of retiree medical benefits, GASB issued Statement No. 45 which addresses how local governments should account for their costs and obligations for retiree healthcare. Statement 45 also establishes reporting and disclosure requirements. The City is required to implement GASB 45 in fiscal year 2008/09, and has budgeted for the insurance fund to pay for an actuarial valuation report in 2006/07.

Building Replacement and Facilities Maintenance

The Building Replacement Fund pays for major repairs to the City’s buildings. The fund charges City departments based on the square footage of the buildings and the allocations of the people who occupy those buildings. In previous years, the City’s maintenance crew was funded through the building replacement fund, which did not leave enough money for true building replacement. In order to ensure that the City has adequate reserves to pay for future building replacement needs, we have taken the maintenance salaries and costs out of building replacement and created a new Facilities Maintenance internal service fund. Since the building replacement fund will now only pay for major repairs, we have substantially lowered the building replacement rate charged to the City departments. This rate increases in 2006/07, and will gradually be increased as required in the future to ensure that we have enough resources to pay for building replacement.

As mentioned above, the Facilities Maintenance Fund was established to pay for the janitorial, custodial, and maintenance needs of the City’s buildings. Alarm services and pest control will also be paid through this fund. The combination of the building replacement and the facilities maintenance charges to other City departments is higher than what was charged through building replacement in the past. Departments will pay into this fund based on square footage of their buildings. Previously, this expense was paid for through the Supplies and Services account in each Division.

General Fund

The City’s General Fund pays for Police, Parks and Recreation, Building, Planning, Engineering, and general Administration. Top revenue sources include property and sales taxes, building and engineering fees, and the motor vehicle license fee. Balancing the City’s General Fund budget has become increasingly more difficult with additional pressures being added as a result of State revenue takeaways and the need to avoid cutbacks on City services.

The State has a long history of taking money away from Cities in order to help balance their own budget. While Proposition 1A was designed to help protect the revenue of local governments down the road, there are still several State takeaways that are affecting Brentwood. ERAF III, Sales Tax, Vehicle License Fees and Unfunded Mandated Cost Reimbursements have all been subject to State Takeaways.

The following table represents our estimated revenue losses caused by the most recent State takeways:

State Takeaways 2004/05 2005/06 2006/07
Unfunded Mandated Cost Reimbursement $90,000 $95,000 $100,000
Sales Tax 450,000 200,000 150,000
ERAF III 318,732 318,732
Vehicle License Fees 771,160

Total
$1,629,892
$613,732
$250,000

Despite the difficult economic times, the City of Brentwood’s projections have managed to come within 1% of its 2004/05 revenue budget, while staying 7% under its budgeted expenditures. This revenue shortfall was unanticipated due to the State’s restructuring of their accrual method for sales tax, resulting in our being paid for only 10.5 months instead of one full year. Most of the expense savings are due to approved personnel positions that were not filled during the year.

Investment yield continues to be historically low in 2004/05 so investment income is significantly lower than anticipated. Additionally, the Governmental Accounting Standards Board (GASB) issued Statement No. 40, which requires us to report investments at fair market value, which accounted for lower overall returns. The City is conservatively estimating investment income will be $1,250,000 for FY 2005/06.

In Fiscal Year 2005/06 the City is implementing a 10-year plan to minimize its dependence on development impact fees. Beginning in 2005/06, the Finance Department will move 20% of its staff funded through the Capital Improvement Program to the General Fund. Parks and Recreation will move all of their staff previously funded through CIP to Park Planning. Economic Development will have all of their staff reallocated by the 2006/07 budget year. Engineering will begin this same reallocation process in 2006/07.

A major change for the General Fund this year was the movement of Parks and Recreation from an Enterprise Fund into the General Fund. When the District was annexed to the City, the City received the Park District property tax which has continued to be earmarked for Parks and Recreation. That property tax will be tracked each year so that the Council will know to what extent, if any, the General Fund subsidizes Parks and Recreation. Some of the increases in the Parks and Recreation budget next year are due to their divisions being charged their full share of internal service for the first time. Previously, the City had helped subsidize Parks and Recreation and did not charge full cost for internal services.

The Brentwood Police Activities League (PAL) hosts after school recreational activities and programs for the youth of Brentwood. The PAL program is run by Parks and Recreation, volunteer police officers, civilian employees, and both high school and college aged staff. Brentwood PAL receives a portion of their funding through the California PAL and the rest is provided by the General Fund. The General Fund contribution has risen from $154,492 in 2003/04 to a projected $228,114 in the final year of this budget. The increase is largely due to an increase in the number of operational days from 145 to 180, as well as costs associated with adding a third site at Bristow.

The following table summarizes some of the significant expenditures of the General Fund:

Expenditure Appropriation
General Plan Update $575,000
Specific Plan 238,612
Third Firefighter Position 1,013,748
Residential Guidelines 50,000
District Attorney Assistant 299,500
Fire Station Study 50,000
Pavement Management 2,726,306
Planning Commission Training 15,600
Retirement/Recruitment Costs 65,000
New Streets Equipment 256,000
Fiscal Model 100,000
Brentwood Center (Los Medanos College and Business and Technology Center) 613,221

By the end of the two year budget cycle, fund balance is projected to increase from $17.2 million to $20.7 million.

Enterprise and Special Revenue Funds

The Solid Waste Enterprise Fund will continue to see revenue growth commensurate with the increase in the City’s annual population levels. Most of these costs are tied to resident needs and demands and will increase accordingly. The Budget includes $375,000 for a fleet facility upgrade and $82,500 for an upgraded fuel dispensing system. The Solid Waste Enterprise will also begin payments on the possible Series 2006 Revenue Bonds. The bond proceeds will be used for the Solid Waste Transfer station improvements, which include a scale, scale house, litter containment devices, and a new building with a concrete loading pad, as well as other improvements to adequately meet the City’s needs.

The Water and Wastewater Enterprise Funds, like the Solid Waste Fund, will continue to see both revenues and expenses increase as the needs for service increase. The Water Fund will also begin payments on a new Water Treatment Plant Loan. Debt service will be approximately $1,350,000 annually for the Water Fund, with an equal amount being paid for by developer impact fees for the Treatment Plant. The Wastewater Fund will begin payment of a State Water Resources Loan in 2005/06. A rate study is also underway for both the Water and Wastewater Enterprises to ensure that the rates charged in the future are appropriate. The Wastewater Enterprise fund will fall short of this year’s revenue projections because the previous rate study overestimated the revenue to be generated by new customers. The new rate study in progress will address this issue.

The City Rentals Enterprise includes the Brentwood Education and Technology Center and Los Medanos College. Approximately 22% of the available space at the Technology Center is vacant while 29% is leased by the City to house employees. The money collected does not offset the cost of running the Center and the City has had to provide a subsidy to keep the Brentwood Center open. Next year will be the first time that City Rentals will be charged their full share for internal services, including replacement funds, and because of this the General Fund subsidy has increased by $188,632.

The Housing Enterprise, opened in 2003/04, accounts for the administrative and operational expenses for the Housing Division and the Housing rental stock. It will take a few years for this enterprise to have enough housing stock to generate sufficient rental income to offset the operational expenditures. The Housing Enterprise has received enough money from developer in lieu fees to have adequate reserves to cover all costs until the housing rental stream is sufficient to cover expenses. We anticipate that in approximately 10 years the Housing Enterprise will become one of our largest revenue sources.

In addition to the General Fund and Enterprise Funds, the City also uses Special Revenue funds to account for specific fees or activities. One of our new funds this year will be for the Public Access, Educational, and Governmental (PEG) channels. Comcast has agreed to provide the City with three PEG channels and will pay the City a total of $850,000 for these channels. The formation of the PEG channels were also set as a Council Goal at the April 16, 2005 Council Goal Setting Workshop. A design and implementation plan for the cable channel will be established and brought back to Council for approval.

A Special Revenue Fund has been established for the Art Commission Programs. Arts Commission provides many programs that are offset by the revenues generated from those programs. The Arts Commission holds several fundraising events and sponsors several community affairs, such as the “Day in the Park” and “Art for Arts Sake”. The Commission is able to recoup their costs by conducting raffles, charging fees for vendor spaces at community events, and through grants.

The Redevelopment Agency is fiscally sound. At the end of the two year budget cycle Fund Balance is projected to be $11.1 million. The main revenue source, tax increment, is projected to continue to increase at a rapid pace. The Agency is expected to contribute over $3 million for roadway projects next year and over $2 million over the next two years in contributions to other inclusionary/affordable housing programs. Redevelopment Agencies have also been the target of State takeaways. Our Redevelopment Agency has contributed $905,269 in ERAF payments to the State since 2002/03.

Internal Service Funds

An Emergency Preparedness fund was established to enable the City to be financially prepared to respond to a critical incident or catastrophic event. The initial funding of this fund was performed over the 2001/02 and 2002/03 fiscal years and the projected fund balance at 6/30/05 is $5,423,271. The only ongoing revenue source will be interest income.

The Information Services fund, which pays for the Information Systems division, has a large budgetary expense increase next year due to the hiring of a Technician that was approved with the 2004/05 mid year budget adjustments. This employee will handle the increasing workload and to assist with the technology located at the new Police Department.

The Vehicle Replacement fund is used to account for the accumulation of funds and expenditures related to scheduled vehicle/equipment replacement. This fund shows a decrease in capital expenditures next year due to a large number of vehicles scheduled to be replaced in 2004/05.

The Information Systems Replacement fund pays for the ongoing replacement of the City's Information System inventory, including computers and the phone system. Funding comes from all City departmental budgets. The increase in next year’s budget is attributable to the transfer of funds toward the acquisition and the implementation of a new Financial Software Package.

The Fleet Maintenance Division anticipates expanding its operation to include parts and materials, preventative maintenance and repairs of city vehicles for contract work for other agencies. The Division will continue to work aggressively at improving its computerized maintenance records as well as staying competitive with the private sector. The most significant changes in FY 2005/06 budget is the purchase of City-owned mechanic tool boxes.

A budget workshop was held on May 24, 2005 where a preliminary budget was presented for City Council comments and review. Since that time, we have continued to analyze the budget and make necessary changes. There have been a few changes made since the May 24, 2005 workshop. Changes to the 2005/06 and 2006/07 budget years include a change in the amortization schedule of the wastewater treatment plant note which adjusted interest, an additional $50,000 per year for inspection services in the Building Division, an additional $43,500 charged to the Economic Development Division over two years for rental at the Tech Center, a decrease in the 2006/07 budget of $3,749 for transfers from the General Fund to City Rentals, and updates in the Lighting and Landscaping Districts to match the Engineer’s Reports. The only changes to 2004/05 numbers were an additional $385,000 in budgeted expenditures and an increase in projected expenditures for interim City Attorney services.

Attachments:
Resolution
2005/06 – 2006/07 Operating Budget

RESOLUTION NO.

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BRENTWOOD ADOPTING THE 2005/06-2006/07 OPERATING BUDGET FOR THE CITY OF BRENTWOOD

WHEREAS, the City Council of the City of Brentwood has reviewed the financial condition of the City of Brentwood; and

WHEREAS, the City departments have submitted requests for appropriations to fund the departmental programs to provide services for the City of Brentwood; and

WHEREAS, the City Council has reviewed these specific departmental requests and held a workshop to discuss City priorities for the expenditure of City funds; and

WHEREAS, the Operating Budget of $172.7 million adheres to City Council’s Goals and Objectives and is free from reliance upon non-recurring revenue sources and does not commit to spending more than a realistic estimate of revenues; and

WHEREAS, the results of the Classification and Compensation study adopted by Resolution 2005-122 on May 24, 2005 have been incorporated into this Operating Budget; and

WHEREAS, the estimated General Fund revenue loss caused by the most recent State takeaways total $863,732 over the next two fiscal years; and

WHEREAS, the effects of the 10-year plan to minimize dependence on development impact fees by moving staff previously funded through the Capital Improvement Program to the General Fund have been included in the operating budget; and

WHEREAS, there are no new positions added through the Operating Budget; and

WHEREAS, two new internal service funds have been established to pay for Insurance and Facilities Maintenance; and

WHEREAS, Parks and Recreation has moved from an Enterprise Fund to being a part of the General Fund; and

WHEREAS, the Finance Department will annually prepare a 10-year forecast of the City’s revenues, expenses and fund balances to ensure that the City remains financial healthy over the next decade.

NOW, THEREFORE BE IT RESOLVED that the City Council of the City of Brentwood hereby adopts the 2005/06-2006-07 Operating Budget for the City of Brentwood as presented by the City Manager.

PASSED, APPROVED AND ADOPTED by the City Council of the City of Brentwood at its regular meeting on the June 14, 2005 by the following vote:

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