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CITY COUNCIL AGENDA ITEM NO. 26


Meeting Date: June 26, 2007

Subject/Title: Approve a resolution adopting the 2007/08-2008/09 Operating Budget and amending the 2006/07 Operating Budget for the City of Brentwood

Prepared by: Kerry Breen, Business Services Manager

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



RECOMMENDATION
Approve a resolution adopting the 2007/08-2008/09 Operating Budget and amending the 2006/07 Operating Budget for the City of Brentwood.

PREVIOUS ACTION
The Preliminary Budget was presented at the May 31, 2007 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 $246.6 million and the Redevelopment Agency’s Budget of $10.8 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 constantly changing economic climate, 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.

Budget Overview

The City of Brentwood, along with many other areas in the State, has recently experienced a dramatic slowdown in residential development and pullback in the housing market. The City’s population has increased at an annual average rate of 12.8% over the past decade. The past three years have seen the City’s population growth slow from 12.9% in 2004/05 to 9.3% in 2005/06 and down to 6.4% in 2006/07. We expect this slowdown in residential development to continue over the next two years and are anticipating population growth under 5% per year through build out. While the downturn has been sudden and dramatic, we were ready for it. Council and staff have worked very hard over the past few years in preparation for the downturn. Two years ago we also implemented a plan to reduce our dependence on development fees. Employee hiring has been kept to a minimum the past two years. We developed a ten year fiscal model to help uncover shortfalls before they occur. All the while we have continued to meet the public’s demand for outstanding service.
One of our first steps in planning for the slowdown was to reduce our dependence on development fees. In FY 2005/06 the City had 16.66 employees funded by development impact fees who were responsible for the management and administration of Capital Improvement Program (CIP) projects. We know that as the City gets closer to build out development revenue will slow but CIP projects will continue for ongoing projects such as the Pavement Management Program. To maintain the quality of the City we will need to maintain the streets, sidewalks, street trees, and parks and buildings. The 10-year plan calls for CIP staff to transition from CIP project management, funded by development impact fees, to positions which will meet the demand for increased City services and which are funded by the General Fund. This CIP plan is enacted in both years of the budget and by 2008/09 there are just 8.02 employee allocations funded by development impact fees.

We have continued to be extremely conservative in hiring new, full time employees. The 2007/08-2008/09 operating budget includes just one new position funded through the General Fund and a total of three new positions in the Enterprise funds. The budget includes the elimination of two positions. The City has also incorporated the annual CPI increase of 3.1% for all eligible salaries in the FY 2007/08 budget and has also included a 3% CPI increase for salaries in FY 2008/09.

The City also recently adopted a fiscal model to take a ten year look down the road to identify potential financial difficulties before they became reality. The fiscal model provides a detailed analysis and projection of the next ten years of General Fund revenues, expenses, and fund balance. City Council had the foresight to adopt the development of a fiscal model as one of their goals over two years ago and is now able to use this tool as they establish priorities and determine the direction of the City - all the while knowing that the City will be able to financially sustain those goals and objectives. Staff anticipates bringing an updated version of the fiscal model to Council in the next few months.

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, interfund services, the motor vehicle license fee, Building and Engineering fees, Parks fees and Parks property taxes, and investment income. The 2007/08-2008/09 General Fund budget allows the City to continue to provide the citizens of Brentwood with the currently established service levels while maintaining the General Fund balance at the minimum policy level of 30% of operating expenses. Total budgeted expenditures have increased by less than 4% from 2006/07 to 2007/08. This would normally be considered low, but when considered in conjunction with the reallocation of staff from CIP this quite a feat.

This budget includes just one new position funded through the General Fund - a Records Supervisor for the Police Department at a cost of $103,497. This position will help alleviate the workload on the officers who are currently performing the records tasks thereby helping improve the hours on patrol of our officers. There is also a reclassification of two vacant officer positions to captains at a total annual cost of $149,280 for salaries and benefits and $66,000 in one time costs for vehicles. This is necessary in order to plan for future growth in the Police Department. This change will allow the structure of the Department to increase internal efficiencies including the span of control, lines of responsibility, communication and accountability.

City Council has established cost recovery goals for our Parks and Recreation programs. While we make every effort to have the users of the programs pay for the cost, there will always be some subsidy associated with providing these programs. While this is the normal cost of running a City, we also have some programs in sports and some in our special classes that do not meet the recommended 75% cost recovery for adult programs. This is despite the fact that we are currently offering those programs at a higher rate than the surrounding Cities of Antioch, Oakley, and Pittsburgh. With the CPI of 3.1% added on July 1, our adult sport and some special classes will border on pricing them out of the market range. Part of the reason is we have increased costs associated with the federal minimum wage increase. Parks and Recreation is planning on conducting a cost analysis and fee study on our current programs.

The City is also continuing its relationship with the Brentwood Police Activities League. The City intends to continue the present agreement in which the PAL Board will contribute 50% of the Part-time salary and benefits (approximately 14% of salaries) and the City will “not exceed” $50,000 in the fiscal year as per the agreement. The PAL Board is also expected to raise all money necessary for any other PAL programs outside the After the Bell Program.

The following table summarizes some of the significant expenditures of the General Fund over the two year budget period:

Expenditure Appropriation
General Municipal Elections $65,000
Animal Control (County) 425,986
Library (County) 266,215
New Patrol Vehicles 132,000
Village Resource Center 210,748
General Plan Update 555,000
New Streets Equipment 216,000
CCC Clean Water Program 300,000
Pavement Management 1,657,329
New City Hall Transfer to Project 1,000,000
Transfer to Park Maintenance 1,153,169
Brentwood Center (Los Medanos College and Business and Technology Center) 512,000
Police Activities League 594,798

By the end of the two year budget cycle, fund balance is projected to increase from $23.6 million to $24.9 million.

Enterprise and Special Revenue Funds

Proposition 218 requires notice and a public hearing prior to an increase in property related fees. These include fees imposed as an “incident of property ownership, not including gas, electric or developer fees”. The City has contracted with outside counsel to assist with ensuring any future rate increases are done in compliance with Proposition 218. In the interim, there are no rate increases currently budgeted in the Solid Waste, Water or Wastewater Enterprise 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 $6,171,346 of funding for a new Solid Waste Transfer station, CIP project #542-54020. The transfer station will 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 budget also includes debt service associated with the new Transfer station. The Solid Waste Enterprise will be adding a new employee in 2007/08 at an annual cost of $85,152.

The Water Enterprise Fund will continue to see both revenues and expenses increase as the needs for service increase. The Water Enterprise Fund will begin debt service payments for a Surface Water Treatment Facility in FY 2007/08. The Water Enterprise is also undergoing a rate study to determine if the current rates are adequate. While we have only received a first draft of the rate study from our consultant, we can say that we believe that any rate increase would be minimal. The Water Enterprise will also be adding one employee in each year of the two year budget at a total ongoing cost of $180,990.

The Wastewater Enterprise Fund, like the Solid Waste and Water Funds, will continue to see revenue growth in accordance with our population increases. However, the Wastewater Enterprise Fund is projected to require the use of reserves in each of the next two years. The amount of the shortfall is projected to be $671,158 in 07/08 and $1,347,078 in 08/09. Staff is conducting a rate study to address this deficit and to determine if the current rate structure requires modification. Part of the shortfall is that we had originally planned on a CPI increase each year for all of our utilities but the wording under Proposition 218 does not allow the City to automatically implement these increases anymore. Rather than incur the cost of mailing notifications to the citizens for the CPI and then again for the rate study we have elected to take them both at the same time. While we are not ready to predict what any potential rate increase may be, we do anticipate having a recommendation in front of Council within the next three months.

The City Rentals Enterprise Fund includes the Brentwood Education and Technology Center and Los Medanos College. Approximately 38% of the available space at the Technology Center is vacant. The City leases 10% of the building which it uses for a reception area and a computer room. 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. Los Medanos may be interested in renting more space in the near future which would help reduce the General Fund subsidy, which is expected to be $512,000 for the next two years combined.

The Housing Enterprise Fund has been established to help provide an affordable housing program for the citizens of Brentwood. The City creates affordable housing by requiring that 10% of all newly constructed dwelling units be designated as affordable housing for very-low, low and moderate income households. These units must be integrated into each neighborhood and must be built with the same quality, fit and finish as market rate units. The ownership units in this program must remain affordable for 45 years, while the rental units must remain affordable for 55 years.

Management Partners recently completed a preliminary study for the City which forecasts a significant burden on the General Fund, as the City approaches build out, if the affordable housing program continues its current implementation policies. Staff is negotiating a contract with Management Partners to develop alternate implementation strategies to accomplish the affordable housing program goals while minimizing the fiscal impact to the General Fund in future years. These alternative implementation policies will be presented to the City Council for its consideration in the fall of 2007. We have been looking to take cautionary measures in the interim however and one of our steps is to not fill the Housing Manager position after the current Housing Manager retires in 2008/09.

The Public Art Administration Fund contains the budget necessary to administer the Public Art Program and to provide staff support to the Art Commission. In previous years, these expenses were recorded in the General Fund and a transfer of money was made from the Public Art Administration Fund to offset these costs. The intent was for the General Fund to be fully reimbursed for its costs associated with the operation of the Public Art Program, however, the Public Art Administration Fund is not bringing in enough revenue to fully reimburse the General Fund. Beginning in 2007/08 the General Fund will no longer pay for the costs of the Public Art administration. As such, we are recommending the elimination of the Arts Manager position in order for the Public Art Administration Fund to avoid running out of money. This does not mean that Public Art will go away, just that we recommend that the administrative side of Public Art live within its budget. We are also requesting a $40,888 increase to the Public Art Administration Fund’s expense budget in 06/07 to allow it to reimburse the General Fund for expenses paid by the General Fund but were incurred by the Public Art Administration Fund.

The Redevelopment Agency is fiscally sound. At the end of the two year budget cycle Fund Balance is projected to be $16.4 million. Approximately $21 million of the Agency’s $35.6 million two year budget is directly related to capital improvement projects identified by the Agency Board and which are coordinated and identified in the City’s 2007/08 – 20011/12 Capital Improvement Program. The Agency anticipates raising approximately $15 million in bonds to fund the potential development of three parking structures for the downtown and Civic Center, and improving the aging infrastructure and installing new streetscape in the Downtown.

Internal Service Funds

The 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 occurred over the 2001/02 and 2002/03 fiscal years and the projected fund balance for 6/30/09 is projected to be $6.2 million. There is funding in 2007/08 for a good faith contribution to establish the East Bay Regional Communications system which will be governed by a joint powers authority agreement for Alameda and Contra Costa Counties. The City has also elected to self insure for earthquake coverage and is charging out insurance premiums totaling $206,127 over the next two years. While there is no cap on the Emergency Preparedness Fund, the fund balance is only about 15% of our General Fund expenditures and could be used in the event of an earthquake, flood, or other catastrophe.

The Information Services Fund, which pays for the Information Systems division, has a large budgetary expense increase next year due to contractual maintenance agreements for the City’s new software package. The City chose to use ASP (Application Service Provider) services from the software vendor instead of incurring the upfront cost and additional technical support requirements that the hardware associated with a new administrative system brings. Under the ASP configuration, the hardware system running the software is located and managed at the vendor’s location. In addition to the upfront savings, our software vendor performs all system backups, database administration, software management, and other standard data center functions. The technical functions performed under our ASP agreement are saving the City from hiring an additional Information Systems employee to perform these tasks.

The Equipment Replacement Fund is used to account for the accumulation of funds and expenditures related to scheduled vehicle/equipment replacement. The two year budget includes funding for over $2.5 million in vehicle and equipment replacement to ensure that the City continues to have a safe and reliable fleet.

The Information Systems Replacement Fund pays for the ongoing replacement of the City's Information System inventory, including computers and the phone system. This fund will also help pay for the Strategic Technology Master Plan; consisting of Disaster Recovery/System Resiliency and an IT Best Practices Plan. This Fund helps ensure that the City is able to continue utilizing available technologies which increase our productivity and result in a new savings overall. Funding comes from all City departmental budgets.

The Facilities Replacement Fund pays for the ongoing replacement of City Facilities with the exception of the Enterprises who fund their own facility replacement. This fund will see dramatic decreases in budgeted expenditures over the next two years as only mandatory repairs and upgrades will be performed in consideration of the opening of a new City Hall in the near future.

The Fleet Maintenance Division is working aggressively at improving its computerized maintenance records as well as staying competitive with the private sector. The recent increase in the cost of steel and rubber products have been reflected in this budget.

The Facilities Maintenance Division is responsible for the custodial, janitorial, and maintenance needs of the City’s buildings and facilities. This fund also pays for pest control and alarm services for the City’s buildings. Costs in this fund have increased dramatically as the scope of the services provided under the purview of the fund have continued to expand.

The Insurance Fund currently pays for the City’s retiree medical costs as well as property and liability insurance. The City transfers the PERS and Workers Compensation savings associated with having budgeted positions remain unfilled as well as the savings achieved through prepaying the City’s employer PERS costs at the beginning of each fiscal year. We will also be recording our Liability coverage savings in this fund. One of the main reasons that this fund was established was to provide a mechanism for paying the City’s retiree medical costs. Recent accounting regulations require the City to contract for an actuarial study to determine its retiree medical liability amount and the cost of this study has been included in the budget. The Insurance fund will also help cover the costs of unforeseen and non-recurring lawsuits. This fund is projected to have a fund balance of $6.9 million by June 30, 2009.

Changes since workshop

A budget workshop was held on May 31, 2007 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 31, 2007 workshop. Changes include:

• Raising the funding for Senior Nutrition by $567 in 2007/08 and by $1,152 in 2008/09. Contra Costa County’s Health Services Department has been running the Senior Nutrition Program at the Brentwood Community Center since July 1, 2002. The County Senior Nutrition Program is designed as a partnership between cities and the County in providing nutrition services to senior citizen residents in each community. Six of the twelve cities provide a monetary contribution towards the café program and the other six do not provide a monetary contribution. The budgeted increases represent a 3.1% increase each fiscal year. The budget for the Senior Nutrition is now a total of $38,319 for the two year budget cycle - the original County request was for a total of $53,974.
• Updating our 2006/07 projections in various funds as we now have a clearer picture of where we will finish the 2006/07 fiscal year (no impact on 07/08 or 08/09 budget)
• Updating our Debt Service requirements for 2006/07
• Reducing the General Fund subsidy to City Rentals by $20,000 in 2008/09, meaning the total subsidy to City Rentals over the two years budget will now be $512,000
• Removal of the Arts Manager position in the Public Art Administration Fund and modifying expenses within this Fund accordingly. Also moved the .1 allocation remaining in the Public Arts Fund to the General Fund. The Public Art Administration Fund is no longer projected to use reserves in order to continue operations
• Increased Parks revenue by $10,492 in 2008/09
• Reduced Library costs by $39,750 in 2007/08 and 2008/09 after receiving the County’s anticipated billings for next fiscal year
• Decrease of $147,642 over the two budget years for the Police Department for costs for District Attorney Services. Also reallocated various supplies expenses within the Police Department with no overall budget change.
• Modification of General Fund reserves which were changed in accordance with the CIP changes and the future of the Downtown Brentwood 2010 project
• Updated salaries and employee allocations in the appendix section of the Operating Budget.

2006/07 Operating Budget Amendments

In addition to the increase of $40,888 to the Public Art Administration Fund’s expense budget in 06/07 to allow it to reimburse the General Fund for expensed paid on its behalf, we are also requesting a budget increase of $24,203 for the Sunset Industrial Park Lighting and Landscaping District. The LLD maintains the frontage landscaping of properties until they are sold. Once all the properties are sold in this area, the LLD will only be responsible for the frontage landscaping along Sunset Road and the property owner will be responsible for their frontage landscaping. At the current time, some of the properties are still owned by the Redevelopment Agency which we thought would have already closed. Since the LLD still needs to provide maintenance they will require additional funds in their budget.

FISCAL IMPACT
The two year budget presents a balanced budget in every fund except for the Wastewater Enterprise. This means that revenues exceed expenditures and the budget does not rely on one time revenue. This is done in conjunction with our philosophy to intentionally underestimate revenues and overestimate expenses each year in order to keep our budget process “conservative”. Subsequently, at the end of each year, we strive to have more revenue than expenditures and have funds to place into reserve as any fiscally sound agency would.


Attachments:
Resolution


RESOLUTION NO.


A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BRENTWOOD ADOPTING THE 2007/08-2008/09 OPERATING BUDGET AND AMENDING THE 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 $246.6 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 two year budget presents a balanced budget in every fund except for the Wastewater Enterprise; and

WHEREAS, the Operating Budget includes just one new position funded through the General Fund and a total of three new positions in the Enterprise funds; and

WHEREAS, total budgeted General Fund operating expenditures have increased by less than 4% from 2006/07 to 2007/08; and

WHEREAS, the budget calls for the elimination of two positions; and

WHEREAS, the budget incorporates an annual CPI increase of 3.1% for all eligible salaries in the FY 2007/08 budget and has also included a 3% CPI increase for salaries in FY 2008/09; and

WHEREAS, the 2006/07 budget will be increased by $40,888 for the Public Art Administration Fund; and

WHEREAS, the 2006/07 budget will be increased by $24,203 for the Sunset Industrial Park Lighting and Landscape District.

NOW, THEREFORE BE IT RESOLVED that the City Council of the City of Brentwood hereby adopts the revenues and appropriations as detailed in the 2007/08-2008/09 Operating Budget for the City of Brentwood as presented by the City Manager and modifies the appropriations for the 2006/07 Operating Budget by increasing $40,888 in the Public Art Administration Fund and $24,203 in the Sunset Industrial Park LLD Fund.

PASSED, APPROVED AND ADOPTED by the City Council of the City of Brentwood at its regular meeting on the June 26, 2007 by the following vote:
 

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