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10/16/2019 00 Misc. Distributed at Meeting Distributed at the Meeting L 4._ MEMORANDUM To: Honorable Mayor and City Council members From: Cynthia Martinez, Interim City Manager Date: October 15, 2019 RE: City Manager 2020 Budget Recommendations Finance staff has been working on developing a 2020 budget that is both fiscally responsible and balanced. In reviewing the 2019 year end budget projections, it appears the City will have a positive general fund balance of$38,000. This amount, plus the $620,000 in revenue or fee increases already approved by Council, provides $658,000 in new revenue in 2020. One of Council's priorities is to rebuild the reserve amount in order to meet the 16% minimum established by Council. Staff has determined the amount needed to begin replenishing reserves in 2020 is $675,000. With only $658,000 in revenues and adding $675,000 to reserves will leave the 2020 budget at a $17,000 deficit. Therefore, staff has identified further changes for Council consideration. Fees: I do not recommend that Council approve the Two-Tier Hazardous Materials Fee. While I believe this fee may be warranted in the future and would be paid by those utilizing the service, at this point the fee needs further review to weigh the benefits vs. the impact to businesses of this proposal. Policy Issues: I do not recommend that the City add an FTE positions funded by the General Fund. Any items that are not budgeted, if approved, will be funded from the general fund unless some other creative funding option is identified. I believe there is a good case for each of the proposed positions and each position will improve services offered by the City. But, given the current state of the budget, adding positions is not feasible. The other items are all needed, but adding expenses to the budget will detract from Council's number one priority to restore reserve funds. Staff is aware of the budget issues and the difficult decisions our policy makers are facing. Revenue Options Sale of Property: The sale of City property is an option, but for reasons that Jeff Cutter will explain Wednesday, it would not be a quick option. Looking through the City real property inventory, there are some properties that make sense to sell. However, the easy choices are not the most lucrative properties on the list. Fisher Park, which has been discussed by prior Councils, tops the list of high valued properties. Because the sale of real property is not an ongoing revenue source, I cannot recommend utilizing those proceeds to fund a policy issue that will add an ongoing expense to the budget. However, the sale of property to add to reserves, and free up some of the general fund, may be a sound strategy. Levy Lid Lift: The general fund represents most core City services including police, fire, municipal court, parks, planning, and some street projects. The cost of these services are outpacing the revenue. Even though inflation is growing by as much as 3% a year, and the value of homes has increased as much as 7 and 10% the past 2 years (and in some areas even more), by state law, we can only increase property tax revenue on existing property by 1% annually. This has frustrated our ability to ensure that funding for core services is growing at the same or similar rate as the population and inflation. This is especially challenging since 30% of all general fund revenue comes from property tax. Sales tax, which is 25% of general fund revenue, has remained fairly flat in recent years. Departments funded by the general fund look for creative ways to generate revenue, which in some circumstances is appropriate, but in some cases the City as a whole should be paying for the services. The City has been providing the same level of service by delaying infrastructure investments. Even if our reserves were at optimum level today, Council would be faced with unmet infrastructure needs. The infrastructure needs are reaching a critical level and looking at the five year outlook, without a change, services will be sacrificed to fund infrastructure expenses. A Levy Lid Lift could be the change. Budget Cuts: Budget cuts have been mentioned by two Council members during this process. Staff has undergone and sustained budget reductions almost yearly but these measures along with the rising costs have left departments quite lean and have reduced the amount of money recovered at the end of the year. Budget cuts at this point would either need to be programmatic cuts or deferring infrastructure improvements. Additional items for consideration Liability Insurance: Today we met again with the City's insurance broker on liability insurance for 2020. The next policy period begins December 1st and liability insurance quotes from various carriers have not been finalized. The liability insurance market is challenging at this time, and it is anticipated that there will be a higher premium and deductible amount. Our broker understands our need for a firm figure for the budget process.