I’m pleased to present the Fiscal Year (FY) 2023 operating and capital budget to the City Council and community. This is a significant effort by the City organization and one we take seriously as the budget document represents the City’s priorities for the upcoming year.
We must acknowledge the public health, economic, social, and fiscal climate changes over the two years and the environment we are in as we prepare this budget. The world continues to grapple with the unprecedented global event of the COVID-19 pandemic. Locally in Santa Barbara, the economic impacts on businesses related to COVID-19 have been felt deep and wide, and the City’s budget has been substantially impacted over the past two years. The City has experienced a significant decline in major revenue sources, including sales tax, transient occupancy tax (TOT), and various departmental revenues from reduced or cancelled programs and services.
Over the past two years, the City has had to reduce operating expenses, reprioritize major initiatives and capital projects, and redesign and quickly implement new and streamlined ways of serving the public while supporting public health initiatives and ensuring their safety. The City has also had to tap into reserves in order to sustain operations and continue providing the same level of services the community expects.
Budgeting during this time has been one of the most challenging I’ve seen in my thirty year career, and particularly this year as my first as the City Administrator. The need to have a plan to address continued losses of revenues in our operating budget while maintaining critical services to the community as essential workers has become increasingly more important. The adopted FY2023 operating and capital budget provides such a plan, similar to the plan that was implemented in order to balance the FY2021 and FY2022 budget. The FY2023 budget does assume revenue growth as the economy has recently showed strong signs of growth. This incremental growth; however, this growth is not adequate to cover ongoing expenditure growth from current commitments, including pension cost, high inflation and other impacts.
The FY2023 budget includes a multi-faceted approach to balancing the General Fund budget, including continued expenditure reductions, but not to the degree required in the prior two years, as well as a minimal use of reserves. The General fund is projected to have an operating deficit over the next three fiscal years, so my focus, in collaboration with department staff and the City Council, will be to develop strategies to achieve fiscal sustainability to ensure we continue to deliver high quality services to the community.
In an effort to improve access and usability of the City’s budget, staff have expanded its open data functionality by producing the FY2023 budget in digital format using the OpenGov “Stories” platform. In recent years, this platform has proven to assist the public in understanding the budget in an interesting and user-friendly way with a goal of broadening citizen engagement and strengthening public trust in government. The City will continue to grow in to utilizing these online tools to increase access, reduce operating costs and increase process efficiencies.
Organization of City Operations
The City provides a full spectrum of services to its residents, which are accounted for in a variety of funds. The City’s primary and largest fund is the General Fund, which accounts for general services such as police and fire, libraries, and parks and recreation programs that are funded primarily from general tax revenues.
Other important services are provided through enterprise funds, such as the Airport, Water, Wastewater, Solid Waste, Clean Energy, Waterfront, Golf, and Downtown Parking Funds. Each of the enterprise funds are self-supporting and operate independently. These funds are supported through user fees and other charges.
Overview of Citywide Budget
Staff is estimating revenue losses citywide across all funds to be over $30 million since FY2019 – the most recent complete year of pre-COVID revenues. Of this, the impact to the General Fund is estimated to be over $20 million. Revenue losses continued through FY2021, but taxes, such as sales tax and TOT, have rebounded and are exhibiting strong trends and projected growth through FY2022. All tax and other revenue sources are projected to continue to strong modest growth in FY2022 and beyond.
Because of budget balancing initiatives that have been implemented over the past two years, including reducing expenditures and utilizing reserves, and implementing conservative fiscal and budgetary practices, the City’s General Fund is projected to end FY2022 in a stable position by achieving the planned, balanced budget and nearly replenishing reserves.
On March 11, 2021, President Biden approved House Resolution (HR) 1319, the American Rescue Plan Act (ARPA), signing it into law. The Act provides aid to many groups, including aid to local governments through the $130 Billion Coronavirus Local Fiscal Recovery (CLFR) Fund. The City is slated to receive $21.8 Million in direct Federal relief – $10.9 Million was received in May 2021 and the remaining was received in May 2022. These funds are primarily to be used to address the significant reductions to revenues and address new costs and challenges realized due to COVID-19. The City Council took action to receive the first tranche into the General Fund to partially offset the revenue loss already incurred to continue to provide public safety and other General funded services to the community. The City Council took action on March 8, 2022 to program the second tranche to program $2.5 Million to address continued revenue loss in the General Fund and Downtown Parking Funds, recover additional costs the city has already and will continue to incur directly related to COVID-19 and program funds to other programmatic initiatives to better support the community.
In the fall of each year, department staff begin reviewing their strategic goals and initiatives, in line with the City Council’s priorities and direction, and propose new and adjustments to existing goals. Throughout this budget, departmental and divisional mission statements, program activities and project objectives have been identified and updated to focus on the high priority functions for FY2023.
The Performance Plans for the City departments have shown a variety of impacts on service levels to the public. With the need to reduce operational budgets, the ability to accomplish performance objectives has been challenging over the past two years. The performance metrics in the coming year show a recovery of the delivery of services approaching pre-COVID-19 levels. Departments are moving forward with original objectives, some of which have been adjusted to ensure adherence to public health directives, as staff are committed to continue to provide quality services to the community.
Multi Year General Fund Forecast
The City’s budget process begins in October – seven months prior to the first budget public hearing. Staff prepares an initial financial forecast for the General Fund that extends for five fiscal years to better understand the long-term impacts to the City’s major taxes and other revenues, as well as known and reasonably anticipated expenditure increases. This robust forecasting process provides insight into identifying major trends, potential budget imbalances, and a reasonable assessment of General Fund reserves over time.
This multi-year forecast process is particularly important during this budget development process to understand major economic indicators and trends that will likely impact City and department-specific revenue sources. It has proven to be a critical planning tool to inform labor negotiations, public presentations, and guidance for developing the FY2023 budget.
Overall, the multi-year forecast assumes the recovery of all major General Fund revenue sources to pre-COVID-19 levels, and slow and steady, continue growth of certain revenues, such as property tax, sales tax and TOT, into the foreseeable future. With nearly three quarters of the General Fund allocated to salaries and benefits, the forecast includes known increases to benefits and pension costs, which consume most of the anticipated revenue growth, as well as impacts due to high inflation on goods and services.
With the identification of continued operating reductions and use of reserves, the adopted General Fund budget is balanced for FY2023. Due to the anticipated, inadequate growth of many General Fund revenues to pay for known increases to expenditures, particularly pension costs, the FY2024 and FY2025 forecast show a continued need to rely on reserves and implement on-going budget balancing strategies in order to balance the budget, with very little capacity to replenish General Fund reserves and implement any new programs or initiatives.
Revenue and Expenditure Overview
The table below summarizes the total General Fund revenues and expenditures from FY2019 through the end of the FY2023 adopted budget and the annual operating surplus or deficit.
FY2019 realized a $2 Million operating surplus, similar to the budget stabilizing years following the Great Recession. The budgetary impacts were realized immediately once COVID-19 and the stay-at-home orders were put in place where a $2.9 Million operating deficit was realized in FY2020.
The FY2021 and FY2022 budgets were adopted with the implementation of a four-pronged approach in order to balance the most challenging budgets in the City’s history:
1. Departmental service reductions in order to achieve expenditure savings;
2. Deferral of capital projects;
3. Labor concessions; and
4. Use of reserves.
The end result of these challenging budget balancing solutions was not needing to utilize reserves as much as initially anticipated. ARPA funds being appropriated to provide relief from revenue loss helped to stabilize the General Fund. The replenishment of these reserves must be a priority as the economy rebounds and the City’s budget stabilizes post-COVID-19 and beyond.
The FY2023 budget was produced in line with the most current economic forecasts and projections showing recovery already realized late in 2021 and continuing into the first quarter of 2022 and slow and steady increases of City revenues to pre-COVID-19 levels and beyond over the coming years. The budget assumes $1 Million of expenditure reductions in FY2023 and a modest use of reserves of $1.1 Million in order to balance the budget.
Sources of Funds – Where the Money Comes From
Total General Fund revenues are budgeted at $184.6 Million in FY2023. At $135.6 Million, the largest revenue category is Taxes, making up 73% of total revenues. Taxes include property, sales, utility users (UUT), transient occupancy (TOT), cannabis, and other smaller taxes. They also include the Measure C sales taxes that became effective on April 1, 2018.
The fact that a large portion of General Fund revenues is derived from taxes is common in local governmental agencies. Taxes are commonly used to fund services that are of broad benefit to the community, such as public safety (fire and police), libraries, parks, and recreation programs. Sales tax and TOT, in particular, experienced significant volatility over the past two years due to reduced economic and travel activities.
The table below summarizes the General Fund tax revenues, showing the actual results for FY2019 through FY2021, the current FY2022 projections, and the adopted budget for FY2023.
The largest General Fund revenue is property taxes. Property tax revenues have been growing at a reasonably strong rate over the last few years. Properties are assessed a 1% tax annually based on assessed value, payable in two equal installments. Pursuant to Proposition 13, increases to assessed values are limited to the lesser of the Consumer Price Index (CPI) or 2%.
Property taxes have not experienced any significant impacts due to COVID-19 and are expected to continue to show growth in FY2023 and beyond. Because of the way taxable property is assessed, property tax revenues are slow to respond to changes in economic conditions. In California, and specifically Santa Barbara, many properties are already well below market value. The greater Santa Barbara area had a record year for the number of sales and median home price in 2021. This trend is likely to continue into 2022.
In recent years leading up to the COVID-19 pandemic, sales tax revenues saw very little growth due to a decline in “brick and mortar” store sales through the beginning of 2019. This began to change with the growth of revenues from online sales as a result of the U.S. Supreme Court’s decision in 2018, ruling that states may now compel out of state companies to collect sales and use taxes from customers. California then established regulations that became effective April 1, 2019, which taxes online sales. Since this time, growth had been higher than predicted until the impacts of COVID-19.
The impacts of COVID-19 and related economic conditions have had a significant effect on local businesses and on sales tax revenues. Total sales tax revenues in FY2020 of $21.6 Million were 11% lower from FY2019 – pre-COVID-19 levels. Being that a substantial portion of sales tax revenues are generated from tourist-based activities of restaurants and other businesses, the impacts to Santa Barbara were felt more broadly and deeply compared to many other cities across California. Taxable sales on motor vehicles and fuel remained strong, and online retail activities grew during the pandemic.
Sales tax revenues rebounded in FY2021 and are projected to grow by 7% by the end of FY2022. Slow and steady growth is anticipated in FY2023 and beyond.
Measure C sales tax revenues generally follow the same trend as regular sales tax revenues as described above. There are some differences in how sales taxes are allocated. For example, for automobile sales, the base sales taxes are allocated to the jurisdiction where the dealer is located, whereas district sales taxes (i.e., Measure C) are allocated based on where the buyer lives. Measure C became effective on April 1, 2018.
Prior to COVID-19, transient occupancy tax (TOT) revenues for FY2019 had experienced moderate growth to $19.5 Million – an increase of 3% from the prior year. TOT revenues have been hit the hardest from impacts of COVID-19. When the shelter-in-place orders were in effect, hotel occupancy reduced significantly resulting in very little TOT revenue for the City. Some operators completely shut down operations entirely, and average daily rates dropped significantly. TOT revenues declined by 22% to $15.2 Million in FY2020 and stayed relatively flat in FY2021. Recent tourist activities over the past 6 months have increased, and TOT revenues are projected to grow by 44% in FY2022 to $22.7 Million. As staff look ahead into FY2023 and beyond, staff anticipate TOT to continue to experience modest growth in line with broad economic indicators for local travel.
Utility users’ tax (UUT) revenues are generated from a 6% tax applied to water, electricity, natural gas, and refuse; and a 5.75% tax applied to telecommunication services, including telephone (landline, cellular, internet-based) and video. Overall, UUT revenues over the last ten years have remained essentially flat. The changes in utility usage related to COVID-19 realized a minor shift in water, electricity, and natural gas from commercial to residential use, as consumers sheltered-in-place and worked from home. There is discussion within the California legislature regarding the taxation on digital streaming services, such as Netflix and Hulu, which could result in future increases to UUT in FY2023 and beyond. No significant revenue changes are assumed in the FY2023 budget.
Cannabis local excise tax is collected from 12 licensed businesses in Santa Barbara. The City began collecting cannabis tax for recreational use in FY2020, with revenues ramping up quickly to over $1M. Cannabis taxes are projected to remain flat at $1.9 Million in FY2023 compared to FY2022 with no significant changes anticipated in future years.
The City administers the business license tax program and has more than 16,000 registered businesses in Santa Barbara. Most business taxes are paid based on prior years’ gross receipts. Many local businesses struggled to remain open and continue operations during COVID-19 with less business activities. The City received less tax revenue in FY2021 and FY2022 compared to pre-COVID-19 levels, but taxes are projected to recover and glow slowing in FY2023 and beyond.
Uses of Funds – What the money is spent on
At 67% of total expenditures, salaries and benefits totaling $123.6 Million represent the largest expenditure category. Benefit costs are projected to cost $48.5 Million, and include health insurance, retirement, and workers’ compensation insurance. For most employees, salaries and benefits are negotiated and established through multi-year contracts. Salary and benefit costs for FY2023 include any additional costs associated with previously negotiated labor contracts and known benefit cost increases as well as an assumption for additional salary and benefit cost increases that will be confirmed through collective bargaining with the City’s labor groups.
While the City has been successful in negotiating fair and reasonable wage and benefit agreements in recent years, the City will continue to be impacted by increases to retirement costs statewide. Now, along with the impacts to pensions from the Great Recession, which caused investment losses to the California Public Employee Retirement System (CalPERS), the pension administrator for most local government agencies in the State of California, the City now faces the uncertainty of the long-term impacts of COVID-19 on the pension fund, as well. The substantial losses from the Great Recession put upwards pressure on retirement contributions to mitigate the growing unfunded liabilities.
The City’s annual payment to addressing the growing unfunded liabilities has increased by an average of 8% a year over the last six fiscal years. FY2022 is projected to increase by $3.9 Million from FY2021 in the General Fund alone – by far the largest annual expenditure increase in the General Fund. Pension costs are projected to grow by 9% in FY2023 with continued growth in FY2024 and FY2025. In December of 2021, staff facilitated a study session with the Finance Committee of the City Council to present the factors contributing to the rising pension costs and liabilities as well as discuss solutions to addressing these costs in the future, including establishing a pension management policy and stabilization reserve, submitting additional discretionary payments (ADPs) to CalPERS, setting up and funding a Section 115 trust and issuing a pension obligation bond (POB). Staff are actively developing proposals to bring back to the Finance Committee and eventually to the City Council for approval and adoption.
While the City has been able to meet these financial obligations in the near term, risings costs puts added pressure on revenue growth and consumes financial resources that could be used for other City programs and services, including capital.
Similar to the budget development direction the City Administrator gave to departments at the onset of COVID-19 over the past two years, I directed departments to identify continued expenditure reduction savings, targeting a total of $1.0 Million for the General Fund for FY2023 as an important strategy in order to balance the budget. These strategies include the continuation and additional positions to remain unfilled during FY2023 along with many operational savings. These savings have been identified and prioritized in order to minimize impacts to the public for receiving City services.
Proposed Changes to Positions
The FY2023 operating budget includes only minor changes to positions. A net increase of 4.65 full-time equivalent (FTE) positions will be added in the General Fund in FY2023. The table below summarizes position changes department. All Public Works positions and a majority of the Community Development positions will be funded through grants, other available funding and fees and do not represent a long-term burden on the General Fund.The adopted budget also includes a number of position reclassifications that better align positions with the actual work planned. A total of 11.25 positions were approved in the budget across all funds, which represents approximately 1% of the total city workforce. All positions approved in the Enterprise funds are fully funded through existing fee and other revenues.
General Fund Reserves
In 1995, the City Council adopted policies establishing reserve requirements for natural disasters and economic contingencies. For enterprise funds, such as Water and Airport, a third reserve for capital is also required. The requirements are stated as a percent of the operating fund expenditures; for natural disasters it is 15% and for contingencies it is 10%. The reserve for capital is calculated as the average of the previous five years’ capital program.
As shown in the graph, the General Fund’s reserves were below policy requirements for many years. In FY2009, the funding gap was almost $9 Million following the impacts of the Great Recession. Since then, the City has committed to controlling its costs and the size of the organization. Growth in certain tax revenues following the Great Recession were realized in the years following, leading to entirely closing the gap and achieving the General Fund reserve target at the end of FY2015. Reserves fell below policy in FY2018 due to underpayments of sales taxes from the state and other extraordinary, but reimbursable, costs incurred in connection with the Thomas Fire and subsequent debris flows. Prior to COVID-19, reserves were approaching the policy target by the end of FY2020.
At the end of FY2019, reserve balances in the General Fund totaled $33.3 Million. While this represented a healthy reserve level for the City at the onset of COVID-19, $7.3 Million of reserves were used in FY2020 due to the drastic and immediate decline of sales tax, TOT and other revenues. The City Council approved of the use of contingency reserves in order to balance the FY2021 budget. Because of the expenditure reductions achieved, additional savings realized from challenges backfilling vacant positions and the quicker recover to tax and other revenues, FY2021 resulted in a $6.6 Million surplus replenishing some reserves that were used in prior years.
The most current General Fund projection includes the additional replenishment of contingency reserves in FY2022. It is important to note that Council policy requires that 50% of annual, operating surplus are to be appropriated to capital projects. General Fund reserves are projected to decline in FY2023 through FY2025, with the use of reserves as one of many tools being used to balance the budget in both years. It continues to be the City’s priority that recovery efforts include a plan to replenish reserves to achieve the policy target as the economy recovers and the City’s budget stabilizes.
Enterprise Fund Summary
Unlike the General Fund, which relies primarily on taxes to subsidize programs and services, Enterprise Fund operations are financed primarily from user fees and other non-tax revenues. Certain enterprise operations have been impacted more than others due to COVID-19. Utility revenues for water, wastewater, and solid waste have remained consistent and strong during COVID-19, even while some customers continue to struggle staying current on their utility bill payments. Wastewater has been able to rebound from below-policy reserve levels to meeting reserve targets in FY2021 and into FY2022.
Airport operating revenue declined in FY2021 compared to prior years due to reduced flight volume and demand for ancillary services and concessions. FAA grant funds received through the CARES Act have provided adequate relief to continue operating over the past year and should be adequate as more normal activities occurred in FY2022 and are anticipated to continue in FY2023.
Water and Wastewater enterprises primarily rely on rate revenues from utility customers to fund the delivery of utilities and related services, but also fund a very capital-intensive program to ensure the long-term sustainability of the required infrastructure. Water rates were approved during the FY2022 budget process for the following three years, and Wastewater rate increases were proposed and approved as part of the FY2023 budget process. Both enterprises have a strong reserve balance which will be programmed for many critical capital infrastructure projects in the coming years.
Solid Waste primarily funds long-term agreements for trash and recycling collection, processing and disposal, as well as climate resiliency and neighborhood vibrancy initiatives. A collection system review is being planned in preparation for a new hauler service contract in FY2023. The fund is stable with adequate revenues covering required contractual obligation costs.
Downtown Parking revenues have been significantly impacted by reduced parking volume as a result of COVID-19 restrictions on retail, entertainment, dining, and office buildings, and are 50% less than normal levels. Downtown Parking is planning to implement a comprehensive license plate reader (LPR) technology, which will modernize operations and likely result in sustained operations and revenue in FY2023 and beyond. Parking rate changes were proposed and approved to generate additional revenue to cover ongoing operating expenses and not require using depleted reserves in future years.
Waterfront revenues were significantly impacted due many tenants electing to enroll in a delay of rent payments, in line with City Council policy, in FY2020 and FY2021. It is projected that nearly all tenants are current on their rental payments stabilizing the Waterfront’s revenue sources to pre-COVID-19 levels and replenishing some reserves that were used.
Golf revenues have seen growth from paid rounds during COVID-19 as playing golf has proven to be a safe, attractive activity for the public. Staff remain optimistic that golf activities will remain stable into FY2023, and much needed reserves are accumulated that will be used to address a number of deferred maintenance projects at the golf course in the coming years.
Clean Energy is the City’s newest enterprise providing carbon-free electricity to 96% of the community. It provides local control over energy, supply, rates and other programs. Residential customers enrolled in October 2021, and all other customers recently enrolled in March 2022. The fund is projected to generate nearly $30 Million annually with 90% of those funds dedicated to paying the power suppliers. Over the next two years, the enterprise is anticipated to stabilize by generating adequate revenue to cover operating costs, building reserves and eventually paying back the General Fund loan.
MAJOR PROJECTS AND INITIATIVES
Achieving Financial Sustainability & Restoring Economic Vitality
The City’s budget and financial strength relies very heavily on the economic vitality. Two of the city’s most significant revenue sources, sales tax and TOT, are heavily reliant on the tourism industry and a strong economy. The City’s budget has been deeply impacted in years prior from the Great Recession and the Thomas Fire, and more recently due to COVID-19, from reduced revenue that puts added strain on the City to continue to provide services to the city when revenues decline.
Across the nation, communities have been and will continue to be challenged in addressing the impacts of a growing trend of consumers shopping online and other consumer preferences impacting the viability of retail centers and malls. The City and local stakeholders have initiated several actions, and other efforts are underway, to address this issue. Two years ago, the City added an Economic Development Manager to the City team, to increase efforts towards downtown revitalization and strengthening the local economy. With the impacts to our community from COVID-19, these efforts will be even more critical to the future success of the City.
In 2021, the City Council adopted a comprehensive Economic Development Plan for 2021 to 2024, which aims to strengthen the City’s economy and enhance downtown vibrancy while providing for social equity and environmental protection, and celebrating the City’s historic character, cultural resource, and the arts.
Soon after this FY2023 budget is adopted, staff will very quickly and strategically mobilize around an effort to consider additional revenue generating opportunities as well as strategies to align resources within our existing resources to achieve a level of financial sustainability the community expects from the City.
State Street Master Planning Process
City Council has been discussing how to revive Downtown for over six years, well before COVID-19 began. In response to COVID-19, the City took emergency actions to create the State Street Promenade and to allow the temporary expansion of commercial uses into streets, sidewalks, parking spaces, and other areas citywide. Some temporary emergency economic recovery actions expired in FY2022, and new requirements in order to ensure public safety have been implemented. The temporary State Street Promenade prompted additional discussion about the need to create a Downtown State Street Area Master Plan, including a redesign of State Street itself.
On March 9, 2021, the City Council adopted vision principles to guide the master planning process for the Downtown State Street area and directed staff to form a State Street Advisory Committee to oversee the Master Planning process. Master planning efforts have begun and will continue through FY2023.
Construction of a New Police Station
The existing police station was constructed in 1959 for a staff of 85, which has now grown to 212 sworn and non-sworn officers. The station does not meet the seismic codes for essential services buildings, nor does it meet current building code and accessibility standards. A new building is required to house all the Police Department operations in one place and to ensure uninterrupted public safety services to the community. Currently, police staff are located in four separate locations. The station is in operation 24 hours a day, seven days a week serving as the main administrative office for police services and also includes holding cells and shooting range. It houses chemical and special weapons, tactical equipment, criminal records, and crime scene evidence. Initiatives conducted in 2011, and again in 2018, studied retrofitting the existing station. However, it was determined that the existing station was inadequate and the current property on Figueroa Street is too small to accommodate the needs of a new station.
Over the past four years, major work efforts have included site selection, community outreach, environmental review, and preliminary design. Funding for the police station has been prioritized using Measure C sales tax revenues with an eventual debt issuance. Construction is anticipated to begin early in 2024.
De La Guerra Plaza
De La Guerra Plaza was designated a Public Square in 1853 and has since served as Santa Barbara’s center of town. In addition to serving as a civic center, it has provided the location for the original Police and Fire Stations. It is the venue for political activism and events including Old Spanish Days. De La Guerra Plaza presents an opportunity for the City to revitalize and reactivate its center of town. A revitalized Plaza will involve expanding the usable space by making structural and aesthetic improvements to better serve the community’s arts and cultural events throughout the year.
A preliminary concept design has been completed by the Design Team working with an Advisory Committee which is made up of 2 members from City Council, 2 from Planning Commission, 2 from Historic Landmarks Commission, 2 from Parks & Recreation, and the Executive Director for the Santa Barbara Trust for Historic Preservation. This concept plan envisions a pedestrian only plaza that incorporates De La Guerra Street between State Street and Anacapa Street. The plan also envisions a single level surface from building to building, and includes a new public restroom, new landscaping and furnishings for shade and sitting, a new lighting plan, as well as many other features to draw locals and visitors to this historic place. Advisory committee meetings will continue into FY2023 with a projected start of construction to occur early in 2024.
The renovation of Library Plaza will serve as a center for downtown rejuvenation. Library Plaza will create a cultural campus as it is adjacent to museums, historic landmarks, theaters, and concert venues, and serves as the hub for the City’s historic arts district. The renovated Library Plaza will allow the Library to maximize programmatic overlaps between the indoor and outdoor spaces, with over 10,000 square feet of programmable space that can serve over 1,200 people. Library Plaza will not only allow for Library program expansion, but will be a safe and accessible urban green space that will allow for community events of all sizes. This renovation comes at a critical time, as open-air spaces will be a preferred venue for the foreseeable future.
Measure C Capital Priority Projects
On November 7, 2017, city residents approved a ballot measure, Measure C, which increased the local sales tax by 1% effective April 1, 2018, and began generating the revenues needed to invest in and maintain critical infrastructure. This was a major success for the community, after years of struggling with a lack of funding to address aging and deteriorating streets and facilities, and many of the infrastructure assets. The City realized $24.4 Million in FY2019 prior to COVID-19 and revenues declined to $22.9 Million in FY2020. Revenue rebounded to $25.4 Million in FY2021 and is projected to increase to $27.4 Million by the end of FY2022. Slow and steady growth is anticipated in FY2023 and beyond.
Revenues from Measure C sales taxes are largely used to improve local streets and related infrastructure (sidewalks, storm drains, streetlights, traffic signals, etc.). Over the last decade, the condition of the City’s local streets has deteriorated significantly due to a lack of dedicated, stable funding.
In addition to Measure C revenues, the General Fund also allocates a portion of its revenues to fund capital projects each year. The allocation for FY2021 was reduced from $800,000 to $400,000 due to the impacts of COVID-19 and have returned to pre-COVID-19 funding levels in FY2023.
In total, $28.1 Million has been allocated to capital projects identified as “priority projects” for use of Measure C funds in FY2023. This does not include capital projects planned for the next year from special revenue and enterprise funds, such as the Streets Fund, Measure A Fund, Water Fund, Wastewater Fund, Airport Fund, and Waterfront Fund, among others.
$22.1 Million of total Measure C revenues are allocated to Streets Infrastructure and related projects in FY2023, which has been and will continue to be a high priority for the use of Measure C funds. The remaining funds are programmed for various Library, Parks and Recreation, Police, and Facilities projects. The preliminary plan for FY2024 includes an allocation for the anticipated debt service payment for the new Police facility along with many other priority projects.
I am pleased to present the FY2023 operating and capital budget to the City Council. This budget, similar to last year’s budget, is another challenging budget staff has developed, particularly given the continued economic uncertainty related to COVID-19. Over many months involving staff from all City departments, the budget in its entirety has been analyzed, reviewed and justified in order to articulate revenue changes and identify expenditure priorities and targeted reductions in order to present a balanced budget. Similar to FY2021 and FY2022, the proposed budget may be impacted by continued economic uncertainty; however, the assumptions and projections are in line with economic indicators of a continued recovery as well as being consistent with the City’s fiscally conservative budget practices.
Prior to COVID-19, the City had been in good financial condition, with reserves at or close to policy recommended balances. These reserves have been strategically leveraged in both FY2020 and FY2021 to minimize the service delivery impacts to the public, and will likely need to be leveraged in FY2023 through FY2025.
As staff prepared this budget, staff recognized the substantial economic hardships ahead for local businesses, employees, and the City organization. COVID-19 has changed the way the City provides services to the public, and staff will continue to respond to changes in the coming year. While a plan has been identified, the budget will be closely monitored and regular check-ins with the City Council will be done to ensure services to the community are still being met in a fiscally prudent way.
I look forward to the public budget hearings during April and May as we dive in to the details of the budget.
Rebecca J Bjork