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01 Staff Report Reviewed by: Town Manager, Assistant Town Manager, Town Attorney, and Finance Director 110 E. Main Street Los Gatos, CA 95030 ● 408-354-6832 www.losgatosca.gov TOWN OF LOS GATOS TOWN COUNCIL REPORT MEETING DATE: 1/22/19 ITEM NO: 1 DATE: JANUARY 18, 2019 TO: MAYOR AND TOWN COUNCIL FROM: LAUREL PREVETTI, TOWN MANAGER SUBJECT: IDENTIFY STRATEGIC PRIORITIES FOR 2019 – 2021, INCLUDING: (1) ORDINANCE PRIORITIES, (2) POTENTIAL REALLOCATION OF THE $3.7 MILLION FISCAL YEAR (FY) 2017/18 BUDGET SURPLUS, AND (3) OTHER BUDGET DIRECTION FOR THE FY 2019/20 OPERATING BUDGET AND FY 2019/20 – 2023/2024 CAPITAL IMPROVEMENT PROGRAM. RECOMMENDATION: Identify Strategic Priorities for 2019 – 2021, including: (1) Ordinance priorities, (2) Potential reallocation of the $3.7 million Fiscal Year (FY) 2017/18 budget surplus, and (3) Other budget direction for the FY 2019/20 Operating Budget and FY 2019/20 – 2023/2024 Capital Improvement Program. BACKGROUND: The Strategic Priorities session typically kicks off the bu dget process for the next fiscal year by affirming existing priorities, identifying new priorities, and determining the allocation of budget resources to achieve the priorities. This report provides information regarding the Town’s Core Goals, existing work efforts, upcoming work efforts, an estimate of available capacity for new Strategic Priorities, and information regarding proposed new Priorities. PAGE 2 OF 6 SUBJECT: STRATEGIC PRIORITIES FOR 2019 – 2021 DATE: JANUARY 18, 2019 S:\COUNCIL REPORTS\2019\01-22-19\1-22 Report.doc DISCUSSION: Core Goals and Existing Strategic Priorities The Town provides a high level of quality municipal services to the Los Gatos community based on the Town Council’s adopted Operating and Capital Budgets. The budget is an expression of the Town’s Core Goals of community character, good governance, fiscal stability, civic enrichment, public safety, and quality public infrastructure. These goals are also reflected in the existing Strategic Priorities (Attachment 1). As shown in the attachment, the Council’s previous guidance on Strategic Priorities are identified as Ongoing Commitments in the key categories of Traffic/Transportation, Quality of Life, Safety, and Prosperity. Within each of these categories are existing projects that are underway, such as the one-way and school bus pilots in the Traffic/Transportation Ongoing Commitment. There is important work in progress in all categories. Town Department Work Plans Attachment 2 contains the work plans of all Town Departments and Divisions. As a service organization, each Department devotes approximately 90 percent of its staff time and other budget resources providing core services to the community. These core services are delivered at a very high level, with staff often taking the time to work with individual community members on their service needs, problem-solve options, and follow through with appropriate communications. The remaining 10 percent or so of Department resources are allocated to special projects, such as Strategic Priorities. All of these services and projects are supported by the Town’s Operating Budget. Available Staff Capacity and New Strategic Priorities Given that many previous Strategic Priorities have transitioned to core service Ongoing Commitments and the existing Department Work Plans, there is not much additional capacity within the Town organization to take on large, new items. For example, the multi-year General Plan update is not just a Community Development Department effort. Parks and Public Works staff have an important technical role given the close relationship of land use and transportation planning. All Departments and Town Commissions are or will be participating in the update as well by evaluating General Plan goals, policies, and action items. In addition, the Parks and Public Works (PPW) Department has large special projects/existing Strategic Priorities including but not limited to the Comprehensive Parking Study, One-Way Pilot, School Bus Pilot, and the development of a Complete Streets Policy. PAGE 3 OF 6 SUBJECT: STRATEGIC PRIORITIES FOR 2019 – 2021 DATE: JANUARY 18, 2019 S:\COUNCIL REPORTS\2019\01-22-19\1-22 Report.doc DISCUSSION (Continued): Given the limited staff capacity, staff is proposing only two new items : (1) a vegetation study to determine best management practices to reduce fire risk while maintaining ecosystem health, and (2) the preparation of a Vehicle Miles Traveled (VMT) Policy as required by State law for implementation in 2020. As the Council considers its Strategic Priorities for 2019-2021, staff recommends that the Council consider which of the current Ongoing Commitments it wishes to emphasize through the allocation of additional financial resources from the June 2018/19 budget surplus of approximately $3.7 M. How Does the Strategic Priorities Session Fit in the Town’s Budget Cycle? Attachment 3 contains an overview of the budget process, indicating the milestones when the Town Council considers a financial matter and the opportunity for public input at each milestone. In December, the Town Council accepts the Comprehensive Annual Financial Report (CAFR) for the close of the prior fiscal year (June 30, 2018). At that time, any budgetary surplus is distributed consistent with the Reserve Policy in place at the end of that fiscal year (June 30, 2018). The Strategic Priorities session provides the Town Council with an opportunity to consider the potential reallocation of the surplus for use in the upcoming fiscal year (in this case, FY 2019/20). The surplus at the end of June 2018 was $4.4 million. Consistent with the Town’s Reserve Policy, $0.7 million of this amount was deposited into the Pension/OPEB Reserve and the remaining $3.7 million is currently residing in the General Fund Capital Projects Reserve that supports the Town’s Capital Improvement Program. As discussed at previous Council meetings, the Town Council has the discretion to reallocate the $3.7 million surplus from the General Fund Capital Projects Fund Reserve to other priorities (e.g., additional deposits to the Pension and/or OPEB Trusts). This is the primary focus of this year’s Strategic Priorities session. The Council may also wish to identify specific capital projects which should receive additional investments [e.g., street repair to improve the Town’s Pavement Condition Index (PCI)]. Capital Projects - PCI At the January 15, 2019 Town Council meeting, the Council requested additional information to understand when the Town would achieve a PCI of 70. Using the Town’s current pavement budget, the Metropolitan Transportation Commission’s consultant developed the Town’s 5- year PCI projection, allocating delayed Measure B dollars in 2020. At the last Council meeting, the Council approved frontloading Measure B dollar s to 2019 to allow PPW to bid and award PAGE 4 OF 6 SUBJECT: STRATEGIC PRIORITIES FOR 2019 – 2021 DATE: JANUARY 18, 2019 S:\COUNCIL REPORTS\2019\01-22-19\1-22 Report.doc DISCUSSION (Continued): the arterial/collector street overlay project. By rerunning the PCI projections with Measure B ($1,161,266) moved to the 2019 budget cycle, the PCI increases to 72 by the end of this year and stays at that level through the 5-year period (2023). This will meet the Measure B requirements that allow discretion with use of funding when the PCI is at a 70 or higher. StreetSaver is a macrolevel program for reviewing PCI changes at the end of a 5-year cycle. It would be helpful to understand where Council wants the PCI to be in 2023. If the Council would like to be at a: • PCI of 71, the Town could use the next four years of Measure B funding for other local streets and roads projects. Re-allocating all of the Measure B dollars starting in year 2020 will begin to drop the Town’s PCI. The Council would need to use Measure B funds for pavement maintenance at some point after 2023 to maintain the Town’s PCI in the “Good” condition category. • PCI of 72, the Town would need to maintain its current level of spending of $2.9 million from all sources (including Measure B, gas tax, etc.). • PCI of 73, the Town would need to invest an additional $600,000 per year • PCI of 75, the Town would need to invest an additional $1,300,000 per year • PCI of 79, the Town would need to invest an additional $3,100,000 per year The end of year PCI projection by StreetSaver is a high level estimate of where the PCI will be in 5 years. The actual PCI may vary 1 to 2 points. To ensure the PCI stays in the “Good” condition category, staff recommends targeting a PCI of 72 at the end of the 5-year cycle. A lower targeted PCI will correlate with higher deferred maintenance costs, which signifies pavements dropping into more expensive repair categories. Capital Projects – Unfunded Needs Attachment 4 contains a working list of unfunded capital needs that might be included in the next or future year’s Capital Improvement Program. The Council is welcome to provide input on this list and identify any specific projects of interest. List of Potential Ordinances In coordination with all Town Departments, the Town Attorney has provided a list of potential ordinance amendments to the Town Code in Attachment 5. This list is in prio rity order based on work already in progress, State laws, service delivery, and emerging conditions. The Council may wish to adjust the priorities for this work. PAGE 5 OF 6 SUBJECT: STRATEGIC PRIORITIES FOR 2019 – 2021 DATE: JANUARY 18, 2019 S:\COUNCIL REPORTS\2019\01-22-19\1-22 Report.doc DISCUSSION (Continued): Priority Setting Process After review and discussion of the background materials and public testimony, the Council may take the following steps to set priorities: 1. Prioritize the list of ordinances and policies from the Town Attorney. 2. Discuss and determine the potential re-allocation of the $3.7 million surplus to specific capital projects and/or for other priorities. The Mayor recommends that each Council Member focus on two items. After each Council Member identifies their top two priorities, the Mayor will ask the Council to further refine the list to a total of fi ve items. 3. Discuss and determine additional budget direction. CONCLUSION AND NEXT STEPS: The Town of Los Gatos provides a high level of service to residents and businesses by providing key local government services of public works, parks, library, police, and community development with the necessary support services of information technology, finance, and human resources. The Town Manager’s Office leads and guides these administrative duties and closely collaborates with the Town Attorney’s Office to support the work of the Town Council. From the Council’s priority setting, the work of the Town Departments and Commissions is aligned to meet these priorities. The Council’s identification of areas of emphasis through the allocation of the $3.7 million surplus will guide the preparation of the 2019/20 Operating and Capital Budgets for Council consideration in May. If any of the $3.7 million surplus is allocated for non-capital purposes, the Council will consider a resolution at a future meeting to move the monies to the appropriate reserve or fund. Given the Council’s continued interest to evaluate budgetary assumptions and determine if financial resources could be re-allocated to other purposes, the following agenda items will be coming forward at future Council meetings: • February 19, 2019 - Discussion of five- and ten-year base forecasts and budget assumptions: This item would include a “sensitivity” analysis of the five-year forecast with optimistic and pessimistic scenarios from the base case forecast. The Council may choose to alter its budget assumptions to reflect its current budget priorities and approach. For example, as of June 30, 2018, there is $14.4 million in the General Fund Capital Project Reserve including the $3.7 million surplus. From this reserve, Council has taken actions to allocate $3 million towards the FY 2018/19 budget, one -time staff bonuses, PAGE 6 OF 6 SUBJECT: STRATEGIC PRIORITIES FOR 2019 – 2021 DATE: JANUARY 18, 2019 S:\COUNCIL REPORTS\2019\01-22-19\1-22 Report.doc CONCLUSION AND NEXT STEPS (Continued): and the selected the One-Way Street Pilot option. An additional $2.2 million is programmed for years two through five of the five-year Capital Improvement Program. On February 19, the Council will have the opportunity to discuss the remaining funds and potential retention in the Capital Projects Reserve and/or allocation to other priorities. • April 2, 2019 - Discussion of a potential Internal Service Fund (ISF) Policy: Assuming the completion of the Finance Committee’s consideration, the Town Council would have the opportunity to consider this potential ISF Policy and determine the targets for th e Funds. COORDINATION: This report was prepared in coordination with all Town Departments and Offices (Library, Police, Parks and Public Works, Community Development, Finance, Clerk, Human Resources, Town Attorney, and Town Manager). Within the Town Manager’s Office, Information Technology and Economic Vitality were also engaged. FISCAL IMPACT: The work of this session informs the preparation of the upcoming Fiscal Year 2019/20 Operating and Capital Budget. The session itself has no fiscal impact. CEQA: The Council’s work associated with the Priority Setting Session is not a project under the California Environmental Quality Act and no environmental review is required. Attachments: 1. Core Goals and Draft 2019-2021 Strategic Priorities 2. Town Department Work Plans 3. Budget Process Diagram 4. Unfunded Capital Needs 5. Draft 2019 Ordinance and Policy Priorities 6. Public Comments