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Staff Report1pWN p MEETING DATE: 05/19/15 ITEM NO: 10 COUNCIL AGENDA REPORT DATE: May 14, 2015 TO: FROM: SUBJECT: MAYOR AND TOWN COUNCIL LES WHITE, INTERIM TOWN A. CONSIDER THE TOWN OF LOS GATOS PROPOSED OPERATING AND CAPITAL BUGDET FOR FISCAL YEAR 2015/16 B. CONSIDER THE TOWN OF LOS GATOS PROPOSED CAPITAL IMPROVEMENT PROGRAM FOR FISCAL YEAR 2015 -2020 C. PROVIDE DIRECTION REGARDING ANY OF THE FOLLOWING CHANGES TO THE FISCAL YEAR 2015/16 OPEARTING AND CAPITAL BUDGET OR THE 2016 -2020 CAPITAL IMPROVEMENT PROGRAM BUDGET: 1. TRANSFER OF $100,000 IN YEAR -END GENERAL FUND SURPLUS TO THE NPDES FUND 2. TRANSFER OF $500,000 FROM THE TOWN'S VEHICLE MAINTENANCE FUND TO THE TOWN'S GENERAL LIABILITY ABAG FUND 3. INCREASE VEHICLE IMPACT FEE REVENUE IN THE GENERAL FUND APPROPRIATED RESERVE (GFAR) BY $136,000 4. ALLOCATION OF ONE -TIME ADDITIONAL FY 2014/15 YEAR END GENERAL FUND SURPLUS TO OFFSET HUMAN SERVICES GRANTS FUNDING GAP OF $31,294 5. ALLOCATION OF ADDITIONAL ONE -TIME FUNDING OF $1,000 FROM FY 2014/15 YEAR END GENERAL FUND SURPLUS TO FUND THE ART DOCENTS OF LOS GATOS 6. ALLOCATION OF ADDITIONAL ONE -TIME FUNDING OF $2,000 FROM FY 2014/15 YEAR END GENERAL FUND SURPLUS TO FUND THE NEW MUSEUMS OF LOS GATOS 7. ALLOCATION OF ADDITIONAL ONE -TIME FUNDING OF $5,600 FROM FY 2014/15 YEAR END GENERAL FUND SURPLUS TO FUND THE ARTS AND CULTURE COMMISSION 8. AUTHORIZATION TO ASSIST THE ARTS AND CULTURE COMMISSION IN DEVELOPING AN UPDATED ARTS PLAN FOR PREPARED BY: STEPHEN ar Fin Director of Finance Reviewed by Assistant Town Manager J45own Attorney Finance 15- 16�staff reportTinal Town Council Budget StaffReport.docx PAGE MAYOR AND TOWN COUNCIL SUBJECT: OPERATING AND CAPITAL BUDGETS MAY 19, 2015 COUNCIL REVIEW AND CONSIDERATION AND FOR STAFF TO EXPLORE ALTERNATIVE OPTIONS FOR ONGOING REVENUE SOURCES FOR PUBLIC ART FUNDING 9. AUTHORIZATION TO ADJUST GENERAL FUND EXPENDITURES AND REVENUES BY $164,000 TO FUND AN ENTRY LEVEL OFFICER 10. ALLOCATION OF $300,000 IN FY 2014/15 YEAR END GENERAL FUND SURPLUS TO FUND RESTORATION OF SERVICES AND /OR FUTURE SALARY AND BENEFIT AUGMENTATIONS RECOMMENDATION: 1. Consider the Town of Los Gatos Proposed Operating and Capital Budget for Fiscal Year 2015/16 2. Consider the Town of Los Gatos Proposed Capital Improvement Program for Fiscal Years 2015- 2020 3. Provide direction regarding any of the following changes to the Fiscal year 2015/16 Operating and Capital Budget or the 2016 -2020 Capital Improvement Program Budget: A. Transfer of $100,000 in year -end General Fund surplus to the NPDES Fund B. Transfer of $500,000 from the Town's Vehicle Maintenance Fund to the Town's General Liability ABAG Fund C. Increase Vehicle Impact Fee revenue in the General Fund Appropriated Reserve (GFAR) by $136,000 D. Allocation of one -time additional FY 2014/15 year end General Fund surplus to offset Human Services Grants funding gap of $31,294 E. Allocation of additional one -time funding of $1,000 from FY 2014/15 year end General Fund surplus to fund the Art Docents of Los Gatos F. Allocation of additional one -time funding of $2,000 from FY 2014/15 year end General Fund surplus to fund the New Museums of Los Gatos G. Allocation of additional one -time funding of $5,600 from FY 2014/15 year end General Fund surplus to fund the Arts and Culture Commission H. Authorization to assist the Arts and Culture Commission in developing an updated Arts Plan for Council review and consideration and for staff to explore alternative options for ongoing revenue sources for Public Art funding I. Authorization to adjust General Fund expenditures and revenues by $164,000 to fund an entry level Officer J. Allocation of $300,000 in FY 2014/15 year end General Fund surplus to fund restoration of services and /or future salary and benefit augmentations BACKGROUND: The Proposed Operating and Capital Budget for FY 2015/16 (Attachment 1, previously distributed) represents the Interim Town Manager's recommended comprehensive financial plan to provide services to the Town of Los Gatos, The Proposed 2015 -2020 Capital Improvement Program (Attachment 2, PAGE 3 MAYOR AND TOWN COUNCIL SUBJECT: OPERATING AND CAPITAL BUDGETS MAY 19, 2015 previously distributed) is a five -year capital improvement plan which identifies projects to construct and maintain the Town's infrastructure over an extended period. Any changes to the proposed operating and /or capital budgets directed by Council at the May 19, 2015 budget hearing will be incorporated into the implementing documents to be presented for Council approval on June 2, 2015. DISCUSSION: Budget Highlights and Issues for Consideration The FY 2015/16 proposed operating budget reflects adjustments of $938,234 (exclusive of fund transfers and debt service), or 2.7 %, as staff continues to monitor and evaluate the permanent staffing needs of the Town. As a result of the Ca1PERS side fund payoff approved in June 2014 and the elimination of prior year one -time funded positions, overall General Fund personnel and benefit costs for the Town increased by 1.2% while absorbing negotiated salary increases and increased workers' compensation rates. Following are issues that have either been included in the FY 2015/16 budget or are recommended for Council consideration and inclusion in the budget. FY 2015116 Budget Highlights Reduced Overtime Despite the positive economy, the Town remains challenged with availability of limited resources to augment the Proposed FY 2015/16 and future budgets. In light of these challenges, Town staff remains cognizant of reducing costs and implementing cost containment measures that will minimally impact services. Most recently, the Police Department has successfully reduced overtime by over $200,000 from previously forecasted amounts. Overtime is an unavoidable cost in the Police Department. When critical incidents occur, overtime is often necessary when shifts are needed to be extended or officers are called in on their days off. Overtime is also a factor when coverage is needed to replace officers who are performing department- related activities such as training, court appearances, or covering absences such as vacation, sick time and work - related injuries. To minimize overtime use, the department has enacted controls to limit absences, adjust shifts and reduce non - critical training. Through focused monitoring, administrative controls and employee cooperation, the use of overtime has remained within budget. Community Service Officer /Code Compliance During adoption of the FY 2014/15 Operating Budget, Council approved a pilot program to fund a part- time Community Services Officer (CSO) to focus on evening monitoring and code compliance, including noise complaints. Due to staffing shortages the Town was unable to fill this position until March 2015 and recommends an extension of this pilot program for six months. During the FY 2015/16 mid -year update process staff will assess the effectiveness of this position and recommend action to Council regarding continued funding of this program. The Proposed FY 2015/16 Operating Budget includes funding for this part-time position through December 2015. PAGE 4 MAYOR AND TOWN COUNCIL SUBJECT: OPERATING AND CAPITAL BUDGETS MAY 19, 2015 Housing Trust During adoption of the FY 2014/15 Operating Budget, Council approved $237,000 for an Affordable Housing designated reserve to be matched with $309,000 from the County of Santa Clara. To date, the Town has not received a notice of matching funds from Santa Clara County. The Town is not anticipating such use prior to the end of the fiscal year. This money will remain in the Special Studies reserve for use and allocation once a $309,000 contribution from Santa Clara County is received. School Traffic Stud During adoption of the FY 2014/15 Operating Budget, Council approved $100,000 for a School Traffic Study /Analysis and Improvements, contingent upon school district participation. The school traffic study has not been conducted yet as the school districts have not identified funding to participate. Staff continues conversations with the school districts to identify what level of participation they can provide. This money will remain in the Special Studies reserve for use and allocation when the Schools are ready to complete the analysis and provide participation to do so. Litigation Settlement Money As part of the Albright project Settlement Agreement, the Town will receive $350,000 in Community Benefit money, within 30 days after issuance by the Town of the certificate of occupancy for the first office building of the project. The Community Benefit payment will be used by the Town in accordance with restrictions outlined in the Settlement Agreement. The Town proposes to establish a fund to specifically track the use of these one -time monies. In addition to the community benefit money described above, the settlement agreement and initiative also incorporates a $1 per square foot payment, payable to the Town upon issuance of the certificates of occupancy for the buildings. This payment is expected to total $489,000 in one -time monies over several years. Incorporated into the proposed FY 2015/16 Budget is $244,333 for issuance of the occupancy permits for buildings one and two of this four building project site. This project approval money offsets a portion (40 %) of the new project manager position proposed in the FY 2015/16 budget. This position will assist with Capital Improvement Program (CIP) project management within the Parks and Public Works Department which is expected to result in completing more CIP projects. FY 2015116 Issues for Consideration NPDES Transfer The revenue from the Non -Point Source Discharge Elimination System ( NPDES) fund has continued to lag the expenses for several years. This largely results from increased requirements associated with the PAGE 5 MAYOR AND TOWN COUNCIL SUBJECT: OPERATING AND CAPITAL BUDGETS MAY 19, 2015 Town's storm water permit, including increased inspections and monitoring, trash reduction requirements, and administrative costs. Town staff continues to look for ways to move the program towards a sustainable cost recovery model that does not impact the General Fund. This may include increased fees through garbage rates, increased permit and inspection costs, or other cost recovery options. Over the next fiscal year staff will develop a plan for Council to review in the 2016/17 budget process. In the interim, staff recommends a $100,000 transfer from available General Fund year end surplus to help fund this program. ABAG Fund As discussed during the May 5, 2015 budget study session (presentation slides 9 -11), the Town has six internal service funds, some of which staff considers funded at a level higher than necessary (Vehicle Maintenance and Equipment Maintenance). Other funds are at less than recommended funding levels (ABAG and Workers' Compensation). Incorporated into the proposed FY 2015/16 budget is a 1.5% increase in Workers' Compensation rates for all employees. This increase is forecasted for FY 2016/17 as well and is expected to help restore the Workers' Compensation fund to the desired funding level of $2 million (estimated fund balance as of June 30, 2015 of $1.3 million). The Town's ABAG Liability fund (self - insurance fund to cover property and injury claims by the public), is another fund that staff considers to be underfunded with an estimated June 30, 2015 fund balance of $800,000 with a recommended funding level of $2,000,000. To begin restoring this fund to an appropriate level, staff recommends a transfer of $500,000 from the Town's Vehicle Maintenance Fund (estimated fund balance as of June 30, 2015 of $741,000). Staff considers the Vehicle Maintenance Fund to be overfunded at this point with a recommended reduced funding level to $100,000. JPA Increased Revenues Prior to the completion of the Proposed FY 2015/16 Proposed Operating and Capital Improvement Plan Budget, the Town was advised that Solid Waste Joint Powers Authority (JPA) ratified new rates with an increase in the Vehicle Impact Fee revenue that will be received by the Town. The adjusted revenue amount is $228,000 for FY 2015/16 as opposed to the $92,000 originally anticipated. Based on new information, staff anticipates that the Vehicle Impact Fee revenue will increase by approximately $120,000 annually over the next three years, stabilizing at approximately $600,000 annually. These adjustments will result in increased street maintenance revenue over the next five years. Grants The Community Grant program provides grants to non -profit agencies through the General Fund. Arts, Cultural and Educational grants are reviewed by the Arts and Culture Commission (ACC) for recommendation to the Town Council; the Human services applications are reviewed by the Community and Senior Services Commission (CSSC). The grant application process is on a one -year cycle; the applications discussed in this report are requesting funds for FY 2015/16. The recommendations are included on page D -32 of the proposed budget. PAGE 6 MAYOR AND TOWN COUNCIL SUBJECT: OPERATING AND CAPITAL BUDGETS MAY 19, 2015 Human Services Grants The Town received eight applications for funding in the amount of $121,294 in the Human Services category. The increase in funding requests is attributed to an increase in demand for services by populations that several of the grant applicants serve, most notably youth and vulnerable and high risk residents residing in the Town of Los Gatos. Two agencies, Counseling and Support Services for Youth (CASSY) and West Valley Community Services submitted funding requests for the FY 15/16 grant cycle that combined are a $23,200 increase from their approved funding allocations for FY 14/15. Based on the adopted budget from FY 14/15, the Community and Senior Services Commission is recommending allocations of approximately $90,000 in community grant funds for FY 15/16. These requests have been incorporated in the Proposed FY 2015/16 Operating Budget. As illustrated in the chart below, staff's recommended funding level of $90,000 is $31,294 less than the requested amounts as described above. Human Services Grants The CSSC requests that the Council consider allocating any additional one -time available funds to offset the funding gap of $31,294. FY 2015/16 Request CSSC Recommendation Staff Recommendation Counseling and Support Service for Youth $20,000 $15,000 $15,000 Live Oak Senior Nutrition & Service Center $30,000 $26,500 $26,500 Live Oak Adult Day Services $13,094 $13,000 $13,000 Next Door Solutions to Domestic Violence $15,000 $15,000 $15,000 Parents Helping Parents $2,200 $2,000 $2,000 Support Network for Battered Women /YWCA $6,000 $6,000 $6,000 West Valley Community Services $30,000 $10,000 $10,000 United Way Silicon Valley (2 -1 -1) $5,000 $2,500 $2,500 Total $121,294 $90,000 $90,000 The CSSC requests that the Council consider allocating any additional one -time available funds to offset the funding gap of $31,294. PAGE 7 MAYOR AND TOWN COUNCIL SUBJECT: OPERATING AND CAPITAL BUDGETS MAY 19, 2015 Art/Education Grants The Town received five applications for funding in the amount of $28,400 for the Arts, Cultural and Education category. Continuing with the FY 2014/15 allocation amount, the ACC is recommending allocations of $19,800 in community grant funds for FY 2015/16, as illustrated in the chart below. These requests have been incorporated in the Proposed FY 2015/16 Operating Budget. Art, Cultural & Education Grants At this funding level two agencies, the Festival Theatre Ensemble and Los Gatos Community Concert Association, will receive the same funding as in prior years. The Art Docents of Los Gatos is recommended to receive $3,000, $1,000 less than prior year's allocation. Staff recommends Council authorize an allocation of the additional $1,000 in one -time year end General Fund excess to match last year's funding level for the Art Docents. Likewise, the ACC recommends $5,000 be allocated to the New Museums of Los Gatos which is $2,000 less than the requested amount. Staff recommends Council authorize an allocation of the additional $2,000 in one -time year end General Fund excess to fulfill the funding request of the New Museums of Los Gatos. The ACC is recommending that $9,400, incorporated into the proposed FY 2015/16 Operating Budget, be allocated to the Commission to fund projects identified in the 2013 Arts Plan as follows: FY 2015/16 Request ACC Recommendation Staff Recommendation Art Docents of Los Gatos $4,000 $3,000 $4,000 Arts & Culture Commission Arts Plan $15,000 $9,400 $9,400 Festival Theatre Ensemble $1,400 $1,400 $1,400 Los Gatos Community Concert Association $1,000 $1,000 $1,000 Museums of Los Gatos $7,000 $5,000 $7,000 Total $28,400 $19,800 $22,800 At this funding level two agencies, the Festival Theatre Ensemble and Los Gatos Community Concert Association, will receive the same funding as in prior years. The Art Docents of Los Gatos is recommended to receive $3,000, $1,000 less than prior year's allocation. Staff recommends Council authorize an allocation of the additional $1,000 in one -time year end General Fund excess to match last year's funding level for the Art Docents. Likewise, the ACC recommends $5,000 be allocated to the New Museums of Los Gatos which is $2,000 less than the requested amount. Staff recommends Council authorize an allocation of the additional $2,000 in one -time year end General Fund excess to fulfill the funding request of the New Museums of Los Gatos. The ACC is recommending that $9,400, incorporated into the proposed FY 2015/16 Operating Budget, be allocated to the Commission to fund projects identified in the 2013 Arts Plan as follows: PAGE 8 MAYOR AND TOWN COUNCIL SUBJECT: OPERATING AND CAPITAL BUDGETS MAY 19, 2015 Arts Commission Project Plan ACC Project Funding Allocation Phase 2: Cat Walk Public Art Installation $4,400 Phase 4: Forbes Mill Footbridge Revitalization Project $3,000 Future Arts Projects $2,000 Total $9,400 The ACC requests an additional allocation of $5,600 to be applied to the three projects identified above, most notably the Phase 2 of the Cat Walk Public Art Installation, and the Phase 4 of the Forbes Mill Footbridge. Staff recommends Council authorization to assist the ACC in developing an updated Arts Plan for Council review and consideration. This Arts Plan would validate existing art projects and identify new projects for implementation prior to allocating additional funds above the budgeted allocation of $9,400. Additionally, staff recommends that Council authorize staff to explore alternative options for ongoing revenue sources for Public Art funding beginning in FY 16/17 that comply with current Town policies and goals. Future Budget Considerations Unfunded Positions As a result of staff's concerns about limited resources in future years, a conservative approach was utilized for the five -year forecast. Staff has not included most of the one -time positions that were funded in FY 14/15 as ongoing positions for FY 15/16. Only one full -time, permanent position is being added in the Proposed FY 2015/16 budget, a project manager position, primarily funded through the Capital Improvement Plan (CIP) to manage and coordinate capital and other projects. The position is proposed to be funded 60% in the CIP Budget and 40% in the General Fund Operating. Several positions remain unfunded in the FY 2015/16 Proposed Budget. The prior year consolidation of the Assistant Town Manager and Community Development Director (ATM/CDD) continues to be funded as a combined position. One Director -level position remains unfunded. In addition, the Library remains funded with the co- management structure of two Town Librarians, with no funding allocated to restore the Director position. This management structure is now being reviewed with the assistance of a Library consultant. PAGE 9 MAYOR AND TOWN COUNCIL SUBJECT: OPERATING AND CAPITAL BUDGETS MAY 19, 2015 As part of the Police Department's reorganization and implementation of the Lieutenants rank, one Corporal position remains unfunded in the Proposed FY 2015/16 budget. During the budget process the Department requested filling this position with an entry-level Officer, costing $73,000 less, primarily due to the lower mandated pension contributions by the Town. Funding of this position on a permanent basis, and assuming full staffing levels are maintained, staff expects to reduce overtime expenditures in future budgets as the additional staffing will provide overtime relief, with the proviso that no extraordinary circumstances occur, i.e. unusual workers' compensation injuries, critical incidents and /or natural disasters requiring emergency response, etc. Staff recommends Council authorize funding this position as an entry level Officer, adjusting FY 2015/16 General Fund expenditures and revenues by $164,000. The increased on -going cost would likely be offset by anticipated salary savings from vacant positions, reduced overtime and changes to on -going revenues. The prior year budget a provisional Planning Technician position was added as a one -time budgetary add, with the hope of making this a permeant position in FY 2015/16. Due to limited resources, the Community Development Department elected to under fill a vacant Associate Planner position with a Planning Technician. The Department Director will continue to evaluate this during the ongoing fiscal year. Labor Negotiations The Town of Los Gatos has three employee labor groups; the Town Employees Association (TEA), the American Federation of State, County and Municipal Employees (AFSCME) and the Police Officer Association (POA). By resolution, the salaries for Confidential employees mirror the TEA contract and management employees are generally provided increases in alignment with the represented groups. Both the TEA and AFSCME labor agreements expire on June 30, 2016. Negotiations with both of these groups will begin in Spring 2016 to discuss a successor Memorandum of Understanding (MOU). The POA agreement expires September 30, 2016. Negotiations with the POA will begin in summer 2016 to discuss a successor MOU. The Town anticipates year -end available surplus exceeding $2.0 million. In accordance with the Town's fiscal policies, this amount would roll into the Capital Improvement Plan (CIP) for funding of future CIP projects. With impending negotiations and continual staffing needs, staff reconunends Council consider allocating $300,000 of this year -end surplus to restore ongoing services and /or future salary and benefit augmentations which will aid the Town in remaining competitive in the job market. Donation Opportunities — FY 2015/16 List of Town Needs As part of the budget development process, the Donation and Solicitation Policy List of Town Needs is updated to reflect goods, services, and other contributions that would help enhance Town Services, programs, and events. PAGE 10 MAYOR AND TOWN COUNCIL SUBJECT: OPERATING AND CAPITAL BUDGETS MAY 19, 2015 Budget Presentation At the May 19, 2015 Town Council meeting, the Council will consider the proposed Operating and Capital Improvement Program Budgets. The budget session, Money Matters & More, will continue from the May 5, 2015 meeting and the Proposed FY 2015/16 budget review and discussion will ensue. Departmental staff will be available to respond to specific Council questions. Any changes to the proposed operating and /or capital budget directed by Council, including items discussed in this report for consideration, will be included in the resolution formally adopting the budget in June. COORDINATION: This memorandum has been completed in Coordination with the Town Managers Office, Town Attorney's Office, Human Resource Department, Parks and Public Works Department, Community Development Department and Police Department FISCAL IMPACT: The fiscal impact is presented in summary form in the Financial Summaries chapter of the Proposed Operating and Capital Budget for FY 2015/16. ENVIRONMENTAL ASSESSMENT: Is not a project defined under CEQA, and no further action is required. Attachments: 1. FY 2015/16 Proposed Operating and Capital Budget (Previously Submitted) 2. FY 2016 -2020 Proposed Capital Improvement Program Budget (Previously Submitted) 3. Memorandum from Stephen Conway, Finance Director, dated May 14, 2015 responding to questions asked during the May 5, 2015 budget study session 4. Town of Los Gatos Donation Opportunities: FY 2015/16 List of Town Needs Distribution: