1

THE CITY OF

1 4 CITY COUNCIL AGENDA REPORT

pLEASANTON©

April 15, 2020

Finance

TITLE: ADOPT A RESOLUTION ACCEPTING THE SECOND MIDYEAR FY

2019/ 20 OPERATING BUDGET AND AMENDING THE FY 2019/ 20
OPERATING BUDGET ACCORDINGLY

SUMMARY
City Council adopted the FY 2019/20 Midyear budget on March 3, 2020 before the stay
at home order( the Order) issued by the Bay Area counties on March 16, 2020 in response
to the corona virus ( COVID- 19) pandemic outbreak. The Governor issued a similar
statewide order on March 19, 2020, which is currently in effect through May 3, 2020. The
Order resulted in many non- essential public serving businesses to close or curtail their
operations for the duration of the Order. In addition, the Order required the City to close
its library, recreation facilities, and recreation programs as well as reduce maintenance,
planning and permitting efforts. As a result, the City' s General Fund revenues for the
remainder of FY 2019/ 20 are expected to be approximately $ 6. 3 million less than the FY

2019/20 Midyear budget approved by City Council on March 3, 2020. The proposed
second Midyear FY 2019/ 20 budget reduces General Fund revenues to reflect the revised
estimates and reduces expenditures, allocation to Repair and Replacement ( R& R) funds
and transfers to Capital Improvement Program ( CIP) to balance the City' s FY 2019/ 20
General Fund budget.

RECOMMENDATION

Adopt the attached resolution approving the second Midyear budget adjustments to the
FY 2019/ 20 Budget.

FINANCIAL STATEMENT
The recommended adjustments to the General Fund total $ 6. 3 million. The discussion
section of this report summarizes the recommended adjustments and their respective
impact to the Budget and fund balances.

Staff also recommends allocating $ 100, 000 from the CIP Reserve to support a COVID-
19 mobile response in partnership with Stanford Valley Care by providing funding to
purchase test swabs and other lab materials required to test people for COVID- 19. Staff
expects these expenses to be eligible for FEMA reimbursement.
BACKGROUND

Staff regularly monitors expenditures, cautiously forecasts revenues, and makes

recommendations to address changes as quickly as possible in order to maintain a
balanced Budget. The second Midyear Budget report will help staff address expected
budget variances in a timely manner.

DISCUSSION
General Fund Overview
As described in more detail below, staff recommends decreasing revenue estimates by
6, 303, 398, decreasing expenditure estimates by $ 1, 812, 957, reversing the March 3,
2020 General Fund surplus allocations to the CIP ($ 1 million) and R& R funds
980, 923) and reducing the original transfer to CIP reserves by $ 2, 409, 518. As a result
of these changes, staff currently anticipates the City' s General Fund will be balanced at
the end FY 2019/ 20.

There is considerable uncertainty about the extent to which the Order will affect the
City' s General Fund revenues. For example, it is unclear whether families will register
their children during April and May for the City' s summer programs as they have in
previous years. Approximately 50 percent of the City' s Recreation revenues are derived
from summer programs. Further, it is unclear the extent to which on- line shopping and
the associated County pooled sales tax revenues that the City receives will increase
during the period of the Order. To be conservative, staff assumed pooled sales tax
revenues do not increase. Finally, based on the Governor' s comments, the revised
revenue estimates assume the Order will be extended from May 3, 2020 through May
31, 2020. However, the Order could end May 3, 2020 or be extended past May 31,
2020. Either of these two scenarios will affect the actual General Fund revenues. And,
the state' s decision to allow sales tax payment deferrals for small business for up to 12
months means staff will not know the actual financial impact of the Order until the end of
FY 2020/ 21.

Table 1. General Fund Overview

FY 2019/ 20

FY 2018/ 19 Adjusted Recommended Mid- Year

Actual Budget Adjustments Budget

Revenues 126, 031, 456 $ 129, 890, 618 ($ 6, 303, 398) $ 123, 587, 220

Net Transfers 11, 577, 560) ( 7, 101, 355) 3, 409, 518 ( 3, 691, 837)

Expenditures 113, 376, 990) ( 120, 029, 736) 2, 893, 880 ( 117, 135, 856)

Difference 1, 076, 906 $ 2, 759, 527 0 $ 2, 759, 527

General Fund Revenues - Table 2 identifies the total recommended revenue

decreases of$ 6. 3 million based on revenues expected to be negatively affected by the
Order. As noted above, the revenue estimates assume the Order will be extended
through May 31, 2020 for a total of 2. 5 months of public serving business closures and
City facility closures and reduced revenue generating services. Those decreases
include: Sales Taxes ($ 3, 030, 715), Transient Occupancy Tax ( TOT) ($ 1. 5 million),
Recreation Fees ($ 985, 683) and Development Services Fees ($ 787, 000). Each of these
revenue reductions is discussed in more detail below:

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 The $ 3 million reduction to Sales Tax revenues reflects expected cessation of 2. 5
months in sales tax receipts primarily related to the following sales tax
categories: ( 1) autos and transportation, ( 2) general consumer goods, ( 3)

restaurants and hotels and ( 4) business and industry.

The $ 1. 5 million reduction in TOT revenues reflects 2. 5 months closure of the

City' s hotels and motels.

The $ 985, 683 reduction in Recreation revenues equals an average of 2. 5 months

of Recreation revenues.

The $ 787, 000 reduction in Development Services Fees represents an average of

two months of Development Services fees revenues. During the period of the
Order, Community Development continues to issue a limited number of building
permits. As such, the staff expects Development Services Fee revenues to
perform better during this period than the other affected revenue categories.

Table 2. General Fund Revenues

FY 2019/ 20

FY 2018/ 19 Adjusted Recommended Mid- Year

Revenues Actual Budget Adjustments Budget

Property Taxes 69, 930, 012 $ 73, 570, 000 0 $ 73, 570, 000
Sales& Use Taxes 22, 959, 956 22, 000, 000 ( 3, 030, 715) 18, 969, 285
Other Taxes 15, 515, 346 17, 592, 000 ( 1, 500, 000) 16, 092, 000
Development Services Fees 5, 676, 041 5, 038, 500 787, 000) 4, 251, 500
Recreation Fees 4, 775, 357 4, 794, 928 985, 683) 3, 809, 245
Other Revenues 7, 174, 744 6, 895, 190 0 6, 895, 190
Total 126, 031, 456 $ 129, 890, 618 ($ 6, 303, 398) $ 123, 587, 220

General Fund Expenditures —General Fund expenditure are expected to decrease by

a total of$ 2. 9 million as detailed in Table 3 below.

Table 3. General Fund Expenses

FY 2019/ 20

FY 2018/ 19 Adjusted Recommended Mid- Year

Expenditure Categories Actual Budget Adjustments Budget

Personnel 82, 048, 188 $ 85, 768, 512 85, 768, 512
Transportation & Training 1, 503, 646 1, 988, 083 196, 257) 1, 791, 826
Repairs& Maintenance 8, 250, 150 8, 786, 438 ( 1, 610, 923) 7, 175, 515
Materials & Supplies 21, 253, 063 23, 045, 814 ( 1, 025, 000) 22, 020, 814
Capital Outlay 321, 943 440, 890 61, 700) 379, 190
Total Expenditures 113, 376, 990 $ 120, 029, 736 ($ 2, 893, 880) $ 117, 135, 856

Personnel Expenses —Staff are not recommending decreases to the Personnel budget.
However, staff expects there will likely be additional attrition savings during the next 2. 5
months than estimated in the March 3, 2020 Midyear budget but staff is currently unable
to estimate what that will be. Any additional attrition savings will help off-set the need to
reduce CIP transfers to balance the General Fund budget.

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Non- personnel Expenses — Staff is recommending reducing Non- personnel expenses
as identified in Table 3 above ( all expense categories other than Personnel) by a total of
approximately $ 2. 9 million. These decreases are primarily based on expected savings
due to ( 1) the cancelation of several City programs, events, staff training programs, and
conferences ( 2) reduced repair and maintenance activities, and ( 3) closing most City
facilities. In addition, staff recommends reversing the $ 980, 923 allocation to the R& R
funds from the March 3, 2020 Midyear budget surplus. The $ 980, 923 is included in the
Repairs & Maintenance expense category.

Operating Transfers —The second Midyear Budget reduces transfers to the CIP by
3. 4 million, of which $1 million is a reversal of the March 3, 2020 Midyear Budget
surplus budget allocation to the CIP. The remaining $ 2. 4 million will reduce General
Fund CIP reserves from $ 10. 2 million to $ 7. 8 million.

General Fund Reserves and Fund Balance —Staff is not recommending reversing the
2 million added to the General Fund reserve in the March 3, 2020 Midyear budget.
Thus, the General Fund ending fund balance to be $ 30.6
million. The City' s
continues

reserve policy requires a minimum reserve equal to 20 percent of operating expenses

and a target of 25 percent. The proposed General Fund reserve of$ 30. 6 million equals
26 percent of the second Midyear General Fund operating expenses.

Staff is not recommending adjustments to the remaining funds.

COVID- 19 Related Funding Request

Staff requests an allocation of$ 100, 000 from the CIP Reserve to support a COVID- 19
mobile response in partnership with Stanford Valley Care by providing funding to
purchase test swabs and other lab materials required to test people for COVID- 19. Staff
expects these expenses to be eligible for FEMA reimbursement.

Status of Federal Funding

Congress passed and the president signed the Coronavirus Aid, Relief, and Economic
Security Act the " CARES Act" the end of March that authorizes more than $ 2 trillion to
battle COVID- 19 and its economic effects, including immediate cash relief for individual
citizens, loan programs for small business, support for hospitals and other medical
providers, and various types of economic relief for impacted businesses and industries.
The CARES Act includes $ 150 billion that will be distributed to state, local and tribal
governments to provide immediate relief. To receive direct funding, local governments
must have a population of 500, 000 or greater. Since only a few cities in California meet
this threshold, the bulk of California' s funding will be allocated to the state. The state
could allocate some of its funding to cities with populations less than 500, 000. As of the
writing of this report, the state has not communicated whether it intends to allocate any
of its CARES Act funding to cities.

That said, the CARES Act increased Community Development Block Grant ( CDBG)
funding to cities. Staff expects Pleasanton to receive an additional $ 200, 000 in CDBG
funds that can be used to prevent and respond to the spread of infectious diseases
such as COVID- 19. To receive the increased CDBG funding, the City may have to
amend its Consolidated Annual Action Plan. Staff will present an amendment to its

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Consolidated Annual Action Plan or other Housing and Urban Development authorized
plan to City Council at a later date.

Finally, the CARES Act includes disaster relief funding from which the City can submit
claims for eligible costs. Eligible costs related to City operations include disinfection of
eligible pubic facilities, purchase and distribution of food, water, personal protective
equipment, medical sheltering, medical supplies, and any overtime costs incurred to
respond to COVID- 19. Staff have been tracking eligible costs and will submit requests
for federal reimbursement later this month.

CONCLUSION
COVID- 19 and the related Order have led us into uncertain times on many fronts but
particularly for the City's finances. There is speculation that the current worldwide
shutdown of travel and much of commercial activity will result in a recession, the length
and magnitude of which is unclear. The City' s practice of using budget surpluses to
increase operating, capital, and repair and replacement reserves as well as a
conservative approach towards budgeting provides flexibility in addressing revenue
shortfalls without decreasing critical City services. The proposed second FY 2019/ 20
Midyear budget draws on some of those reserves and takes advantage of the
conservative budgeting practice. We are using the same approach towards planning the
FY 2020/ 21 Midterm budget.

Submit ed y: Approve y:

Tina Olson Nelson Fialho

Director of Finance City Manager

Attachments:
1. Resolution

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 RESOLUTION NO. 20

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PLEASANTON ACCEPTING

THE SECOND MIDYEAR FY 2019/ 20 OPERATING BUDGET AND AMENDNG THE FY
2019/ 20 OPERATING BUDGET ACCORDINGLY

WHEREAS, staff periodically presents to the City Council reports regarding the financial
condition of the City along with any recommendations for budget amendments and technical
corrective actions needed, and

WHEREAS, the City Council adopted the First Midyear FY 2019/ 20 Operating Budget
Budget") on March 3, 2020, and

WHEREAS, the County issued a state at home order ( Order) on March 17, 2020 in
response to the COVID- 19 a pandemic outbreak in the Bay Area that resulted in many non-
essential public serving businesses to close or curtail their operations for the duration of the order,
and

WHEREAS, the Order also required the City to close its library, recreation facilities,
recreation programs as well as reduce maintenance, planning and permitting efforts, and

WHEREAS, the Order and related closures have caused the City' s General Fund
revenues to be approximately $ 6. 3 million less than the March 3, 2020 FY 2019/ 20 Midyear
budget, and

WHEREAS, staff prepared a second Midyear Budget update that includes recommended
amendments to the Budget to ensure the FY 2019/ 20 budget is balanced.

NOW, THEREFORE BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF

PLEASANTON DOES HEREBY RESOLVE, DECLARE, DETERMINE, AND ORDER THE
FOLLOWING:

SECTION 1: It allocates $ 100, 000 from the CIP Reserve to support a COVID- 19 mobile
response effort in partnership with Stanford Valley Care.

SECTION 2: It approves amending the FY 2019/ 20 General Fund budget by reducing

revenues by $ 6, 303, 398 and making the following reductions to operating expenses and
transfers to balance the budget:

Transportation and Training 196, 257

Repairs and Maintenance 1, 610, 923
Materials and Supplies 1, 025, 000
Capital Outlay 61, 700
Capital Improvement Plan ( CIP) Reserves 3. 409, 518
Total Reductions to Operating Expenses and Transfers $ 6, 303, 398
 PASSED, APPROVED AND ADOPTED by the City Council of the City of Pleasanton at
a regular meeting held on April 15, 2020.

I, Karen Diaz, City Clerk of the City of Pleasanton, California, certify that the forgoing
resolution was adopted by the City Council at a regular meeting held on the 15th Day of April,
2020, by the following vote:

Ayes:
Noes:
Absent:
Abstain:

Karen Diaz, City Clerk

APPROVED AS TO FORM:

Dan Sodergren, City Attorney