REPORT TO COUNCIL
SUBJECT
Title
Public Hearing: Action on Adoption of the Proposed FY 2024/25 & FY 2025/26 Biennial Capital Improvement Program Budget, Approval of FY 2024/25 Operating Budget Amendments, and Adoption of the FY 2024/2025 Housing Authority Budget, and Sports and Open Space Authority Budget
Report
COUNCIL PILLAR
Enhance Community Engagement and Transparency
BACKGROUND
City Charter Section 1302 Budget - Submission to City Council requires that at least thirty-five days prior to the beginning of each fiscal year, or at such prior date determined by the City Council, the City Manager shall submit to the City Council the proposed budget.
This budget continues the biennial budget process that alternates between an operating and capital budget. This year’s budget focuses on the capital infrastructure, supporting the facilities that serve our residents and community. Amendments to the FY 2024/25 Adopted Operating Budget are also included. The Proposed Budget is attached to the memorandum as Attachment 1 and can be found online at: <https://www.santaclaraca.gov/home/showpublisheddocument/83797/638500031070970327>.
The City Council approves a set of Budget Principles each year. These Budget Principles provide a general framework and approach for developing the City’s budget, ensuring fiscal stability by considering both the short and long-term impacts of any funding decisions. The proposed principles for FY 2024/25 are consistent with those approved last year with the Budget Stabilization Reserve (BSR) continuing to be set at a minimum of 15% of expenditures; this is an exception to the Council policy that would set the BSR at 25% of expenditures. The proposed FY 2024/25 Budget Principles can be found in the Budget and Fiscal Policies section of this document.
Study Sessions were held on May 7, 2024 and June 4, 2024 to allow the City Council and public to review and provide input on the Proposed Budget. Responses to questions from the Study Session are included in this report.
As required by California Government Code Section 65401, the FY 2024/25 and FY 2025/26 Biennial Capital Improvement Program Budget was reviewed and approved by the Planning Commission for conformity with the City of Santa Clara 2010-2035 General Plan at their June 12, 2024 meeting.
DISCUSSION
City Charter Section 1303 requires that the City Council hold a public hearing on the proposed budget, at which interested parties shall be given an opportunity to be heard. Accordingly, a Public Hearing for this purpose was noticed and scheduled as part of this item after which Council will consider and act on the Proposed FY 2024/25 and FY 2025/26 Biennial Capital Improvement Program Budget, FY 2024/25 Operating Budget Amendment, and the FY 2024/2025 Housing Authority Budget and Sports and Open Space Authority Budget.
In addition, the City is required to calculate the expenditure appropriation limit from tax proceeds to determine compliance with Propositions 4 (Gann Initiative) and 111 (Spending Limitation Act of 1990). The City’s Appropriations limit is included as a separate report for Council action. As stated in this companion report, the City’s Proposed Budget is in compliance with the Appropriations Limit.
Total Budget Overview
The annual budget serves as a financial plan and operational guide that reflects the policies, goals, and priorities of the City Council and community. The capital budget guides the City in the planning, scheduling, and budgeting of capital investments within the City.
The FY 2024/25 Proposed Budget, which includes appropriations for all operating and capital expenditure activities totals $1.64 billion. This total includes the recommended Capital Improvement Program (CIP) carryovers, and reflects a 6.4% reduction from FY 2023/24 Adopted Budget. The FY 2024/25 Proposed Budget is below the FY 2023/24 Adopted Budget of $1.76 billion primarily due to reductions in planned debt issuances. The FY 2024/25 Amended Budget is $409.3 million above the FY 2024/25 Adopted Budget approved in June 2023 primarily due to the inclusion of the CIP carryovers and additional planned investments in the capital budget. Table 1 below summarizes the total budgets by fund group.
*Adjusts for transfers, contributions and reserves to avoid double counting of the same funds (e.g., internal service funds are excluded).
Biennial Capital Budget
The CIP guides the City in the planning, scheduling, and budgeting of capital investments within each of the twelve theme areas. The FY 2024/25 and FY 2025/26 Biennial Capital Budget and planned CIP is a carefully balanced budget that reflects the City Council priorities and continues strategic investments in the City’s infrastructure. The Proposed Biennial Capital Budget totals $926.8 million and the five-year CIP totals $1.33 billion.
Table 2: Proposed CIP by Theme is a breakdown of the capital budget by theme.
Capital Highlights
Of the $1.33 billion within the five-year CIP, $1.1 billion (83%) funds capital projects for the City’s utilities. There is sufficient funding in the associated utility funds to support these projects. The other projects total $220 million (17%) and fund improvements to the parks, trails, libraries, transportation system, storm system, convention center, and other City facilities. There are significant funding gaps in these areas and unfunded projects identified total $626.2 million, with $623.7 million unfunded in the General Fund, over the next five years. This funding gap only relates to projects needed within the next five years and Does not fully represent all the unmet/deferred infrastructure needs throughout the City beyond the five-year CIP period.
Long-term funding strategies are needed to meet the City’s infrastructure needs as the General Fund does not have sufficient funding to cover these capital costs. The projected starting FY 2024/25 General Fund Capital Projects Reserve (CPR) balance is $23.9 million. Of that amount, $15.0 million is recommended to be allocated in this CIP, leaving a remaining CPR balance of $8.9 million.
Following are some of the key investments by theme in this CIP that are detailed in the Capital Improvement Program section of the Proposed Budget:
• Administrative Facilities - Fire Training Tower Renovation ($504,000), City Buildings Upgrade Lighting to LED ($500,000), City Hall Gutter and Waterproofing Repair ($485,000), Repairs - Modifications to City Buildings ($350,000), and Emergency Operations Center Security Upgrades ($294,000);
• Community Facilities - Planning and Construction of Temporary and/or Permanent ISC Replacement Facility ($1.0 million) and Northside Branch Library - Automated Materials Handling System ($332,400);
• Convention Center - Santa Clara Convention Center Condition Assessment Repair ($2,150,000), work will continue on projects funded in FY 2023/24;
• Electric Utility - NRS Upgrades and Expansion ($134.0 million), KRS Rebuild and Replacement ($107.0 million), SRS Rebuild and Replacement ($98.0 million), Transmission Loop 1 ($76.3 million), Homestead Substation Rebuild ($75.1 million), and New Business Estimate Work ($54.6 million);
• Other Community Projects - Related Santa Clara ($4.0 million) and Tasman East Specific Plan ($2.8 million);
• Parks and Trails - Park Improvements ($949,400);
• Sewer Utility - San José-Santa Clara Regional Wastewater Facility ($86.1 million), Sanitary Sewer Capacity Improvements ($30.0 million), Sanitary Sewer System Improvements ($10.2 million), Sanitary Sewer System Condition Assessment ($5.0 million), and Sanitary Sewer Hydraulic Modeling As Needed Support ($1.4 million);
• Solid Waste - Sanitary Landfill Development - Post Closure ($4.2 million);
• Storm Drain - Storm Drain Pump Station RTU Upgrade ($2.5 million), Green Stormwater Infrastructure Design & Construction ($747,500), and Storm Drain Pump Station Motor and Control Maintenance, Repair and Replacement ($645,750);
• Technology and Equipment - Utility Management Information System Enhancements ($1.5 million), Geospatial Information System (GIS) Enterprise System ($1.5 million), Financial and Human Resources Management System (FHRMS) Update Project ($1.2 million), and Fire Protective Equipment Replacement ($592,019);
• Transportation - Annual Street Maintenance and Pavement Rehabilitation ($46.2 million), Tasman Complete Streets Plan 2021 Improvements Phase I - North San Jose Settlement ($6.3 million), Traffic Signal Enhancements ($3.3 million), Uncontrolled Crosswalks Improvements ($2.8 million), Sidewalk, Curb and Gutter Repair ($2.6 million), and Street Tree Services ($1.4 million); and
• Water and Recycled Water Utilities - Distribution System Replacement/ Restoration ($15.3 million), New and Replacement Wells ($5.7 million), Buildings and Grounds ($3.5 million), and Supervisory Control and Data Acquisition (SCADA) Improvements ($1.3 million).
Unfunded Projects
While there is funding available to support the capital projects for the City’s utilities, there is insufficient funding to meet the infrastructure needs in many other areas. Table 3: Unfunded CIP Projects by Theme identifies unfunded projects of $626.2 million that were itemized as part of this CIP process. Of this amount, $623.7 million would rely on funding from the General Fund Capital Projects Reserve.
Descriptions of the unfunded projects are provided in the Capital Improvement Program section of the Proposed Budget by theme.
FY 2024/25 Operating Budget
FY 2024/25 Budget Balancing
The Adopted FY 2023/24 and FY 2024/25 Biennial Operating Budget included a General Fund budget-balancing strategy that relied on a combination of expenditure reductions, revenue solutions, and the use of reserves. The use of ongoing and one-time solutions balanced the competing goals of aligning ongoing revenues and expenditures and minimizing the service delivery impacts to the community. This also allowed for time to evaluate the post COVID-19 recovery.
While the General Fund position has improved, budget shortfalls are projected in upcoming years as described in the Ten-Year General Fund Financial Forecast section of the document. Budget actions will be brought forward in those years as necessary to balance the budget based on updated projections in the General Fund Forecast. In FY 2024/25, a small General Fund shortfall of $0.9 million is projected and is proposed to be addressed by the use of $0.4 million from the General Fund Budget Balancing Reserve established for this purpose and $0.5 million from the Budget Stabilization Reserve.
FY 2024/25 Operating Budget Amendments
The City Council approved the FY 2023/24 and FY 2024/25 Biennial Operating Budget in June 2023. While this year’s budget is focused on the capital budget, budget amendments to the FY 2024/25 Adopted Operating Budget are necessary to reflect updated revenue estimates and to account for updated labor and non-personnel costs and position changes in the General Fund and other funds.
The detailed amendments to the FY 2024/25 Operating Budget by fund can be found in the Appendices section of the Proposed Budget.
Recommended Changes to the Proposed Budget
A number of changes are recommended to the Proposed Budget as itemized in Attachment 2, including the following:
• Capital Project Carryovers: The carryover of capital funds from FY 2023/24 to FY 2024/25 to complete capital projects totals $279.9 million.
• Operating Budget Carryovers/Other Adjustments: The carryover of operating funds from FY 2023/24 to FY 2024/25 to complete specific purchases and other adjustments, both to operating and capital, total $8.9 million. This incorporates several actions that occurred after the development of the Proposed Budget:
– Grant funding agreement with the 49ers;
– Recognition of Convention Center Developer Contributions as outlined in the contract extension with OVG and an increase to the Santa Clara Convention Center; Assessment project;
– Updates to the San José - Santa Clara Regional Wastewater Facility costs;
– Addition of 1.0 Assistant Director of Electric Utility;
– Elimination of the Downtown Parking Maintenance District assessments; and
– Updates to the Housing and Urban Development Annual Action Plan.
The appropriation schedules detailing the FY 2024/25 and FY 2025/26 Capital Budgets by fund and the FY 2024/25 Operating Budgets by fund are included as Attachment 3 to this report.
May 7th and June 4th Budget Study Sessions
At the May 7th and June 4th Study Sessions, the City Council and public provided feedback and had questions regarding the Proposed Operating Budget. The questions covered a variety of topics, including various unfunded projects (e.g., International Swim Center, Storm Drain projects, Convention Center projects, Lawn Bowling, a potential new Rainbow Crosswalk), the potential General Obligation bond measure, the General Fund budget, and the budgeting of funds from the recent settlement with the 49ers.
Responses to those questions are included in Attachment 4 of this report.
Housing Authority Budget
The Housing Authority Fund expenditure budget totals $468,931 in FY 2024/25 as shown in the Proposed Budget. The budget allows the City of Santa Clara Housing Authority to continue to manage and monitor housing assets from the dissolution of the Redevelopment Agency. Additionally, funding will be used to support loan monitoring, administration, and other programs and projects related to affordable housing.
Sports and Open Space Authority Budget
The Sports and Open Space Authority expenditure budget totals $10,200 in FY 2024/25 as shown in the Proposed Budget. The purpose of the Sports and Open Space Authority is to support the acquisition and preservation of open space within the City and the development of local sports.
ENVIRONMENTAL REVIEW
The actions being considered do not constitute a “project” within the meaning of the California Environment Quality Act (“CEQA”) pursuant to section 15378(a)(4) of Title 14 of the California Code of Regulations in that they are fiscal activities that do not involve any commitment to any specific project which may result in a potentially significant impact on the environment.
FISCAL IMPACT
The Proposed Biennial Capital Budget totals $567.8 million in FY 2024/25 and $358.9 million in FY 2025/26, and the five-year Capital Improvement Program totals $1.33 billion. The Proposed Operating Budget for FY 2024/25 is $1.08 billion. The combined proposed capital and operating budgets for FY 2024/25 totals $1.64 billion.
Under the City Council approved budget policies, the Budget Stabilization Reserve is to be set at a minimum of 25% of General Fund expenditures. Given the City’s fiscal challenges, the City Council approved an exception to this policy in FY 2023/24, allowing the reserve to be set at a minimum of 15% of expenditures; this level is also recommended for FY 2024/25. In the FY 2024/25 Amended Budget, the Budget Stabilization Reserve is projected at $53.8 million, or 17.6% of General Fund expenditures.
COORDINATION
This report has been coordinated with the City Attorney’s Office.
PUBLIC CONTACT
On June 5 and June 12, 2024, notices of the public hearing were published in the Santa Clara Weekly. Public contact was also made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
That the City Council, and the City Council acting as the Governing Boards of the Housing Authority and the Sports and Open Space Authority take the following actions:
1. Approve the Proposed FY 2024/25 and FY 2025/26 Biennial Capital Budget, including the recommended revisions, as detailed in Attachment 2;
2. Approve the FY 2024/25 Operating Budget changes included in the recommended revisions, as detailed in Attachment 2;
3. Approve the Appropriation Schedule for capital funds totaling $567,807,159 in FY 2024/25 and $358,945,656 in FY 2025/26 and the FY 2024/25 Appropriation Schedule for operating funds totaling $1,494,223,189, as detailed in Attachment 3;
4. Approve the Housing Authority FY 2024/25 expenditure budget of $468,931 as presented in the Proposed Budget; and
5. Approve the Sports and Open Space Authority FY 2024/25 expenditure budget of $10,200 as presented in the Proposed Budget.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. FY 2024/25 & FY 2025/26 Biennial Capital Improvement Program Budget and FY 2024/25 Operating Budget Changes
2. Recommended Revisions to the FY 2024/25 & FY 2025/26 Proposed Biennial Capital Improvement Program Budget and FY 2024/25 Operating Budget Changes, including the carryover of FY 2023/24 funds to FY 2024/25
3. FY 2024/25 and FY 2025/26 Appropriation Schedules
4. Responses to Questions from the May 7th and June 4th Budget Study Sessions