Budget Blog Series: City of Redwood City Fiscal Year 2018–19 Operating Budget Highlights
The City’s new fiscal year began on July 1. In June, the City Council adopted a structurally balanced operating budget for FY 2018–19. The budget addresses fiscal challenges through expenditure decreases and potential revenue increases, while providing essential services to the Redwood City community.
Read on to find out more about the City’s Operating budget, including the City’s budget challenges, strategic priorities and efforts planned for the year ahead.
Providing Essential Services While Addressing Fiscal Challenges
The FY 2018–19 Adopted Budget is structurally balanced, with ongoing revenues funding ongoing services. The operating budget, also known as the General Fund budget, supports essential City services including:
- Public Safety (police, fire and paramedic services)
- Library services at four City libraries
- Parks, Recreation and Community Services, including after-school and recreation programs
The City’s sewer and water services are funded by ratepayers and are not a part of the General Fund. Major capital projects, including transportation projects and improvements to City facilities are funded by dedicated revenues which cannot be used for core City services, such as public safety. These activities are described more in the City’s Capital Improvement Program and will be the feature of our next blog post on the City’s budget.
The FY 2018–19 General Budget anticipates revenue of $142.7 million, and expenditures of $124.9 million and is structurally balanced with ongoing revenue funding ongoing expenditures. Overall, 82% of the City’s budget supports fire, paramedics, police, library services, and parks and recreation services.
Most of the City’s General Fund revenues are derived from property tax, sales tax, utility users tax, and transient occupancy tax. A breakdown of the budgeted revenues can be seen in this chart below.
Highlights of the FY 2018–19 General Fund revenues include:
Property taxes are budgeted at $52.0 million. This is a 9.2 percent increase over the FY 2017–18 adopted budget of $47.7 million. The increase is primarily driven by the completion of new development, and increased assessments of commercial and residential properties.
Sales tax is budgeted at $23.9 million. This is a 3.6 percent increase over the FY 2017–18 adopted budget of $23.1 million. Sales tax revenues in the City are largely derived from automobile dealerships and several large retailers. Sales tax revenue growth is slowing due to changing consumer behavior: many people are spending more money on things that are not taxed, including housing, medical costs, and services.
Notably, recent development and increased activity downtown has had a positive financial impact on the City’s revenues: the City now receives $5 million more per year in downtown property taxes, and $2 million more per year in downtown sales taxes compared to five years ago.
Utility Users Tax (UUT) is budgeted at $9.7 million, which is a decrease of 0.4 percent over the FY 2017–18 adopted budget of $9.8 million. All of this revenue is transferred to the Capital Projects Fund and will be used exclusively for capital projects. This revenue source is also affected by consumer behavior: as more residents “cut the cord” from their cable company and use video streaming services instead, the City loses revenue as video streaming services currently are not taxed.
Transient Occupancy Tax (TOT) is expected to remain flat at $6.7 million, which is the same amount as the FY 2017–18 adopted budget. New TOT revenue generated by short-term rentals, such as AirBnB, will be set aside for affordable housing and will not be included in the General Fund.
Property tax will continue to be the most significant revenue stream, representing 41.5 percent of total General Fund revenue. The next largest source of revenue is sales tax at 16.8 percent, followed by Charges for Services (San Carlos Fire Service fees, plan check fees, and garbage collection franchise fees) at 11.7 percent, other taxes (TOT, property transfer tax, franchise fees, business license taxes) at 8.4 percent, and UUT at 6.8 percent of total General Fund revenues.
To review the Adopted Budget, go here.
Financial Sustainability Plan
Protecting essential City services while addressing fiscal challenges
Because of decisions by the California Public Employees Retirement System (CalPERS) and pension commitments made to now-retired employees, all cities in California face dramatic increases in employer pension contributions. These increases outstrip revenue growth. In order to avoid operating deficits, the City has taken a forward-thinking approach, reducing staff, increasing employee contributions to pensions and maximizing the fees charged to developers.
To ensure the City can continue to provide essential services, in 2017 the City Council approved a two-year strategy to reduce costs and raise revenue. The Financial Sustainability Plan seeks to protect essential City services while proactively addressing fiscal challenges.
The City Council took the first step in generating new revenue in Spring 2017 by approving fee increases that will generate an estimated $2.0 million in new revenue annually. It is important to note that most of this revenue is associated with development activity, and the pace of that activity will slow in the future. In addition, new revenue sources are being explored, including a potential half-cent sales tax increase and a potential cannabis tax for voter consideration in November 2018.
At this time, no new revenue from new taxes is included in the Operating Budget. The City Council will decide on July 23 whether to place these measures on the November 2018 ballot, and, in turn, voters will decide in November 2018 whether to support such measures. Without new revenue, operating costs will need to be reduced by about $12 million over the next five years. This represents a 10% reduction to the operating budget and would require reducing City services.
To balance the FY 2018–19 budget, operating costs were reduced by approximately $3.7 million. Reductions were made in every City department and included implementing new, less-costly service approaches, and eliminating 14.5 Full Time Equivalent (FTE) City staff positions as of January 1, 2019. Because 74% of the Operating Budget is dedicated to employee-related costs, reductions could not be made without affecting employee positions.
Specific service reductions and new service approaches to reduce costs include:
· Elimination of 4 vacant Police Officer positions
· Elimination of 3 vacant Firefighter positions
· Contracting with the County Office of Emergency Services for Community Emergency Preparedness services
· Elimination of some after school programming
· Reduction in library staffing and hours
· Reductions to various administrative functions including code enforcement
· Online reporting of lower-level calls for service to the Police Department
For a list of all of the service reductions planned this fiscal year, click here and go to page 45
City Strategic Initiatives and Providing Essential Services
Despite the fiscal challenges outlined above, the City continues to provide innovative programs and high quality service to the community. The Adopted Budget advances the City Council’s major priorities and strategic initiatives and provides essential services like public safety services (police, fire, and paramedic), library services, parks and recreation and after school programs.
The City Council has adopted the following Strategic Initiatives:
1. Community Building and Communication
2. Community for All Ages
3. Economic Development
4. Government Operations
6. Public Safety
Here are some highlights of City priorities planned for the year ahead.
Community Building and Communication
Over this next fiscal year, the City will continue to engage all segments of our diverse community by strengthening and working with our Neighborhood Associations, proactively engaging residents on major City initiatives and projects, and making a conscious effort to increase diversity in the City’s civic leadership. Capital improvements are funded by dedicated revenues which cannot be used for core City services; all other activities are funded by the General Fund.
Community for All Ages: Over the past several years, the City Council has been committed to upgrading aging City facilities and adding innovative new amenities to enrich the lives of residents and visitors for generations to come. This year, the Magical Bridge Playground at Red Morton Park will open to the community for children and adults of all abilities to enjoy. Staff will develop an environmental impact report and construction documents for the new City-YMCA Veterans Memorial Senior Center community/wellness center. Additionally, the renovated and newly expanded Fair Oaks Library is now open! Staff will issue the first diplomas to students in the Library’s Career Online High School program, and continue to expand programs and activities that are welcoming and inclusive, including implementing the Council’s newly adopted Local Minimum Wage Ordinance.
Economic Development: Major economic development activities include outreach to businesses that generate significant sales tax such as auto dealers, and work to retain and attract new businesses that are the right fit for our community. Staff will work with the Downtown Retail Task Force to create a retail vision for downtown, collaborate with the Chamber of Commerce to establish a small business committee to support small and locally owned businesses, and implement the recently approved Cannabis Ordinance by overseeing the new Cannabis Business Permit Program for new cannabis delivery centers and nurseries. Finally, staff will coordinate with businesses along El Camino Real to explore shared parking approaches, as discussed in the El Camino Real Corridor Plan.
Government Operations: The Adopted Budget invests in the overall operations and maintenance of the City’s storm water and water infrastructure systems by completing emergency water supply storage improvements, expanding recycled water to serve downtown, constructing Bayfront canal flood protections, and commencing construction on the California Pump and Water Station project.
For other infrastructure projects planned or completed, go here.
Housing: The City Council recently passed several new housing policies to increase affordable housing production and increase housing stability. These policies will be implemented in the upcoming year, including: renter protections, minimum lease terms and renter relocation assistance; affordable housing funding guidelines for awarding housing impact fees; and inclusionary housing requirements for all new housing developments with 20 or more units. Based on input received from the Home For All community conversations this spring, staff launched an affordable housing webpage to improve communications and educational outreach around affordable housing initiatives and support services offered to community members needing assistance. Construction will begin on the Bradford Street affordable housing project that will develop 117 affordable housing units for seniors, and include a childcare center and a public park along Redwood Creek. Also planned this year is the formation of an interdepartmental staff Housing and Homelessness Innovation Team, charged with identifying potential new approaches for housing our entire community.
Public Safety: The safety of the City’s residents is of paramount importance. The City currently provides a full array of fire prevention and suppression, emergency medical, and law enforcement services. In order to proactively protect life and property, the Fire Department will continue to enroll participants in the City’s Fire Safety First Program, which requires the installation of life safety fire sprinkler systems in apartment buildings built prior to 1989, and those containing four or more units. In addition, staff recently launched a campaign seeking to educate the public about the risks of fireworks. For more about this effort, go here.
Additionally, the Police Department will host an inaugural summer Teen Citizen Police Academy program, expand the new Neighborhood Watch model by working closely with Neighborhood Associations, and fully integrate Use of Force Simulator training and de-escalation training. The department will also increase the use of online reporting for lower-level offenses to make the most efficient use of staff resources.
Transportation: To support effective transportation infrastructure and promote multi-modal transit options (i.e. foot, bike, transit, or car) in the community, the City has committed to implement several transportation improvement projects. The Citywide Transportation Plan was adopted which will include a “Vision Zero” policy to eliminate severe and fatal traffic collisions. Construction will begin on the Middlefield Undergrounding project and streetscape improvements and the Highway 101 pedestrian undercrossing project linking the Bair Island Neighborhood to the Downtown. The budget includes designing the Highway 101/84 interchange project and improvements for the El Camino Real Corridor from Charter to Maple, and planning for the Whipple grade separation project.
For more on the City’s strategic goals for FY 2018–19, click here and go to page 55.
Ways To Provide Input
The City Council will discuss placing a half-cent sales tax and a cannabis excise tax on the November 2018 ballot at their July 23 City Council meeting and community members are encouraged to attend or watch online by going here.
Community members can also share input by emailing the City at firstname.lastname@example.org
If you are looking for additional details about the City’s budget, here are some resources:
View our past blog providing a high level look at the City’s fiscal challenges.
Check back next week for an in-depth look at the City’s Capital Improvement Program, which invests capital funding (dollars that cannot be used on operating budget expenses), to support infrastructure projects like new parks and parks upgrades, new public art, sewer, technology, traffic calming and transportation, and water investments.