City Manager provides in-depth look at FY18-19 city budget

Updated July 05, 2018

(The following is from City's Fiscal Year 2018-19 budget, which can be viewed here.)

Roseville’s fiscal position has improved since the recession. However, the City is not immune from slowing revenue growth and increasing expenses faced by cities throughout California. Deferred maintenance, along with increasing operational and retirement costs, have added pressure on our ability to maintain current service levels with projected revenue streams.

The City was able to maintain service levels during the recession by deferring millions of dollars’ worth of capital improvements and maintenance, borrowing from reserves, and lowering payments to key funds such as workers’ compensation and retiree health. As the economy recovered, the Council adopted policies to ensure that future revenues are allocated to move towards fully funding these obligations.

As was the case with the fiscal year (FY) 2017-18 General Fund budget and in accordance with Council policy adopted in FY2016- 17, the FY2018-19 General Fund budget matches budgeted expenses with projected revenues without the use of reserve funds.

The City is balancing the impact of slowing revenue growth while still paying a fair wage for our labor market and making sure we have a workforce we can afford. Being a service-based operation, the City’s largest General Fund expense is labor. We’ve conducted performance audits to ensure our staffing levels are appropriate. The studies confirmed we’re staffed below requirements for the service levels at which we operate. We’ve been able to temporarily overcome the staffing shortage due to efficiencies gained by having long-term, seasoned staff in place, but many of those employees are retiring.

It’s important to note that over the past 10 years, the population of Roseville increased 28 percent from 109,154 in FY2007-08 to a projected 139,200 in FY2018-19, necessitating an expansion of services. Yet at the same time, General Fund staffing decreased from 778 full-time equivalent (FTE) employees to 698, a 30 percent reduction per capita in staffing over the same period. The City has been doing more with less over time, which is why departmental performance audits specify that in order to maintain or expand current service levels, additional staff is needed. At the same time, the City and its labor groups have partnered to slow payroll growth, reduce retirement benefits, and reduce salaries.

All the while, a constantly changing statewide legislative and regulatory environment continues to add unfunded mandates and significant costs to the City’s operations, such as public-safety realignment, open space management, and the State moving responsibility for stormwater management from the State to local government, all adding millions in expenses to the City’s General Fund.

Because expenses are growing at an increasing rate, reductions in some service levels were required to achieve a balanced General Fund budget. These reductions included significantly limiting public hours and programs at the Maidu Indian Museum and Historic Site; cutting vacant positions for recreation, streets, and fire education; and further reducing open space maintenance including goat grazing for thatch-control management.

Although the City’s General Fund budget is balanced for FY2018- 19, it does not address all of our long-term liabilities such as facility maintenance, pensions, and retiree health costs. Deferred maintenance of the City’s parks, playgrounds, libraries, recreation centers, pools, and other facilities has been significantly underfunded since the Great Recession. If the City were to fully fund its long-term liabilities including its deferred maintenance, the General Fund budget would be upside down by almost $14 million per year. As a result of slowing revenue growth, we’re continuing to look for ways to close this gap, including reducing expenses, bringing in additional revenues, and changing service levels.

In anticipation of additional service cuts, at its February 2017 annual goals workshop, Council directed staff to initiate a process to get community input on service priorities. The goal was to find ways to balance the City’s obligations to maintain fiscal stability while continuing to provide high-quality essential services and address its long-term liabilities. To this end, the Council approved the nine-month EngageRoseville effort at its meeting on April 19, 2017, as described below.

EngageRoseville: A Community Conversation about Priorities - Extensive community participation will help ensure the City has a clear understanding of community priorities, the community has a clear understanding of fiscal constraints and opportunities, and recommendations can be developed to align resources accordingly.

The City raised awareness of EngageRoseville in a variety of ways: through a flyer mailed to every residence in Roseville, e-newsletters, specially-produced podcasts and videos, digital billboard, postcards and flyers at public counters and community events, and live-streaming of Community Priorities Advisory Committee (CPAC) meetings on YouTube with re-broadcast on COR-TV.

Educational tools also included a series of specially- produced podcasts and videos focusing on each department and the City’s overall budget situation, including context about consumer trends and rising costs.

To gather community input, the City offered opportunities for online and in-person participation to everyone in Roseville:

Council approved formation of the CPAC to ensure direct and meaningful community participation in reviewing levels of City-provided services. The 20-member committee met twice monthly for nine months to develop its recommendations and value statements
Six online FlashVote polls, sent to more than 1,400 registered users with about 500-600 people responding, gave participants a quick and easy way to rank their service priorities, provide comments, and see the results immediately when the poll closed.
Balancing Act offered an online gamification of budget choices. More than 1,000 people got an in-depth look at services, consequences of reduced funding, and an opportunity to rank priorities throughout the city, instead of just within departments. More than 320 users closed a hypothetical $2 million General Fund budget gap and submitted their ideas to the City.
An in-person Community Conversation open to residents 18 and older on February 26, 2018, welcomed 120 participants. It featured presentations from the heads of the three largest General Fund departments; small- group, roundtable discussions facilitated by staff; and smartphone polling with real-time results. Participants asked questions, ranked priorities, and provided comments.A phone number and a dedicated email address were created to receive additional input.

Staff from FlashVote, Balancing Act, and the Sacramento- based Institute for Local Government, all commended Roseville for its high rates of community participation in person and online.

Community input resulted in the following common themes that were considered in building this year’s budget:

Seek to reduce rather than eliminate services.
Prioritize efficient public safety as the cornerstone of City services.
Maintain Roseville’s competitive edge in the region with desirable neighborhoods (schools, parks, open spaces) and a business-friendly environment.
Maximize flexibility in staffing levels.
Generally, avoid subsidizing services the private sector can provide.
Seek opportunities for increased cost recovery for all City services, where applicable and appropriate.
Utilize technology and automation where possible to increase efficiencies and reduce costs.
Recruit, train, and deploy volunteers where appropriate.
Pursue fund stabilization/revenue enhancement strategies to preserve Roseville’s quality of life.

Key Operational Focus Areas

The FY2018-19 budget addresses a range of operational needs with a specific focus on the following:

Maintaining emergency response—Maintaining adequately staffed and trained emergency response services, including neighborhood patrols, crime-prevention programs, and emergency personnel, are vital to protecting Roseville’s quality of life and maintaining rapid emergency and medical response times.
Evaluate fire staffing response model—As recommended by the EngageRoseville process in an effort to reduce overtime costs.
Maintaining streets, roads, and public facilities—Well- maintained streets, roads, parks and recreation centers help protect property values and maintain Roseville’s quality of life. It is fiscally responsible to maintain our streets, roads, and public facilities now, so they don’t deteriorate and become more costly to fix in the future.
Strengthening the economy and increasing jobs— Programs that retain, attract, and help expand businesses in Roseville are important to creating jobs—essential to a vibrant economy.

Fiscal Trends

Projected FY2018-19 sales tax revenues of $56.9 million and projected total property tax revenues of $44.7 million account for 73 percent of the City’s FY2018-19 General Fund revenue. Sales tax in FY2018-19 is expected to increase by 4.2 percent (or approximately $2.3 million) compared to the FY2017-18 projections. Sales tax revenue is projected to grow at a reduced rate as compared to the past several years. This is partly due to increased internet commerce combined with the transition to a service economy. Sales tax distribution from online purchases results in an annual loss of $3-4 million (and growing) to Roseville. And because California does not tax services, the City receives no revenue when people purchase services (such as a lawn service), instead of goods (such as a lawn mower).

FY18-19 Budget

The decrease in Other Operating Revenue and in Operating Expenditures from FY2016-17 to FY2017-18 in the above tables is due to a change in accounting for reimbursements from other funds for services such as finance, human resources and legal services. These indirect cost reimbursements, from the enterprise and other City funds to the General Fund, were previously reflected as revenue and now are reflected as expenditure reductions pursuant to generally accepted accounting principles.

Utility franchise fees from electric, natural gas, and cable companies comprise six percent of General Fund revenues. The remaining 22 percent of revenues comes from development- related fees, permits, recreation programs, business license fees, hotel/motel tax, grants, etc.

After forecasting the City’s revenue, the City must account for continued pressures on the expense side which include the increasing costs of salaries, benefits, CalPERS retirement costs, retiree health costs, and state minimum wage increases affecting the City’s contracts with suppliers.

The FY2018-19 budget includes recommendations for a net decrease of 1.5 FTE General Fund positions. Three General Fund positions were eliminated to partially address the City’s structural imbalance: the Central Services Department director, an executive assistant in the City Manager’s Office, and an interpretive services supervisor. New General Fund positions recommended to address service level demands, totaling 1.5 FTE, include a parks maintenance worker and a half-time dispatcher.

The budget also recommends two new positions in the Electric Fund and one new position shared by the Electric and Environmental Utilities departments. In the Facility Services Internal Service Fund (ISF), a building maintenance supervisor position was added and a senior custodian and building maintenance aide positions were eliminated. Citywide, there are a net 2.0 FTE positions recommended to be eliminated when all new positions, reclassifications, and transfers are taken into account. The table below summarizes the position changes.

Economic Indicators

While economic development helps maintain Roseville’s competitiveness in the marketplace, it won’t solve the City’s budget issues. Nonetheless, looking at key economic indicators, including the labor market and residential, retail, and commercial sectors, Roseville’s economy is strong. At the close of FY2017-18, residential permits for single-family homes are expected to keep pace with the prior year. In FY2018-19, the volume of permits for single-family homes is expected to remain similar to this past fiscal year. Using a conservative estimate, the budget has been structured on the future issuance of 900 single family residential building permits being issued.

A total of $110 million in commercial investment ($60 million in new commercial building construction valuation and $50 million in commercial tenant improvements) will close out FY2017-18. And the City conservatively estimates roughly the same—$100 million—in total commercial construction and tenant improvements for FY2018-19, indicating a continuation of investment in Roseville’s commercial sector.

This past year, work was started on many new, large, long- term projects. These include a five-story, 275,000-square-foot corporate-office complex for Adventist Health; 220,000 square feet of new medical-office buildings and a two-level parking structure for Kaiser Permanente’s Riverside campus; a new medical-supply distribution facility for McKesson’s new Roseville location; 232 apartment units under construction for Campus Oaks Apartments; an additional 100,000 square feet for Sutter Hospital; two new hotels under construction adjacent to Top Golf; a new athletic-club facility by Villa Sport; and the start of grading at the Sierra Vista Specific Plan site. In Roseville’s downtown, construction was completed in spring 2018 on a new parking garage at Washington and Oak streets and a new Fire Station 1 facility; and a 58-unit, mixed-use project by Mercy Housing on Vernon Street is underway.

Space is at a premium across all sectors of Roseville’s commercial property, according to the City’s Economic Development Department. The office sector is at 95 percent occupancy. Industrial space is 97 percent filled and remains a premium in the city. Given the size of individual leases, the industrial occupancy rate can swing significantly with the lease of a single tenant.
As a regional shopping destination, Roseville draws shoppers from far beyond the city limits while also offering ideal consumer demographics in close proximity for a variety of retailers. Retail space showed a strong 95 percent occupancy, confirming Roseville as the region’s retail powerhouse.

Roseville’s job growth remains strong, with an unemployment rate at 3.5 percent.

Council Priorities

The Roseville City Council established multi-year priorities in 2012 and has added to them at annual goal-setting workshops in the years since. More information about each of these can found here.

Following are the City Council’s priorities for FY2018-19, which are supported in the budget: