City Manager's Proposed Budget Letter - Fiscal Year 20-21

OFFICE OF THE CITY MANAGER

DATE:

May 15, 2020

TO:

Mayor, City Council and Residents of Vallejo

FROM:

Greg Nyhoff, City Manager

SUBJECT:

City of Vallejo Fiscal Year 2020-2021 Proposed Budget

This year's budget proposal is far different than when we began our preliminary budget work early this year. The Coronavirus has rocked many people and their cities to their core. Governor Newsom stated, “We are now in a pandemic-induced recession in the State of California. These are sobering and challenging times.” Our residents, our businesses and our City have all been negatively impacted by this worldwide crisis.

As we begin to navigate our way into whatever the new normal might be, I'd like to think of this as a unique opportunity for Vallejo once again to show our strength and perseverance through times of crisis.

For the past 5-years and the current fiscal year, prior to February 2020, our City has operated with a structurally balanced budget. The forecasted future was very stable and steadily improving. Our economic development outlook was strong, and the City has been on a positive path for several years. The immediate negative financial impact of the Coronavirus is significant and descended upon us with no warning. Our focus in the proposed budget is to acknowledge the urgency of the financial decline, while not overreacting with drastic service level reductions. Because this crisis came upon us suddenly, seemingly in the dark of the night it will take several more months to truly understand the level of impact it will have on our financial well-being.

The proposed budget strategy includes the following tools: • Reduce costs, most notably the freezing of non-public safety vacancies, producing salary savings.

• Decrease discretionary spending.

• Deferral of capital projects, and large vehicle and equipment purchases • Judicious use of a small portion of our rainy-day cash reserves.

The total Citywide FY 20-21 budget is $235 million, with General Fund expenditures of $110 million and $45.7 million in the Water Fund. Projected General Fund revenues are $103.6 million, which is a drop by 6.6% compared to FY 19-20 Adopted Budget. We are anticipating using $6.7 million of our reserves to maintain a balanced budget.

MEMORANDUM SUBJECT: Proposed Budget FY 20-21 May 15, 2020 Page 2

The proposed budget is guided by a set of goals set forth by our City Council. These goals were established prior to our current fiscal year budget. City Council had scheduled a goal setting meeting for this fiscal year; however, the meeting was postponed due to the Shelter-at-Home restrictions and the uncertain financial impact of the shutdown. It is recommended that the City Council conduct this year’s goal setting in late summer or early fall, prior to any mid-year budget amendments that we may deem appropriate based on our financial conditions projected forward. This budget is utilizing the current City Council goals as the short-term roadmap.

These goals are: • Support the safety of our community.

• Ensure financial stability.

• Promote economic development.

• Invest, sustain, and plan infrastructure.

• Organizational stability.

Numerous objectives associated with these goals were accomplished during the current fiscal year.

You can view the mid-year goals status report on the City of Vallejo, City Council webpage to view the progress, accomplishments, and continuing work plan.

We looked forward to the future, with exciting plans to improve and grow our service levels in every department. While the Coronavirus has changed the way we view the world, it has not changed the City of Vallejo's goals for the future. Although we may be looking at a longer timeline because of this pandemic, I am still confident that with the strategic budgeting and our continuing efforts to support business and economic development for the next 12-months, our City will once again see brighter and more fruitful days.

All of the City’s Fiscal Year 20-21 budget documents can be found here or by typing this web address into your browser: www.cityofvallejo.net/proposedbudgetFY2021

HIGHLIGHTS OF THE PROPOSED BUDGET Continued Essential Service Delivery Public safety and clean water are just a couple of the core essential services the City will continue to maintain. These core services keep the City of Vallejo safe and are a large but vital part of our budget for the upcoming year. The proposed budget reflects the maintenance of current service levels in our essential services with minor reductions in other levels of service.

Employment Thankfully there are no current plans to furlough or lay-off employees, although, as a proactive measure, the hiring of any non-essential employees has been and will remain frozen until further notice.

We will proceed to recruit and hire for our Police and Fire departments to ensure the continued safety of our community. This action will create a significant salary savings for the upcoming year.

MEMORANDUM SUBJECT: Proposed Budget FY 20-21 May 15, 2020 Page 3

Projects and Future Equipment Purchases Several projects that were underway before the Coronavirus outbreak will be deferred, with some exceptions. The projects that will continue to move forward are those that are in the administrative review and approval process phases. When it comes time to begin receiving construction project bids, we are hopeful that the economy and the financial health of our City will be on the rise. The budget also defers several large equipment purchases, which will be re-evaluated at mid-fiscal year.

Additional Measures for Budget Conservation Currently, our proposed budget calls for the temporary elimination of all discretionary funding. While we understand that funding like this helps to make our community vibrant and rich, the City must stay the course with our proposed budget in order to ensure we maintain our current level of service to the greatest extent possible. One notable recommended discretionary spending reduction is in the Participatory Budgeting Program (PB). The proposed budget does not eliminate the program but calls to reduce the $1 million allocation to $500,000 for FY 20-21. Other discretionary spending, like the Participatory Budgeting, will also be reduced. We recognize that the City Council has been extremely supportive of funding our vast array of community programs, particularly in the areas of arts & culture, as well as youth programs, and that as a City, we are proud of the community engagement reflected in the PB process. For this next fiscal year, it is recommended that the PB program be modified to focus more so on concentrating the available funding on a reduced number of projects, particularly focusing on those priority areas of youth and arts & culture projects. Additionally, this next fiscal year, it will be necessary for staff to focus efforts toward modifying this program, which historically has been heavily dependent on in-person community engagement, to adapt to our “new normal.�

Strong Reserves It's no secret, the City of Vallejo weathered economic storms in the past, and because of that experience, we were better prepared for handling what the future has brought us today. Over the last decade, our City Council has done an excellent job of building a strong reserve of funds to support the City through any crisis. While this reserve account won't bail us out of this economic downturn entirely, it can provide a much-needed cushion to soften the impact that the Coronavirus has had on our City.

To maintain our level of service in the essential core, we propose to judiciously utilize a small portion of those funds to aid our City in its journey to full economic recovery over the next 18 to 24 months. In the current proposed budget, the City will continue to maintain a reserve of $14 million Being able to project the future impacts of the current crisis is much more difficult than when we are in a normal budget year. Currently, there is a high level of uncertainty as to the short-term and long-term financial impacts. Our ability to remain agile and flexible throughout the next 12 months will be the key to prevailing.

Reporting This year, we are proposing something different with our budget from years past. This year's proposed budget will include quarterly reporting. This reporting will provide the City with a snapshot of where we stand financially on a more regular basis. The reporting will also allow us to share projected forecasts of revenues and expenditures, looking ahead for the next three months. Each department within the City will have a place in the report that will share any impacts on their levels of service delivery and any

MEMORANDUM SUBJECT: Proposed Budget FY 20-21 May 15, 2020 Page 4

other effects that may be finance related. This reporting is an essential step in the City's financial recovery plan, empowering us to reassess our situation every few months, and to adjust accordingly.

Again, this level of agile flexibility will only make us stronger as we forge forward into the future.

Economic Development: The Bright Side The number one goal of the City Council is to support business and enhance economic development.

The good news is that we have continued to move forward with the numerous pipeline projects we have discussed in the past. There has been an uptick in interest around investing in Vallejo. The City is strongly committed to continue to find ways to support economic development and our local businesses. I have spent two years working closely with our economic development department to support our local businesses, large and small. This good work will not be lost to a temporary financial crisis, and the City will do everything in its power to support our local businesses and continue the path of economic development vitality.

CLOSING The phrase: “We are all in this together” couldn’t be truer as it relates to our partnership with our residents, businesses, City Council, City Senior Leadership and the men and women who perform an essential and important service to our community each and every day. We have a professional and passionate Senior Leadership Team, and I am confident that we will do our part to return Vallejo to the place we left off before the Coronavirus pandemic became our reality. We have all been touched in some way by this unprecedented crisis. Our hearts are with the people of Vallejo and the world right now. I am looking forward to the day that we can look back on this event and realize that we prevailed, as partners. Once again, Vallejo rose to the occasion and weathered the storm with strength and grace.

Respectfully submitted,

Greg Nyhoff City Manager