4.2 Staff Report

Analysis

At its April 3, 2019, meeting, the Commission conducted a public hearing on its Fiscal Year 2019-20 Proposed Budget, as required by state law, and subsequently adopted a budget of $762,295, which was recommended by the Budget Committee and staff. State law requires the Commission to conduct a public hearing on the Final Budget prior to June 15 of each year.

As directed by the Commission at the April meeting, staff circulated the adopted Proposed Budget to funding agencies for review. Additionally, based on that Budget, staff provided a listing of agency apportionments, which was developed by the Sonoma County Auditor’s Office from revenues reported to the State Controller’s Office. No comments from agencies have been received as of the date of the writing of this report.

Fiscal Year 2019-20 Final Budget

The Fiscal Year 2019-20 proposed Final Budget of $762,295 reflects a reduction of approximately four percent in expenditures from the current-year Adopted Budget of $796,055. The reduction largely reflects the elimination of one-time funding associated with the relocation and furnishing of the LAFCO office, which took place early in the current fiscal year.

Revenues to balance the projected level of expenditures are sourced, for the most part, from agency apportionments, which are projected to increase by less than five percent over the current fiscal year. Interest from invested funds and an allocation from the Commission’s Fund Balance are projected to cover the remaining cost.

The proposed 2019-20 Final Budget is attached for Commissioners’ information (Attachment 2).

Expenditures: Salaries and Benefits

No changes from the current fiscal year are anticipated in 2019-20 in the position allocation of Commission staff. The allocation will remain stable at 3.20 Full-Time Equivalent (FTE) positions (1.0 Executive Officer; .80 FTE Assistant Executive Officer; .90 FTE Administrative Analyst I; and .50 FTE Commission Clerk). As the Commission is aware, LAFCO staff are County employees who work solely for LAFCO.

Last spring, the Commission authorized a realignment of staff positions as of the beginning of the current fiscal year. Staff is implementing the change and will use the next year to analyze how the experience is working to meet the needs of the organization. Should any changes be contemplated, staff will discuss them with the Budget Committee.

Salaries and benefits are projected at $612,630 in FY 2019-20, an increase of 3.7 percent over the current-year Adopted Budget of $590,835. Although the Board of Supervisors must formally approve any salary and benefits increases, for planning purposes County projections, at this time, include an average three percent salary increase to take effect at the beginning of July 2019 with an additional three percent in June 2020. Staff believes that sufficient funding has been included in the 2019-20 to cover these costs. Merit increases for the Administrative Analyst 1 and Commission Clerk positions are funded as well.

The County’s contribution to the cost of health insurance for a number of different categories, including managers and unrepresented personnel, is projected to take effect in June 2019; this follows an enhanced amount provided in January 2019. A further increase is anticipated to occur as of June 2020. Staff understands that the County aims to tie its contribution to the cost of the most commonly-enrolled HMO. Staff believes that sufficient funds have been included in the Final Budget, based on County projections, to cover costs, although final amounts are not likely to become available until after the Commission adopts its 2019-20 Final Budget

Staff has determined that any costs in salaries or benefits that the County directs in the current fiscal year can be absorbed within the current-year budget.

Expenditures: Services and Supplies

No changes are proposed from projections in the approved Proposed Budget for Services and Supplies. The projected $149,665 is a decrease of $55,555, or 27.1 percent, from the current-year Adopted Budget of $205,220. Details about Services and Supplies accounts were provided in the staff report for the 2019-20 Proposed Budget.

As indicated above, the reduced costs for next year reflect the elimination of funding associated with the relocation and furnishing of the LAFCO office, which took place in July 2018. The reduced cost in Services and Supplies will not impact the Commission’s ability to fulfill its purposes under the Cortese-Knox-Hertzberg Act.

Revenues

Funding of Sonoma LAFCO’s operations comes from several sources:

•  Apportionments from the County, cities, and independent special districts
• Interest from the County’s investment of Commission funds
• Application Fees
• Fund Balance, as needed

Agency Apportionments

Agency apportionments are the primary source of funding of the Commission’s operations.

When the current fiscal year budget was proposed last spring, it was a 27 percent increase over the 2017-18 budget in that it included additional funds for both the relocation and furnishing of the LAFCO office and the realignment of staffing, adding, overall, a fraction of a full-time position.

To preclude imposing the total cost increase on Sonoma LAFCO’s funding agencies, the Commission authorized use of Fund Balance monies to balance the expenditure budget, as needed, limiting an apportionment increase to 7.4 percent.

In its approval of the FY 2019-20 Proposed Budget, the Commission again authorized the use of Fund Balance monies to balance the budget. Although the level of agency apportionments is projected to increase, with the use of Fund Balance monies, the increase is limited to less than five percent.

The County and the cities, as a whole, each pay 40 percent of the LAFCO operations cost, and the independent districts pay 20 percent. Staff in the Auditor’s Office calculates agency apportionments as a function of the projected budget, based on agencies’ revenues reported to the State Controller’s Office. For 2019-20, apportionments will be based on revenues reported in 2016-17, the most recent available.

As indicated earlier in this report, staff sent to funding agencies the projected apportionments based on the approved Proposed Budget. That listing is attached, for Commissioners’ information (Attachment 3). The apportionment for each city and special district can vary from year to year due to an increase or decrease in revenues reported and the LAFCO budget. Should the Commission determine to change the 2019-20 proposed Final Budget, the Auditor’s Office would amend the apportionment schedule to reflect any changes.

Interest

The County invests Commission funds, on behalf of LAFCO, and allocates an amount consistent with that investment as annual interest. For 2019-20 staff projects a conservative increase of interest, from $5,000 in the current fiscal year to $8,000.

 Application Fees

Staff tracks the revenues accruing from processing fees during the year, but this income is not included as a budgeted item. Projecting the number and type of applications to be submitted in a year - for example, the number of “flat fee” applications versus those for which staff receives deposits and tracks our time – is not a hard science.

In years past, when a specific budget number was projected for processing fees, sometimes the actual revenue received was less than the budgeted amount, necessitating a dip into the Fund Balance to balance actual expenditures and revenues. Ultimately the Commission directed staff to track fee revenue and allow the funds to accrue to the Commission’s Fund Balance at the end of each year.

Fund Balance

The Commission carries a Fund Balance. Since LAFCO became an independent agency in 2001, the Commission has maintained undesignated, unreserved funds to meet unexpected or unforeseen needs. Over the years, these funds have been used for various purposes, such as balancing the Commission’s budget at the end of a fiscal year, funding a move of the LAFCO office (three times), or providing credits to funding agencies for apportionments.

As of the beginning of the current fiscal year, the Fund Balance stood at almost $498,000. Based on preliminary year-end projections, it appears that less than the $124,190 which staff had anticipated would be needed to balance expenditures and revenues will be required for that purpose.

As a result, some funds are anticipated to be added to the Fund Balance by the end of this fiscal year. Sufficient funds in the Fund Balance will be available to meet organizational needs, such as consultant work on MSRs or special studies. Additionally, monies from the Fund Balance will be allocated to balance 2019-20 expenditures and revenues. This reduces the cost of agency apportionments from what apportionments would have been if Fund Balance monies were not applied. The Fund Balance will remain at a sufficient level for use at the Commission’s discretion.

Fee Schedule

Each year, staff reviews the Commission’s schedule of established fees and makes recommendations to the Commission regarding proposed changes, if warranted. State law requires that fees charged not exceed the reasonable costs of providing the services for which the fee is charged.

As a result of a recent review, staff is not recommending any increases in current fees for 2019-20. Some of the explanatory language in the Fee Schedule has been clarified or simplified, and the amount of time allocated to meet with potential applicants, without extra cost, has been set at 30 minutes. Staff will still be available for email or telephone consultation, prior to the submittal of an application, for up to two hours, at no additional charge.

The proposed 2019-20 Fee Schedule is attached for information (Attachment 4).

Summary

The proposed 2019-20 Final Budget is projected at $762,295, a reduction of 4.7 percent from the current-year Adopted Budget of $796,055. The decrease largely reflects the completion of the relocation and furnishing of the LAFCO office, which occurred at the beginning of 2018-19.

Agency apportionments, interest from invested cash, and Fund Balance monies will balance the projected level of expenditures. Fees from the receipt of applications will be tracked and accrue to the Fund Balance at year-end. The Fund Balance will be maintained at a prudent level to allow sufficient undesignated reserves to meet unexpected needs, as the Commission directs.

Recommendation 

Staff recommends that the Commission take the following actions on the Fiscal Year 2019-20 Final Budget and Fee Schedule at the June 5, 2019, meeting:  

1. Conduct a public hearing on the Fiscal Year 2019-20 Final Budget and Fee Schedule
2. Adopt the Fiscal Year 2019-20 Final Budget and Fee Schedule, with any desired changes.
3. Direct staff to maintain an undesignated, unreserved Fund Balance to meet unforeseen or unexpected needs and/or, if needed, to balance the level of expenditures and revenues during the fiscal year.
4. Direct staff to transmit to funding agencies the Fiscal Year 2019-20 Final Budget and Fee Schedule.
5. Request the Sonoma County Auditor-Controller-Treasurer-Tax Collector to prepare and send to each funding agency a statement of its apportionment for Fiscal Year 2019-20.

Alternate Recommendation 

None

Attachments 

1. Draft Resolution
2. Proposed Fiscal Year 2019-20 Final Budget
3. List of Agency Apportionments for 2019-20
4. Proposed 2019-20 Fee Schedule