4.4 Staff Report

Analysis

Background

The Cortese-Knox-Hertzberg Act requires LAFCO to establish its own independent budget by adopting a Proposed Budget by May 1 and a Final Budget by June 15 of each year.

State law directs that “at a minimum, the proposed and final budget shall be equal to the budget adopted to the previous year unless the commission finds that reduced staffing or program costs will nevertheless allow the commission to fulfill (its) purposes and programs….”

Historically, the Commission has considered its Proposed Budget at its April meeting and the Final Budget at its June meeting, subsequent to the Budget Committee’s discussion with staff and after publication of notices of public hearings.

Members of the Budget Committee met with staff on March 6, 2019, to discuss staff’s preliminary proposal and to provide feedback. After discussion, the Committee recommended a preliminary budget substantially similar to the Proposed Budget that is attached for Commissioners’ information; a few projections have been changed due to updated information.

The Commission’s expenditures consist of Salaries and Benefits and Services and Supplies, with the former covering the largest segment of the budget. Revenues consist primarily of apportionments from funding agencies: the County, cities, and independent special districts. Other revenues include interest from invested funds and application fees, which are tracked but not budgeted.

The Commission also maintains a Fund Balance used at the Commission’s discretion.

Fiscal Year 2019-20 Recommended Proposed Budget

The Commission’s Budget Committee and staff are recommending a 2019-20 Proposed Budget of $762,295, a decrease of $33,760, or 4.2 percent from the current-year Adopted Budget of $796,055. As proposed, salaries and benefits would increase by about 3.7 percent, from $590,835 to $612,630, and Services and Supplies costs would be reduced by 27.1 percent, from $205,220 to $149,665.

Even though the overall expenditure budget is projected to decrease in 2019-20, agency apportionments are anticipated to increase by 4.9 percent, a substantial reduction in the increase from 2017-18 to 2018-19.

In adopting the current-year budget, the Commission approved relocation of the LAFCO office from the County Administration Center to a privately-owned building in downtown Santa Rosa and directed an organizational restructuring that added staffing; both of these actions increased the 2018-19 budget from the previous year.

Although increased agency apportionments resulted from the changes, to reduce the financial impact on our funding agencies, the Commission directed that Fund Balance monies be used to cover the $45,000 cost of relocation/furniture and the staff restructuring ($50,000 in the current year and $38,800 in 2019-20). 

Details of the recommended Proposed Budget can be found in the following sections.

Salaries and Benefits

Commission staff members are County employees who work only for Sonoma LAFCO, in accordance with the Memorandum of Understanding between LAFCO and the County. For the last ten years, the Commission’s staffing level has remained stable at 2.55 Fulltime- Equivalent (FTE) positions:

• 1.00 FTE LAFCO Executive Officer
• .80 FTE Assistant Executive Officer
• .75 FTE Commission Clerk

Last year, staff evaluated the Commission’s ongoing and projected work and, as a result of an anticipated greater workload and major projects, recommended a re-structuring of staff positions. The Commission supported the change as did the County Administrator’s Office, where LAFCO staff positions are “housed.” Current staffing, as approved by the Commission, is 3.20 FTE positions as follows:

• 1.00 FTE Executive Officer
• .80 FTE Assistant Executive Officer
• .90 FTE Administrative Analyst I
• .50 FTE Commission Clerk

The Administrative Analyst I position was filled in July 2018 and the Commission Clerk position in December 2018.

The full cost of salary and benefits for 3.20 FTE positions was included in the current-year budget. However, to reduce financial impacts on funding agencies, the Commission directed that Fund Balance monies be used to cover the additional costs of the re-structuring  - approximately $88,000 - over a two-year period: in 2018-19 and 2019-20. After that time, Fund Balance monies are not projected to be used for salary/benefits costs.

Salary/Benefits Changes for 2019-20

The County is currently negotiating with employee unions on issues that involve possible salary and benefit increases in 2019-20. At this time, key proposals to SEIU, the largest employee union, include a three percent salary increase and continued County contribution to medical insurance costs.

LAFCO staff are classified in “Department Head,” “Administrative Management,” and “Unrepresented” units. Although none of these classifications is represented by a bargaining union, these units are normally offered salary increases and/or benefits additions similar to other unionized units. For that reason, the salary and benefits in the 2019-20 Proposed Budget reflect the County’s proposals. It is not clear, at this time, whether these will be the final amounts.

With that understanding, the Proposed Budget, as projected using numbers from the County’s budget system, includes an average three percent salary increase as well as merit increases for the Administrative Analyst and Commission Clerk positions. Benefits that are a function of salary level show incremental increases for 2019-20.

A stand-out benefits adjustment would occur in health insurance, which is projected to increase from the current-year budget of $21,830 to $29,680, a change of $7,850, or 36 percent. The County proposes to tie its contribution to the cost of the most commonly-enrolled HMO; this would further enhance the County’s contribution which was increased several months ago for management staff, a result of determinations made last summer.

Should any other changes affecting LAFCO staff become definite before the Commission considers the 2019-20 Final Budget in June, staff will propose amending the Proposed Budget, as adopted by the Commission, to reflect those changes. Absent that information, any non-projected changes to salaries or benefits, if they occur, would need to be absorbed with use of Fund Balance monies next year. Staff will continue to monitor these activities and report to the Commission.

Work Plan for 2019-20

Staff anticipates that the following major projects will be part of the work plan for the next fiscal year, utilizing staff and possibly other resources:

• Sphere of Influence study for 15 West County fire and emergency service agencies (the second of a two-part study)
• Municipal Service Review and Sphere of Influence study for North County (Region 6) fire and emergency services agencies
• Municipal Service Review and Sphere of Influence study for Sonoma Valley (Region 3) fire and emergency services agencies
• Municipal Service Reviews (of varying scope) for the City of Cloverdale and the Town of Windsor
• Potential activities involving the Palm Drive Health Care District
• Potential Municipal Service Reviews for the City of Petaluma, the Sonoma and Gold Ridge Resource Conservation Districts, and the Timber Cove Water District

Services and Supplies 

The 2019-20 Proposed Budget projects Services and Supplies accounts to be $149,665, a decrease of $55,555, or 27.1 percent from the current-year budget of $205,220.

Most of the reduction results from the elimination of funding associated with the relocation of the LAFCO office from the Sonoma County Administration Building to a privately-owned building in downtown Santa Rosa. $45,000 had been budgeted for one-time relocation and office furniture costs.

An explanation for proposed changes from the current-year Adopted Budget is provided below:

• Account 51206 (Auditing Services) is projected at zero in anticipation that a bi-annual audit will commence during the fourth quarter of the current fiscal year. The period covered would be July 1, 2016 through June 30, 2018. If the audit is not completed before year end, funds in the current-year budget ($10,000) would be encumbered to cover any costs that would accrue in 2019-20.
• Account 51211 (Legal Services) is projected at $20,000, an increase of $5,000, based on the need for legal counsel services over the last few years. As applications or issues brought to staff become more complex and/or more potentially legally challenging, staff seeks legal counsel as is needed and prudent. Also considered in the projection is an increase in the hourly fee charged by County Counsel’s Office, one of whose deputies serves as LAFCO counsel.
• Account 51301 (Legal Notices) is increased to $5,000 from the current-year $3,000 to reflect staff’s experience of the increasing need to publish legal notices of Commission hearings. (Notices of hearing are required whenever there is less than 100 percent consent of owners/voters and for protest proceedings.).
• Account 51421 (Rents & Leases) is projected at $42,000, from the current-year $40,150, to cover the cost of leasing office space for the Commission at a privately-owned building in downtown Santa Rosa. In accordance with the provisions of the signed lease, the rental amount increases annually.
• Account 51801 (Other Services – Relocation) is deleted, a reduction of $20,000, in that the relocation was completed near the beginning of 2018-19.
• Account 51904 (ISD-Data Processing) is increased minimally by $100 to reflect incremental additional network connection costs.
• Account 51905 (Information Systems-Development) is reduced from $10,000 in the current-year budget to $3,000 due to the completion of the design and implementation of the Electronic Document Management System and Content Management System projects. The funds in this account will cover the anticipated need for additional training and assistance on the new website.
• Account 51907 (Computer Replacement) is reduced from $2,000 to zero, due to the purchase, in the current fiscal year, of a computer for the Commission Clerk position. 
• Account 51911 (Postage) is increased from the current $1,000 to $1,500 to reflect projected greater need for postage costs, especially for proposals associated with large numbers of mailers.
• Account 51915 (Printing) is reduced from $1,000 to $500, due to perceived reduced need.
• Account 51916 (County Services) is a “catch-all” for internal costs assessed to departments and agencies using County services and facilities. The account is projected, at this time, at $12,200 for 2019-20, an increase of $2,730 over the current-year $9,470. One sub-category reflects overhead costs calculated from the County’s Cost Plan, which is based, for next year, on Fiscal Year 2017-18 actuals, when the LAFCO office was still located in a County facility. With the office move, the allocation to LAFCO should be reduced in future years. Also included in this account are LAFCO’s share of internal costs for general liability insurance, human resources, and benefits administration, generally on a per employee cost.
• Account 52091 (Memberships) is budgeted at $4,965 for CALAFCO membership, an increase of 18.2 percent. This reflects the decision of the CALAFCO board of directors to move away from substantial reliance on revenues from its Annual Conference to supplement core revenues from member LAFCOs to fund expenditures. Determining that this practice is not fiscally sound, the board approved a dues increase for 2019-20 and use of some net profits from the 2018 Annual Conference to close the immediate structural deficit. The membership will be asked to consider a new dues structure at the 2019 Annual Membership Business Meeting (at the Annual Conference).
• Account 52111 (Office Expense) is projected to decrease to $6,000 from the current-year $10,000. That amount had been included to cover the cost of new equipment and supplies needed for the new LAFCO office as well as additional office supplies for the added position.
• Account 52112 (Office Furniture) is reduced from the current-year $25,000 to zero, to reflect the completed purchase of furniture for the relocated LAFCO office, as a one-time cost.  `

Revenues and Fund Balance

As the Commission is aware, funding of Sonoma LAFCO’s operations comes primarily from the County, the cities, and the independent special districts, in accordance with the Cortese-Knox-Hertzberg Act. A small amount of revenue also accrues through interest from the County’s investment of Commission funds.

Additionally, those who seek LAFCO action pay application fees. Fee revenue is tracked during the year but is not budgeted due to the difficulty in projecting the number and types of applications that will be submitted.

Typically, staff projects the upcoming year’s expenditure level and apportions it for the three funding agency groups. The County portion is 40 percent; the cities, as a whole, pay 40 percent; and the independent special districts, as a whole, pay 20 percent. An individual agency’s apportionment is based on the annual revenue reported to the State Controller’s Office, and, because of that, may vary from the average apportionment change.

The Commission also 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 of the Commission. In years past, these monies have been used for various purposes, when needed, 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.

Over the years, the fund balance amount has varied greatly, as is shown below

Historical Fund Balance Amounts

The accumulation, especially over the last several years, has resulted from less-than-expected expenditures and greater-than-anticipated revenues. The Fund Balance at the beginning of the current fiscal year is approximately $508,000.

As a result of Commission determinations pursuant to the adoption of the current-year budget, $294,190 in Fund Balance monies were committed, this year, for a variety of pursuits:

• $50,000 to partially cover the costs of the re-structured staff positions (with the remainder, about $38,300, projected to be covered in 2019-20
• $29,190 to cover the cost of a salary adjustment for the Executive Officer, as authorized by the Commission in May 2018
• $25,000 to cover costs associated with relocation of the LAFCO office
• $20,000 to cover costs for furniture for the new LAFCO office
• $170,000 for consultant studies and work
• $10,000 as a deposit by Geyserville Fire Protection District for an application for a proposed reorganization (which is expected shortly)

With these commitments, the expected unreserved Fund Balance approximates $200,000, to meet unexpected needs. It is unlikely that all committed Fund Balance monies will be used this year. Thus, staff presented to the Budget Committee options for use of the Fund Balance to reduce agency apportionments.

The options presented were:

• Fund expenditures only with apportionments and interest
• Fund expenditures with apportionments, interest, and a portion of the Fund Balance previously committed to staff restructuring ($38,300)
• Fund expenditures with apportionments and larger allocations of Fund Balance monies

After discussion and consideration, the Budget Committee recommended that the Commission use $55,000 of its Fund Balance to help defray increased expenditures. This will result in an increase in agency apportionments of 4.9 percent instead of 13.1 percent if no Fund Balance monies were used.

Under the Budget Committee’s recommendation, the apportionment to the County and to the cities, as a whole, would be $279,718 each, a total increase of just less than $13,000. The apportionment for the independent special districts, as a whole, would be $139,859, a total increase of $6,486. Staff anticipates that individual agency apportionments will be available prior to the Commission’s consideration of the Final Budget in June.

Summary

The Budget Committee and staff recommend a 2019-20 Proposed Budget of $762,295; which maintains staffing at 3.2 FTE positions. To reduce the projected increase in agency apportionments, use of $55,000 in Fund Balance monies is recommended, leaving a prudent reserve.

Recommendation 

Staff recommends that the Commission take the following actions at its April 3, 2019, meeting:

1. Conduct a public hearing on the Fiscal Year 2019-20 Proposed Budget, as required by state law
2. Adopt, with any desired changes, a resolution approving the Fiscal Year 2019-20 Proposed Budget
3. Direct staff to circulate the Fiscal Year 2019-20 Proposed Budget to funding agencies for review and comment
4. Direct staff to prepare the Fiscal Year 2019-20 Final Budget and Fee Schedule for the Commission’s review and consideration at the June 5, 2019, meeting and provide public notice of the hearing.

Alternate Recommendations 

The Commission could modify the recommendations of the Budget Committee and staff and consider other actions, which might include the following:

• Determine to allocate a greater amount of its Fund Balance to reduce agency apportionments
• Determine to use no Fund Balance monies to cover the cost of expenditures, relying on a greater increase in agency apportionments
• Direct staff to reduce the projected level of 2019-20 expenditures

Staff does not recommend these alternatives. Maintenance of a healthy reserve is prudent fiscal policy, and the Commission has strived for many years to build its reserve to deal with unexpected or unforeseen needs. At the same time, staff believes that the Commission is aware of local agencies’ costs and considers those in its determination of the Commission’s operations.

The Proposed Budget, as recommended by the Budget Committee and staff, provides for moderate relief from increased apportionments, maintains a healthy Fund Balance, and funds Commission operations at a level that will allow Sonoma LAFCO to fulfill its purposes and programs. 

Attachments 

1. Fiscal Year 2019-20 Proposed Budget
2. Draft Resolution