Updates on Fiscal Sustainability

When the Council adopted the fiscal year 2023 (year ending 6.30.23) budget at our 6.21.22 Council meeting, the City did so with a $127K operating budget deficit.  This deficit was covered by appropriating reserves from ARPA monies.

At our February Budget/Audit Committee meeting (2.27.23) staff updated its revenue projections for the City and determined that revenues would likely come in higher than anticipated by approximately $82K.  This is from a combination of sources, the largest of which is property taxes.  We are also seeing greater than anticipated revenues in vehicle license fees, sales tax, franchise fees, and interest earnings.  During this meeting staff did not consider savings from vacancies and certain increased returns from investments that are being shifted to higher yield products.  The Committee did request that each of these be included when the mid year budget review comes back to the full Council in early April where we will get a better understanding of the anticipated results of FY23.

These fluctuations emphasize the need to conduct robust analysis in order to gather information to base decisions upon.  Rather than focus on suggesting a parcel tax as a first resort, we need to dig deeper and understand the basis for any projection, the sensitivity of any projection, any levers available to us in order to impact the overall results, and test the projections against actual results.  Because the City was without a full time Finance Director for a period of time, some of this analysis needed to be tabled in order to focus on day to day operations.  Now that we have a full time Finance Director, we are beginning to do the analysis necessary to get a better handle on our financial situation.

Given the focus on fiscal sustainability, I wanted to provide a few updates regarding what the City has done recently, and what is still in progress:

Staff Quality of Life

Focus Time for Staff: I've mentioned previously that we have closed City Hall to the public on Wednesdays in order to provide staff dedicated time to focus.  This is a no cost action that provides a benefit to city staff and helps our overall efficiency.  We will also be considering certain wish list items as requested by staff that they could use in order to make work more efficient and make the work environment better.

Master Fee Schedule and Rate Study

We are currently engaged with a vendor to conduct a rate study that will for the first time include an "all-in" rate for all of the fees charged for specific services and use of facilities.  We haven't conducted a rate study in several years and we need to do so in order to ensure the City is being adequately recovering its costs.  We expect to adopt a new master fee schedule around the May time frame.

Energy - Street Lights and Infrastructure Investments

We formed an Energy Services and Infrastructure Renewal ad hoc committee consisting of myself and Councilmember Trupiano.  As part of this ad hoc committee, we met with our PG&E representatives for the first time in order to identify potential cost savings, infrastructure improvements, and potential rebates.  One thing that we were able to identify was the need to switch the rate plan for some of our street lights.  The city owns over 1,000 street light poles, and while historically we have replaced some of our older streetlights to LEDs, it turns out that we did not complete the steps necessary to adjust the billing rate for some of those lights and we have not been taking advantage of the cost savings.  The work to do this is in flight and we'll have a better idea of the cost savings as we progress.

Also part of the Energy Resiliency ad hoc committee, we have been working with Climatec, a vendor we engaged to assess potential savings across all of our energy uses including gas, water, and electricity.  Phase I of their work was the assessment and was done at no cost or obligation to the City.  In looking at the draft proposals for Phase II, this work has the potential to have significant benefits in terms of cost and energy use and I'm hopeful it will come to fruition.  Ahead of receiving a proposal for Phase II projects, the City is applying for a low interest California Energy Commission loan in order to secure financing for the work, should it make sense to proceed.  We will be discussing potential phase II projects at our upcoming meeting on 4.4.23.

Investment Policy and Swaps:

We've spent a significant amount of time looking at our overall investment portfolio.  At a little north of $12M, the returns on these funds has the potential to be meaningful to the City.  We typically invest in fixed income products as others products carry higher risks and a primary goal of our investments is the preservation of principal.  In looking at the detail of our holdings, it turns out that the previous strategy of fixed income five year laddering with CDs was problematic in a couple of ways. 

The City's Investment Policy controls the methods and procedures for the investment of public funds.  There are three primary objectives of the policy - Safety of Principal, Liquidity, and Return on Investments.  Part of the policy states that in order to mitigate certain risks, operating funds should be invested primarily in shorter term securities, and funds should be invested primarily in securities with an active secondary or resale market. This means that if we place an investment and the market turns unfavorably we should be able exit a position relatively easily without taking a significant haircut.  Some of these things didn't happen as well as they could have.

By engaging in a 5 year laddering strategy, we locked in rates that were historically low for a long time.  Because these were primarily in CDs, there is not a readily available market to exit these positions without realizing a significant loss.  We have engaged in a swap analysis to determine if there are positions it makes sense to exit and will do so if prudent.

Our investment policy also calls for a quarterly review, and we've asked our Custodian (UBS Bank) to participate so they can provide more timely updates.  To date, the Custodian has not participated in a status update with the Budget Committee so I'm looking forward to starting this process.

Interest and Liquidity:

In addition to the investments held in fixed income securities, the City has held a significant amount of  funds in both CAMP and LAIF funds, which are both highly liquid and designed for short term holdings for local governments.  The city has used these investment options in order to support operating liquidity.  Given the relatively high amounts held at CAMP and LAIF (approximately $2M), we were not taking advantage of higher yield securities for amounts over and above the City's liquidity needs.  As such, the City will be taking a portion of these balances that are known to be not necessary for liquidity purposes and immediately placing them in higher yield securities.  The City will be continuing analysis on our operating cash needs to determine if a greater portion these funds can be placed in higher yielding securities.

Service Contract Review:

We have a number of on demand contracts with various services providers ranging from filling pot holes to repairing sidewalks to replacing streetlights that are out.  We will be doing a review of each to make sure our vendors are performing as expected and for those that are coming due we will be conducting a competitive bidding process.

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While no single effort will solve the fiscal challenges that we face, combined we are making progress.  These challenges did not start overnight and they will not be solved overnight either, but through persistent effort we will ensure that we are exploring all available levers we have to put us on track towards fiscal sustainability.

Let's Talk Parks and Playgrounds (Clayton Community Park and the Grove)

You might have noticed work going on at the Clayton Community Park recently and I wanted to share some information about what is happening.

Both play structures adjacent to the picnic areas are being replaced.  New all weather surfaces will also be installed.  The project should be completed within approximately 6 weeks, before the start of summer break.

The cost of the project is approximately $378K.  The funding of the project is coming from a variety of sources.  First, the City applied and received a prop 68 grant in the amount of $185K.  Next, the Clayton/Concord chapter of Rotary International made a generous commitment to donate $25K.  The remaining funds will come from what are known as Developer Impact Fees, those fees paid to the City in connection with private development.

When complete the new play structure will look like this:

The toddler area will look like this:

That's not all though.  At the Grove Park, the City was awarded approximately $250K in grant funds as well under a different grant program.  And while the overall structures at the Grove are not scheduled to be replaced, those funds will be used to replace some of the surfaces that are worn, the turf under the children's statue, new lighting and various electrical equipment, and replacement of various plumbing related items.  We will also be evaluating the condition of the roofs near the stage area of the gazebo, the picnic gazebo, and the restroom areas.  Depending on need, the scope of work could include replacement of damaged or worn park furniture as well.

Because of the timing however, this work is scheduled to begin in the later part of Fall so as not to interfere with various events happening downtown.

My 3.22.23 Meeting Summary

Yesterday the Council met twice.  First in a Special Meeting where we had a closed session discussing potential full time City Manager candidates.  There was no reportable action, however I am optimistic regarding the ongoing process we are engaged in and hope to be able to share more information in the near future.

During our regular session, we discussed several significant items:

- First was an item from the Consent Calendar regarding the State mandated National Pollution Discharge Elimination System (NPDES) Program (Storm Water Pollution Prevention).  The state requires that the City take certain steps to monitor and report on any water that is discharged into water conveyance systems, or anywhere that water drains to.  In connection with this program, there is a property tax assessment administered by the County on every parcel in Clayton.  The amount collected per parcel is $29/year and has been that amount since the year 2000.  There is no CPI riser on this assessment, and any increase requires a County wide vote.

Each year the amount collected for the Storm Water Assessment is approximately $128K.  The cost to administer the program, which includes County fees, inspection, monitoring, and associated permit fees consumes about 25% of the amount collected.  The remainder covers staff and engineering costs of the City who perform maintenance, cleaning, necessary equipment, management, and reporting.  Given that the revenues collected is flat and not increasing, and the costs to administer the program, including labor, is rising, it is certain that without additional funding the general fund will need to subsidize the activity necessary to meet the mandated state requirements.  We will be discussing more specific costs through our annual budgeting process.

- We then discussed the rental rates for Endeavor Hall.  We had previously gave direction to staff at our 2.21.23 meeting.  At that time, we gave direction to have a multi tiered billing schedule that would apply to Clayton based non-profits based on their annual gross revenues. For those non-profits with annual revenues under $10K, they could arrange to use Endeavor at no charge up to three times per year. For those non-profits with annual revenues between $10K and $150K, they could use Endeavor at the non-profit rate discounted 80%. For those non-profits with annual revenues greater than $150K, they could use Endeavor at the non-profit rate discounted 50%.

After previous discussion with representatives from the CBCA, I recommended that we modify the rate structure to collapse the higher two tiers into a single tier, and provide an 80% discount to Clayton based non-profits whose revenues exceed $10K/year.  I thought this was appropriate in recognition of the historic nature of Endeavor Hall, especially its significance in acting as a town center where many people can meet and gather.  In addition, this City facility held specific significance to the CBCA, and in a gesture of goodwill towards good faith discussions that the City will be having in the future, I was was glad to take this step toward that end.  

As such, we adopted an updated fee schedule for Endeavor Hall formalizing a two tier rate for Clayton based non-profits.  It is important to note that now, smaller Clayton based non-profits with annual revenues less than $10K, will have  formal recognition of their ability to utilize Endeavor Hall up to three times per year, at no charge.  It would be fantastic to see Endeavor become the regular meeting place of the many Clayton based groups that enhance the Clayton community.

- We then discussed updates to the Clayton municipal code regarding ADUs and JADUs.  State law has been updated over the last several years reducing the discretion that City's have over the requirements that can be imposed, as well as the approval process.  With this update, we conformed Clayton's municipal code to be in compliance with State law.  Thematically, the ordinance that we adopted makes it easier for homeowners to build ADUs on their property, provided that the ADU meets certain criteria primarily around overall size (1200 sqft or less) and lot coverage (no more than 55% for lots up to 7,000 sqft, on a sliding scale no greater than 35% for lots over 16,000 sqft).

- We then discussed authorizing the application for an energy efficiency loan through the State of California Energy Commission (CEC).  The CEC provides a credit facility whereby certain energy efficiency projects would qualify for funding at a 1% interest rate.  The funds from the state are pooled for all projects, and are provided on a first come first served basis.  If we are able to secure this funding, it would make larger scale energy projects more feasible for the City as 1% interest is lower than our cost of capital.  This application, even if successful, does not obligate the City to actually accept any funds, nor take any action at this time.  At our next meeting, we will be receiving a more detailed presentation from Climatec, a vendor we engaged to assess the viability of energy efficiency projects and decide how we want to proceed.

- We also had a GHAD meeting and I will provide a summary in my next post as the topic deserves it's own more thorough discussion.

Update on Ongoing Discussions with CBCA

Last week, representatives from the City of Clayton (City Council CBCA Ad Hoc and Interim City Manager) and the CBCA (President and Treasurer) met to discuss ways that the two organizations could move forward and continue to foster the partnership that has enhanced the Clayton community for so many years.

While this was an initial discussion, we did come to a conceptual concurrence on several key items:

• We recognize the unique value downtown Clayton provides as a venue for CBCA events
• We have a desire to continue having festivals in Clayton
• We recognize the value CBCA and its volunteers brings to the community through charitable donations and service
• We recognize that there are costs incurred by the City when events are held in town, and we are interested in ensuring that when CBCA events are held in Clayton, the City receives its fair share of cost recovery

Some of the items discussed included the magnitude of fees waived for permitting (park rental, temporary use permit, noise permit, special event permit, street closure fees, etc.) and overhead costs for staff time. Historically only direct charges (police and maintenance wages, but not overhead) were billed to the CBCA per the Master Use Agreement (the Agreement). This did not include other employment related costs borne by the City such as health benefits, PERS, worker's comp and other required insurance, indirect maintenance and upkeep, etc. We also discussed certain city property that has been utilized but not included in any historical billings.

There has been discussion in various fora regarding the viability of CBCA sponsored events in the absence of the Agreement - that somehow without the fee waivers and other items not billed, that CBCA sponsored events could not happen. To be clear, the termination of the Agreement doesn't preclude any CBCA sponsored events, and while the Agreement calls for 60 days notice prior to termination, the City provided nearly double that so as not to impact Art and Wine for which work is already in flight.

In the absence of the Agreement, the fees and costs billed revert to what is described in our City wide Master Fee Schedule and are based on actual costs incurred by the City. The CBCA continues to be welcome and encouraged to hold events in town.

In the coming months, the City will receive information for an updated master fee schedule and rate study. This information will be the basis for any costs established for the services and facilities provided by the City. From there we will continue discussions in order to pursue a new Master Use Agreement.

I understand there is a high level of community interest in how the City and the CBCA continue to work together. I look forward to sharing more information as we continue discussions and thank the community for their patience and support.

Upcoming Meeting 3.21.23

At our next meeting there are a few significant items we will be discussing:

- Rental rates at Endeavor Hall is coming back for adoption after discussion held at our 2.21.23 meeting.

- We will discuss an ordinance to conform our municipal codes with state law regarding ADUs and JADUs.

- We will discuss a resolution to authorize the application for a California Energy Commission financing arrangement. This type of credit facility is offered at a 1% interest rate on a first come first served basis.  Authorizing and submitting the application does not cost anything, and does not obligate us to actually take the funds even if approved.

- We will also be having a discussion regarding the Oakhurst Geological Hazard Abatement District (GHAD).   The overall scope of work, the available resources, and prioritization will be presented for a discussion.  This is something I've been requesting for several years so I'm glad to see it come back for discussion.

If you have any thoughts or questions on the above please let me know.

Special Meeting - Goal Setting 3.13.23

The Council met in a Special meeting on 3.13.23 to conduct a goal setting session. There were thee main areas of discussion:

- We received a presentation from Municipal Resource Group (MRG) who we engaged to conduct an organizational assessment of City staff.  

- We reviewed a staff request list from each department.

- We shared goals that each Councilmember had for the 2023 year

MRG identified several strengths and weaknesses of the organization.  They also made several  recommendations including the addition of 4 FTEs across multiple departments.  MRGs recommendations explicitly did not consider any fiscal impact to the organization.

Many of the strengths reflect the diligent work and professionalism of City staff.  Their focus is on providing excellent service to Clayton residents, they feel that they can accomplish their day to day work, and they feel supported by City management and the Council.  Another strength identified was areas where we have made strategic decisions to outsource certain services and functions where it made sense. This includes things like Engineering or Legal services that require specific expertise on an as needed basis, or police dispatch services through the City of Concord where we can leverage the infrastructure in place and take advantage of their larger size in keeping it up to date.  MRG also called out community volunteerism through organizations like the Clayton Business and Community Association as a strength, serving an essential role in community engagement.

The weaknesses identified by MRG were mainly around our small staff size.  Smaller staff sizes presents challenges for long term planning, managing vacancies and time off, training opportunities, unclear roles and responsibilities, and insufficient bandwidth to handle spikes in workload volumes, among other things.  MRG also identified the lack of technology based operational tools that would make work more efficient.  

To remedy this MRG made several recommendations most of which surrounded adding additional staff and releveling existing staff.  MRG also recommended that we continue contracting for certain outside services and conduct long range planning in terms of Information Technology and infrastructure.  MRG also recommended that roles and responsibilities for each position at City Hall be identified in order to evaluate if certain tasks could be consolidated, refined, or eliminated.

The staffing positions that MRG recommended were the addition of a full time Accountant, Associate Planner, Public Works Manager, and a Senior Maintenance Worker.  MRG also recommended that our Finance Director be releveled to an Administrative Services Director, and a Police Sergeant be releveled to a Police Lieutenant.

I appreciate the work from MRG and many of the findings have merit.  But this is not to say that the city is adopting these recommendations as a foundation for moving forward.  Certainly work can be made easier with the addition of more staff or more resources, but without consideration of any fiscal impacts the recommendations do not represent a realistic path forward, rather they are an idealistic approach as if money were no object.  It does serve as a data point among other data points to be used as we evaluate future actions.

MRG's full report can be found here: (https://claytonca.gov/fc/agendas/council/2023/031323smweb.pdf) starting on page 28 of the agenda packet.

As of this week, we are now fully staffed (City Manager is Interim with interviews and hiring process proceeding on schedule) with the exception of the Assistant to the City Manager position which we've held off on recruiting for pending the placement of a permanent City Manager.  An early task of any incoming City Manager will be to evaluate the staff and make any needed organizational updates.

As part of our goal setting session conducted last year (3.21.22) one goal that was identified was to "have a discussion around bringing our staff tools and resourced up to modern standards".  At the time, I commented, "This is an important matter to be addressed, but why it was needed to be established as a goal as part of our annual goal setting session seemed odd to me.  The Mayor controls the Council agenda and this discussion item could have been placed on the agenda at any time."  

Unfortunately after that meeting, no meaningful action was taken to make progress on this goal - another example of opportunity squandered under prior leadership.

After becoming Mayor, I met with staff and requested that they prepare a list of items that they could use in order to make their work more efficient, or simply things that would improve quality of life.  Knowing that we are under financial constraints, being able to do more with less in certain areas would be a benefit both to staff directly, and to city operations.  The Council was able to ask staff questions about each of the items they identified and based on that discussion, many of the items that were described by staff are a low dollar investment with a higher return in terms of efficiency and quality of life.  There is no reason several of these items cannot be quickly advanced and it's unfortunate that the past Council did not see fit to do so.

This Council will rectify that and we will likely be discussing these requests at our meeting scheduled 4.4.23.  

We then moved on to discussing goals.  Fiscal sustainability was a common theme.  In no particular order, here were the ideas identified and captured:

SHORT TERM GOALS
Revenue Generating Ideas
Updated Fee Schedule
Apex IT Update
Address Financial Challenges
Landscape Maintenance District Vote
Address Finances to Fund Staff
Financial Stability
Staff Resources
GHAD Resources
Overview of On-Call Contracts
Council Relationship
Initiative to Fund Public Safety
Cannabis Initiative

LONG TERM GOALS
Update General Plan

Due to time constraints, we tabled any adoption of these items as goals to a future meeting.  Vice Mayor Diaz's offering of exploring the potential of a cannabis dispensary has gotten a lot of attention but I am reserving judgment until we have time to discuss as a Council what we believe is best to adopt as goals.  

I've stated previously that my top priority is to achieve a fiscally sustainable budget and much of our activity this year will be focused around this effort.  This continues to be the case and in my next update I'll be sharing information on the actions taken thus far.

My 3.7.23 Meeting Summary

Last nigh the Council took action to terminate and renegotiate a Master Use Agreement (the Agreement) with the Clayton Business and Community Association (CBCA) whereby the CBCA had essentially all fees established by the City’s Master Fee Schedule waived for events held in town.  This action is not a reflection on the great work done by the CBCA, but rather it is the result of an effort to ensure the city is reimbursed for the costs incurred when events are held.  It is fairly routine for cities to charge a fee for use of its facilities, and Clayton is no different.  We have a master fee schedule that outlines the fees associated with the various uses of City resources.   

We are currently engaged with a vendor to help update our fee schedule in order to ensure the city is recouping its costs for certain services.  But with the agreement that was executed in 2008, the CBCA as an organization was exempted from paying these fees that make the city whole for its costs. 

While direct labor costs for police and maintenance were paid under the terms of the Agreement, overhead, other staff time, and the cost for use of city facilities were waived.  This includes things like the rental of The Grove Park, temporary use permits, noise permits, special event permits, and street closure fees.  In aggregate, based on our current fee schedule, these fees could sum to approximately $7,500 per event.

Given the relatively low magnitude of the fees under discussion, some of the vitriol and name calling over the idea that the city should recoup its actual costs was disappointing.

Still, I maintain and will reiterate that the CBCA is a fantastic organization which adds a tremendous amount of value to the residents of Clayton.  By hosting several events throughout the year, they are able to use the profits generated to donate back into the community.  In the past, the CBCA has generously donated not only to local non-profits and businesses, but also to schools, scholarship programs, and directly to the City for things like benches, the Grove gazebo, sponsorship of events, among other activities. 

These are great things.  But these great things should not exempt someone or a group from paying their fair share in order for the city to recover its costs.  The fees that we are talking about are not so high as to be prohibitively expensive either.  Some suggested that this is an effort to get rid of the CBCA, that this puts events in jeopardy, or that these fees are an attack on the organization, or that there wasn’t enough financial information known, or that this action was somehow done in secret.  None of these things are accurate.  Having an organization pay its fair share so that the City could recoup its costs is a normal part of City activity, not an attack on the organization.  And with the previously approved amounts per the City’s Master Fee Schedule, they are reasonable given the amount of resources needed when the City is used as a venue and the associated fees are clearly laid out in that document.  The termination followed the terms of the Agreement, was properly noticed and agendized, and was announced on various social media platforms.  Given the large turnout during the meeting, it’s clear that sufficient notice was given.

The commitment I made when re-elected was that I would not seek any tax increase without first exhausting all options to reduce expenses and increase efficiencies – raising taxes should be a last resort.  Right now the effort is focused on cost reduction through efficiency and elimination of unnecessary work, including efforts relating to energy efficiency, discontinuing service contracts that don’t provide sufficient benefits, and even closing City Hall to the public one day per week to provide staff time to focus. 

On the revenue side, we’ve begun a more robust analysis of our investment portfolio to ensure we are achieving the best possible yields in this high inflationary market.  Later this year we will be examining the City’s master fee schedule to ensure the amounts being charged reflect the costs incurred for various services.  When it comes to fees one thing stood out, and that was the Agreement between the City and the CBCA.

As a result, the Council voted to terminate and renegotiate the existing Agreement effective July 1, 2023.  This provides sufficient notice, aligns with the City’s fiscal year so budget planning could incorporate any relevant changes, and provides enough time such that a new agreement with the CBCA could be reached so that we can maintain efficient operations of the City, and the City could recoup its actual costs.

Upcoming Meeting 3.7.23

At our next Council meeting we will be discussing one significant item:

We will be considering the termination of a Master Use Agreement between the City and the Clayton Business and Community Association (CBCA).  Historically through the Agreement, the CBCA has received special treatment from the City where the City did not recover all of its costs associated with the use of city assets and resources.  It may be surprising to learn that the City does not share in any revenues generated by CBCA events.  The only way the City is made whole (cost recovery only, not profit) financially is through the collection of fees, and with the Agreement waiving these fees, the City did not recoup its costs when events were held in town.

There will also be a presentation by the Clayton Valley Village.  This is an organization dedicated to providing the opportunity for seniors to stay in their own homes for as long as possible by offering communities a network of services to support an aging population.

If you have any thoughts or questions on the above please let me know.