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Adopted

1999-2000 Operating Budget Overview

November 10, 1999

HONORABLE MAYOR AND CITY COUNCIL:

It is my pleasure to present the Adopted Operating Budget for the City of San José for Fiscal Year 1999-2000. This document, in conjunction with the 1999-2000 Adopted Capital Budget and the Adopted 2000-2004 Capital Improvement Budget, constitutes the City’s financial plan for this fiscal year.

Despite earlier predictions by a number of financial experts, the variety of potential threats to the health of the local high technology industries which arose at various points last year, appear not, at this time, to have had any significant negative impact. In fact, both the national and regional economies are exceeding expectations and remain strong and robust, albeit with clear signs of a softening from the explosive economic growth levels experienced over the past few years. We believe that the economic engine driving our current fiscal strength remains strong, but will slow somewhat over the next few years. The revenue projections embodied in this budget are based on that premise.

The twin realities that have shaped this City’s budgetary policies for the past decade are General Fund base budget expenditures which grow faster than base revenues, and a continual set of new initiatives in the pipeline guaranteed to create additional future expenditures. This combination ensures tight budgets every year, even in good fiscal times. To deal with this environment we have evolved the conservative budget practices which have served us so well. The 1999-2000 budget continues the tradition of taking the difficult steps now to strengthen the underlying foundations of our budget.

The Adopted Budget presented here is a conservative one, characterized in its development by adherence to two of the most important of our budget policies: retaining the balance of ongoing expenditures with ongoing revenues, and maintaining core service levels before consideration of expanding City services. The budget addresses new initiatives primarily through a re-deployment of existing resources, providing changes only where absolutely necessary, or where we could take advantage of significant opportunities that would have been imprudent to ignore.

Conservatism was also imposed in this budget in order to begin to position the City for the slowdown in economic activity that we foresee occurring beginning this fiscal year. The first sign of that slowdown actually was seen last year — a tapering off in the red hot construction development market that San Jose has enjoyed for three straight years. As a result, we have reduced personnel in the development fee supported programs and imposed a hiring review for all future vacancies in those programs. The intent is to maintain our ability to efficiently serve the development community, while preparing for the slowdown in activities and revenues that we believe lies ahead.

The conservative approach was also prudent in light of the full organizational review now underway through the Investing in Results project. This process was initiated on a pilot basis two years ago and endorsed by the Mayor and City Council for Citywide implementation on April 15, 1999. When completed in 2002, it will have provided a comprehensive Citywide identification of core services and performance measures — changes that will more clearly guide future decisions about the delivery of services and deployment of resources. This information will provide policymakers with the information necessary to make sound decisions about improvements and investments in City services and infrastructure. It will also help the City know if, when and how to change overall service delivery to reflect shifts in customer needs.

In summary, it is our hope and belief that this budget protects our capacity to meet ongoing service needs, prepares us for the potential of a slowing economy, and positions us to take advantage of the lessons learned from the organizational review underway.

A complete detail of the General Fund balancing strategy can be found in Attachment A — EXECUTIVE SUMMARY Reconciling General Fund Budget Actions.

I. BUDGET OVERVIEW

Total net funding approved in the 1999-2000 Operating Budget is $1,826,201,967 for all City funds (General, Special, and Capital). This is $209,198,888 or 12.9% higher than the 1998-99 Adopted Operating Budget (see Table 1, page 3). Under this spending plan, the total number of positions was increased by 118 to a total of 6,753.

The General Fund portion of the City's Budget is increased by 7.2% from that adopted for 1998-99, and totals $668,174,864. This increase includes the rebudgeting of $75.2 million in unspent 1998-99 allocations for completion of programs and projects authorized in the prior year.

Of the General Fund total, 39% is budgeted for Public Safety departments; 14% for Community Services departments; 8% for Capital Maintenance departments; 8% is for General Government; and 31% is for a combination of City-Wide and Non-Departmental uses.

One-Time Funding Strategies

A major theme of this budget was the establishment of a more consistent policy concerning the use of one-time General Fund monies. During the last several years, the City slipped into an increasing reliance on the use of one-time monies in its General Fund to support what became ongoing services, including a large number of programs provided by Community Based Organizations. Even though in each year’s budget such programs were clearly labeled as "one-time", an increasing number had the "one-time" funding renewed, some for as many as four or five years in a row. The number of programs funded in this way grew to the point that the 1998-99 Adopted Budget contained one-time funding allocations which amounted to over $7 million.

By that point, this practice had clearly built false expectations about the continuation of funding levels that exceeded the City’s long-term financial capacity.

In recognition of the need to address this issue, and establish a firm policy base for the use of one-time funding, Mayor Gonzales’ March 17 Operating Budget Message contained direction for the Administration to work with his Office to develop a policy regarding the phasing out of these one-time expenditures, and a strategy for dealing with the programs (City services as well as community-based organizations) that had been receiving this funding for more than one year.

The Adopted Budget reflects the result of that process. In the budget one-time programs have been handled in one of three ways: a few were added to the base ongoing budget, a larger number of programs were funded for another year with the understanding that this funding was being phased out over a one to two year period, and the remaining group of programs were dropped from the budget and referred to other funding sources.

In order to decide which of these categories programs would fall into, Community-based organizations (CBOs) that had been given one-time funding in the past were required to undergo supplemental review by participating in a new One-Time Funding Application and Review Process that was developed by the Administration. It was from this process that organizations were recommended for either ongoing, one-time (1999-2000 only), or transitional funding (1999-2000 and consideration in second year).

Organizations receiving ongoing funding included the MACSA Youth Center; the Day Worker Program; Goodwill; two ethnic chambers of commerce; public programs including Challenges and Choices, Scholastic Crime Stoppers, Police and Fire Department Wellness Programs, and a Second Fire Engineer Training Academy; Youth Employment Services; and the Parks, Recreation and Neighborhood Services Department’s Right Connections Mediation Team.

Consideration of this issue will be continued as part of the FY 2000-2001 budget process. At that time, programs that should be considered for ongoing funding will be identified, and those who should receive a second and final year of funding will be proposed. Finally, a sunset review of all community based organization contracts funded in the base General Fund base budget was assigned to the Administration to be completed within two years.

An additional significant use of one-time General Fund monies identified in this budget was the creation of a $4 million reserve, set aside as the Neighborhood Improvement Fund. The Administration was directed to report back to Council in the Fall with recommendations for the use of these funds for neighborhood infrastructure needs such as streetlights, street maintenance, transportation improvements, public facilities, and other deferred funding priorities in our City’s neighborhoods. Council action allocating that reserve was approved on October 19.

II. PERFORMANCE BASED BUDGETING APPROACH

The 1999-2000 Budget process represented a large step forward in responding to Council direction to move to a performance-based budgeting (PBB) approach citywide. As can be seen in this document, two major departments, Streets and Traffic (for the second year), and Parks, Recreation, and Neighborhood Services, for its initial year, are now presented in the new performance-oriented format that all departments will be transitioning to over the next few years.

Additionally, another significant change to the performance content of the Proposed and Adopted budget documents was implemented for all departments. Each augmentation and reduction change proposal brought forward in the Proposed Budget included for the first time a description regarding the specific performance results to be expected from that proposal, in addition to the traditional narrative description. Those augmentations that were approved later in the process (rebudgets and those changes that were included in the Mayor’s Final Budge Modifications Memorandum) do not include performance information as it was unavailable at the time. The addition of this new material on performance reflects the "return on investment" approach which we have begun utilizing both internally and at the Council level to make decisions concerning budget allocations. Other more traditional performance measurement information continues to be shown in the department budget format, as it has since 1990. This information will be reviewed and refined as part of the Investing in Results program.

III. GENERAL FUND PRIORITIES

The following section highlights some of the more significant General Fund augmentations approved in this budget, grouped into the following categories: Community Services, Economic Development, Efficiencies, Infrastructure, Public Safety, and Youth and Education.

Community Services

The City’s commitment to community services seeks to ensure that neighborhoods thrive and flourish, are healthy, vibrant, cohesive, and safe for all residents. As part of the effort to pursue that goal, several elements of this budget are worth noting:

• Continuation of staffing for the Neighborhood Revitalization Strategy was approved ($191,810). This program, which was initiated in 1997-98, uses a coordinated and focused team effort comprised of community leaders and City staff engaged in organizing coalitions of community groups and associations. A $2 million reserve was set aside by Council in 1997-98 for use in the first three selected NRS areas, and efforts in the University and Washington Community Services Areas were begun. This budget includes $1,094,220 for that effort, which is the amount which remains uncommitted of the original reserve.

• The budget includes seven additional positions ($130,000 one-time and $304,000 in ongoing funds) to staff the new Moreland West Community Center, scheduled to become operational in March of 2000. The center will be open eight hours a day, six days a week plus evenings, providing recreation, volunteer opportunities, education, information, and referral and counseling services to the West San Jose community.

• Significant changes to the city’s Anti-Graffiti Program were approved to combat the presence of unsightly graffiti from our City. Specific new goals for this program were approved (removal of graffiti in parks and removal of gang graffiti within 24 hours, and an overall reduction in response time for the anti-graffiti hotline), and additional resources of $350,000 to achieve these improvements was provided.

• On-going funding was added for the Family Care Small Business Assistance Program ($216,626), a collaborative workforce development program that creates and retains family child care businesses and offers technical assistance. This program is intended to address the community need for child care spaces and improvements in the quality of child care offered.

• Increased custodial services ($151,600) will restore service to six days a week at branch libraries. (Contractual custodial services at libraries and community centers were reduced to three days a week in 1992-93.)

• Ongoing funding for traffic data collection and signal development ($123,072) will retain two positions added originally through one-time funding and enable the department to meet its service targets.

• Ongoing funding for regional traffic flow improvements ($273,743) will add two Capital-funded and two VTA-funded positions for planning, programming and operating traffic signal and motorist information systems to increase the effectiveness of our transportation network.

• Senior Program Staffing funding was added to establish an ongoing senior program at Almaden Community Center ($53,334); to support the Senior Master Plan ($87,000); and to provide for community-based organizations to deliver additional aging services. These augmentations will assist San Jose in addressing the needs of a senior population that continues to grow throughout the City, reflecting a national trend.

• One-time funding ($100,000) has been provided for purchasing trees and related supplies for a volunteer project involving schools and neighborhoods to mark the millennium.

• This budget also provides a number of allocations (totaling $1,365,200) to community-based organizations serving the diverse cultural and social service needs of our citizens. This includes an allocation ($250,000) for use by existing and new fine arts and festival grant programs; the third year of funding for the "Cultural Initiative/Silicon Valley" ($150,000); funding for Our City Forest ($130,000) and the Children’s Musical Theater ($100,000); and funding for a number of other organizations that will serve needs in various areas, including fair housing, elder abuse, health and human service access, and long-term care.

Economic Development

Through this budget the City will continue to support business growth through employment and small business enhancement, development assistance, and corporate outreach. Of particular note, during the coming year, the Office of Economic Development will increase the lending activity of the City’s Revolving Loan Fund available to small businesses.

The 1999-2000 Adopted Budget also contains approximately $213,000 in supplemental funding (only $40,000 is ongoing) for a number of ethnic chambers of commerce and the Joint Venture Silicon Valley, a business development program.

Expenditures in other departments also support economic development goals. Chief among these would be the youth employment services, family care small business assistance, funding to stimulate increases in air service, and support data networks for development and building activity.

Efficiencies

This budget includes a number of efforts designed to enhance the delivery of City services to meet customer needs, support a well-trained work force, and enhance quality systems and processes through innovations and greater efficiencies. Such efforts include:

1. Redeployments

• The redeployment of two positions and addition of eleven positions to create a new Fire company at the just-completed Fire Station 31 serving the Evergreen Specific Plan area.

• The Police Department’s Bureau of Investigations consists of 262 personnel but has lacked non-uniformed analytical support. A vacant Analyst position in the Crime Prevention program is being reallocated to Investigations, which will allow the existing Captain in that program to spend more time focusing on investigations and management responsibilities.

• Savings from the elimination of a vacant Telecommunications Administrator position in the City Manager’s Office is being used to offset the costs of adding a Deputy Director in the Information Technology Department, with that Deputy picking up both sets of responsibilities.

• With the conversion to a new Human Resources Payroll System, the Finance Department is experiencing a reduced need for technical support and an increased need for analytical support. To meet this need, a temporary Accountant II position has been made permanent, and a vacant Senior Account Clerk position has been eliminated.

• In General Services, a vacant Analyst position in the Alternative Fuel Vehicle unit was deleted to fund a new Automotive Equipment Specialist vehicle procurement to improve the timely creation of equipment procurement specifications.

• A frozen Code Enforcement Inspector position has been reallocated to a Planner II position to serve Code Enforcement as its liaison for planning research and support.

2. Cost Reduction Proposals

• An on-going reduction in funding for chemicals and materials ($600,000) and consultant services ($600,000) resulting from a combination of cost-saving strategies and an analysis of historic spending patterns by staff at the San Jose/Santa Clara Water Pollution Control Plant.

• An on-going reduction of six vacant positions at the San Jose/Santa Clara Water Pollution Control Plant ($311,062) resulting from the Plant’s Business Plan Team’s review of operations.

• An on-going reduction in four positions in the City’s Utility Billing Program ($228,780) due to efficiency improvements and consolidation of the program in the Environmental Services Department.

• A city-wide reduction in energy management costs resulting from efforts to begin purchasing gas on the open market and the redistribution of electricity accounts, will begin to net a small level of savings beginning in FY 1999-2000, increasing in future years.

• An on-going reduction in telephone service costs ($172,128) achieved through securing the most advantageous plans and contracts for cellular, local toll and long distance services.

3. Investing in Results Project Process

4. Technology Enhancements

• One-time funds ($300,000) supporting expansion of City-wide Internet capabilities to increase public access to City services and implementation of other technological efficiency measures.

• The addition of $173,000 to complete the upgrade of the central computer network, increasing network access capacity and speed for all users in the Civic Center and remote locations.

• The addition of $80,000 ($4,000 ongoing) to install an audio-text system that will provide the public with 24-hour access to a broad range of City information via the telephone.

• The addition of one position ($126,706) to manage specialized Airport information systems, and one ongoing position ($71,170), and equipment and software ($136,947) to transfer 9,000 paper documents at the Airport to CD-ROM for increased accessibility and reduced research and duplication costs.

• The addition of four positions ($478,709) in the Information Technology Department to oversee telecommunications services and initiatives, to proactively manage the City’s central networks, to manage the City’s major on-line databases, and to manage Airport databases.

• The addition of $484,000 in one-time funds to continue the City’s conversion from the Mac platform and provide for other computer equipment replacements.

• The addition of one Network Technician position ($63,340) to provide support for the computer network in the main library and 17 branch libraries.

• The addition of $150,000 in one-time funds for a comprehensive consultant study of the City’s record management system. Issues to be addressed include the physical storage and retrieval of records, retention schedules, records management policies, the use of electronic storage, and service delivery alternatives.

Infrastructure

Maintaining the City’s infrastructure, which includes buildings, parks, and streets as well as the purchase of vehicles and other major equipment, remains a critical need. Since the beginning of the decade, the number of City facilities has increased significantly while departments (General Services in particular) have been asked to sustain budget reductions or absorb maintenance costs within current allocations. Recognizing that a failure to maintain facilities and major equipment can lead to higher costs for repair and replacement in the future, a modest level of investments this year has been included in this budget.

Highlights of approved infrastructure funding efforts include:

• Funding of $1,350,000 for a major new program initiative that will pay the full cost for the repair and replacement of sidewalks at owner-occupied residences was approved. Currently, the City offers to the resident a 1/3 split of the cost to replace sidewalks.

• Maintenance funding for new parks ($251,292) will add three new positions and one-time funding for equipment at five neighborhood parks coming on-line this year (Silver Creek Linear Park Phase II, McLaughlin Park Phase II, LoBue Park, Needles Park, and Pfieffer Park).

• Ongoing funding for street landscaping ($200,000) will assist the City’s effort to restore existing street landscapes and maintain them in good condition, including the replacement of dead and missing plants in median strips. This will complement the second year of a replanting program to replace dead and missing plants in median strips approved in the Capital Budget ($275,000 plus a $460,000 rebudget).

• Construction of a neighborhood park in the Buena Vista neighborhood ($300,000) to provide a safe gathering and recreational place for the residents of the neighborhood and their children.

• Ongoing funding for preventive sign and signal maintenance ($197,862) provides for the continuation of preventive maintenance of traffic devices and signals and ensure that the backlog of traffic signs needing to be replaced is reduced.

• The History Museum received an additional allocation ($65,000) to address deferred maintenance as determined by the City’s building assessment consultant. Council previously authorized $193,000 at Mid-Year for the initial group of critical items on the consultant’s list.

• One-time funding ($25,000) for the City to participate in a joint City-County study regarding traffic safety and infrastructure improvements in the East Hills Neighborhood.

Public Safety

A core service that defines the quality of life in a community is public safety, which provides for safe homes and businesses, safe schools, and safe neighborhoods, and includes prevention programs and well-equipped police and fire emergency response services. This budget includes a number of enhancements in this high priority area:

• The redeployment of two positions and addition of eleven positions to create a new Fire company at the just-completed Fire Station 31 serving the Evergreen Specific Plan area.

• Funding for a second 10-day Fire Engineer Academy annually ($153,262) to provide training in the operation and maintenance of fire apparatus and equipment.

• An augmentation to the Fire Engineering Division overtime funding ($270,000) to continue to address the surge in development activity.

• The addition of one-time funding ($200,000) to purchase 700 CAL-OSHA compliant protective garments for emergency medical responders.

• A Fire Training Reserve ($150,000) to provide for implementation of the Training Plan that is being developed.

• Additional one-time funds ($45,000) to fund hydrant replacements in 1999-2000, and continue to evaluate a proposal to transfer fire hydrant maintenance and replacement to the local water companies.

• Ongoing funding ($65,000) to enable the San Jose Prepared program to expand into 10 new neighborhoods and to train 130 additional community volunteers. Implemented in 1995, this program has educated and trained 650 community members to provide life saving services within their individual neighborhoods during emergencies and disasters.

• On-going funding in the amount of $735,000 for fleet management and replacement of Police unmarked vehicles. An additional amount of one-time funding ($114,000) was also provided to replace six vehicles for fee-related Inspectors in the Fire Engineering Division.

• Funding to continue the Fire and Police Wellness Programs ($328,450) designed to increase the health status of public safety personnel and decrease workers’ compensation costs, disability leave hours, and modified duty hours.

• The addition of $91,800 to continue the non-emergency 3-1-1 telephone service, which has reduced 911 call volume by 10 percent and reduced average answering time for 911 calls by 73 percent to 2.5 seconds.

• Shortages in Police support staff were addressed through a combination of additions and redeployment.

• Ongoing funding has been approved for Challenges and Choices and for Scholastic Crime Stoppers, both of which are described under Youth and Education.

• Funding for two Domestic Violence initiatives ($247,000).

• Funding for one "store front" style Police Service Center to be opened in each of the City’s four Police divisions, as approved at Mid-year. This will enable the department to decentralize and become more visible to citizens. The Foothill division center will be in the King and Story roads area; locations for the other three centers are yet to be determined.

• Funding was provided for a new Police training facility to be opened in leased space at North Fourth and Rosemary streets. This is intended to partially relieve the Police Department space needs noted as a high priority in recent studies.

Youth and Education

Youth are the future of our community. The City is committed to providing a comprehensive array of activities to help young people grow up in a safe environment with as many opportunities and choices as possible. This budget provides for a number of initiatives in this area:

• Grant funding in the amount of $1,838,200 has been received from the state to operate 19 elementary school and 4 middle school LEARNS after-school sites. LEARNS is an acronym for literacy, education, arts, recreation nurtures students. The 1999-2000 school year represents the first year of a three year program.

• For 1999-2000, the budget contains an additional $1.0 million in ongoing funding to expand the Homework Center program which would allow additional centers and/or additional hours at existing centers.

• The BEST (Bringing Everyone’s Strengths Together) Program, received an additional $500,000 on an ongoing basis to develop new programs to deter gang and drug activity. This brings the total ongoing funding for the BEST Program to $3.0 million.

• An additional Right Connection Mediation Team ($183,765) will support expansion of the Safe School Initiative in targeted middle and elementary school districts. This amount will fund three positions plus one-time funds for equipment and a vehicle.

• Ongoing funding ($178,915) for the Challenges and Choices program that was started three years ago has been approved to continue this popular service that teaches a 10-week curriculum to 3rd, 5th, and 7th graders about drug and gang awareness, self-esteem, and anger management.

• The Scholastic Crime Stoppers Program was approved for ongoing funding at 10 schools ($10,000) to continue providing monetary rewards for information on criminal behavior.

• Ongoing funding to continue the City-Schools Collaborative Program ($59,027) will assist in building positive working relationships between the City, 19 school districts, community-based organizations, and the community through an annual Education Summit and other activities.

• Under the Teacher Home Loan Program ($97,909), a development officer will be added in the Housing Department to design and implement this new program, including coordinating City loan assistance with State housing agencies and other lenders and undertaking an aggressive marketing program.

• A new program, San Jose Smart Start and Neighborhood Centers, has received one-time funding of $500,000. This program will eventually establish 10 centers within five years that will provide our children with the tools needed to get a head start in life.

• San Jose Future Teachers Program ($100,000) will be implemented to set up scholarships to assist San Jose high school students who wish to become San Jose public school teachers. Funding comes from investment income generated by the City’s Contingency Reserve.

• Youth Employment Services ($113,101) will be continued in the Budget based on a "Sunset Review" of this program, which will convert three contract positions to civil service. In addition to job referral and placement services, this will assist in designing programs that link City construction procurement programs with youth employment training programs as called for in City Charter Measure BB.

• Summer Jobs for Youth Program ($132,500 one-time) will provide 110 young people with paid work experience in various City departments during the summer of 1999.

• Ongoing staffing for 14 SAGE (School Age Growth and Enrichment) sites to bring staffing ratios closer to established standards of one position to 25 students ($60,328).

• In Almaden Valley, provide evening and weekend activities by staffing a Teen Program ($81,531), which includes supervising three middle school SAGE sites.

• Community Support – The City will provide funds to help support several community-based organizations that are specially equipped to address the needs of at-risk youth. Examples include Breakout Prison Outreach, Project Safe Place, Four Seasons Mobile Home Youth Program, MACSA Youth Center, Homeless Youth Shelter, Worknet, San Jose Conservation Corp YouthBuild, Rohi Alternative Community Outreach, as well as a number of youth counseling and employment services.

Future Concerns

During the budget process we noted for the Council two major areas where the final outcome is not totally clear, but which we know will have a significant impact on the City’s budget picture in the near term.

Efforts to Cap or Roll Back the Education Revenue Augmentation Fund Shift (ERAF)

The Education Revenue Augmentation Fund (ERAF), which the Governor and State Legislature established in 1992, continues to annually divert significant property tax revenue from local governments to the State. The diversion costs this City more than $18 million annually. Legislative efforts to cap or reverse the ERAF shift did not succeed this year, but will continue to be a high priority for the City.

Developing a Replacement Animal Shelter and Animal Control Program

The Santa Clara Humane Society notified the City in December 1998 that it would be discontinuing animal control services contracts in response to State legislation that extends the period stray animals must be held by shelters. The City, working with other jurisdictions, succeeded in obtaining approval of State legislation to delay implementation of the legislation for one year, and also has retained a consultant to evaluative alternatives, project costs, and opportunities for partnerships in developing a new program and facility. As previously reported to Council, preliminary cost estimates for design and construction of a municipal animal shelter capable of housing more than 30,000 animals annually could range from $14 to $18 million exclusive of land costs. Ongoing costs to operate such a shelter are estimated at $2.9 million annually. Our approximate share of those costs will be in the neighborhood of 70%. During the coming year, staff will bring to Council an analysis of alternatives, including the construction of a new facility, financing options, and opportunities for partnering with nearby cities that are also impacted.

IV. SPECIAL FUNDS

The Adopted Budget also reflects a number of significant actions in various other City Funds. Highlights are provided below.

Airport Funds

In 1999-2000, total Airport revenues are projected to increase 8.3% from $85.1 million to $92.2 million. This reflects an expected increase in passenger activity of 5.1 percent over the 1998-99 fiscal year. Parking and Roadway revenue continues to be the largest source of Airport operating revenue, representing 38% of the total projected. The Adopted Budget includes several additions to address the Airport’s focus on traffic mitigation through the addition of three parking control positions, programs supporting public transit and shuttle use, and increased traffic control by the San Jose Police Department-Airport Division. Also included are augmentations to provide funding for enhanced air service development, customer surveys and analyses of existing Airport retail services. Environmental compliance and neighborhood service issues will be supported through the additions of an Operations Supervisor, an Environmental Services Manager and two positions to assist the department in meeting the requirements of the accelerated Acoustical Treatment (ACT) Program.

Community Development Block Grant Fund

The City’s CDBG Program budget is based on a total 1999-2000 entitlement grant of $12,559,000, a slight increase over last year. Based on a spending plan approved by Council in April 1999, $12.9 million will be used to fund projects in the Community Development Improvement category. Highlights include construction of a major expansion at Hank Lopez Community Center, Project Crackdown streetlights, reconstruction of Washington and University Neighborhood alleys, purchase of a site to provide expanded services to persons with disabilities, improvements in the Santee Community, and renovation of existing buildings to provide for the new Billy De Frank Lesbian and Gay Community Center and the East San Jose Community Law Center. An additional $2 million was approved to fund 47 projects in the Contractual Community Services category, including three new projects (East San Jose Community Law Center, Long Term Care Ombudsman Program, and Vietnamese Elderly Services).

Convention and Cultural Affairs Fund

Early last fiscal year, it became apparent that an operating revenue shortfall of approximately $1 million would occur in this Fund if action was not taken to reduce costs. To address this shortfall, at mid-year, the department eliminated 13 vacant positions funded from this source, ordered a one-time reduction in custodial services contract and reduced the Facilities Sinking Fund. Further actions were necessary to balance this fund for the 1999-2000 fiscal year. This budget includes the elimination of a previously scheduled increase to the Convention, Arts and Entertainment Facilities Sinking Fund and an increase in the General Fund subsidy to this Fund of $140,000. Projections into the future do still show continued shortfalls unless revenues from the Transient Occupancy Tax and from Convention Facility activities grow at a faster than anticipated rate.

Housing Funds

In 1999-2000, the Housing Department expects to receive approximately $34.8 million in 20% property tax increment funding from the Redevelopment Agency. These revenues are deposited in the Low and Moderate Income Housing Fund to be used for affordable housing purposes, as required by State law. Revenue is also received from the U.S. Department of Housing and Urban Development. Two new, major housing initiatives will be implemented in accordance with City Council direction given in April 1999. The first directed the Department to lead an effort to increase the construction and availability of new affordable housing units by 50% over the next five years, supported by continued increases in 20% property tax increment funding over the 1999-2004 period. The second initiative is to establish the Teacher Home Loan Assistance Program by designating $2 million of its Loans, Grants, and Site Acquisition funding to provide 100% financing for the purchase of a home in San Jose by teachers who meet certain qualification guidelines.

Integrated Waste Management Fund

San Jose is required by the Integrated Waste Management Act of 1989 (AB 939) to divert 50% of its solid waste from landfills by the end of calendar year 2000. Using a combination of financial incentives, public education, technical assistance, and recycling collection services, the City increased its diversion rate dramatically from 11% in 1990 to 44% in 1995. In the subsequent three years, however, the diversion rate has dropped slightly to 43%, indicating that new initiatives are needed to achieve the mandated goal.

Local studies conducted in 1998 indicated that the business community and the construction/demolition industry have the greatest potential for increasing diversion. A one-time addition of $1,183,000 was therefore approved to increase diversion in these sectors through public education, technical assistance, and infrastructure improvements. In order to serve as a model to the community, it was approved that diversion efforts be increased at City facilities and regional parks, supported by a one-time augmentation of $542,000. Projected FY 99-00 revenues and expenses for the Integrated Waste Management Fund indicate that there will be sufficient revenues available to fund these one-time increases.

Sewer and Storm Sewer Funds

Sewer Service and Use Charge fees to system customers have remained at the same level since 1994-95. No increase was approved for 1999-2000, leaving the charge at $227.52 per year for a single-family household. A review of sewer service rates is underway to determine whether the rate calculation methodology should be updated to reflect changes in the composition of the wastewater influent to the Plant. The major addition for 1999-2000 is renewed funding for Water Conservation and Flow Reduction Programs, which will continue the Ultra-low Flush Toilet Programs. A particular emphasis will be on multi-family dwelling retrofits. In addition, several water conservation pilot projects will be implemented to determine the effectiveness of other flow reduction programs. The Santa Clara Valley Water District will reimburse the City approximately $1.2 million for 1998-99 and $500,000 for 1999-2000 as part of its cost sharing agreement for water conservation.

The Storm Sewer Operating Fund pays the cost of improving the quality of storm and surface water runoff, which in turn improves water quality and wildlife habitat of San Francisco Bay. In April 1999, the City Council approved a Storm Sewer rate restructure but rejected a proposed rate increase, leaving projected revenue collections at $13.3 million, the same level as 1998-99. This will result in rate decreases for most customers. Because program expenditures are higher than the revenue level brought in by the adopted rate; $1.8 million in cost reductions is reflected in the 1999-2000 Adopted Budget. As a result of these reductions, several capital projects will be delayed; support for the household hazardous waste program was shifted to another funding; and a loan repayment to the Sewage Treatment Connection Fee Fund was deferred. Without a rate increase next year, further reductions will be required.

Transient Occupancy Tax (TOT) Fund

As a result of revenue projections for 1999-2000, this budget includes no change in the baseline support to the three organizations supported by the TOT Fund (the Conventions, Arts and Entertainment subsidy; Cultural Grants; and the San Jose Convention and Visitors Bureau). This contrasts sharply with the TOT revenue increases in 1996-97.(21%) and 1997-98 (22%), which resulted in large funding increases for the three organizations. The no-growth projection reflects appropriate caution in view of the revenue slowdown experienced earlier this year, an expectation that the occupancy rate at local hotels will remain at last year’s level, and a projection for very few new rooms becoming available next year.

Treatment Plant Operating Fund

As discussed earlier, $1.5 million in ongoing funds were identified for reduction in this fund without adverse service impacts, as the result of the efforts of the Business Plan Team of Plant employees and an analysis of historical spending patterns. On the other hand, the San Jose/Santa Clara Water Pollution Control Plant and its Tributary Agencies continue to deal with a series of extremely challenging regulatory issues associated with the volume and quality of wastewater discharged to the San Francisco Bay. The largest addition approved for this fund, for example, is for Water Conservation and Flow Reduction programs ($3.3 million), which will continue the Ultra Low Flush Toilet programs and implement several pilot projects, all designed to reduce Plant flow to the San Francisco Bay. In addition, for 1999-2000, approximately $1.0 million in one-time funding was approved for the Watershed Management Initiative, which provides scientific and technical studies supporting the City’s National Pollutant Discharge Elimination System (NPDES) permits through a stakeholder-based process. The Storm Sewer Fund provides $200,000 of the amount, with the rest provided by the Treatment Plant Operating Fund.

Vehicle Maintenance and Operations Fund

A total of $2.4 million in General Fund dollars was approved for vehicle replacement in FY 1999-2000. This is comprised of $1.7 million for general fleet vehicle replacement (including a one-time program increase of $500,000) and $735,000 for replacement of Police unmarked vehicles which were included in the Base Budget.

While the $2.4 million amount is slightly above the $2 million recommended level of annual funding to replace the City’s general fleet, there still remains an unfunded backlog of approximately $7 million of vehicles whose replacement has been deferred in recent years.

V. HIGHLIGHTS OF THE 2000-2004 CAPITAL IMPROVEMENT PROGRAM

The Adopted 2000-04 CIP totals $1.6 billion. This is a 3% increase from the $1.55 billion included in the Adopted 1999-2003 CIP. The Adopted 1999-2000 Capital Budget totals $639 million, an increase of $112 million (21%) from the Adopted 1997-98 Capital Budget, which totaled $527 million. This increase primarily results from the addition of unexpended funds for projects originally intended to be completed in the prior year. Due to delays for various reasons, the unexpended funds have been rebudgeted into 1999-2000 to complete the projects.

The following chart illustrates the allocation of the Capital Budget by type of program.

Note: The Underground Infrastructure Systems category includes Storm Drainage, Municipal Water Utilities, Water Pollution Control, Underground Utilities and Sanitary Sewers. The Transportation Related programs category includes Traffic, Off-Street Parking and the Residential Construction Tax Contribution Fund. The Municipal Facilities category includes Communications, Municipal Improvements and Service Yards.

 

The continuing inability to fund several key components of the capital program at a level consistent with the City's infrastructure needs or desired levels of service remains the key policy concern inherent in the City's Capital Improvement Program. Even with recent significant improvements in the City’s economy, revenues available for capital improvement investment fall short of what is needed.

While recognizing the inadequacy of current funding sources, much can still be accomplished over the next five years. Among the planned outcomes of this Adopted CIP are:

• A new Civic Center will be constructed in the downtown area to consolidate city functions and avoid increasing rental costs.

• The sidewalk repair grant program has been revised to provide free sidewalk repairs to homeowners, instead of the 1/3 cost sharing program.

• An Intelligent Transportation System project will implement an advanced traffic management system in the area around San Jose International Airport. Funding is also provided in the Airport Capital Program to address deficiencies identified in the upcoming Terminal and Transportation Study.

• Funding for the construction of a new Federal Inspection Service (FIS) building at the Airport is included in the 1999-2000 Capital Budget. The FIS facility is necessary to serve international passenger and cargo flights. This project will replace a current facility that consists of older multi-wide trailers located away from both Terminal A and C, requiring transportation of passengers and baggage back to the terminals.

• With $19.8 million in funding for the purchase of new materials, the Library will significantly exceed its annual book acquisition goal and add new materials at all facilities, including non-English language materials, children's books, large type books, audio books, and media materials.

• A new School Walking Routes project will enhance pedestrian safety in school areas and provide pedestrian safety education services to elementary and middle schools.

• The new Intelligent Transportation System: SMART Corridor project implements an advanced traffic management system along the Route 17/880 corridor between Los Gatos and Milpitas.

• The Neighborhood Traffic Modeling project is a new annual program that supports preservation of neighborhood quality in conjunction with traffic level of service policy modifications.

• Fourteen new traffic signals are planned, along with major modifications to nine more intersections. The specific intersections to receive new or modified traffic signals are listed in the Traffic Program overview.

• Two hundred and thirty five new streetlights are planned for each year of this CIP. The locations are citywide and this level of funding supports our ten-year backlog elimination strategy.

Almost $36 million is planned for the acquisition, construction, and renovation of park and recreation facilities and an additional $37 in reserves and fund balances will be available for future improvements. Some of the parks and recreation facilities to receive significant improvements over the next five-year period include:

 

Aborn Park	Almaden Winery Park	Alum Rock Park
Backesto Park	Bernal Park	Boggini Park
Brigadoon Park	Brooktree Park	Canoas Park
Columbus Park	Chynoweth Park	Edenvale Garden Park
Guadalupe River Park	Happy Hollow	Hathaway Park
Los Paseos Park	Lincoln Glen Park	Mabury Park
Mayfair Park	McLaughlin Park	Mise Park
Overfelt Gardens	Parkview Park	Parma Park
Parque de la Amistad	Ramblewood Park	Pfeiffer Park
Rose Garden	Solari Park	Wallenberg Park
Watson Park	William Street Park	Windmill Springs Park

VI. OPERATING BUDGET IMPACT

Projects in the 2000-04 Capital Improvement Program will result in significant additional operating costs in the General Fund when completed.

In compliance with Council policy, preliminary estimates of the impact of capital projects on the General Fund have been formulated and summarized in the following chart. (The estimated costs are provided by the departments and have not yet been subject to a full analysis by the Budget Office.)

 

		2000-01		2001-02		2002-03		2003-04
Park and Community Facilities		$ 111,000		$ 105,000		$ 107,000		$ 109,000
Other Agency Park Projects		570,000		587,000		616,000		647,000
West Valley Branch Library				256,000		266,000		278,000
Alum Rock Branch Library (RDA)				519,000		555,000		594,000
Communications Hill Fire Station								1,338,000
Street Landscaping		121,000		121,000		121,000		121,000
Street Lighting		3,500		16,000		28,000		40,000
Traffic Signals		47,600		74,600		118,600		151,600
TOTAL		$ 853,100		$ 1,678,600		$ 1,811,600		$ 3,278,600

Additional and operating budget impacts will also result from such Redevelopment Agency capital projects as the proposed Symphony Hall and Fox Theater. Operating costs and agreements with non-profit operators of these facilities have not yet been developed.

Changes in the Parkland Dedication Ordinance, discussed earlier in this overview, could also have a significant impact on the General Fund since the changes would encourage more "turnkey" park developments.

Policies, guidelines and criteria for identifying the operating and maintenance impact of capital projects were developed to clearly identify the operating budget impact prior to funding capital projects. Under the approved policy, the funding sources for operating costs of a capital project in excess of $100,000 per year would need to be identified prior to the approval of the project.

Two City projects, the West Valley Library and Communications Hill Fire Station, have been identified as falling into this category. The operating expenses for these facilities, however, would not begin until future years. Funding for these expenses, which will most likely be from the General Fund, will be addressed in future forecasts.

VII. CONCLUSION

As demonstrated in the preceding discussion, this is a budget which will allow us in the coming year to both preserve our core services and provide for notable improvements in a few high priority areas. This is a distinct improvement from the fiscal situation envisioned earlier in the budget process, which reflects the impact of continued strength of the local economy.

Although this is certainly an improvement from the environment experienced by the City in the early years of the decade, any satisfaction that we find in that fact should be tempered by the realization of the many community needs which remain unmet, and by the knowledge of what we will face when the inevitable slowdown in the regional and national economies occurs. For this reason, it is critical that we continue to adhere to the conservative budget policies which have served us so well in the past.

In closing, I want to personally thank the City Council and the many City employees throughout the organization who provided input and so much hard work during the long and arduous process of putting this budget together.

Debra J. Figone
Acting City Manager

Last Modified Date: 5/19/2009

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