In accordance with Carmel Municipal Code Section 3.06.020, prior to the beginning of each fiscal year, the City Administrator shall prepare and submit to the City Council a proposed operating and capital budget for the forthcoming fiscal year (Attachment 1). The proposed budget, referred to as the Fiscal Year 2024-2025 (FY 24-25) Recommended Budget of $43.9 million is submitted for Council’s consideration. The proposed expenditures totaling $43.9 million, include the General Fund operating budget ($28.2 million), debt service ($519,100), pension unfunded liability ($2.4 million), capital budget ($12.6 million), and workers compensation ($127,000). The proposed revenues totaling $31.4 million include property taxes ($8.6 million), sales tax ($9.8 million), transient occupancy tax ($7.5 million), and other revenue ($5.5 million). The FY 24-25 Recommended Budget requires the use of $12.4 million in prior years’ savings ("fund balance") in order to balance, unless additional reductions are made.
Since the May 7, 2024 Council Meeting, the Recommended budget has been adjusted per direction of Council to add $6,000 to Community Promotions. Additionally, staff has adjusted Liability Insurance Premiums $31,000 higher based upon updated figures from PRISM received May 16, 2024.
The total fund balance is estimated to end the FY 23-24 at $37.3 million which includes all restricted, reserves and unassigned funds. City Council has the authority to tap into the unassigned fund balance ($15M).
As the economy remains unpredictable, the City remains cautious and anticipates a conservative increase in revenues for FY 24-25. Conversely, the City also expects its expenditures to grow in FY 24-25, primarily related to increased staffing, pension costs, general operating costs, and a robust Capital Improvement Plan. Highlights of the budget include:
- Salary and benefit costs of approximately $16 million with minimal changes to FTE over prior FY (97.25 FTE total).
- Pension costs of approximately $2.4 million for the City’s annual unfunded accrued liability (“UAL”) payment to CalPERS. Additionally, the City will restrict $1 million by transferring funds into the City’s established Section 115 Trust.
- Services and supplies costs of approximately $12.4 million to fund contractual services, fuel and vehicle maintenance, supplies and materials, utilities, fire services, insurance premiums, Sunset Center, staff training, marketing and other operational costs.
- $12.6 million for capital projects and vehicle and equipment purchases in the following categories: public safety ($3.4 million), streets/sidewalks ($4.0 million), facilities ($1.1 million), drainage ($1.7 million), green infrastructure ($275,000), environment ($1.1M), IT/Planning ($300,000), fleet ($150,000), libraries ($145,000) and CIP Contingency ($400,000).
- $519,100 for debt service payments and $127,000 for workers compensation claim administration, potential claims and costs associated with the implementation of preventive measures.
Staff provided a brief overview of the budget as part of the May 7, 2024 Council meeting. At the May 21, 2024 budget workshop, staff will present a detailed review of the budget as well as present responses to any questions that staff have received (Attachment 2) Staff will receive direction from Council on the budget and this direction will be incorporated into the FY 24-25 Recommended Budget, which will be considered for adoption by Council on June 4, 2024.
Capital Improvement Program
At the March 5, 2024 Council meeting, the Public Works Director presented the First Review of the FY 2024/25 Capital Improvement Program (CIP) which included:
- 15 capital improvements and 14 operating budget projects completed in FY 2023/24.
- 4 projects recommended to be cancelled or modified.
- 15 projects funded in (or prior to) FY 2023/24 that were recommended to be carried over, with remaining funds, into FY 2024/25.
- 6 (of the 15) carry-over paving, drainage, and facility renovation projects that require supplemental funding of $1.7M for construction.
- 6 potential new projects funded by the Vehicle and Equipment Fund.
- 13 potential new projects funded by the Capital Improvement Fund.
- An introduction of the 5-year Capital Improvement Plan (FY 2024/25 through 2028/29). An updated 5-Year CIP is included in Attachment 4, and is also available for review on the City Website under the Public Works homepage.
At the Special Council meeting on March 26, 2024, the Public Works Director presented the Second Review of the CIP for FY 2024/25 which included:
- Responses to questions received at the March 5th meeting (Attachment 3).
- 5 new or revised projects that changed since the March 5th meeting.
At that meeting, Council tentatively approved:
- 4 projects to cancel or modify.
- Carry over of 15 projects funded in (or prior to) FY 2023/24 with remaining funds, into FY 2024/25.
- Supplemental funding for 6 carry-over paving, drainage, and facility renovation projects for construction.
- 6 new vehicle and IT projects funded by the Vehicle and Equipment Fund.
- Tentatively 12 of 13 new projects funded by the Capital Improvement Fund, although several projects require additional review and consideration.
Based on Council direction at the March 26th meeting, the CIP was included in the “Fiscal Year 2024-2025 Recommended Budget Book” (pages 52-68) and introduced at the May 7, 2024 Council meeting.
Questions regarding the CIP asked at the March 26th Special meeting and their responses, are provided in Attachment 3
While the draft CIP for FY 2024/25 is now substantially complete (Attachment 4), there are still concerns expressed from Council, the public, and staff, regarding the $12M+ cost for all projects listed, as well as the current CIP backlog, staff’s current workload, and the ability to execute approximately 34 projects while at the same time, trying to reduce the reliance on the City’s three project management consultants. As noted in the response to CIP Question 18,
“Without any new capital improvement projects assigned for FY 2024/25, the current backlog of work from the 15 Carry-Over Project funded in, or prior to, FY 2023/24 would take staff plus our three Project Management consultants approximately one more full year to complete. As reference, the City completed 14 projects in FY 23 and 15 projects in FY 24 with one in-house Project Manager plus three Project Management consultants.
Currently, the tentative list of 6 new Vehicle and Equipment Funded projects plus 13 new Capital Fund Projects, will add a full year of workload to the existing backlog. In addition, the Public Works Department, for example, is also involved in 11 Strategic Priority Projects (several of which are capital projects), in addition to ongoing streets and facilities maintenance, forestry and environmental programs, and service requests.
Staff does not recommend eliminating all 19 new projects since many are time-sensitive and should begin soon as possible. Hiring a second in-house Project Manager would be part of the solution in reducing the backlog and phasing out project management consultants. However, the scale and cost of the proposed new FY 24/25 CIP projects should be further reviewed. For example, at the March 26th meeting, Council directed staff to defer the construction phase of the Sunset Center Portico. At the May 21, 2024 Budget Workshop, staff will identify four additional, important, but non-urgent projects which Council may consider to defer.”
At the May 21, 2024 Budget Workshop, staff will recommend that Council consider not proceeding with the following four CIP projects in the next Fiscal Year for the following reasons:
1. Doolittle Bridge and Pathway Realignment– Environmental Permitting and Design, $175,000. Clearly a worthwhile project included as the fourth of eight improvements along the Mission Trail Nature Preserve stream, it is not time sensitive. Further, at the May 7th meeting, Council approved a construction contract in the amount of $433,818 for construction of MTNP 3 Stream/Drainage Improvement Projects.
Staff suggests that the Doolittle Bridge Project be deferred for one or more years.
2. Junipero Bypass Drainage Project – Design, $175,000. Although this may be the most critical, high priority project identified in the Storm Drain Master Plan Update, it is a large-scale project with a subsequent construction cost estimated at $1M. It must be done. However, the Drainage Repairs Project, which includes 3 high priority repairs from the SDMP, will be under construction next FY upon approval of a supplemental budget increase included in the CIP Budget. Deferring the Junipero Bypass design out one year would allow staff to focus on constructing the Drainage Repairs, and then begin the design the following year.
Staff suggests that the Junipero Bypass Drainage Project Design be deferred for one year.
3. Park Branch Library Windows and Dry Rot, $45,000. An alternative to implementing this project at one time, (which would be more cost-efficient in the long run), would be to make these repairs over the next two fiscal years using funding from the Facilities Maintenance Budget. For example, in FY 2024/25, the dry rot can be repaired, and the 18+ windows could be replaced over the subsequent fiscal year.
Staff suggests that the Park Branch Library Windows and Dry Rot Project be undertaken as facility maintenance budgeted projects over the next two years.
4. Ocean Avenue, Carpenter to Highway 1, $500,000, funded by Monterey County. Another worthwhile project would be to reconstruct the deteriorated pavement, and provide drainage and street improvements along Ocean Avenue; however, this is in the jurisdiction of Monterey County. While there would be no direct costs to the City if we enter into a full cost recovery Agreement with the County, this will be a significant impact on staff time. As noted in the CIP Project description,
“Ocean Avenue, between the east City limits near Carpenter Street and Highway 1, is currently inundated with potholes and pavement distress. The pavement condition has deteriorated to the point that a minor paving resurfacing treatment would be insufficient, and the roadway may need to be reconstructed in some areas followed by an asphalt overlay. While located in the jurisdiction of Monterey County, Ocean Avenue is a primary arterial entryway from Highway 1 into the central downtown core of the City of Carmel.
Numerous calls have come in over the years requesting the City to repair these potholes, until the callers are notified that this is the responsibility of the County. Public Works has contacted the County’s Public Works Department numerous times to alert them to potholes. While the County is typically very responsive to the City’s requests, repairs can be delayed at times, particularly following storms.
This new CIP project for FY 24-25 would allow the City to launch this major street improvement project on behalf of, but at the full cost of, the County. The first step in this process would be to enter into a funding agreement, to be approved by the County Board of Supervisors and City Council, outlining the work to be performed by the City and its consultants and contractors, payment or reimbursement of all direct costs by the County, and a mechanism to allow the City to terminate the agreement at any time.
While these necessary roadway improvements would clearly benefit citizens of Carmel and the County alike, this project does pose risks. For example, the required Encroachment Permit from CalTrans could potentially trigger intersection improvements at Highway 1, such as modified turn movement and/or signalization updates. The roadway design must include drainage improvements, repairs and/or additions to sidewalks along both sides of the street, and accessibility ramps. Additional project implementation and construction issues that must be addressed include CEQA documentation, environmental permits, community outreach, and reconciliation of design and contracting standards between the County and City.
The City does not currently have the capacity to implement this project. Therefore, one of the City’s Project Management consultants would be needed for this project. Next, a third-party engineering/environmental firm must be retained for engineering design, permitting, and bid phase and construction engineering support. While the vast majority of the work would be performed by consultants and contractors, all at the expense of the County, the impact to City staff cannot be understated.
The County provided an initial cost estimate of $500,000 for the paving portion of the project. Preliminarily, it appears that the full cost for project management, design, and construction, including drainage, sidewalks, ADA improvements, and traffic control, will be substantially higher.”
Staff suggests that the Ocean Avenue, Carpenter to Highway 1 Project remain the responsibility with the County. The City could offer to support their project by such things as serving on consultant selection committees, attending progress meetings, supporting outreach efforts, assisting with checking plans and specifications, etc.
Additional Correspondence
On May 17, 2024, the City received a letter from Amy Herzog, Executive Director of Visit Carmel, which was intended to offer additional information related to the City of Carmel-by-the-Sea's contract with Visit Carmel. This letter has been included at Attachment 5.