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HomeMy WebLinkAbout050625-03.1 MEMO 1 May 1, 2025 TO: Mayor and Town Council FROM: Joseph Calabrigo, Town Manager Tai J. Williams, Assistant Town Manager Lani Ha, Finance Director/Treasurer SUBJECT: Draft 2025/26 Operating Budget The Town’s financial planning process includes development of an annual Operating Budget (Budget) and a Capital Improvement Program (CIP). This memorandum provides an overview of the Draft 2025/26 Budget for Town Council review and consideration. A separate memorandum summarizing the Draft Five-Year CIP, with a new cumulative 10- year forecast, will be included in the introductory section of the CIP document. The Budget serves as the Town’s annual service delivery plan, supporting its mission “to deliver superior municipal services that make people’s lives better.” It includes summaries of all projected revenues, service area goals and highlights, recommended expenditures, capital project transfers, and ten-year revenue and expenditure forecasts. As a living document, the Budget is subject to change throughout the year based on factors ranging from broader economic shifts to specific service adjustments or unanticipated emergencies. All Town finances are monitored closely and continuously throughout the fiscal year to ensure timely responsiveness and transparency. Public Review and Input The draft Budget and CIP will be reviewed by the Town Council at four public study sessions scheduled for 8:30 a.m. on May 6, 13, 20, and 27 (if needed), at the Town Offices located at 500 La Gonda Way. A public hearing to consider adoption of the Budget will be held at 5:00 p.m. on June 17, 2025, at the Town Meeting Hall, 201 Front Street. Public input is welcomed at all scheduled meetings. 2 SUMMARY The 2025/26 Budget reflects deliberate and careful financial planning to provide high-quality municipal services while maintaining prudent reserves. Ten-year forecasting continues to play a central role in evaluating fiscal sustainability and identifying when adjustments to revenues or expenditures may be necessary to preserve long-term stability. Total revenues of $45,434,120 are forecast, including $43,603,443 for the Town and $1,830,677 for the Successor Agency. Town revenues include $32,723,274 from the General Fund and $10,880,169 from Special (Restricted) Purpose sources. BACKGROUND As the Town prepares the 2025/26 Operating Budget, Danville remains on solid fiscal ground, with overall revenues tracking ahead of projections and expenditures within budget. However, looking forward, the Town is entering a more complex and dynamic economic environment that calls for careful planning, long-term discipline, and proactive fiscal stabilization efforts. Like many communities, Danville faces a confluence of external pressures: persistent inflation, rising utility, contract and insurance costs, geopolitical instability, climate- related disruptions (such as atmospheric rivers), and uncertainty surrounding federal economic policy. While inflation has begun to moderate—with the Consumer Price Index (CPI) at 2.8% as of early 2025—it remains above the Federal Reserve’s target of 2%. Meanwhile, interest rates, energy prices, and global conflicts continue to contribute to economic uncertainty. Some analysts note signs of a potential recession, yet labor markets remain relatively stable. As of March 2025, the broader economic picture remains mixed. Revenue and Expenditure Trends Property tax remains the Town’s largest and most stable revenue source to support ongoing municipal services. Although Danville receives only about 7% of the total property taxes paid by local property owners, high valuations have kept pace with inflation, helping to preserve revenue stability and growth. In contrast, sales tax revenue has declined for two consecutive years following record highs in 2021/22 and 2022/23. This trend reflects broader changes in consumer behavior, such as increased online shopping, reduced activity in the automotive and fuel sectors, and shifting allocations of e-commerce revenue (via the County Pool). As a result, sales tax revenues are projected to remain flat in 2025/26, underscoring the importance of continued vigilance and adaptability. The implementation of the Town’s newly certified Housing Element will bring significant multifamily housing growth, which may shift long-term service demands and alter the Town’s revenue mix. These developments will require ongoing evaluation and long-term planning. 3 One of the Town’s most pressing fiscal challenges is the structural imbalance in Lighting and Landscape Assessment District 1983-1 (LLAD). Because assessment rates have remained unchanged, with no escalator since 2003, LLAD revenues have increase only 3% over the subsequent twenty plus years, while expenses have increased by 78%. Expenses have been driven by utility costs which have increased by 84%. This has resulted in reliance on General Fund subsidies to sustain current service levels. However, this annual subsidy has grown to $1.5 million per year, and absent the ability to utilize LLAD reserves to further bridge the revenue gap, this approach is no longer sustainable. To address this imbalance, the Town has initiated a Proposition 218 process to seek property owner approval for a new rate structure and updated assessment methodology (LLAD 2025-1). The process will conclude on May 20. If approved, LLAD 2025-1 would establish a more sustainable funding model for the maintenance of parks, street lighting, and roadside landscaping. The new assessments would be applied beginning in August 2025. The draft budget assumes no change in LLAD revenue for the 2025/26 fiscal year. A second challenge is the Town’s reduced access to competitive State and Federal infrastructure grants. In recent years, changes to funding criteria have increasingly prioritized regionally designated “disadvantaged communities,” which limits Danville’s eligibility—particularly for pavement rehabilitation projects. As a result, even though Danville’s major arterial roadways support significant intraregional travel, limited access to external funding has shifted the responsibility for their maintenance back to the General Fund, placing additional strain on the Town’s discretionary resources. Finally, the retirement of the loan repayment from the former Community Development (Redevelopment) Agency to the Town in 2026/27 will further reduce discretionary General Fund capacity. Service Priorities Despite economic pressures, the Town remains committed to its mission to deliver high- quality municipal services while protecting its long-term financial health. Careful planning, transparent communication, and disciplined decision-making continue to guide our efforts as we prepare for the future.  keep residents, businesses and property safe.  provide well-maintained public facilities.  protect our environment, preserve our history and retain our special character.  celebrate diversity, dignity and equality for all members of our community.  provide opportunities that support residents’ growth and enrichment.  promote and support economic vitality and growth.  represent and promote Danville’s best interests.  celebrate community through family oriented special events; and  effectively engage and communicate with residents and businesses. 4 Service Delivery Approach Consistent with past practice, Danville remains committed to fiscal sustainability. This begins at the policy level and translates into careful management practices and cost- effective service delivery. Municipal services address the highest priority needs by effectively combining Town personnel with contracted or privatized services and partnerships with other service providers. Technology will continue to play an ever- growing role in providing community access to Town services. These approaches have allowed the Town to achieve and maintain:  balanced annual budgets with positive year-end fund balances  annual General Fund transfers to support high priority capital needs  appropriate operating and capital reserves  zero unfunded pension or other post-employment benefit liabilities; and  sustainable ongoing ten-year forecasts Within the context of the background provided, Table 1 illustrates the recent history for Danville’s major sources of General Fund and Special Purpose revenues. Table 1 Revenue History (in $ millions) 2021/22 2022/23 2023/24 2024/25 2025/26 Actual Actual Actual Budget Budget Total General Fund $ 31.31 $ 32.98 $ 34.53 $ 31.45 $ 32.72 Property Tax $ 17.81 $ 18.42 $ 19.34 $ 17.90 $ 18.90 Sales Tax $ 7.32 $ 7.32 $ 6.67 $ 6.57 $ 6.40 Franchise Fees $ 2.32 $ 2.44 $ 2.53 $ 2.38 $ 2.57 Recreation Fees $ 1.67 $ 2.18 $ 2.50 $ 2.57 $ 2.76 All Other $ 2.20 $ 2.62 $ 3.49 $ 2.02 $ 2.09 Total Special Revenue $ 11.94 $ 12.38 $ 12.85 $ 10.67 $ 10.88 Lighting & Landscape $ 3.22 $ 3.25 $ 3.29 $ 3.13 $ 3.14 Building & Planning $ 2.93 $ 3.46 $ 2.44 $ 2.75 $ 2.44 Gas Tax $ 1.97 $ 2.18 $ 1.94 $ 1.90 $ 1.94 All Other $ 3.82 $ 3.49 $ 5.18 $ 2.89 $ 3.36 Total Revenue $ 43.26 $ 45.36 $ 47.37 $ 42.11 $ 43.60 CDA/Successor Agency $ 2.28 $ 2.31 $ 2.21 $ 2.27 $ 1.83 Total Town & CDA Revenues $ 45.54 $ 47.67 $ 49.58 $ 44.39 $ 45.43 Operating Expenditures $ 30.02 $ 33.24 $ 38.27 $ 40.93 $ 42.44 5 2025/26 Highlights A number of significant programs and initiatives planned for 2025/26 are expected to contribute significantly to the overall quality of life enjoyed by Danville residents. Public Safety The Police Department will continue to build on its strong foundation of public safety, innovation, and community partnership, that have established Danville as one of the safest cities in California. With Part 1 crimes trending below the Town’s 10-year average and case clearance rates consistently outperforming national benchmarks, the department will maintain its focus upon crime prevention through a combination of technology and investigative capacity. Community engagement will remain a cornerstone, with programs like Coffee with the Cops, Citizens Academies, and youth outreach evolving to meet the needs of Danville’s growing and diverse community. Economic Development Supporting a vibrant local economy remains a top priority. The Town has launched a new Economic Development strategy grounded in a “four-legged stool” model—Town, business owners, property owners, and the community—working together to strengthen Danville’s business ecosystem. Guided by the Business Support Funnel (Awareness → Interest → Conversion → Loyalty), the strategy centers on four key efforts: (1) business education workshops; (2) destination marketing to highlight Danville’s unique appeal; (3) promotional support to drive foot traffic; and (4) Downtown business engagement through a grassroots business association. These efforts aim to strengthen local businesses, enhance Downtown vitality, and align with evolving consumer trends. Downtown With the completion of the $4.9 million Downtown Catalyst Project, the Town has fulfilled three key community priorities voiced during the COVID-19 pandemic: (1) enhancing pedestrian safety by calming vehicle traffic through the downtown; (2) expanding public gathering spaces, including the enhancement of Prospect Park Plaza and creation of the flexible-use Theatre Plaza; and (3) significantly increasing lighting along Hartz Avenue. With these improvements in place, the Town will now shift its focus to activating these spaces through music, events, and community programming—a central component of Danville’s Economic Development strategy. Diablo Road Trail The Diablo Road Trail will close a long-standing gap between the existing Barbara Hale Trail and Mount Diablo State Park, enhancing regional connectivity and outdoor access. The completed 2.1-mile trail will include an existing 0.5-mile segment, a recently constructed 0.7-mile segment through the Magee Preserve development, and a 0.9-mile segment across steep, challenging terrain to be built by the Town. Following significant 6 redesign prompted by winter 2023 atmospheric storm damage—including a culvert collapse and significant creek bank erosion—the Town has secured regulatory permits and is now completing final engineering design work. The project is now advancing toward a summer 2025 bid process, with construction anticipated to begin in fall 2025. Infrastructure Maintenance Since incorporation, the Town has developed a broad array of community assets— including roads, trails, bikeways, parks, public buildings, and turf fields—that are used daily and remain a source of community pride. As this infrastructure network has expanded and aged, so too has the need to dedicate a growing share of the capital budget to maintaining it to ensure the long-term safety and functionality. Today, the majority of the capital budget is focused on capital maintenance and infrastructure replacement. In 2025/26, three major maintenance projects are planned: The Pavement Management Project (C-610), the Sycamore Valley Road Improvements Project (C-635), and the Diablo Vista Park Playground Replacement Project (B-560). Housing With adoption and certification of a new General Plan Housing Element the Town has updated various zoning standards to implement changes needed to accommodate the development of new higher density housing within the Town. Efforts are continuing to inform community residents of these state-mandated changes, while processing the first development applications submitted under the new standards. Community Outreach The Town continues with active engagement efforts through a variety of methods and platforms helping to build a strong connection with the community and support local businesses. This includes a monthly email newsletter, social media efforts including Nextdoor, Twitter, Instagram, and Facebook, the Live Locally Quarterly Newsletter and the “Town Talks with the Mayor” program. These efforts highlight essential local information. Sustainability Danville is part of MCE Clean Energy, a Community Choice Energy program, providing ratepayers with greater choices for renewable energy options. The Town continues to reduce electricity usage through operation of photovoltaic arrays at four separate Town facilities. In 2024, the Town reduced water usage to maintain Town parks and roadsides by 17% and 10%, respectively, for the past two years. Finally, efforts continue to implement SB 1383, which is aimed at reducing disposal of organic materials generated through various Town activities and services. 7 2025/26 Operating Budget Summary The draft Budget continues to focus on the Town’s highest priorities. The Budget is balanced, reserves funding for capital projects, and maintains appropriate reserves. Organization The draft 2025/26 Budget is presented to coincide with the Town current organizational structure which includes six operating departments encompassing forty-six service delivery divisions or programs. Revenues Total revenues of $45,434,120 are forecast, including $43,603,443 for the Town and $1,830,677 for the Successor Agency. Town revenues include $32,723,274 from the General Fund and $10,880,169 from Special (Restricted) Purpose sources. General Fund General Fund revenues are forecast to total $32,273,274, an increase of 4.1% from 2024/25. Property Tax, Sales Tax, Recreation Fees and Franchise Fees account for 93.6% of General Fund revenues. The General Fund is forecast to account for 75.0% of Town revenues. • Property Tax is forecast to total $18,900,000 (57.8% of total G.F. revenues), up 5.6% from 2024/25. Although the Town receives only 7% of total property taxes paid by Danville property owners, strong growth in property valuation continues to increase property tax revenues. • Sales Tax is forecast to total $6,400,000 (19.6% of total G.F. revenues), down 2.5% from 2024/25. Sales Tax includes the 1% local business (Bradley Burns) share plus the Town’s share of the county pool allocation attributable to “e-sales”. • Recreation Fees and Charges are forecast to total $2,758,085, up 7.2% from 2024/25. The 2025/26 forecast reflects new growth in Recreation Fees and Charges following a four year long recovery period resulting from the pandemic. • Franchise Fees are forecast to total $2,573,592 up 7.8% from 2024/25. The increase is due to increased solid waste franchise fees. • All Other General Fund Revenues are forecast to total $2,091,597, up 3.4% from 2024/25. Special Purpose Special Purpose revenues are forecast to total $10,880,169, up 2.0% from 2024/25. Lighting and Landscape assessments, Building and Planning fees, Gas Tax, Solid Waste Vehicle Impact Fees, Measure J Return to Source funds and Clean Water assessments 8 account for 94.2% of Special Purpose revenues. Special Purpose revenues are forecast to account for 25.0% of Town revenues. • Lighting and Landscape Assessment District revenues are forecast to total $3,144,908 Revenue growth is flat due to negligible new development and fixed assessments. • Building and Planning revenues are forecast to total $2,440,744, down 11.4% from 2024/25. This follows an upswing in permit and application activity associated with several large projects underway in prior years. As development activity is closely tied to market conditions and the timing of individual projects, revenues in this category are expected to vary from year to year. • Gas Tax (Highway Users Tax) revenues are forecast to total $1,943,276, up 2.5% from 2024/25. Gas Tax funds continue to be critical to the Town’s ability to perform ongoing public street maintenance. • Solid Waste Vehicle Impact Fees are forecast to total $1,256,361 , up 35.8% from 2024/25. This fee revenue helps to offset the impacts upon Town streets attributable to solid waste and recycling collection vehicles. • Measure J Return to Source revenues are forecast to total $878,476, up 2.5% from 2024/25. Gas Tax revenues fund the Town’s Street and Traffic Signal Maintenance programs and contribute to the annual Pavement Management Program. • Clean Water Assessment revenues are forecast to total $584,020, up 1.0% from 2024/25. Revenue growth is flat due to negligible new development and fixed assessments. Successor Agency Redevelopment Property Tax Trust Fund (RPTTF) revenues are received to pay Successor Agency Recognized Obligations. Revenues are forecast to total $2,272,850 for 2024/25. The Successor Agency will continue to receive RPTTF funds until all outstanding obligations are retired by 2034/35. Expenditures Recommended operating expenditures total $42,442,316 are recommended, including $41,271,040 for the Town and $1,171,276 for the Successor Agency. Town 2025/26 Operating Expenditures Recommended operating expenditures total $41,271,040 up 3.8% from 2024/25. Operating expenditures are funded through $29,796,914 from the General Fund, and $11,474,126 from Special Purpose revenue. Table 2 illustrates operating expenses by categories presented for each budgeted area of service delivery. 9 Table 2 Operating Expenses by Category 2024/25 2025/26 % % Budget Budget Change Budget Contracted Services $ 15,174,807 $ 15,581,180 2.7% 37.8% Employee Expenses $ 14,732,995 $ 14,990,823 1.8% 36.3% Program Activities $ 5,644,318 $ 5,888,708 4.3% 14.3% Materials and Supplies $ 1,674,469 $ 1,809,632 8.1% 4.4% Equipment $ 956,126 $ 1,337,094 39.8% 3.2% Temporary Salaries $ 948,520 $ 991,920 4.6% 2.4% Administration $ 629,231 $ 671,683 6.7% 1.6% Total $ 39,760,466 $ 41,271,040 3.8% 100% • General Government recommended expenditures total $3,424,706, a decrease of 1% from the prior year. The reduction is primarily due to lower City Clerk costs in a non- election year. • Police Services recommended expenditures total $12,966,938, an increase of 5.8% over the prior year. Increased costs are driven by escalating contractual personnel costs and a 75% increase in liability insurance costs. The Town pays for the direct service costs through the contract with the Contra Costa County Sheriff’s Office. • Administrative Services recommended expenditures total $5,704,403, an increase of 8.8% over the prior year. Increased costs are driven by the need for additional Asset Replacement expenditures, and increased contract costs for Library Services and Animal Control through Contra Costa County. • Development Services recommended expenditures total $5,416,686, an increase of 4.5% over the prior year. Increased costs are driven by increasingly stringent Clean Water compliance requirements mandated by the State Regional Water Quality Control Board, and increased Capital Project Management costs. This department is 75.8% funded through Special Purpose Revenue. • Maintenance Services recommended expenditures total $9,586,277, an increase of 1.1% over the prior year. Maintenance costs continue to be driven by water (EBMUD) and electricity (PG&E) costs, which increase annually despite reduced usage. This department is 69.3% funded through Special Purpose Revenue. • Recreation, Arts and Community Services recommended expenditures total $4,172,030, an increase of 0.9% over the prior year. This department is 66.1% funded through Recreation Fees and Charges. 10 Successor Agency Recommended Successor Agency expenditures total $1,171,276, a decrease of 2.6% from the prior year. Expenditures cover debt service payments approved as part of the Town’s Recognized Obligation Payment Schedule (ROPS), and allowable administrative costs. Lighting and Landscape Assessment District (LLAD) 1983-1 The Townwide LLAD partially funds maintenance of street lighting, roadside landscaping, public parks and buildings. Annual assessments are set pursuant to Proposition 218. Assessment revenue is combined with transfers from the General Fund and the use of LLAD reserves to fund LLAD operations. Last increased in 2003, assessments are set at fixed rates with no escalator Table 3 2025/26 LLAD Fund Activity LLAD Zone Operating Expenses Assessment Revenue Revenue % Difference Transfer In (GF Subsidy) Fund Balance Net Chg (+/-) A $ 1,242,269 $ 586,771 47.2% $ (655,498) $ 550,000 $ (105,498) B $ 1,097,346 $ 750,686 68.4% $ (346,660) $ 200,000 $ (146,660) C $ 1,016,796 $ 667,491 65.7% $ (349,305) $ 50,000 $ (299,305) D $ 2,142,978 $ 1,139,960 53.2% $ (1,003,018) $ 700,000 $ (303,018) $ 5,499,389 $ 3,144,908 57.2% $ (2,354,481) $ 1,500,000 $ (854,481) * includes interest income on assessment revenue Revenues total $4,644,908 including $3,144,908 from assessments and a General Fund transfer of $1,500,000. Recommended expenditures total $5,499,389, a decrease of 0.3% from the prior year. The remaining available LLAD fund balance totals $2,347,225, a decrease of 26.7% from the prior year. Despite General Fund transfers of up to $1.5 million annually, all four LLAD zones (A- D) continue to operate at significant deficits and are forecast to deplete reserves by 2026/27. An increase in assessments will be necessary in order to continue to maintain parks, roadsides and street lighting at current service levels. Absent the ability to do so, it will be necessary to undertake some significant service level reductions for these valued community assets. General Fund Transfers and Designations Transfers In Community Development Agency (CDA) Loan Re-Payment – Debt re-payment of $659,401 is included toward the balance owed to the Town under the Cooperative Loan agreement between the Town and the former CDA. This loan will be retired in 2025/26. 11 Transfers Out Recommended transfers and designations total $3,883,314 representing 11.7% of total 2025/26 General Fund revenues. This includes $1,500,000 to subsidize LLAD operations, $1,833,314 for CIP General Purpose, $500,000 for Pavement Management and $50,000 for Asset Replacement. Staffing and Employee Costs The Town workforce includes regular employees, contract employees (sworn police officers) from the Contra Costa County Sheriff’s Office, and temporary part-time employees. Table 4 illustrates budgeted staffing for fiscal years 2024/25 and 2025/26. Table 4 Town Staffing – Total FTEs Regular Employees 95.75 95.75 Contract Employees (Police) 30.00 30.00 Temporary Employees 33.75 24.75 Total 159.5 150.5 For 2025/26, regular employee expenses are increased by 1.75% to $14,990,823. Employee salary ranges are recommended to be increased by 3.0%. Eligible Town employees receive annual merit-based salary increases. Town employees receive a 401k defined contribution pension and no Town-funded retirement medical benefits. The Town has no unfunded pension or other post- employment benefit liabilities. Operating Reserve Policy Resolution No. 35-98 established a minimum Operating Reserve level equivalent to 20% of the annual operating budget. The current Operating Reserve is funded at $16,009,768. The Operating Reserve equals 38.8% of the total operating budget, or 53.7% of the General Fund budget. Master Fee Schedule The Town Council annually reviews all Town fees and charges and adopts a Master Fee Schedule. For the most part, 2025/26, Fees and Charges are increased by 2.8% to reflect the February over February increase in the San Francisco Bay Area Consumer Price Index. Ten-Year Forecasts Ten-year forecasts cover fiscal years 2025/26 through 2034/35. Forecasts are updated annually to assist with planning and ensure on-going sustainability of service delivery 12 based upon availability of revenues. The forecasts illustrate that the Town will continue to rely upon a combination of General Fund and Special Revenues to provide ongoing service. Contracted services and utility costs are fueled by higher levels of inflation and are expected to continue to increase at rates that outpace revenue growth. Revenues Ten-year forecasts project an 9.06% increase in total revenues, from $45.34 million in 2025/26 to $49.55 million in 2034/35. General Fund revenues are forecast to increase by 12.94%, from $32.72 million to $36.96 million; Special Purpose revenues increase by 12.41% from $10.88 million to $12.23 million. Successor Agency revenues are forecast to decline by 80.12% from $1.83 million to $363,932 as remaining debt obligations are retired. Real Property Tax Trust Fund (RPTTF) revenues received by the Successor Agency continue to fund the recognized obligations of the Agency but are reduced as Agency debts are retired. All four LLAD zones (A-D) continue to operate at significant deficits and are forecast to exhaust available reserves by 2026/27. Re-payment of the outstanding loan from the former Community Development (Redevelopment) Agency to the Town will be completed in full by 2025/26, further reducing General Fund revenues by $1.1 million annually. Operating Expenditures Ten-year forecasts project operating expenditures to increase by 28.89%, from $41.27 million in 2025/26 to $50.33 million in 2034/35, equivalent to 2.89% annually. Successor Agency expenditures decrease by 68.93% from $1.17 million to $363,932, as the 2001 Certificates of Participation and 2001 Taxable Revenue Bonds are retired in 2026/27 and 2028/29, leaving only the 2005 Certificates of Participation to be retired by 2035. Transfers and Designations Forecasts project average annual General Fund transfers of $1,789,973 for all purposes, including CIP General Purpose, Pavement Management, Asset Replacement and LLAD operations. Absent an increase in LLAD assessments, a substantial portion of the annual transfers will need to be allocated to subsidizing LLAD activities. Revenues of $659,401 in 2025/26 are included for repayment of the outstanding loan to the Town by the former Community Development Agency. This loan is fully repaid in 2025/26. Forecasts project average annual transfers of $2,915,000 from the General Fund and Special Revenue sources into the Pavement Management Program to support residential street maintenance. 13 SUMMARY The draft 2025/26 Budget is balanced and maintains current service levels that provide for the delivery of quality municipal services that address the highest priority community needs. Appropriate operating and capital reserves are maintained. The Town has no unfunded future liabilities related to employee pension or medical costs. Subject to the Town’s ability to increase LLAD assessments for the first time since 2003, the ten-year forecasts for 2025/26 through 2034/35 illustrate that the Town is continuing on a course that is fiscally sustainable.