A plan that would apportion administrative costs to individual city departments will be presented to the Benicia City Council on Tuesday.
Interim Finance Director Brenda Olwin wrote City Manager Brad Kilger on Aug. 9 that the plan is a “legally defensible method” for distributing indirect costs associated with fee-for-service activities.
The method, she wrote, would identify the actual costs associated with providing those services that aren’t associated with a specific fund or activity, and would provide for allocating administrative expenses for budgeting purposes.
It is the latest in a series of steps the city may take to stabilize its budget and make Benicia less vulnerable to economic changes.
The plan doesn’t have any net budget impacts, Olwin wrote, because it “simply allocates indirect administrative costs from the General Fund out to the other funds, based upon the identified basis of allocation.”
But it would reduce some General Fund costs while increasing charges to other funds, she wrote.
Olwin described the plan as critical because of the large amount of fee-based and fee-regulated services the city provides to residents.
That includes landscaping and lighting assessment districts and water and wastewater utility enterprises, she wrote.
The plan identifies 15 central service and administrative costs that total $6.3 million, broken into “allocable units.”
Of that $6.3 million, about $4.5 million is General Fund operating divisions, and the balance is indirect overhead charges allocable to other city funds, Olwin wrote.
“The plan does not discern whether a fund can or should receive an overhead charge,” she wrote. “The Plan analysis only determines the basis on which to allocate, and the resulting amount of the charge.”
She wrote that city employees set additional criteria for handling the $1.8 million balance.
Allocation charges to certain federal, state and local restricted funds, about $146,000 of the $1.8 million, haven’t been put into place under this plan, she wrote. Employees are still examining those charges.
Allocation charges to certain Council restricted funds and local programs also aren’t in place — “For example, Human Services, Arts and Cultural Commission and SP (Southern Pacific) Depot funds can receive an allocation charge; however, given the nature of the programs, staff is not recommending a charge,” Olwin wrote. “That amount that isn’t allocated under the plan is about $72,000, she added.
Nor are fund changes of less than $1,000 — a total of $5,300 — allocated, she wrote.
Under the proposed 2014-15 allocation charges, Olwin wrote that the recommended actual net overhead allocation from the General Fund out to other funds would be $1.385 million.
That allocation to other city funds would result in an equal reduction of General Fund expenditures, she wrote.
She recommends a phased-in approach to the Water and Wastewater Enterprise funds, which she wrote doesn’t represent full savings to the General Fund.
During the study and analysis associated with developing the plan, about $952,000 in indirect administrative salary, supply and transfers were reclassified from other funds to the General Fund, Olwin wrote.
Cost allocation to internal service funds are indirectly paid through higher user fee charges, she wrote; cost allocation to the marina and the residential light and landscaping district funds “are important, but need a supporting operating transfer from the General Fund.”
But under the plan, the net General Fund savings would be $200,000 during the current fiscal year.
Regarding special revenue funds, Olwin wrote that allocation charges of $133,400 consist of $40,845 to the state gas tax fund and $92,655 across the city’s five landscape and lighting assessment districts.
Of the total charged to the lighting and landscaping funds, $40,780 is the cost to have those funds overseen by the Parks administration, she wrote.
Olwin wrote that $4,944 would be allocated to the Traffic Mitigation Fund, in the city’s capital projects fund group. Of that, $2,155 is for Public Works administrative charges.
Of the $193,545 allocation charges in Internal Service, $30,235 would be to Workers Compensation; $48,750 to Administrative Services; and $114,560 to Equipment Services. The latter allocation includes $62,900 for Public Works administration and parks maintenance charges.
Total allocation charges of $1,279,060 to the Enterprise Fund group would be divided by Wastewater ($634,400); Water ($628,585); and Marina ($16,075).
Previously, the city charged several administrative positions, supply needs and operating transfers as direct charges to the Water and Wastewater funds, she wrote, and more than six full-time-equivalent positions in the Finance, Information Technology, Human Resources and Public Works departments were budgeted and charged directly to those funds.
Under the plan, those positions would be charged to the General Fund. The changes also would eliminate any need for operating transfers and estimates of supplies costs, Olwin wrote.
Employees have described the plan as conservative and reasonable, but Olwin wrote that putting it in place all at once may not be prudent “given the financial condition of the Utility funds.”
Instead, she wrote, city staff recommends putting the plan in place one phase at a time, particularly with Water and Wastewater fund allocation because the severe statewide drought has affected Benicia’s finances.
Olwin also recommended a biennial budget amendment based on the city’s $1,279,060 update of its two-year fiscal document.
“The City Council approved the Fiscal Year 2013-15 Adopted Budget on July 23, 2013,” she wrote. “Each budget mid-cycle, staff presents an update of the Biennial Adopted Budget.”
The intra-fund cost changes are included, she wrote.
“Citywide revenues remain stable, yet inadequate to meet service expectations,” Olwin wrote. Nor can they pay for new regulatory requirements or capital infrastructure needs.
Benicia has had greater expenditures for capital projects, drought expenditures and other operating costs, she wrote.
Both the General Fund and the Water Enterprise Fund have had to dip into reserves.
Revenues increased about $234,000 above the adopted budget’s expectations, but spending increased by $3.07 million, and total amended fund reserves declined by $5.65 million.
Determination and allocation of workers compensation rates by department reduced costs in the Parks and Public Works field crews. The same approach to liability insurance had an increase in spending.
Olwin wrote that about 44 percent of property, sales and utility tax receipts come from the industrial and fuel and service station businesses, which are under pressure during the recession recovery. Sales tax and utility users tax are declining, and some property tax assessments are being appealed, which also may reduce Benicia’s revenues.
Legislative costs, such as the California Public Employees Retirement Service, have increased beyond the city’s control, she wrote.
“The city is preparing for these increases,” she wrote, but the city is experiencing a high level of medical and disability costs.
The city keeps postponing upkeep of its infrastructure because it doesn’t have consistent capital funding resources to spend on those assets, she wrote.
“Despite four years of successful cost containment, including employee concessions, reduced positions and deferred capital investment, the city’s total economic outlook remains weak across the three major operating funds,” she wrote.
The Council will meet in closed session at 6 p.m. Tuesday to discuss legal, real estate and labor manners. The regular meeting starts at 7 p.m. in the Council Chamber of City Hall, 250 East L St.