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July 2023 Spotlight: What’s included in the 2-Year Budget

Hello Gilroy!

Last month the City Council approved our financial budget for fiscal years 2024 and 2025 (July 1, 2023 – June 30, 2024; and July 1, 2024 – June 30, 2025). For the next two years this budget drives the City’s spending and funding allocations within the limits of our revenue sources. As your mayor and a CPA by profession, I’d like to share with you here and at the next Conversation and Coffee with the Mayor on August 12 at 9:30am, what that budget says and the insight into city spending that it provides.

City Administrator Jimmy Forbis will join me on August 12 to answer questions and/or dive deeper into specific subject matters included in the approved budget. Whether you plan to join the conversation or not, please read this Spotlight and make yourself aware of how city staff has been directed to spend our limited resources over the next two years. While some may say that accounting isn’t all that exciting, I beg to differ. Accounting reveals the true financial picture, and using that financial picture to develop a budget for spending responsibly is very exciting. Read on!

Mayor Marie Blankley, CPA 

Investment in Infrastructure

Streets – This budget continues for another 2 years our annual investment of $3.9 million for the maintenance of our city streets. Prior to this effort initiated by the Council in the last 2-year budget cycle, the city was not funding nearly enough towards the upkeep of our city streets to prevent the continual decline in pavement conditions throughout the city. This year you can expect to see improvements to biggies such as Luchessa Ave, Leavesley Road at the Outlets to the city limit line, and the Chestnut/10^th Street intersection when the commercial project on that corner is complete. To see a list of streets scheduled for improvements in the current fiscal year, see Better Roads Ahead.

Fire Stations - $3 million has been allocated to bring aging fire stations up to modern standards. The Chestnut and Las Animas fire stations are the most aged, and remodels and upgrades funded in this budget will cover all but seismic improvements for these stations. In addition, critical equipment upgrades/replacements have been made for all fire stations.

The temporary fire station in the Santa Teresa Fire District will ultimately become the City’s 4^th fire station once funding for construction is triggered by the Glen Loma Development agreement. To date, this temporary station has been limited to staffing of only 12 hours per day. This budget allocates the necessary funds to create an interim station of modular buildings on city-owned property near the Christmas Hill Park Ranch site that will provide sleeping quarters, an office, a shower, and a kitchen to allow for 24-hour staffing, thereby improving emergency response times for the Santa Teresa Fire District with the same 24-hour staffing capability that exists at the Chestnut, Las Animas and Sunrise fire stations.

Utility (Sewer/Water) projects and programs – The City has numerous projects to complete in order to meet the requirements of the 2040 General Plan. Significant fund balances have accumulated over time instead of being spent to get projects completed because we’ve lacked the staff to do so. We’re turning that around with this budget by creating a Utilities Department that will focus on water and wastewater system improvements and maintenance as well as the business aspects of providing utility services for the community. Water and wastewater utilities have grown to an operation of over $24 million and warrant a dedicated department separate from Public Works. New staff positions include a Director of Utilities, a Utilities Business Manager, two engineers, a Management Analyst, and an Office Assistant. Existing staff in Public Works assigned to water and wastewater maintenance will transition to the newly formed Utilities Department.

10^th Street Bridge – As part of the approved budget, work is underway for the design and CEQA (environmental work) portion of this critical east-west traffic circulation connector over Uvas Creek. The cost to actually construct the bridge sits at $27 million, $21 million of which we sought to obtain from a federal transportation grant. Unfortunately, we were recently notified that we did not get the grant and, consequently, will re-apply in the next grant cycle. Today’s existing resources are not enough to fund the construction of this bridge without federal grant assistance.

10^th Street and Hwy 101 Bridge Widening – Thanks to an $8 million grant award from the Measure B Highway Program, this budget includes the widening of the existing bridge overcrossing at the Tenth Street (Automall Parkway)/US 101/SR 152 interchange to add one additional lane in each direction. The project includes widening the bridge structure, ramp work, grading, striping and signal modification improvements, and also includes widening the roadway between the intersections of Tenth Street/Automall Parkway/Chestnut Street and SR 152/Camino Arroyo.

Public Safety Staffing

This budget adds two additional police officers to our law enforcement team to enhance service delivery and the ability to effectively respond to emergencies, crime and community concerns. Also added are two public safety communicators, positions critical to emergency call management, incident mitigation, and the effective management of resources during critical incidents. In the second year of this two-year budget, we added two additional firefighters that will allow the Santa Teresa Response district (the designated location of the City’s 4^th fire station) to be staffed with a three-person engine 24/7, bringing service levels at that station to that of the other 3 fire stations in the City and continuing our effort to get closer to our adopted Standard of Coverage citywide, a goal only possible with the addition of the 4^th fire station.

Long-term Master Planning

The Civic Center Campus comprises the 3 blocks between Church Street and Dowdy Streets from east to west, and between 6^th Street and 7^th Street from north to south. With the exception of the library and the police station, this campus is underutilized with buildings in various degrees of deterioration. This budget allocates $700,000 to commence the evaluation process of adding a Gilroy Community Center along with the potential redesign of other aged assets (e.g., Wheeler auditorium, the former police station, the Senior Center, and City Hall) and including the city-owned Center for the Arts on Monterey and 7^th Street. This effort to add a Community Center and re-evaluate underutilized and/or deteriorated space will hopefully spur the addition of recreation programs for all ages, multi-purpose space for gatherings, events, and the arts, and provide an inviting City Hall that welcomes and serves our community.

Housing and Community Services

This budget creates a focused division within the Community Development Department called Housing and Community Services. This specifically-focused division will be run by a Housing and Community Services manager and will enable the City to make more concentrated efforts on affordable housing production, preservation, and protection for our residents. The position of manager does not necessitate additional staff because it will instead re-purpose an existing position created during the COVID-19 pandemic for program administration/coordination.

Economic Development

This budget continues to support the Council’s direction of making Gilroy a “Recreation Destination” and three primary economic development projects:

The Sports Park – Expanding the Sports Park to include two NHL-size hockey rinks for programs and events operated by the San Jose Sharks organization is under way. The City is responsible to bring necessary utilities to the site, the costs for which are allocated in this budget. Expected work includes design, environmental work, construction for site grading, installation of site stormwater collection system and stormwater treatment facilities, sewer collection, water service distribution, and joint trench. Also included is the design and construction of traffic signal improvements at the entrance to the Sports Park at the Monterey Road/Monterey Frontage Road intersection. Evidence of this exciting new addition should be visible shortly to anyone visiting the Sports Park. Construction of the actual ice facility will be financed through a revenue bond paid for by the Sharks. Construction timeframe for the facility itself is 18-24 months.

Downtown alleys – Adding lighting and landscaping, decorative paving, common trash enclosures and other amenities are all part of the improvements to occur on Gourmet Alley from 4^th to 7^th Street, and on Railroad Alley from Lewis to 7^th Street. Design is complete and construction should begin this Fall. The goal is to convert these alleys into inviting pedestrian pathways for strolling, shopping, dining and seating. Together with the multi-purpose parking lot already completed at 7^th and Eigleberry and a parking management plan that has already been initiated, we are well on our way to significant improvements downtown, amounting to over $6.5 million since the end of the pandemic lockdown, not to mention private investments and new businesses.

Gilroy Gardens and surrounding City-owned land -- We have recently concluded the process of official publication required by Senate Bill 330 (effective 1/1/20) and known as the Surplus Lands Act for the entire 536 acres owned by the City in the vicinity of and including Gilroy Gardens. The conclusion of this process means that we are now in a position to receive formal proposals and explore all possible uses for this entire area.

This budget also includes the funding for a position of Economic Development Manager.

California Public Employees Retirement System (CalPERS)

This is a sore subject for me because it’s killing us financially with no solution in sight. The CalPERS system promises retirement packages to public employees at a fixed dollar amount regardless of how investments are actually performing. As a consequence, when the investment market loses money or doesn’t meet the necessary earnings mark, retirement benefit obligations can’t be met in full. Note also that incoming CalPERS contributions from employees are a mere fraction of the outgoing benefits paid to retirees. The city pays the minimum required annual payment on our retirement obligations and accrues a growing “unfunded liability” that gets larger and larger (and accrues interest!) depending upon the magnitude of the shortfall of the investment market performance from the interest rate assumed by CalPERS. Gilroy’s unfunded CalPERS liability is over $100 million, the amount required to meet our current and future pension obligations as they exist today. We have additional unfunded liabilities of nearly $20 million for Other Post-Employment Benefits (OPEB). OPEB refers to retirement benefits other than pensions that public employees receive, such as medical, dental, vision or life insurance.

In 2019, the then City Council voted to establish and fund a Section 115 Trust, a mechanism for setting aside and investing current funds to offset future pension liability payments. At that time, when I too was on the Council, we voted to amend the Fiscal Year 2020 budget by $2 million to fund the trust. In 2022, we formally adopted a pension funding policy which requires annual contributions to the Section 115 Trust so that money would be available to help offset rising pension costs during more difficult budgetary or economic times. To date, $3.0 million has been contributed to the Section 115 Trust and this budget allocates an additional $750,000 to be contributed. This budget also includes funding for the required CalPERS annual minimum payments of $13.6 million for fiscal year 2024 and $14.7 million for fiscal year 2025. 

Citywide Park Improvements

This budget allocates $1 million from the General Fund for improvements to parks citywide, including park restroom rehabilitation (replacing approximately 32 park restrooms throughout the city with fire retardant roofs and durable, fire-resistant building materials). It has become increasingly challenging to maintain public restrooms due to growing incidents of vandalism, but this rehabilitation effort is a matter of public safety and ultimately reduces maintenance costs. Additionally, this budget provides for annual funding of $100,000 for general citywide park needs, a portion of which may be used to improve dog parks, for example.

Water/Wastewater Rate Adjustments

As a full-service City, Gilroy owns and operates its own water and wastewater utilities, providing services to over 15,000 customers and growing. To ensure both utilities collect revenue sufficient to meet the growing demand, keep pace with the rising operational costs – including groundwater extraction charges assessed by Valley Water, and fund the multi-year capital improvement plans, the City has conducted a utilities' rate study. The last utilities' rate study was completed in 2015, and the City has not increased its water or wastewater rates since January 2019. In April 2023, the City approved the updated Water and Wastewater Master Plans, which collectively identified over $50.3 million in new improvements, of which $21.7 million is for existing users (ratepayers) and $28.6 million for future developments. For the City to continue investing in critical utilities' infrastructure and keep pace with rising operational costs, the City needs to establish multi-year rate adjustments. The study will be presented at the August 21^st Council meeting, followed by a community meeting in September. The rate adjustments are scheduled to be adopted at a Public Hearing on October 16^th after completing the required forty-five days' notice. The first rate adjustment will be recommended effective January 1, 2024. Additional information will be included with the upcoming monthly utility bill statements and shared via the City’s communication channels.