Fiscal Year 2003/ 04
Operating and CIP Budget
www. morgan- hill. ca. gov
CALIFORNIA
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City of Morgan Hill
Fiscal Year 2003/ 04
Operating and CIP Budget
Morgan Hill City Council
Dennis Kennedy, Mayor
Hedy Chang, Mayor Pro Tem
Larry Carr, Councilmember
Greg Sellers, Councilmember
Steve Tate, Councilmember
J. Edward Tewes, City Manager
Helene Leichter, City Attorney
Michael Roorda, City Treasurer
Irma Torrez, City Clerk
Management Staff
Jim Ashcraft, Director of Public Works
David Bischoff, Director of Community Development
Jack Dilles, Director of Finance
Melissa Dile, Assistant to the City Manager
Tony Eulo, Assistant to the City Manager
Jerry Galvin, Chief of Police
Mary Kaye Fisher, Director of Human Resources
Julie Spier, Recreation & Community Services Manager
Irma Torrez, Council Services & Records Manager
Garrett Toy, Director of Business Assistance and Housing Services
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CSMFO Award for Excellence in
Operational Budgeting
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[ 010- 1100] City Council ...................................... 103
[ 010- 1220] Community Promotions .................... 107
[ 010- 1500] City Attorney ...................................... 118
[ 010- 2100] City Manager .................................... 125
[ 010- 2110] Recreation and Community Svs ....... 138
[ 010- 2115] Community and Cultural Center ....... 143
[ 010- 2120] Aquatics Center ................................ 145
[ 010- 2200] Human Resources ........................... 149
[ 010- 2210] Volunteer Services ........................... 153
[ 010- 2410] Council Svs & Records Mgmt ............ 111
[ 010- 2420] Elections ............................................ 115
[ 010- 2510] Finance ............................................ 157
[ 010- 3205] Police Administration ........................ 165
[ 010- 3210] Police Field Operations .................... 169
[ 010- 3225] Police Support Services ................... 173
[ 010- 3230] Police Emergency Services .............. 177
[ 010- 3245] Police Special Operations ................ 181
[ 010- 3510] Fire Services .................................... 271
[ 010- 5140] Cable Services ................................. 129
[ 010- 5145] Commmunications and Marketing .... 131
[ 010- 5150] Building Maintenance ( CCC) ............ 189
[ 010- 5440] Park Maintenance ............................ 207
[ 010- 5450] Animal Control Services ................... 183
[ 010- 8270] Police Dispatch Services .................. 185
[ 202- 6100] Street Maintenance ........................... 211
[ 202- 6110] Congestion Management ................. 191
[ 202- 8050] Streets CIP ....................................... 302
[ 206- 5120] Planning Division .............................. 193
[ 206- 5130] Building Division ............................... 197
[ 206- 5410] Engineering ...................................... 215
[ 207- 5170] General Plan Update ........................ 201
[ 215- 8000] CDBG Programs/ Projects ................ 241
[ 215- 8000] CDBG Programs/ Projects ................ 302
[ 216- 8001] CDBG Housing Rehab ..................... 243
[ 220- 5156] Museum Fund .................................. 245
[ 225- 6800] Asset Seizure ................................... 273
[ 229- 8351] Lighting & Landscape District ........... 219
[ 232- 5800] Solid Waste Management ................ 133
[ 234- 8250] Mobile Home Rent Commission ....... 247
[ 235- 8435] Senior Housing Trust Fund ............... 249
[ 236- 7100] Housing Programs ........................... 251
[ 240- 2610] Employee Assistance Program ........ 275
[ 301- 8051] Park Development ............................ 302
[ 303- 8052] Local Drainage ................................. 303
[ 304- 8060] Local Drainage ( non- AB1600) .......... 303
[ 309- 8053] Traffic Impact .................................... 303
[ 311- 8080] Police Impact .................................... 303
[ 313- 8085] Fire Impact ....................................... 304
[ 317- 7000] BAHS Administration ........................ 253
[ 317- 8010] BAHS Economic Development ......... 259
[ 317- 8055] BAHS CIP ........................................ 261
[ 317- 8055] BAHS CIP ........................................ 304
[ 327- 7100] BAHS Housing ................................. 263
[ 346- 8049] Public Facility ( non- AB1600) ............ 304
[ 347- 8056] Public Facilites Impact ...................... 305
[ 350- 8057] Undergrounding ............................... 321
[ 640- 5900] Sewer Operations ............................ 221
[ 641- 8140] Sewer Impact ................................... 305
[ 643- 8170] Sewer Capital Projects ..................... 305
[ 650- 5710] Water Operations ............................. 225
[ 650- 5720] Meter Reading and Repair ............... 229
[ 650- 5750] Utility Billing ...................................... 161
[ 650- 5760] Water Conservation .......................... 233
[ 651- 8110] Water Impact .................................... 306
[ 653- 8120] Water Capital Projects ...................... 306
[ 730- 2520] Information Systems ........................ 277
[ 740- 5150] Building Maintenace ......................... 203
[ 745- 8280] CIP Administration ............................ 235
[ 760- 8230] Unemployment Insurance ................ 279
[ 770- 8220] Workers’ Compensation ................... 281
[ 790- 8500] Equipment Replacement .................. 283
[ 795- 8210] General Liability ............................... 285
Program Quick Find
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Table of Contents
Budget Message 9- 21
General Information 23
About the City ....................................................... 25
Budget Overview .................................................. 29
Fiscal Policies....................................................... 33
Description of Funds ............................................ 37
Glossary ............................................................... 43
Resolution Adopting the City Budget .................... 47
Appropriation Limit Calculation ............................. 49
Resolution Adopting the RDA Budget ................... 51
Budget Summary 53
Combined Statement of Revenues, Expenditures
and Changes in Fund Balance ..................... 55
Fund Balance Projections .................................... 56
General Fund Balance Chart ................................ 60
Revenue Charts ................................................... 61
Major Revenue Assumptions ................................ 62
Summary of Revenues & Transfers In .................. 64
Expenditure Charts............................................... 69
Summary of Expenditures & Transfers Out .......... 71
Interfund Transfers ............................................... 76
Cost Allocation ..................................................... 78
Comparison of Municipalities............................... 81
Staffing 82
Citywide Organization Chart ................................. 85
Staffing Summary by Departments ....................... 86
Staffing Detail by Departments ............................. 87
Staffing Summary by Fund Type .......................... 90
Staffing Detail by Programs .................................. 91
Changes in Personel Costs ................................ 100
Council Services/ City Clerk 101
City Council ........................................................ 103
Community Promotions ...................................... 107
Council Services & Records Management .......... 111
Elections .............................................................. 115
City Attorney 117
City Manager’s Office 123
City Manager ...................................................... 125
Cable Services ................................................... 129
Communications and Marketing ......................... 131
Solid Waste Management .................................. 133
Recreation 137
Recreation .......................................................... 139
Community & Cultural Center ............................. 143
Aquatics Center .................................................. 145
Human Resources 147
Human Resources.............................................. 149
Volunteer Services ............................................. 153
Finance 155
Finance .............................................................. 157
Utility Billing ........................................................ 161
Police 163
Administration .................................................... 165
Field Operations ................................................. 169
Support Services ................................................ 173
Emergency Services .......................................... 177
Special Operations ............................................. 179
Animal Control Services ..................................... 183
Dispatch Services............................................... 185
Community Development 187
Building Maintenance ( CCC) .............................. 189
Congestion Management ................................... 191
Planning Division ................................................ 193
Building Division ................................................. 195
General Plan Update .......................................... 199
Building Maintenance ......................................... 203
Public Works 205
Park Maintenance .............................................. 207
Street Maintenance ............................................. 211
Engineering ........................................................ 215
Lighting and Landscape District ......................... 219
Sewer Operations............................................... 221
Water Operations ............................................... 225
Meter Reading and Repair ................................. 227
Water Conservation ............................................ 233
CIP Administration .............................................. 235
Business Assistance and Housing
Services 239
CDBG Fund........................................................ 241
CDBG Housing Rehab Fund .............................. 243
Museum Fund .................................................... 245
Mobile Home Rent Commission ......................... 247
Senior Housing Trust Fund ................................. 249
Housing Programs.............................................. 251
BAHS Administration .......................................... 253
BAHS Economic Development ........................... 259
BAHS Capital Programs ..................................... 261
BAHS Housing ................................................... 263
ISF and Misc Programs 269
Fire Services ...................................................... 271
Asset Seizure ..................................................... 273
Employee Assistance Program........................... 275
Information Systems ........................................... 277
Unemployment Insurance .................................. 279
Workers’ Comp................................................... 281
Equipment Replacement .................................... 283
General Liability.................................................. 285
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Table of Contents ( continued)
Supplemental Information 287
Current and Future Grants ................................. 289
Discretionary Reserves ...................................... 291
General Fund Cashflow Analysis........................ 293
Projected Recreation and Community & Cultural
Center Costs and Revenues ...................... 297
Final Allocation for Redevelopment Amendment
Allocation .................................................... 299
Capital Improvement Program 301
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DATE: May 14, 2003
TO: City Council
SUBJECT: Fiscal Year 2003/ 04
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CITY MANAGER’S OFFICE
17555 PEAK AVENUE
MORGAN HILL, CA
95037- 7128
TEL: 408- 779- 7271
FAX: 408- 779- 1592
WWW. MORGAN- HILL. CA. GOV Dear Mayor Kennedy and Members of the
City Council:
I am pleased to submit the City Manager’s
Recommended Budget for Fiscal Year 2003/
04. The budget is a plan to meet community
needs through effective use of the City’s
available resources which, this year, are
insufficient to sustain prior levels of spending.
It reflects the City Council’s commitment to
fiscal responsibility through long term prudent
financial planning. The goals of this strategy
are to maintain a prudent level of reserves,
to cost effectively provide municipal services,
and to pre- fund known expenditure
expectations.
The current budget document and Capital
Improvement Program ( CIP) provide a
proactive, forward- looking program to
address the dynamic needs of our City. We
have the opportunity, based on the City’s
revenue stream and financial reserves, to
maintain service levels without dramatic
reductions.
Nonetheless, this recommended budget
reflects a continuing slowdown in revenues.
It was necessary to eliminate funding for
vacant positions and to significantly cut back
on investment in capital equipment.
Additional revenues were achieved through
recommended adjustments to impact fee,
community development, and water fees.
The budget also proposes staffing,
operational costs, and revenues needed to
open the new Aquatics Complex. In the end,
it was still necessary to use approximately
$ 370,000 from General Fund reserves.
ECONOMIC AND DEMOGRAPHIC
PROFILE
The City of Morgan Hill provides a high
quality residential community for our many
citizens balanced with a significant industrial
and commercial base. Population increased
by 0.55% as of January 1, 2003, to a level
of 34,918, compared to the prior year. The
economic success and distress of Silicon
Valley has impacted our residents. The
recession has resulted in the loss of 17% of
the jobs throughout Santa Clara County and
a reduction in sales and business visitors.
The top 40 employers employed
approximately 5,600 persons in Morgan Hill
at July 2003, or 6% less than the prior year,
as reported to the City on business license
tax returns. The median price for a single
family home in Morgan Hill rose from
$ 527,000 for calendar 2001 to $ 547,000 in
calendar 2002 and the monthly median
during 2003 has ranged from $ 530,000 in
March to $ 580,000 in January. The monthly
average of 25 sales during calendar 2001
increased to a monthly average of 41 sales
for 2002.
The City provides a broad range of services,
including police protection, development and
housing, water and sanitation services,
streets and parks construction and
maintenance, planning, engineering, code
enforcement, recreation, general city
administration, and support services. The
City has contracted with Santa Clara County
to provide fire protection services and with
South Valley Disposal and Recycling to
provide solid waste collection services.
As the local economy slowed, the City’s
policy of establishing prudent reserves has
proven to be critical. The State of California
is currently struggling to confront a deficit
estimated at $ 34 billion, so it is very possible
that the State would divert revenue that
would normally go to local government.
Sales tax revenue has declined by
approximately 6% in 2002/ 03, as projected,
to a level of approximately $ 4.6 million
following a 12% drop from a peak of $ 5.5
million in 2000/ 01. Growth of approximately
1%, to a new level of $ 4.65 million, is
projected for 2003/ 04. Transient occupancy
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Budget Message ( continued)
tax revenue has declined by approximately
6% in 2002/ 03, as projected, to a level of
$ 873,000 following a 32% plummet in 2001/
02. Growth of 2%, to a new level of $ 890,000,
is estimated for 2003/ 04.
BUDGET PROCESS
The Fiscal Year 2003/ 2004 Budget is based
upon an in- depth analysis of actual and
projected fund balances, revenues, and
expenditures. Each City department
prepared line item detail for each of their
activities and recommended certain service
levels and activity goals for the 2003/ 04
Budget year. The Finance Department
prepared revenue projections based upon
input from other departments. The City
Manager then reviewed individual depart-mental
requests, prioritized activities based
upon City Council policy, and made certain
adjustments. At the conclusion of this
process, the proposed budget was prepared
and is being submitted to the City Council
for review.
BUDGET HEADLINES
• Construct Phase I Aquatics Complex,
hire staff, develop policies, & open
facility by June 2004
• Develop street tree
removal and replace-ment
policy
• Design an Indoor
Recreation Center
• Implement strategy for
providing fire services
after 2005 contract
expiration
• Work with Santa Clara
County to develop
Morgan Hill Court-house
• Review Revenue En-hancement
options
• Review existing alloc-ation
of $ 147 million
for Redevelopment
projects
• Ask voters in March 2004 to continue
Residential Development Control
through 2020
• Conduct performance audit of disposal
and recycling franchise
• Complete mapping & checklists for
preventative street maintenance
• Manage City’s budget to bring costs to
a sustainable level and reduce reliance
on reserves
• Prepare a Monterey Road Traffic Study
and Improvement Plan
• Adopt and implement Downtown
Master Plan
• Inform the public about water quality
issues
• Conduct an Urban Limit Line/ Greenbelt
Study with Santa Clara County and City
of San Jose
• Adopt an Economic Development
Assistance Strategy
• Establish city- wide street striping/
legend priority program
• Expand use of
performance measures,
including customer
satisfaction measures
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Budget Message ( continued)
• Conduct workshop to review priorities,
locations, and funding for remaining
municipal buildings following the State’s
Round II decision on new library
construction
• Acquire and/ or construct new police
facility
• Conduct a police services Citizen
Satisfaction Survey
• Complete construction of Phase I of
Murphy Ranch affordable housing
project
• Obtain new 911 phone system capable
of handling new wireless 911
technologies
• Research and analyze feasibility of new
health benefit options
• Adopt New Personnel Rules
• Complete Phase I of comprehensive
sewer main flushing program
• Negotiate agreement with developer for
Watsonville Road affordable teacher
housing project
• Move Acton Museum and Farmhouse
• Complete construction of Boys Ranch
Reservoir
• Implement GASB 34 financial
statement reporting for fiscal year 2002/
03
• Complete construction of Butterfield
Linear Park
• Complete construction of Butterfield
Blvd. extension from San Pedro to
Tennant
• Design and construct sewer main
replacement on Peak- Main and West
Dunne
• Complete construction of San Pedro
Well
• Update Cultural Resources Preser-vation
Ordinance
• Expand over- the- counter building
permit issuance
• Aggressively deliver 5 year Capital
Improvement Plan ( CIP) of $ 153 million
HIGHLIGHTS - FISCAL ISSUES
The total budget for Fiscal Year 2003/ 04
( including capital project appropriations,
Redevelopment Agency appropriations, and
transfers out) is $ 101,289,097, or
$ 15,001,329, more than the 2002/ 03 original
budget as a result of an increase in capital
projects for 2003/ 04. The budget includes a
Capital Improvement Program ( CIP) of
$ 36,366,000 for new projects in 2003/ 04.
The budget also includes the addition of 4
full- time equivalent positions, as follows:
Aquatics Program: Four new full- time
equivalent positions are proposed to staff the
new Aquatics Complex and to provide new
programs to the public as follows: Aquatics
Manager beginning in November 2003,
Assistant Pool Manager starting in January
2004, Pool Technician beginning in April
2004, and Office Assistant starting in March
2004.
Steps taken to balance the proposed budget
in light of economic challenges facing the
City:
• Funding has been eliminated within the
General Fund in 2003/ 04 for a Deputy
City Attorney in the City Attorney budget
and for an Office Assistant II in the City
Clerk budget. Also, a Police OES
Coordinator position, in the General
Fund, was shifted from full- time
permanent to a contract basis at a
lesser cost. In addition, a previously
authorized Management Analyst
position has not been funded in the
2003/ 04 Community Development
Fund budget.
• Certain capital outlay expenditures,
including those for computers, office
furniture, and vehicles, were eliminated
from the budget.
• The General Fund’s contributions
toward Street Maintenance expen-ditures
were eliminated.
• Expenditures for training, travel, and
conferences were reduced.
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Budget Message ( continued)
• The annual transfer from the Park
Maintenance Fund to the General Fund
was increased from $ 100,000 to
$ 200,000.
• The budget assumes no across- the-board
increases for employee services.
• The budget uses approximately
$ 370,000 of General Fund reserves.
• Available reserves within the
Equipment Replacement Fund were
used to provide the normal 2003/ 04
con- tributions from operating depart-ments
to this fund and thereby save
departments $ 330,000, including
$ 124,000 in the General Fund.
HIGHLIGHTS - CHANGES IN BUDGET
FORMAT
• A new activity called “ Aquatics Center”
( Department # 2120) within the General
Fund was created to account for the
costs of operating the new complex that
will open at the beginning of June 2004.
FUND SUMMARIES
GENERAL FUND
Five Year Financial Plan Overview— The City
is faced with three budget challenges:
• The local economy is not generating
sufficient revenue to sustain current
services on an ongoing basis
• The City’s costs, especially for
employee benefits, are going to
increase significantly over the next five
years
• The Governor and Legislature are
considering a range of options to
balance the State budget that might
reduce city revenues or further increase
city costs
Because the City has prudently built up
financial reserves over the previous decade,
Morgan Hill is in a position to carefully
manage a response to each of these three
challenges without resorting to immediate
and dramatic service level reductions, or to
immediate tax increases.
Yet, we must take steps
to bring annual spending
into line with annual
revenues. Reserves will
soon be depleted unless
we take steps this year
and each of the next four
additional years to cut
costs and expand the
revenue base.
Our current reserves are
at a level of nearly 70%
of anticipated revenues,
although that reserve
level includes about $ 1.4
million set aside for future
implementation of the
Fire Master Plan. By
contrast the Council’s
adopted Reserve Policy
calls for a level no less
than 40% of annual
revenues.
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Budget Message ( continued)
We propose a five year financial plan that
reduces the reserves down to a level of 40%
of revenues ( less $ 200,000 authorized by the
City Council for Aquatics Complex start- up
costs.) By using some reserves and making
annual cuts we believe that we can avoid
significant adverse impacts on City services
and bring the budget into a “ soft landing.”
Our current five year forecast ( see page
309), shows a five year budget gap from
fiscal year 2003/ 04 through fiscal year 2007/
08 of approximately $ 5.6 million. This
forecast is summarized in the chart and
graph below. The forecast is based on a
series of assumptions that are discussed on
page 311.
To close that budget gap over the next five
years we can use about $ 1.9 million of
reserves, with the balance of $ 3.7 million to
be achieved by cost cutting or expansion of
the revenue base that may occur with new
tax generating commercial and industrial
development. In other words, about 1/ 3 of
the budget gap would by closed by drawing
down reserves and about 2/ 3 would be
closed by cost cutting or revenue increases
over the forecast levels.
General Fund Forecast
$ 15.0
$ 16.0
$ 17.0
$ 18.0
$ 19.0
$ 20.0
$ 21.0
FY 03 FY 04 FY 05 FY 06 FY 07 FY 08
Baseline
expenditures
Projected revenues
General Fund Estimate Forecast
FY 03 FY 04 FY 05 FY 06 FY 07 FY 08
Baseline expenditures $ 16.0 $ 16.4 $ 18.4 $ 19.0 $ 19.7 $ 20.4
Projected revenues $ 15.4 $ 16.1 $ 17.1 $ 17.7 $ 18.4 $ 19.0
Gap between Revenues and
Expenditures -$ 0.6 -$ 0.3 -$ 1.3 -$ 1.3 -$ 1.3 -$ 1.4
What's Included? What's Not Included?
All FY 04 Expenditures, plus: • Filling authorized but unfunded positions
• Ongoing Aquatic Complex costs • New staff positions
• 3% increase in overall spending • Expansion of Fire Services
• Known PERS rate increases • Potential for additional PERS rate
• Police Headquarters • New State take- aways
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Budget Message ( continued)
that the larger the cuts passed down from
the State, the greater the adverse impact on
city services.
Depending on the outcome of State budget
deliberations, it may be necessary to reopen
the City’s budget discussions after July 1 to
address the impacts.
Current 2003/ 04 Budget Overview
Available fund balance at 6/ 30/ 2003 is now
projected to be $ 10,633,442 including
$ 7,199,000 in designations. As revenues
continued to decline during 2002/ 03, staff
projected, in November 2002, a $ 370,000
shortfall in 2002/ 03 budgeted revenue, which
was primarily comprised of a significant drop
in sales taxes. To offset this $ 370,000
shortfall and the original budget’s $ 260,000
excess of appropriations over revenues, the
City Council directed staff to reduce 2002/
03 expenditures in most General Fund
departments by a target of 4% and to dip
into reserves for the difference. Then, in
February 2003, staff reported to the City
Council that revenues had deteriorated
further and that the revenue shortfall had
grown to $ 700,000, still primarily caused by
lower sales tax receipts. In this Budget, staff
now projects that General Fund departments
will under- spend the 2002/ 03 budget by
$ 940,000, or 6%, which will exceed the City
Council’s target. These savings, offset by
$ 900,000 in reduced 2002/ 03 revenue, and
combined with the $ 260,000 original
structural excess of appropriations over
budgeted revenues and with $ 150,000 in
appropriations added to the budget during
2002/ 03, will result in a $ 370,000 decrease
in fund balance for the 2002/ 03 fiscal year
to the level of $ 10,633,442 at 6/ 30/ 03. The
decrease for 2002/ 03 would be $ 600,000 if
prior year encumbrances and re- budgeted
projects are included in 2002/ 03 activity. The
budget for 2003/ 04 estimates that total fund
balance will further drop by another $ 370,000
to $ 10,262,103 at 6/ 30/ 04.
Revenues in 2003/ 04 for the General Fund,
including transfers in, are estimated to be
$ 16,073,853. This represents a 5% increase
For the budget year, fiscal year2003/ 04, after
taking into account likely savings, we
propose to use about $ 300,000 of reserves,
including $ 200,000 set aside for the Aquatic
Complex start- up, leaving about $ 1.6 million
of reserves available to balance the budgets
over the remaining four years. If all the
assumptions of the forecast proved accurate,
then at the end of the five year period we
would have reserves of about $ 8.7 million in
the General Fund comprised of:
Amount set aside for
Fire Master Plan ................... $ 1.4 million
Amount used for Aquatics
start up in fiscal year
2003/ 04 ................................. ( 0.2)
Amount needed to achieve
40% of revenue in fiscal
year 2007/ 08 .......................... 7.5
Total General Fund
Reserves at 06/ 30/ 08 ........ $ 8.7 million
The single largest uncertainty in achieving
the “ soft landing” of the Five Year Financial
Plan is the extent to which the State of
California will take actions this year or in the
future to significantly change the current
system of State/ Local public finance. We
simply do not know what the Governor will
propose or the Legislature will adopt.
If the past is any guide, we must be reminded
that in years of lesser budget problems, the
State has shifted city property taxes,
eliminated funding for State mandated
reimbursements, eliminated subvention
programs, shifted costs to cities and
counties, and has converted the former
subvention of car registration fees to an
annual State appropriation of “ back fill” which
can be changed at any time.
It is anticipated that concurrent with the
presentation of the City Manager’s
Recommended Budget for FY 2003/ 04, the
Governor will be presenting his revised
budget proposals to the Legislature. It may
take weeks or months before we know what
the full effect will be. But we do certainly know
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Budget Message ( continued)
over the previous year’s projected revenues,
which is partly related to the inclusion for the
first time of a full year of revenue for the new
Community and Cultural Center, partly
related to the inclusion of revenue for the
new Aquatics Complex and partly related to
new police grant revenues. By excluding the
$ 400,000 in revenue related to these new
and expanded activities, revenues would
instead increase by 2%. Sales taxes are
estimated to increase by 1% and transient
occupancy taxes are estimated to increase
by 2% in 2003/ 04. In general, the 2003/ 04
Budget estimates reflect very modest growth
for most General Fund revenues, as we
expect that the economy will recover slowly
beginning in the second half of the next fiscal
year.
Appropriations for 2003/ 04, including
transfers out, are $ 16,445,192, which
represents a slight decrease compared to
the prior year budget, or a 3% increase
compared to the prior year projected
expenditures. However, if the $ 670,000 in
incremental costs related to the expansion
of Community and Cultural Center activity
to an entire year and related to the new
Aquatics Center activity is excluded from
2003/ 04, expenditures for the General Fund
would decrease by 4% compared to the prior
year original budget or decrease by 1%
compared to the prior year projected
expenditures.
The General Fund budget does not include
any additional financial assistance to the
Morgan Hill Community Health Foundation
in providing medical services to the
community. It is projected that the entire
$ 500,000 previously allocated by the City
Council for this purpose will be spent by June
30, 2003. In addition, the 2003/ 04 budget
does not reflect any new funding for the
County library system and does not include
any transfers out to other funds. In the prior
year, the General Fund transferred out
$ 537,000, including $ 377,000 to the Street
Fund.
The graph below shows that there was a
consistent General Fund operating surplus
from 1992/ 93 through 2001/ 02, except for a
very small deficit in 1994/ 95, which has
provided growth in fund balance up to June
2002. Even with operating deficits of
$ 370,000 projected for both 2002/ 03 and
2003/ 04, these surpluses have allowed fund
balance to grow from $ 504,095 at 6/ 30/ 92
to $ 10,262,103, including designations, at 6/
30/ 2004, as estimated.
General Fund Operating Gain ( Loss) – FY 1992/ 93 thru 2003/ 04
( 1.0)
( 0.5)
0.0
0.5
1.0
1.5
2.0
92/ 93 93/ 94 94/ 95 95/ 96 96/ 97 97/ 98 98/ 99 99/ 00 00/ 01 01/ 02 02/ 03* 03/ 04*
$ Millions
Fiscal Year
Operating Gain ( Loss)
* Projected
*$ 222,000 in carryover encumbrances and prior year re- budgeted costs not included for 2002/ 03
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Budget Message ( continued)
In order to strategically plan for the future, it
is appropriate for the City to explain the
purpose of designations. Based upon the
City Council’s recently established policy, a
total of $ 7.5 million has been designated for
the 2003/ 04 Budget, as follows:
section of the budget shows ( see page 309),
this additional fund balance will be needed
to cover operational needs for the next five
years given increasing PERS retirement
system costs, given the opening of new
facilities such as the Aquatics Center, and
Designation Summary 2003/ 04
Proposed
• Designation for economic uncertainty ( 10% of estimated revenues): $ 1,525,000
• Designation for emergencies ( 10% of estimated revenues) 1,525,000
• General Reserve ( 20% of estimated revenues) 3,050,000
• Designation for Fire Master Plan Implementation 1,400,000
Total Designations: $ 7,500,000
By designating the $ 7,500,000, the available
undesignated fund balance for the General
Fund would be $ 3,133,442, which would
provide a very safe reserve level for the
2003/ 04 fiscal year. As the General Fund
Cash Flow Analysis five year projection
provided in the Supplemental Information
given the significant reductions in revenues
that have confronted the City the last couple
of years.
Most of the General Fund is committed to
Public Safety. Police appropriations are
$ 6,740,507 and Fire appropriations are
$ 3,745,220. The total of these amounts
accounts for 64% of General Fund
appropriations.
The remainder of the General Fund accounts
for General Government
operations ( City Council,
City Clerk, City Manager,
Finance, Human Re-sources,
and City Attor-ney),
Park Maintenance
and Recreation Services.
A significant portion of the
administrative cost is
recovered in the form of
charges to other City
Departments for services
performed. Operating
costs for the new Com-munity
& Cultural Center
and Aquatic Center are
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Budget Message ( continued)
reflected in the General Fund, creating
opportunities and commit- ments. It is
anticipated that these new, ongoing financial
commitments, high on the City Council’s
priorities, can be absorbed by the General
Fund in the years to come. A schedule of
future anticipated revenues and expen-ditures
for the Community and Cultural
Center is included in the special analysis
section on page 313. For the Community and
Cultural Center in 2003/ 04, the $ 1,155,300
in proposed operating costs are to be
financed with $ 640,700 in class revenue &
rental income and with a $ 312,000 transfer
from the Community Recreation Centers
Fund previously established to provide start-up
funds for new City recreational facilities,
as reflected on page 313.
The most significant sources of General
Fund revenues are:
• Sales Tax of $ 4,650,000, or 30% of total
estimated revenues
• Property taxes of $ 2,172,200, or 14%
of total estimated revenues
• Motor Vehicle State Subventions of
$ 2,080,000, or 14% of total estimated
revenues
• General Administration Overhead of
$ 2,007,978, or 13% of total estimated
revenues
• Franchise Fees of $ 961,180, or 6% of
total estimated revenues
• Transient Occupancy Tax of $ 890,000,
or 6% of total estimated revenues
The following chart shows how much of the
2003/ 04 General Fund budget is supported
by discretionary general taxes and other
revenues paid by residents and businesses.
As shown below, all General Fund costs not
recovered through departmental revenues
( fees, grants, and reimbursements) are fully
financed by discretionary revenues.
Discretionary Support LESS LESS
TOTAL DEPT TRANSFERS NET
Department COSTS REVENUES IN COSTS
City Council/ City Clerk $ 599,192 $ 528,575 $ 70,617
City Attorney 615,917 354,661 261,256
City Manager/ Comm & Marketing 497,738 239,803 257,935
Recreation & Com Cultural Center 1,610,834 640,676 312,000 658,158
Aquatics Center 273,890 73,833 200,057
Human Resources/ Volunteer Prog. 617,129 349,877 267,252
Finance 889,206 662,134 227,072
Police 5,806,130 444,000 276,986 5,085,144
Animal Control ( Police) 76,159 33,800 42,359
Dispatch Services ( Police) 858,218 0 35,000 823,218
Fire Services 3,745,220 61,900 3,683,320
Government Public Access 45,236 30,900 14,336
Park Maintenance 810,323 7,700 200,000 602,623
TOTALS $ 16,445,192 $ 3,427,859 $ 823,986 $ 12,193,347
FINANCED BY DISCRETIONARY REVENUES $ 12,193,347
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Budget Message ( continued)
As shown above, about 74%, or
$ 12,193,347, of the $ 16,445,192 General
Fund budget is financed by discretionary
revenues. In the prior year, discretionary
revenues equaled $ 12,342,822, or 77% of
total General Fund projected costs.
COMMUNITY DEVELOPMENT FUND
The Community Development Fund is a
special revenue fund used to account for
services supporting private development
activity. The fund is dependent upon the
collection of planning, building and
engineering development fees to finance
these costs. This year appropriations are
$ 2,964,882, which represents a 10% de-crease
over the prior year original budget.
Revenues in 2003/ 04 are estimated to be
$ 2,276,359, or 7% more than prior year
budgeted revenues. Proposed revenues for
2003/ 04 reflect increases in community
development fees that are effective July 1,
2003, but do not reflect full cost recovery, as
calculated in a consultant study. Staff has
preliminarily projected that additional fee
increases are necessary at July 1, 2004, and
July 1, 2005, in order for costs to be fully
recovered. The adequacy of these fees will
be explored as a City work plan item during
2003/ 04 so that appropriate steps may be
taken prior to 2004/ 05. It should be noted
that fund balance for the Community
Development Fund is projected to drop to
$ 26,201 at June 30, 2004.
The General Plan Update Fund continues
to provide the resources for the General Plan
Update. The General Plan Update effort is
critical for the City as it provides the basic
policy blueprint on growth, development and
services. In order for this proposed budget
to be properly financed in 2003/ 04, it is
necessary for the City Council to approve
an increase from 3% to 5% in the surcharge
on all building and planning permit fees. Staff
will be bringing to the City Council a request
for this increase as a separate agenda item
on June 18.
STREET
MAINTENANCE
FUND
The Street Maint-enance
Fund is a
special revenue fund
used exclusively for
street maintenance
and traffic safety
activities. Included are
maintenance and
repair of all roadways,
streets, curbs, gutters,
medians, roadway
shoulders, and alleys;
cleaning and repair of
catch basins and storm
drains; traffic engineer-ing,
safety studies and
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Budget Message ( continued)
modifications, and related geographic
information systems; street lighting and
signal operations; and painting, marking, and
striping. State gas tax funds that finance
these activities are distributed based on
population.
Revenues, including transfers in, are
budgeted to be $ 1,368,261, including
$ 653,000 of Gas Tax funds, $ 100,000 in
transfers from the Environmental Programs
Fund, and $ 600,000 in transfers from utility
funds. Budgeted revenues, including
transfers, reflect a 24% decrease from the
prior year. While the General Fund
transferred $ 377,000 into the Street
Maintenance Fund in the prior year, no funds
are proposed to be transferred from the
General Fund in 2003/ 04.
PARK MAINTENANCE FUND
When the City Council established this fund,
the Council planned to use it as an
“ endowment” fund for park maintenance and
to pay for repairs and upgrades to existing
parks. The interest received on the principal
balance of the fund is to be appropriated
strictly for maintenance of the City’s parks.
Revenues come from double park fees and
from previous one- time general fund
transfers of “ excess” General Fund reserves.
The interest revenue from this park
maintenance “ endowment” fund normally
generates approximately $ 100,000 per year
in additional park maintenance funds that is
used to pay for personnel in the Park
Maintenance operation. For the 2003/ 04, the
budget proposes that the annual $ 100,000
transfer from this fund to the General Fund
be increased to $ 200,000 to assist in
financing park maintenance costs paid from
the General Fund. The fund balance is
projected to be approximately $ 3 million at
June 30, 2004. This fund over time may
resolve park maintenance concerns of City
policy makers and residents.
SEWER AND WATER FUNDS
These are enterprise funds, where all costs
incurred are covered by the fees and
charges paid by users of the systems.
Presently, the City has approximately 12,000
accounts ( including residential and business
customers). The City water system meets or
exceeds water quality standards. Budget
details for these funds are found under the
Public Works section of the budget document
and are described as Water Operations and
Sewer Operations.
The Sewer Operations Fund budget of
$ 7,169,684 represents a 4% increase over
the prior year original budget, while the Water
Operations Fund budget of $ 7,250,186
represents a 9% decrease from the prior
year. Sufficient fund balance, combined with
estimated revenues, exists within each of
these funds to fully finance these costs. A
study of the sewer and water rates by a
consultant was recently completed and,
based upon that study, water rates were
increased by 2% in April 2003 and are
scheduled to be increased by an additional
2% in each January of 2004, 2005, 2006,
and 2007. However, the Finance Director is
required to report to the City Council as to
the necessity of each increase by September
30 of each year prior to each scheduled
January increase.
INTERNAL SERVICE FUNDS
Internal Service funds are essentially
responsibility centers within the City that
provide services to other departments.
These other departments are then charged
for the portion of services provided to them
by the respective internal service
responsibility center. These funds include
Equipment Replacement, Information
Systems, Building Maintenance, CIP
Administration, Workers Compensation,
Liability, and Unemployment Insurance.
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Budget Message ( continued)
CAPITAL PROJECTS FUNDS
Total new capital projects are budgeted at
$ 36,366,000, as reflected in the CIP attached
as an appendix. The capital projects budget
is comprised of:
• Parks and Recreation projects totaling
$ 14,082,000
• Public Facilities projects totaling
$ 14,636,000
• Sanitary Sewer projects totaling
$ 2,516,000
• Streets projects totaling
$ 1,742,000
• Storm Drainage projects totaling
$ 330,000
• Water projects totaling
$ 3,060,000
Capital projects are described in detail within
the CIP. Current year projects are included
in the budget document under the applicable
responsibility centers. Projects for 2003/ 04
include:
• Parks Land Purchase ($ 1.2 million for
acquisition)
• Regional Soccer Complex ($ 1.0 million
for construction)
• Sports Complex – Aquatics portion
($ 9.1 million for construction)
• Sports Complex – Sports Field portion
($ 2.6 million for site acquisition)
• Police Facility ($ 9.2 million for site
acquisition/ construction)
• Community Indoor Recreation Center
($ 3.4 million for acquisition)
• Library ($ 1.6 million for professional
services)
• Sewer Plant Improvement Project ($ 1.8
million for construction)
• Boys Ranch Water Reservoir ($ 1.6
million for construction)
Many of these projects are possible because
of the referendum for the Plan Amendment
to the 1981 Ojo de Agua Redevelopment
Plan that was approved by the voters in
November 1999. Of the total $ 36.4 million in
capital projects described in the CIP for 2003/
04, $ 18.1 million will be financed by the
Redevelopment Agency.
OTHER THREATS TO THE BUDGET
Besides potential State revenue take- aways,
other potential financial threats face the City.
Significant increases in spending are
possible if the City accelerates the Fire
Master Plan Implemen- tation Plan or if the
result of the recent administrative law judge’s
decision, holding that the firefighters’ union
is entitled to enhanced retirement benefits
for years of service in Morgan Hill prior to
1995, results in a CalPERS increase to
retirement costs for the City.
APPROPRIATION LIMIT
The City’s appropriation limit for this budget
cycle has been prepared in accordance with
the uniform guidelines. The appropriation
limit imposed by Propositions 4 and 111
creates a restriction on the amount of
“ proceeds of taxes” which can be
appropriated by the City in any fiscal year.
The limit is based on actual appropriations
during the 1978- 79 fiscal year, as increased
each year using growth of population and
inflation indexes. The limit of $ 51,859,586
for 2003/ 04 is significantly greater than the
actual appropriations of $ 11,492,280 subject
to the limit for this year. Therefore, it appears
that the City will not exceed its appropriation
limit in the foreseeable future.
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SUMMARY
While the City has large reserves and
resources on hand, the City must be cautious
because of the significant drop in revenues,
future costs to operate new facilities, rapidly
increasing retirement employee costs, and
the threat of State action to take away
revenues. However, the City is in a position
to accomplish completion of the major
Visioning projects that the community
desires. While growth in revenue over the
next year is projected to be small, we expect
that the economy will start to recover in the
second half of next fiscal year and return to
the more typical growth in revenue. The
strong reserves maintained by the City reflect
the foresight of the City Council and
community and will allow the City to manage
costs in a strategic manner.
I wish to acknowledge my appreciation to the
members of the City Council for your
continued support of programs that deliver
necessary public services and for your sound
fiscal policy. I also wish to express my
appreciation to the talented and dedicated
City staff, including Budget Manager Chu
Thai, for their assistance in the development
of this budget.
Respectfully submitted,
J. Edward Tewes
City Manager
Budget Message ( continued)
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General Information
About the City
Budget Overview
Fiscal Policies
Description of Funds
Glossary
Resolution Adopting City Budget
Appropriation Limit Calculation
Resolution Adopting RDA Budget
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P rior to the arrival of Spanish
expeditions en route from Mexico,
peaceful tribes of Native Americans
inhabited the lush Santa Clara Valley. Under
Spanish and Mexican jurisdictions, instituted
in 1778, a vast region that includes present
day Morgan Hill was one of the most
substantial Spanish land grants for nearly
three quarters of a century.
In 1845 Martin Murphy, Sr. acquired 9,000
acres known as the Rancho Ojo de Aqua de
la Coche. Murphy had been a leader of the
first party of pioneers to cross the Sierra
Nevada range at Truckee Pass, later to
become the route for the Southern Pacific
Railroad. The Murphy family made its home
in the valley below El Toro Mountain. By 1870
Martin’s seven sons and daughters had
About the City
managed to acquire more
than 70,000 acres.
In 1851 the youngest son,
Daniel, married Maria
Fisher, heiress to the
neighboring 19,000 acre
Rancho Laguna Seca.
Diana, their precocious
daughter secretly married
Hiram Morgan Hill in 1882.
When Daniel Murphy died,
Diana inherited 4,500
acres of their original
rancho in the shadow of El
Toro.
Diana and Hiram Morgan
Hill built their estate, the
Villa Mira Monte, between
the railroad and Monterey
Road in 1886. When the
first Southern Pacific
station was built in 1898,
the railroad referred to this
area as Huntington. Many
visitors would request the
train stop at “ Morgan Hill’s
Ranch,” changing the
name to Morgan Hill.
By 1896 the growing
community had a pop-ulation
of 250 with a post office, depot, two
hotels, a restaurant, and several churches
and shops. There was much controversy
over the incorporation of the city. The Times
printed many editorials supporting the issue,
while those opposed were fearful of higher
taxes. But the “ yes” vote won by a margin of
65- 36 and Morgan Hill became incorporated
November 10, 1906. By 1909 the population
rose to 1,000.
The first school was built in 1894, but was
soon outgrown and in 1907 architect William
Weeks designed a new school. By the 1920s
the City was known for its agricultural
products including prunes, apricots,
peaches, pears, apples, walnuts, and
almonds. The region boasted prosperous
vineyards until Prohibition demanded that
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About the City ( continued)
production temporarily cease. Around the
1950s Morgan Hill experienced an economic
transformation from an agricultural center to
a suburban residential community. Growth
began to accelerate rapidly in the 1970s as
Silicon Valley developed and workers were
attracted to Morgan Hill’s small town
atmosphere, sense of community and
reasonable housing prices. On November 3,
1973 the Morgan Hill Civic Center and library
were proudly dedicated to the community of
7,000. By 1980 the population increased to
approximately 18,000 residents. The 2000
census confirmed that 33,000 citizens called
Morgan Hill their home.
Thoughtful planning has made Morgan Hill
one of the most desirable and fastest
growing city in Santa Clara County. People
are drawn to the beautiful hillsides
surrounding the valley, the peaceful
atmosphere, the quaint downtown shops and
eateries and general quality of life. Parks and
open spaces abound, making Morgan Hill
one of the last communities in the region with
a charming, small town atmosphere. The
fertile soil in and around Morgan Hill help
growers produce wonderful fruits, vegetables
and award winning wine. Residents and
visitors often spend a sunny afternoon
visiting some of the local vineyards offering
wine tasting and tours, enjoying one of the
local golf courses, or floating above the city
in a hot air balloon.
The City of Morgan Hill is actively working to
increase the amount of park space available
to its citizens. It has purchased the 37- acre
soccer complex on Condit Road and plans
to covert it to a sports complex with fields for
multiple sports, restrooms and concession
stands. The City recently purchased eight
acres immediately east of its Community
Park. The land is slated to include an indoor
recreation center with a gymnasium, youth
and senior wings, and perhaps a swimming
pool. It also hopes to build an aquatics
center. Morgan Hill youth have the
opportunity to participate in an array of
organized sports activities such as baseball,
soccer, football as well as the availability of
dance, gymnastics, and karate studies. The
Morgan Hill Unified School District works
closely with the city to plan new school
campuses.
The Morgan Hill Unified School District
encompasses nearly 300 square miles and
serves the ethnically diverse population of
Morgan Hill, San Martin, portions of San
Jose, and unincorporated areas of the
county. We are comprised of 15 schools: ten
elementary, two middle, one high school, a
continuation high school, and a community
adult school. MHUSD’s multi- ethnic
population includes over 9000 students and
1000 employees. The Board of Education
continues to place a high priority on informing
the community at large about its schools.
Three new schools opened last school year:
Barrett Elementary, a district school;
Crossroads Baptist School, a private school;
and the Charter School of Morgan Hill, a
charter school funded by the state and
private donations.
The City of Morgan Hill has made a large
commitment to the arts by building a
Community and Cultural Center at the key
intersection downtown. When complete, the
$ 13 million center will feature space for
community members to create art and
ceramics, to dance and exercise, and to
meet. Part of this
project includes
converting an
historic church
into a 199- seat
theater. This $ 2.4
million theater will
feature a 46- foot
stage, deep
enough to allow
multiple uses of
the facility at the
same time. These
facilities are
expected to be
completed by the
end of 2002.
The Valley in
which Morgan Hill
is located is
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Morgan Hill At A Glance
Incorporated: ...................................... 1906
Population: ...................................... 34,918
Households: .................................... 11,568
Median Household Income: .......... $ 81,958
Persons per households: .................. 3.042
Square Miles: ......................................... 12
Elevation ( above sea level): ................ 320’
Average Rainfall: .............................. 19.77”
Average Tempature
January: High ..................................... 57.9
Low ..................................... 41.1
July: High ..................................... 81.5
Low ........................................ 56
Retail sales tax: ................................ 8.25%
Public Schools: ....................................... 15
Churches: ............................................... 21
Libraries: .................................................. 1
Newspapers/ New Publications: ................ 3
Top Employers ( May 2003)
Morgan Hill Unified School District 980
Anritsu 753
Abbott Laboratories 538
EDO Reconnaissance 336
Media Arts Group 260
Paramit Corporation 250
Fox Racing, USA 248
Educational Data Systems 218
City of Morgan Hill 180
Custom Chrome 173
Safeway Inc. 167
Ericsson RF 151
Metro One Telecommunications 147
Sun Valley Technical Repair 141
Target Store 140
Mervyns 138
North Coast Medical 134
Specialized Bicycle Components 122
Pacific Hills Manor 105
Mission Bell Mfg. Inc. 96
Alien Technology 95
Nob Hill Foods 92
Zeta 84
Projected Growth
2000 2010 % incr
Population 32,122 38,8001 21%
Households 12,430 15,440 24%
Employed 20,700 23,800 15%
Jobs 15,220 19,970 31%
Source: Projection 2000 Association of Bay
Area Govenments. 1 City of Morgan Hill
General Plan 2000
approximately 4 miles wide and is sur-rounded
by the Santa Cruz mountain range
to the west, and the Diablo mountain range
to the east. Morgan Hill is located in southern
Santa Clara Valley, approximately 12 miles
south of San Jose, 10 miles north of Gilroy,
and 15 miles inland from the Pacific Coast.
The city is a short commute to the
businesses of the Silicon Valley, and Caltrain
runs daily through the city and connects
commuters to San Jose’s light rail systems
throughout the Bay Area. Over the past three
years, the city has seen a substantially
elevated level of industrial/ commercial
development. During the last three years,
Morgan Hill has gained 1.7 million square
feet of building space. Morgan Hill is
considered a natural setting for business - a
balanced business environment that inspires
innovation and productivity. From its
picturesque hillside setting and exceptional
quality of life.
Founded in 1906, Morgan Hill is a general
law city with a council- manager form of
government. The four Councilmembers are
elected in municipal elections to four- year
terms. The Mayor is directly elected to serve
a two- year term. In addition to the Council,
the City Clerk and City Treasurer are also
elected to four- year terms. The city has a
volunteer Planning Commission, made up of
seven members appointed by a majority vote
of the Council to four- year terms. Other
advisory boards include the Architecture and
Site Review, Bicycle Advisory, Library, Mobile
Home Rent Control, Parks and Recreation,
Senior Advisory and Youth Advisory
commissions.
About the City ( continued)
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Budget Overview
The Budget Overview contains general
information regarding the budget process,
including the budget guide, a description of
the budget process, basis of accounting,
Gann appropriation limit calculations, key
revenue projections and assumptions, a
description of allocated costs, budget
policies, description of debt obligations and
comparison of financial information to other
jurisdictions. A description of funds and
glossary of terms are also included in this
section.
BUDGET GUIDE
This budget document contains the complete
budget for the Fiscal Year 2003/ 04 for the
City of Morgan Hill and the Redevelopment
Agency of the City of Morgan Hill. Included
are the budgets for the City’s General Fund,
Special Revenue Funds, Capital Projects
Funds, Debt Service Funds, Enterprise
Funds, Internal Service Funds, Agency
Funds, Redevelopment Agency Funds and
Capital Projects and Housing Funds. A
complete copy of the Capital Improvement
Plan ( CIP) is also included.
The Budget Message includes the City
Manager’s letter of transmittal which focuses
on the local economy, the budget as a plan
for service delivery and the goals of staff for
implementation of service levels.
Fund Balances contains a summary of all
budgeted funds. Each fund shows estimated
beginning fund balance at July 1, 2003,
projected revenues, expenditures, transfers
in, transfers out and projected ending fund
balance at June 30, 2004. Also included in
this section is a bar chart reflecting a five-year
trend for the General Fund fund balance.
Summaries are prepared for Revenues and
Appropriations for all funds. These
summaries include prior year’s actual, 2003/
03 projected and budgeted, and 2003/ 04
proposed activity. General Fund revenues
and expenditures are also summarized using
graphs and/ or bar charts for comparison
purposes.
Personnel levels have a direct effect on public
services. The Staffing section shows staffing
levels by function. Organization charts are
provided in this section and in each
departmental budget where applicable.
Departmental budgets also include a
description of the department’s activities,
current year highlights, goals for the coming
fiscal year and performance measures. The
sections for each department contains
historical information on staffing and
expenditures.
Included in the Supplemental Information
section are various reports on the status of
pilot programs implemented, and reports
regarding important issues facing the City.
A complete copy of the Five Year Capital
Improvement Plan ( CIP) is included under the
heading of Capital Programs. The five year
document represents a plan of improve-ments,
a detailed description of each project
and the available funding sources.
BUDGET TIMELINE
The Budget is based upon an in- depth
analysis of actual and projected fund
balances, revenues, and expenditures. Each
City department prepares line item detail for
each of their activities and recommends
certain service levels and activity goals for
the upcoming budget year. The Finance
Department prepares revenue projections
based upon input from other departments.
The City Manager then reviews individual
departmental requests, prioritizes activities
based upon City Council policy, and makes
certain adjustments. At the conclusion of this
process, the proposed budget is prepared
and is submitted to the City Council for
review.
The City of Morgan Hill has prepared a one-year
budget for Fiscal Year 2003/ 04.
Beginning in January 2003, each department
was provided with a budget calendar,
information packet and various Finance
prepared data. Departments submitted
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proposed revenues and expenditures for the
2003/ 04 fiscal year based on certain service
levels and activity goals. General government
revenue projections were prepared by
Finance. This process, overseen by the City
Manager, was completed in May 2003. The
City Manager’s recommended budget was
presented to the City Council on May 14,
2003. Following Council workshops on May
23, 2003 and June 11, 2003, and a public
hearing, the fiscal year 2003/ 04 budget was
adopted June 18, 2003.
BUDGET APPROPRIATIONS
Appropriations are the amounts approved for
expenditure by the City Council with the
adoption of the annual budget and
subsequent budget amendments which are
brought to the Council for their approval.
Appropriations are separated by object
categories within an activity budget. The
object categories available are: 1) Employee
Services; 2) Supplies and Services; 3) Capital
Outlay; 4) Debt Service; 5) Internal Services;
and 6) Transfers. The legal level of control is
established as follows:
A Department Director has the authority to
transfer between lines items within an activity
to facilitate the functions of the activity in
accordance with the directions, goals and
policies of the City Council. The City Manager
is authorized to transfer appropriations within
an activity to facilitate the functions of that
activity in accordance with the directions,
goals and policies of the City Council.
A transfer of appropriations between activities
requires City Council approval. Additional
appropriations require City Council approval.
New programs and new appropriations not
anticipated during the budget process require
City Council approval.
BUDGETARY CONTROL
Budgetary control is maintained through
monthly reports of revenue and expenditure
accounts. The detailed monthly reports are
reviewed by the City Manager and each
Department Director. The City Council is
provided a summary report each month. The
monthly report is reviewed by the Audit and
Finance Committee. The Committee is
composed of two Councilmembers and the
City Treasurer. The Director of Finance
serves as staff to the Committee.
A mid- year budget review and adjustment
process is completed each January and
submitted to the Council for review and
approval in February. Budgetary adjustments
are only considered within the framework of
the adopted budget and the City Council
directions, goals and policies. New programs
and new appropriations are not considered
as part of the mid- year budget review.
BUDGET AMENDMENTS
The budget as adopted by the City Council
can be amended during the fiscal year. The
need to amend or adjust the budget typically
arises in response to unforeseen circum-stances
or events. For example, the Council
is required to formally recognize the receipt
of unanticipated revenue before the City can
legally accept and spend new money. In other
cases, a department may need to transfer
funds to cover an unexpected shortfall in
another account.
The City Manager is authorized to amend
Council- approved appropriations at the
activity level if, in the City Manager’s opinion,
such amendments are necessary and proper.
The appropriation adjustment process
consists of the following steps:
Budget Overview ( continued)
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Budget Overview ( continued)
1) An “ Appropriation Request/ Transfer
Form” is prepared by the department.
2) The request is submitted to Finance
Department for review
3) The request is submitted to the City
Manager for approval
4) Once approved, the request is returned
to Finance Department to make the
necessary adjustments.
5) The department receives authorization
to use the adjusted appropriations.
If the request involves more than one activity
or fund, Council approval is required in
addition to City Manager approval.
In August/ September, staff also requests that
the City Council “ rebudget” prior year’s
unexpended appropriations primarily for
capital projects. In addition, staff requests that
the City Council take action on final budget
amendments to the prior year to assure that
prior year’s expenditures are below prior
year’s Council approved budget
appropriations.
BASIS OF ACCOUNTING
Governmental funds include the General
Fund, Special Revenue Funds, Debt Service
Funds and Capital Project Funds. These
funds are accounted for using the modified
accrual basis of accounting. Agency funds
are also accounted for using the modified
accrual basis.
Proprietary funds include Enterprise Funds
and Internal Service Funds. These funds are
accounted for using the accrual basis of
accounting.
The budgetary process is based upon
accounting for certain transactions on a basis
other than generally accepted accounting
principles ( GAAP basis). The major difference
between the budgetary basis and GAAP
basis is that year end encumbrances are
recognized as the equivalent of expenditures
on the budgetary basis in governmental
funds, while encumbered amounts are not
recognized as expenditures on the GAAP
basis.
ALLOCATED COSTS
The City of Morgan Hill has seven internal
service funds. These funds account for the
costs of services provided to other City
departments. Costs are allocated to user
departments based on various factors such
as square footage, personnel, number of
computer workstations and historical trends.
In addition to Internal Service funds, the City
of Morgan Hill allocates General Fund
overhead to other funds/ departments as
General Administration Overhead charge.
The total administrative charge for the budget
year 2003/ 04 is $ 2,007,978. These charges
are based on services provided on the basis
of General Fund departments and are
allocated by estimated service levels and
personnel.
Budget Administrative Policies - With the
adoption of the annual budget, the City
Council recognizes that the appropriations for
the operating activities and capital budgets
are based on estimates of municipal needs
for the fiscal year. In order to establish
reasonable flexibility in the administration of
the budget, the following policies have been
adopted. These policies are intended to
provide the authority necessary for the City
Manager and Department Directors to
administer the budget during the fiscal year
in accordance with City Council directions,
goals and policies, and in light of varying
conditions which may occur.
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Year Year 03/ 04 Outstanding
District of Issue of Maturity Debt Services Principal
Cochrane Bus Park 1986 2012 187,140 1,075,000
Joleen Way 1992 2009 33,000 120,000
Due 03/ 04 Outstanding
District Date Debt Services Principal
2002 SCRWA 2023 1,970,638 24,275,000
1993 Water Facilities 2017 166,607 1,397,228
1999 COP 2021 378,832 4,360,000
Budget Overview ( continued)
DEBT OBLIGATIONS
Special assessment districts within the City
have issued debt repayable by special
assessments levied on property in each
respective district. The City is under no legal
obligation to repay the special assessment
debt. However, the City is required to make
advances or to be the purchaser of last resort
for property on which delinquent
assessments are unpaid for certain districts.
The following schedule presents the
outstanding debt on these districts as of June
30, 2004:
Other bonds payable and certificates of
participation ( COP’s) include sewer revenue
bonds, a water facility loan and certificates
of participation for water system improvement
projects. The outstanding debt on these
issues is as follows:
All principal and interest payments due on
bonds, COP’s and loans during Fiscal Year
2003/ 04 are included in the budget.
LEGAL DEBT LIMIT
Within the Comprehensive Annual Financial
Report ( CAFR), the City calculates its legal
debt limit ( the maximum amount of debt the
City can issue) and compares it to the debt
outstanding at the end of the year to produce
the legal debt margin ( the amount of debt the
City can issue in future years). Currently, the
City has no outstanding legal debt, and is
within its legal debt margin of $ 529,154,401.
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Fiscal Policies
1. REVENUE
A. The City will endeavor to maintain a
diversified and stable revenue base to
minimize the effects of economic
fluctuations on revenue generation.
B. The City will estimate revenues using
an objective, analytical process; in the
case of uncertainty, conservative
projections will be utilized.
C. The City will fund all current
expenditures from current revenues and
available fund balance, avoiding
procedures that balance current
budgets by postponing needed
expenditures, accruing future revenues,
or rolling over short- term debt.
D. Development process costs and related
administrative expenses will be offset
by development fees.
E. The City will identify basic tax- provided
services and will establish user fees and
charges for services provided in excess
of basic services.
F. City staff will provide monthly reports to
the City Council which compare and
analyze year- to- date actual revenues
and expenditures to budget.
2. RESERVES & DESIGNATIONS
Purpose
A. The City of Morgan Hill commits to target
the minimum level necessary to
maintain the City’s credit worthiness and
to adequately provide for economic
uncertainties, local disasters or
catastrophes, future debt or capital
obligations, cash flow requirements and
legal requirements.
B. The City shall maintain unappropriated
fund balance or working capital in the
General Fund, Water and Sewer
operating funds, Water and Sewer rate
stabilization funds, Community
Development Fund, and certain internal
service funds.
Policy
C. General Fund – The City shall make
every effort to keep a minimum reserve
level of 40% of the total General Fund
projected revenues for the current year.
The 40% minimum reserve level
includes 10% for non- recurring
emergencies and 10% for economic
uncertainty.
D. Water and Sewer Operating Funds –
The City shall make every effort to keep
a minimum reserve level of 25% of the
appropriated operating budget for each
of these enterprise operating funds.
E. Water and Sewer Rate Stabilization
Funds – The City shall make every effort
to keep a minimum reserve level for
each of these funds equal to 20% of the
annual estimated utility usage revenue
accounted in for in the operating budget,
in case of a temporary drop in customer
demand.
F. Community Development Fund – The
City shall make every effort to keep a
minimum reserve level of 30% of the
appropriated operating budget for the
Community Development Fund, in order
to provide for those temporary periods
when less development activity occurs
and less revenue is collected by the City.
G. Unemployment – The City shall make
every effort to maintain a minimum
reserve level in the Unemployment
Fund equal to 100% of the appropriation
for unemployment claims.
H. Worker’s Compensation – The City shall
make every effort to maintain a
minimum reserve level for Worker’s
Compensation equal to the sum of twice
the self insured amount for a single
claim.
I. General Liability – The City shall make
every effort to maintain a minimum
reserve level equal four times the self
insured retention for general liability.
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Budgetary Designations
J. A portion of General Fund Balance will
be designated for economic
uncertainties and not be reflected in
available fund balance for budget
purposes. This is to avoid the need for
service level reductions in the event an
economic downturn causes revenues to
come in lower than budget.
K. Reserves for Encumbrances and
Continuing Appropriations are
established at the end of every fiscal
year to reserve fund balance in the
amount equal to the City’s unpaid
obligations and unfinished projects at
year- end.
L. Other reserves, such as for cash flow
needs or anticipated costs for service
enhancements, will be established each
fiscal year as needed.
3. CASH MANAGEMENT
A. Investments and cash management will
be the responsibility of the City
Treasurer.
B. In accordance with Section 53646 of the
Government Code, the City Council will
review and update annually, a specific
investment policy. The primary purpose
of this policy is to set forth the City’s
investment philosophy and objectives.
The City’s investment objectives are, in
order of priority: 1) safety, 2) liquidity,
and 3) yield. The policy also specifically
outlines authorized investments, the
acceptable percentages and maximum
maturities allowed for each investment
instrument and the criteria used to
determine qualified depositories/
dealers.
C. The City invests all idle cash as
determined by analysis of anticipated
cash flow needs. Specific emphasis will
be placed on future cash requirements
when selecting maturity dates to avoid
forced liquidations and the potential
corresponding loss of investment
earnings.
D. In order to maximize yields from the
overall portfolio, the City will consolidate
cash balances from all funds for
investment purposes, and will allocate
investment earnings to each fund in
accordance with generally accepted
accounting principles.
E. The City Treasurer will generate a
monthly report to the City Council in
conformance with all State laws and City
investment policy requirements.
F. The City’s independent auditors, in
conjunction with their annual audit, will
audit the cash and investment balances
in conformance with generally accepted
accounting principles.
4. OPERATING BUDGET
A. The City of Morgan Hill’s Operating
Budget will be developed on an annual
basis. Appropriations for each year will
be approved by the City Council.
B. The City’s Budget Document will include
selected performance measures to
better describe the workload of the
different City programs, to gauge our
effectiveness in providing services, and
to ultimately be able to compare the
City’s overall performance with other like
agencies.
C. The City will avoid budgetary and
accounting procedures that balance the
current budget at the expense of future
budgets.
Fiscal Policies ( continued)
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Fiscal Policies ( continued)
D. The legal level of control is established
as follows: The Department Director
has the authority to transfer between
line items within an activity to facilitate
the functions of the activity in
accordance with the directions, goals
and policies of the City Council. The
City Manager is authorized to transfer
appropriations within an activity budget
to facilitate the functions of that activity
in accordance with the directions, goals
and policies of the City Council. A
transfer of appropriations between
activities, additional appropriations, new
programs or new appropriations require
the authorization of the City Council.
E. Mid- year budget adjustment reports will
be presented to Council in February of
each fiscal year, if necessary.
DEBT - The City is currently developing its
debt policy.
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Description of Funds
GENERAL FUND
The General Fund is a governmental fund
used to account for the day- to- day operations
of the City. All financial activity that is not
required to be accounted for in another fund
is included in the General Fund. Public safety,
government administration, recreation, and
park maintenance are funded from the
General Fund.
General Fund ( 010)
The General Fund receives all general taxes,
such as property taxes, sales taxes and
transient occupancy taxes, licenses and
permits, funding from other government
agencies such as vehicle- in- lieu fees, fines
and penalties, interest, rentals not specifically
designated for another fund, and charges for
current services.
SPECIAL REVENUE FUNDS
Special Revenue Funds are used to account
for the proceeds of specific revenue sources
( other than special assessments and major
capital projects) that are legally restricted to
expenditures for specified purposes.
Street Maintenance Fund ( 202)
The Street Maintenance Fund is a special
revenue fund used to account for the receipt
and disbursement of State and Federal gas
tax and grant monies, and other monies that
are to be used for the maintenance, repair,
and design of streets. State gas tax funds
are distributed to cities based on population
from gas taxes collected at the point of sale.
The use of gas tax funds is restricted to street
expenditures by State and Federal legislation.
Public Safety Trust Funds ( 204/ 205)
The Public Safety Trust Fund is a special
revenue fund used to account for the receipt
and disbursement of State and Federal grant
monies that provide for the restoration of
public safety services. The use of grant
monies in this fund is legally restricted for the
funding of public safety officers and/ or
supplies under the terms of the grants.
Community Development Fund ( 206)
The Community Development Fund is a
special revenue fund used to account for the
collection of planning, building, and
engineering fees. The expenditures of these
funds are restricted to the costs associated
with processing building, engineering and
planning applications.
General Plan Update Fund ( 207)
The General Plan Update Fund is a special
revenue fund established to account for the
costs of updating the General Plan. The
update has been funded by transfers from
various funds: General, Park Development
Impact, Community Development,
Redevelopment, Housing, Sewer, and Water.
The expenditures are restricted to costs
incurred for the General Plan update.
Community Center Fund ( 210)
The Community Center Fund was
established to provide a vehicle for the
accumulation of funds and future interest
earnings to help offset the start up costs and
costs of operation and maintenance for new
community facilities.
CDBG/ CDBG Revolving Loan Funds
( 215/ 216)
The Community Development Block Grant
( CDBG) and CDBG Revolving Loan Funds
are special revenue funds used to account
for Federal low and moderate income
housing program funds. These funds are
restricted to low and moderate income
housing uses.
Environmental Programs Fund ( 232)
The Solid Waste Management Fund is a
special revenue fund established to account
for the costs of developing and implementing
waste reduction programs and administering
the City’s franchise agreement for solid
waste. The revenues for this fund come from
a portion of the franchise fees for garbage
services and are restricted to the above uses.
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Other Special Revenue Funds
There are seven other small special revenue
funds. The balances in these funds are
restricted by law and/ or ordinance. The funds
include:
• Museum Rental ( 220)
• Asset Seizure ( 225)
• Lighting and Landscape ( 229)
• Mobile Home Park Rent Stabilization
( 234)
• Senior Housing Trust Fund ( 235)
• Housing Mitigation Fund ( 236)
• Employee Assistance Fund ( 240).
The Senior Housing Trust Fund was
established to account for the funds that were
set aside to fund programs for elderly persons
over the age of 55, while the Housing
Mitigation Fund was established to provide
for housing related programs and projects.
CAPITAL PROJECTS FUNDS
The Capital Projects Funds are used to
account for the financial resources to be used
for acquisition and/ or construction and/ or
maintenance of capital facilities. The funds
are restricted by State law and/ or City
ordinance for specific uses. AB1600 restricts
the collection and use of certain development
impact fees. AB1600 ( Government Code
Sect. 66000- 66003) indicates that there must
be a reasonable relationship between the fee
and the purpose for which it was charged.
The following funds are the Capital Projects
Funds:
Park Development Fund ( 301)
Park Development Impact Fund revenues are
received from developers of properties. The
funds may only be used for the design,
development and construction of new parks
within the City. ( Fund is subject to the
restrictions of AB1600.)
Park Maintenance/ Development Fund
( 302)
Park Maintenance/ Development Fund
receives revenues from developers of
properties and the funds may only be used
for the maintenance and development of the
City’s parks.
Local Drainage Impact Fund ( 303)
Local Drainage Impact Fund revenues are
received from developers of properties and
the funds may only be used for the design
and construction of new storm drains. ( Fund
is subject to the restrictions of AB1600.)
Local Drainage Fund ( 304)
Local Drainage Fund revenues are received
from developers of properties and the funds
may be used for the design, construction, and
maintenance of storm drains.
Off- Street Parking Fund ( 305)
Off- Street Parking Fund accumulates
revenue from charges to developers within
the downtown core area to help meet future
parking requirements. With little activity, all
remaining fund balances will be transferred
to the General Fund in FY 2003/ 04.
Open Space Fund ( 306)
This is a new fund set up to account for open
space fees collected from developers. These
funds are to be expensed for open space
expenditures.
Traffic Impact Fund ( 309)
Traffic Impact Fund revenues are received
from developers if their projects have an
adverse impact on traffic flows, streets, etc.
The funds collected may be expended on
new streets, traffic signals, and improvements
of existing streets where they are impacted
by new development. ( Fund is subject to the
restrictions of AB1600.)
Police Impact Fund ( 311)
Police Impact Fund revenues are derived
from a fee charged to developers to cover
the costs to construct public improvements
for Police facilities needed as a result of new
development. Expenditures may only be
made for the future construction of the
required new Police facilities or to reimburse
the City for funds advanced to construct such
facilities. ( Fund is subject to the restrictions
of AB1600.)
Description of Funds ( continued)
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Fire Impact Fund ( 313)
Fire Impact Fund revenues are derived from
a fee charged to developers to cover the
costs to construct public improvements
required for Fire facilities as a result of new
development. Expenditures may only be
made for the future construction of the
required new Fire facilities or to reimburse
the City for sums advanced to construct such
facilities. ( Fund is subject to the restrictions
of AB1600.)
Redevelopment Project Fund ( 317)
The Health and Safety Code of the State of
California specifies the funds that
Redevelopment Agencies are to use to
account for the activity of an Agency.
Redevelopment Project Fund accounts for
the activities of the Redevelopment Agency
capital projects, economic development, and
the administrative costs of the Agency.
Expenditures may be made from this fund
only for the design, engineering,
administration, construction and other costs
associated with Redevelopment projects.
Redevelopment Housing Funds ( 327/
328)
Redevelopment Housing Funds account for
the 20% set- aside funds collected from
property tax increment for housing programs.
Expenditures may be made from this fund
only for the design, engineering,
administration, construction and other costs
associated with Redevelopment housing
projects.
Public Facilities Impact Funds ( 346/ 347)
Public Facilities Impact Fund revenues are
derived from fees charged to developers to
cover the costs to construct public
improvements required as a result of new
development. Expenditures may only be
made for the future construction of the
required new facilities or to reimburse the City
for funds advanced to construct such
facilities. ( Fund 347 is subject to the
restrictions of AB1600.)
Library Impact Fund ( 348)
Library Impact Fund revenues are derived
from a fee charged to developers to cover
the costs to construct library improvements
required as a result of new development.
Expenditures may only be made for the future
construction of the required new library
facilities or to reimburse the City for funds
advanced to construct such facilities. ( Fund
is subject to the restrictions of AB1600.)
Undergrounding Fund ( 350)
Undergrounding Fund receives revenues
from developers for the undergrounding of
utilities in areas of new development.
Expenditures may be made from these funds
only for the design and construction
associated with such undergrounding.
DEBT SERVICE FUNDS
Debt Service Funds are used to account for
the accumulation of resources for, and
payment of, general long- term debt principal,
interest, and related costs.
Assessment District Funds ( 527- 551)
Assessment District funds are established to
permit the City ot sell bonds to provide the
funds to construct improvements in new
developments. Property assessments are
collected from property owners within the
assessment district for a proportional share
of the improvements, and debt service
payments for the bonds are made from the
assessments collected. These funds are
restricted by the bond covenants and
agreements. These bonds are not a debt of
the City.
Description of Funds ( continued)
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Description of Funds ( continued)
ENTERPRISE FUNDS
Enterprise Funds are used to account for
operations that are financed and operated in
a manner similar to private business
enterprises where the intent of the governing
body is that the costs ( including depreciation)
of providing goods or services to the general
public on a continuing basis be financed or
recovered primarily through user charges.
Sewer Operations Fund ( 640)
The Sewer Operations Fund receives
revenues from user charges based on sewer
usage. All expenditures for the operation of
the sewer system including maintenance,
and debt service are charged to the Sewer
Operations Fund.
Sewer Impact Fund ( 641)
The Sewer Impact Fund receives revenues
from developer charges to cover the costs to
construct sewer improvements required as
a result of new development. Expenditures
may only be made for the construction of the
required improvements or to reimburse the
City for funds advanced to construct such
improvements. ( Fund is subject to the
restrictions of AB1600.)
Sewer Rate Stabilization Fund ( 642)
The Sewer Rate Stabilization Fund was
established to avoid fluctuations in the sewer
rates charged. The fund was initially funded
with onetime revenue. The initial contribution
to the Rate Stabilization Fund was
$ 4,000,000 from the Sewer Operations Fund.
Sewer Capital Project Fund ( 643)
Previously identified as the Sewer System
Replacement Fund, this fund was renamed
and combined with the Sewer Capital
Projects Fund. This fund was established to
avoid fluctuations in the sewer rates charged
by providing reserve funding for future system
replacements. The fund was initially funded
with one- time revenues. The initial
contribution to the System Replacement
Fund was $ 1,300,000 from the Sewer
Operations Fund. Future funding will come
from transfers from the Operations Fund.
Water Operations Fund ( 650)
The Operations Fund receives revenues from
user charges based on water usage. All
expenditures for the operation of the water
system including maintenance, and debt
service are charged to the Water Operations
Fund.
Water Impact Fund ( 651)
The Impact Fund receives revenues from
developer charges to cover the costs to
construct water improvements required as a
result of the new development. Expenditures
may only be made for the construction of the
required improvements or to reimburse the
City for funds advanced to construct such
improvements. ( Fund is subject to the
restrictions of AB1600.)
Water Rate Stabilization Fund ( 652)
The Rate Stabilization Fund was established
to avoid fluctuations in the water rates
charged. The fund was initially funded with
one- time revenue. The initial contribution to
the Rate Stabilization Fund was $ 800,000
from the Water Operations Fund.
Water Capital Projects Fund ( 653)
Previously identified as the Water System
Replacement Fund, this fund was renamed
and combined with the Water Capital Projects
Fund. This fund was established to avoid
fluctuations in sewer rates by providing
reserve funding for future system
replacements. The initial contribution to this
fund was $ 2,550,000 from the Water
Operations Fund. Future contributions will
come from transfers from the Operations
Fund.
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INTERNAL SERVICE FUNDS
Internal Service Funds account for the
financing of goods and/ or services provided
by one department to other departments
within the City and the Redevelopment
Agency. The Internal Service Fund
accumulates all the costs related to the
service provided and then the costs are
charged to the department receiving the
goods and/ or services based on the quantity
of service received.
The City maintains the following Internal
Service Funds:
• Information Systems ( 730)
• Building Maintenance ( 740)
• Capital Improvement Program
Administration ( 745)
• Unemployment Insurance ( 760)
• Worker’s Compensation ( 770)
• Equipment Replacement ( 790)
• General Liability Insurance ( 795)
AGENCY FUNDS
Agency Funds are used to account for assets
held by the City in a trustee capacity or as an
agent for individuals, private organizations,
other governmental units, and/ or other funds.
The City maintains the following Agency
Funds:
• MH Business Ranch I AD ( 841)
• MH Business Ranch II AD ( 842)
• MH Business Ranch 98 AD ( 843)
• Madrone Bus. Park - Exempt ( 845)
• Madrone Bus. Park - Taxable ( 846)
• Tennant Ave Business Park ( 848)
• Police Donation Trust ( 881)
Description of Funds ( continued)
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Glossary of Budget & Financial Terms
Accounting System: The total set of records and procedures which are used to record,
classify, and report information on the financial status and operations
of an entity.
Appropriation: An authorization made by the City Council which permits officials to
incur obligations against and to make expenditures of governmental
resources for a specific purpose within the budget year, July1 through
June 30.
Assessed Valuation: The estimated value placed upon real and personal property by the
County Assessor as the basis for levying property taxes.
Assets: Property owned by the City which has monetary value.
Audit: A systematic examination of the City’s financial records and
processes concluding in a written report. It includes test of
management’s internal accounting controls and is intended to:
- ascertain whether financial statements fairly present financial
positions and results of operations;
- test whether transactions have been legally performed; and
- identify areas for possible improvements in accounting practices
and procedures.
Balance Sheet: A statement presenting the financial position of an entity by disclosing
its assets, liabilities, and fund equities as of a specific date.
Bond A written promise to pay ( debt) a specified sum of money ( called
( Debt Instrument): principal or face value) at a specified future date ( called the maturity
date) along with periodic interest paid at a specified percentage of
the principal ( interest rate). Bonds are typically used for long- term
debt to pay for specific capital expenditures.
Budget ( Operating): A plan of financial operation listing an estimate of proposed
expenditures ( appropriations) for a given period ( typically a fiscal
year) and the proposed means of financing them ( revenue
estimates).
Budget Calendar: The schedule of key dates or milestones which the City follows in
the preparation and adoption of the budget.
Budget Message: A discussion of the proposed budget presented by the City Manager
in writing as a part of, or supplement to, the budget document. The
budget message explains principal budget issues against the
background of financial experience in recent years and presents
recommendations made.
Capital Assets: Assets of significant value and having a useful life of more than one
year. Capital assets are also called fixed assets.
Capital Budget: A plan of proposed capital expenditures and the means of financing
them.
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Capital Improvement A five year plan for expenditures setting forth each capital project,
Program: the amount to be expended in each year, and the method of financing
those expenditures. Expenditures may include the design,
construction, or purchase of land, buildings, or facilities.
Capital Outlays: Expenditures for the acquisition of capital assets. Includes the cost
of land, buildings, permanent improvements, machinery, large tools
and rolling and stationary equipment.
Capital Projects: Projects for purchase or construction of capital assets. Typically a
capital project encompasses a purchase of land and/ or the
construction of a building or facility.
Capital Projects Used to account for financial resources used for the acquisition or
Fund: construction of major capital facilities ( other than those financed by
Enterprise and Internal Service Funds).
Certificate of A negotiable or non- negotiable receipt for monies deposited in a
Deposit: bank or financial institution for a specified period at a specified rate
of interest.
CIP Engineering: All work involved in preparation of construction plans, contractual
documents and construction administration for the design and
upgrade of various infrastructures for projects identified in the 5-
year Capital Improvement Program.
Contingency: A budgetary reserve set aside for emergencies or unforeseen
expenditures not otherwise budgeted for.
Debt Service: Payment of interest, and repayment of principal to holders of the
City’s debt instruments.
Debt Service Fund: Used to account for the accumulation of resources for, and payment
of, general long- term debt.
Deficit: ( 1) The excess of an entity’s liabilities over its assets ( see Fund
Balance); or
( 2) The excess of expenditures or expenses over revenues during
an accounting period.
Encumbrances: Obligations in the form of purchase orders or contract commitments
which are chargeable to an appropriation and for which a part of the
appropriation is reserved. Encumbrances are eliminated when paid
or when a liability is recorded.
Enterprise Fund: Separate fund used to account for government operations that are
financed and operated in a manner similar to business enterprises.
These programs are entirely or predominantly self- supporting.
Examples of Enterprise Funds are those used for sewer and water
systems.
Glossary ( continued)
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Expenditures: The payment against an appropriation for goods received or services
rendered.
Fiscal Year: The twelve- month period beginning July 1st and ending the following
June 30th.
Fund: An independent fiscal and accounting entity with a self- balancing
set of accounts recording cash and/ or other resources together with
all related liabilities, obligations, reserves, and equities which are
segregated for the purpose of carrying on specific activities or
attaining certain objectives.
Fund Balance: The excess of an entity’s assets over its liabilities representing the
cumulative effect of revenues and other resources over expenditures
and other uses.
General Fund: The fund supported by taxes, fees, and other revenues that may be
used for any lawful purpose. The general fund accounts for all
financial resources except those required to be accounted for in
another fund. This fund accounts for the general operating programs
of the City.
General Obligation When the City pledges its full faith and credit to repayment of the
Bonds: bonds it issues, then those bonds are general obligation ( G. O.)
bonds. Sometimes the term is also used to refer to bonds which are
to be repaid from taxes and other general revenues. In California,
G. O. bonds issued after 1977 must be authorized by public referenda
with two- thirds voter approval.
Infrastructure: All City owned facilities supporting the operation of the governmental
unit. It includes: streets, roads, bridges, curbs and gutters, parks,
water and sewer lines, storm drains, water pump stations and
reservoirs, water wells, sewer lift stations, all government buildings
and related facilities.
Intergovernmental A contribution of assets ( usually cash) by one governmental unit or
Grant: other organization to another. Typically, these contributions are made
to local governments from the State and Federal Governments.
Grants are usually made for specified purposes.
Internal Service Funds used to account for the financing of goods or services provided
Fund: by one department or agency to other departments or agencies of
the City.
Investments: Securities and real estate purchased and held for the production of
income in the form of interest, dividends, rentals or base payments.
Liability: A debt or other legal obligation arising out of transactions in the past
which must be liquidated, renewed or refunded at some future date.
NOTE: The term does not include encumbrances.
Glossary ( continued)
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Maturities: The dates on which the principal or stated values of investments or
debt obligations mature and may be reclaimed.
Operating Funds: Resources derived from recurring revenue sources used to finance
ongoing operating expenditures and pay- as- you- go capital projects.
Performance Specific quantitative measures of work performed within an activity
Measures: or program ( e. g., total miles of streets cleaned). Also, a specific
quantitative measure of results obtained through a program or activity
( e. g., reduced incidence of vandalism due to new street lighting
program).
Reserve: An account used to indicate that a portion of fund equity that is
legally restricted for a specific purpose.
Resources: Total dollars available for appropriations including estimated
revenues, fund transfers, and beginning fund balances.
Revenue: Total dollars received from taxes, fees, permits, licenses, interest,
and intergovernmental sources including grants within the fiscal year.
Revenue Bonds: Bonds which pledge one specific revenue source to repayment. In
addition to a pledge of revenues, such bonds sometimes may be
secured by a lien against property.
Revenue Estimate: A formal estimate of how much revenue will be earned from a specific
revenue source for some future period; typically, a future fiscal year.
Special Revenue Separate fund used to account for the proceeds of special revenue
Fund: sources that are restricted by law ( or administrative action) to
expenditures for specific purposes.
Unit Cost: The cost required to produce a specific product or unit of service
( e. g., the cost to purify one thousand gallons of water).
User Charges: The payment of a fee for direct receipt of a public service by the
party benefitting from the service.
Yield: The rate earned on an investment based on the price paid.
Glossary ( continued)
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Adoption of the City Budget &
Appropriation Limit
RESOLUTION NO. 5685
A RESOLUTION OF THE CITY COUNCIL OF CITY OF MORGAN HILL ADOPTING
THE 2003/ 04 ANNUAL CITY BUDGET AND ADOPTING THE APPROPRIATIONS
LIMIT FOR FISCAL YEAR 2003/ 04
WHEREAS, the City of Morgan Hill Budget for the 2003/ 04 fiscal year was prepared
by the City staff and reviewed by the City Manager;
WHEREAS, the City of Morgan Hill Budget for the 2003/ 04 fiscal year was presented
to the City Council on May 14, 2003, was reviewed at Public Workshops on May 23, 2003 and
June 11, 2003, and was further reviewed at a Public Hearing on June 18, 2003;
WHEREAS, in accordance with the State Revenue and Taxation Code Section 7910,
the City of Morgan Hill’s 2003/ 04 appropriations limit is $ 51,859,586, as shown on Schedule
A. The appropriations for the 2003/ 04 fiscal year, as shown on Schedule B, which are subject
to the appropriations limit as set forth in Article XIIIB of the California Constitution, do not
exceed the limit as stated above. The annual adjustment factors that were selected to calculate
the 2003/ 04 limit were: 1) California Per Capita Personal Income adjustment of 2.31%; and 2)
County Population Growth of .79%; and
WHEREAS, modifications and amendments to the adopted 2003/ 04 City of Morgan
Hill Budget can only be made in accordance with the “ Budget Administrative Policies” in the
Proposed Budget;
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Morgan
Hill finds that the Capital Improvement Program is in conformity with the General Plan; and
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Morgan
Hill does hereby approve and adopt the City of Morgan Hill 2003/ 04 Budget, Appropriations
Limit and Appropriations Limit Adjustment Factors for Fiscal Year 2003/ 04.
PASSED AND ADOPTED by the City Council of Morgan Hill at a Regular Meeting
held on the 18th day of June, 2003, by the following vote:
AYES: COUNCIL MEMBERS: LARRY CARR, DENNIS KENNEDY,
GREG SELLERS, STEVE TATE
NOES: COUNCIL MEMBERS: NONE
ABSENT: COUNCIL MEMBERS: HEDY CHANG
ABSTAIN: COUNCIL MEMBERS: NONE
• CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET • CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET • CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET •
CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET • CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET • CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET • CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET •
48
City Budget & Appropriation Limit
( continued)
City of Morgan Hill
Resolution No. 5685
Page 2
• CERTIFICATION •
I, IRMA TORREZ, CITY CLERK OF THE CITY OF MORGAN HILL,
CALIFORNIA, do hereby certify that the foregoing is a true and correct copy of Resolution
No. 5685 adopted by the City Council at a Regular Meeting held on June 18, 2003
WITNESS MY HAND AND THE SEAL OF THE CITY OF MORGAN HILL
• CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET • CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET • CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET •
CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET • CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET • CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET • CITY OF MORGAN HILL • FY 2003/ 04 • OPERATING AND CIP BUDGET •
49
City Budget & Appropriation Limit
( continued)
SCHEDULE A
CITY OF MORGAN HILL
SPENDING LIMIT CALCULATION
FISCAL YEAR 2003/ 04
APPROPRIATIONS SUBJECT TO LIMIT
Fiscal Year 2003- 04 General Fund Revenues $ 16,023,853
Less Non Proceeds of Tax 4,531,573
Total appropriations subject to limits $ 11,492,280
A