www. morgan- hill. ca. gov
M O R G A N H I L L A Q U A T I C S C E N T E R
Fiscal Year 2004/ 05
Operating and CIP Budget
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City of Morgan Hill
Fiscal Year 2004/ 05
Operating and CIP Budget
Morgan Hill City Council
Dennis Kennedy, Mayor
Greg Sellers, Mayor Pro Tem
Hedy Chang, Councilmember
Larry Carr, Councilmember
Steve Tate, Councilmember
J. Edward Tewes, City Manager
Helene Leichter, City Attorney
Michael Roorda, City Treasurer
Irma Torrez, City Clerk
Executive Team
Jim Ashcraft, Director of Public Works
Bruce Cumming, Interim Chief of Police
Jack Dilles, Director of Finance
Melissa Stevenson Dile, Assistant to the City Manager
Tony Eulo, Assistant to the City Manager
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
Vacant, Director of Community Development
BudgetTeam
Pat Heikens, Accounting Technician
Isabel Jones, Accountant I
Lourdes Reroma, Accountant I
Tina Reza, Assistant Finance Director
Angela Rivera, Accounting Assistant II
Chu Thai, Budget Manager
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GFOA Distinguished Budget
Presentation Award
The Government Finance Officers Association of the United States and Canada ( GFOA) presented
a Distinguished Budget Presentation Award to the City of Morgan Hill, California for its annual
budget for the fiscal year beginning July 1, 2003. In order to receive this award, a governmental
unit must publish a budget document that meets program criteria as a policy document, as an
operations guide, as a financial plan, and as a communications device.
This award is valid for a period of one year only. We believe our budget continues to conform to
program requirements, and we are submitting it to GFOA to determine its eligibility for another
award.
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CSMFO Award for Excellence in
Operational Budgeting
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[ 010- 1100] City Council ....................................... 105
[ 010- 1220] Community Promotions ...................... 109
[ 010- 1500] City Attorney ...................................... 121
[ 010- 2100] City Manager .................................... 127
[ 010- 2110] Recreation and Community Svs ......... 137
[ 010- 2115] Community and Cultural Center.......... 143
[ 010- 2120] Aquatics Center ................................. 147
[ 010- 2200] Human Resources ............................ 155
[ 010- 2210] Volunteer Services ............................ 151
[ 010- 2410] Council Svs & Records Mgmt ............. 113
[ 010- 2420] Elections ............................................. 117
[ 010- 2510] Finance ............................................. 161
[ 010- 3205] Police Administration .......................... 169
[ 010- 3210] Police Field Operations ...................... 173
[ 010- 3225] Police Support Services ..................... 177
[ 010- 3230] Police Emergency Services ............... 179
[ 010- 3245] Police Special Operations .................. 183
[ 010- 3510] Fire Services ..................................... 277
[ 010- 5140] Cable Services .................................. 131
[ 010- 5145] Commmunications and Marketing ....... 133
[ 010- 5440] Park Maintenance ............................. 213
[ 010- 5450] Animal Control Services ..................... 187
[ 010- 8270] Police Dispatch Services .................... 189
[ 202- 6100] Street Maintenance ............................ 217
[ 202- 6110] Congestion Management ................... 193
[ 202- 8050] Streets CIP ........................................ 330
[ 206- 5120] Planning Division ............................... 195
[ 206- 5130] Building Division ................................ 199
[ 206- 5410] Engineering....................................... 221
[ 207- 5170] General Plan Update ......................... 203
[ 215- 8000] CDBG Programs/ Projects .................. 249
[ 215- 8000] CDBG Programs/ Projects .................. 330
[ 216- 8001] CDBG Housing Rehab ...................... 251
[ 229- 8351] Lighting & Landscape District ............. 225
[ 232- 5800] Solid Waste Management ................... 227
[ 234- 8250] Mobile Home Rent Commission.......... 253
[ 235- 8435] Senior Housing Trust Fund ............... 255
[ 236- 7100] Housing Programs ............................ 257
[ 240- 2610] Employee Assistance Program ........... 279
[ 301- 8051] Park Development ............................. 330
[ 303- 8052] Local Drainage .................................. 330
[ 304- 8060] Local Drainage ( non- AB1600) .......... 331
[ 309- 8053] Traffic Impact ..................................... 331
[ 311- 8080] Police Impact...................................... 331
[ 313- 8085] Fire Impact ........................................ 331
[ 317- 7000] BAHS Administration .......................... 259
[ 317- 8010] BAHS Economic Development ........... 265
[ 317- 8055] BAHS CIP ......................................... 267
[ 317- 8055] BAHS CIP ......................................... 332
[ 327- 7100] BAHS Housing .................................. 269
[ 346- 8049] Public Facility ( non- AB1600) ............. 332
[ 347- 8056] Public Facilites Impact ........................ 332
[ 348- 8059] Library Impact ................................... 333
[ 350- 8057] Undergrounding ................................ 333
[ 640- 5900] Sewer Operations ............................. 229
[ 641- 8140] Sewer Impact .................................... 333
[ 643- 8170] Sewer Capital Projects ....................... 333
[ 650- 5710] Water Operations ............................... 233
[ 650- 5720] Meter Reading and Repair ................ 237
[ 650- 5750] Utility Billing........................................ 165
[ 650- 5760] Water Conservation ........................... 241
[ 651- 8110] Water Impact ...................................... 334
[ 653- 8120] Water Capital Projects ........................ 334
[ 730- 2520] Information Systems ........................... 281
[ 740- 2115] Building Maintenance ( CCC) ............. 205
[ 740- 2120] Building Maintenance ( Aquatics) ........ 207
[ 740- 5150] Building Maintenace .......................... 209
[ 745- 8280] CIP Administration .............................. 243
[ 760- 8230] Unemployment Insurance .................. 283
[ 770- 8220] Workers’ Compensation ..................... 285
[ 790- 8500] Equipment Replacement .................... 287
[ 795- 8210] General Liability ................................. 289
Program Quick Find
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Table of Contents
Budget Message 11- 23
General Information 25
About the City ........................................................ 27
Budget Overview .................................................. 31
Fiscal Policies ........................................................ 35
Description of Funds .............................................. 39
Glossary ............................................................... 45
Resolution Adopting the City Budget ....................... 49
Appropriation Limit Calculation ............................... 51
Resolution Adopting the RDA Budget ...................... 53
Budget Summary 55
Combined Statement of Revenues, Expenditures and
Changes in Fund Balance ............................. 57
Fund Balance Projections ...................................... 58
General Fund Balance Chart ................................. 62
Revenue Charts .................................................... 63
Major Revenue Assumptions ................................. 64
Summary of Revenues & Transfers In ................... 66
Expenditure Charts ............................................... 71
Summary of Expenditures & Transfers Out ............ 73
Interfund Transfers ................................................ 78
Cost Allocation ....................................................... 80
Comparison of Municipalities ................................. 83
Staffing 85
Citywide Organization Chart .................................. 87
Staffing Summary by Departments.......................... 88
Staffing Detail by Departments ................................ 89
Staffing Summary by Fund Type ............................ 92
Staffing Detail by Programs .................................... 93
Changes in Personel Costs ................................. 102
Council Services/ City Clerk 103
City Council ......................................................... 105
Community Promotions ........................................ 109
Council Services & Records Management ............ 113
Elections ............................................................... 117
City Attorney 119
City Manager’s Office 125
City Manager ...................................................... 127
Cable Services .................................................... 131
Communications and Marketing ........................... 133
Recreation 135
Recreation .......................................................... 137
Community & Cultural Center ............................... 143
Aquatics Center ................................................... 147
Volunteer Services .............................................. 151
Human Resources 153
Finance 159
Finance ............................................................... 161
Utility Billing ......................................................... 165
Police 167
Administration ...................................................... 169
Field Operations .................................................. 173
Support Services ................................................. 177
Emergency Services ........................................... 179
Special Operations .............................................. 183
Animal Control Services....................................... 187
Dispatch Services ................................................ 189
Community Development 191
Congestion Management ..................................... 193
Planning Division ................................................. 195
Building Division .................................................. 199
General Plan Update ........................................... 203
Building Maintenance ( CCC) ............................... 205
Building Maintenance ( Aquatics Center) ............... 207
Building Maintenance .......................................... 209
Public Works 211
Park Maintenance ............................................... 213
Street Maintenance .............................................. 217
Engineering ........................................................ 221
Lighting and Landscape District ............................ 225
Solid Waste Management ..................................... 227
Sewer Operations ............................................... 229
Water Operations ................................................. 233
Meter Reading and Repair .................................. 237
Water Conservation ............................................. 241
CIP Administration ................................................ 243
Business Assistance and Housing
Services 247
CDBG Fund ........................................................ 249
CDBG Housing Rehab Fund ............................... 251
Mobile Home Rent Commission ........................... 253
Senior Housing Trust Fund ................................. 255
Housing Programs .............................................. 257
BAHS Administration ............................................ 259
BAHS Economic Development ............................. 265
BAHS Capital Programs ...................................... 267
BAHS Housing .................................................... 269
ISF and Misc Programs 275
Fire Services....................................................... 277
Employee Assistance Program ............................. 279
Information Systems ............................................. 281
Unemployment Insurance .................................... 283
Workers’ Comp .................................................... 285
Equipment Replacement ...................................... 287
General Liability ................................................... 289
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Table of Contents ( continued)
Supplemental Information 291
Analysis of Recreation ......................................... 293
Current and Future Grants .................................. 295
Discretionary Reserves ....................................... 297
Final Allocation for Redevelopment Amendment
Allocation ..................................................... 299
Financial System Upgrade ................................... 301
General Fund Cashflow Analysis ......................... 305
General Fund Ideas Not Incorporated in Budget .. 309
Inhibitors to Economic Development ...................... 311
Relationship with other Agencies .......................... 319
Revenue Sources ............................................... 321
Capital Improvement Program 329
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DATE: June 16, 2004
TO: City Council
SUBJECT: Fiscal Year 2004/ 05
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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 and Members of the City Council:
I am pleased to submit the City Manager’s
Recommended Budget for Fiscal Year 2004/
05. The budget is a plan to address community
needs within fiscal constraints. Again this year,
General Fund revenues are insufficient to
sustain prior levels of spending. It will be
necessary to use reserves in accordance with
the City Council’s previously adopted multi-year
budget strategy. The Budget reflects the
City Council’s commitment to fiscal
responsibility through long term financial
planning, cost effective municipal services, and
financial policies that recognize the need to
fund future obligations.
The current budget document and Capital
Improvement Program ( CIP) provide a pro-active,
forward- looking program to address the
dynamic needs of the City. However, the
Budget also reflects $ 900,000 in General Fund
expenditure reductions in response to City
Council direction in January and June 2004.
In January, the City Council endorsed the City
Manager’s “ Guide to Developing a Sustainable
Budget Strategy.” The guide proposed a series
of steps, including expenditure reductions of
$ 800,000 and $ 400,000 in 2004/ 05 and 2005/
06, and revenue increases of $ 800,000 and
$ 400,000 in 2005/ 06 and 2006/ 07, respectively.
By taking these steps, it was projected in
January that revenues would be brought into
line with expenditures by June 30, 2008, so
that deficit spending would disappear. In
addition, the City Council adjusted the General
Fund reserve requirement in January to allow
fund balance to be drawn down over the next
several years while steps are taken to balance
revenues and expenditures. The new reserve
requirement is still at a very safe level equal
to 25% of estimated annual revenues.
It was necessary to eliminate funding for 10.75
positions in the General Fund for 2004/ 05 and
to reduce certain less critical services to the
public. Additional revenues were achieved in
various funds through adjustments to
development impact, community
development, and water fees. The Budget also
proposes staffing, operational costs, and
revenues needed to operate the new Aquatics
Center for its first full year of operation. In
the end, it was still necessary to use
approximately $ 1.7 million from General Fund
reserves in 2004/ 05.
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 2% as of January 1, 2004, to a level of
35,489. The economic success and distress of
Silicon Valley has impacted local residents and
businesses as well. The recession has resulted
in the loss of 17% of the jobs throughout Santa
Clara County and a reduction in sales and
business visitors. Yet, approximately 5,600
persons were employed by the top 40
employers in Morgan Hill as of July 2003.
This was 3% more 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 $ 547,000 in
calendar 2002 to $ 568,000 in calendar 2003.
The monthly median during 2004 has ranged
from $ 585,000 in January to $ 660,000 in
March. The monthly average of 41 sales
during calendar 2002 increased to a monthly
average of 44 sales for 2003.
The City provides a broad range of services,
including police protection, development and
housing, water and sanitation services, streets
and parks construction, 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.
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Budget Message ( continued)
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 significant deficit. It
is very likely the State will divert revenue that
would normally go to local government. A
$ 600,000 drop in 2003/ 04 Motor Vehicle- in-
Lieu fees was caused by the State’s elimination
of the “ State backfill” for these fees for a three
month period. In addition, the State shifted
approximately $ 1 million away from the
Redevelopment Agency to the Educational
Revenue Augmentation Fund. The Governor
proposed in his 2004/ 05 budget submittal,
released in January 2004, that property taxes
for local governments be reduced, potentially
costing the City’s General Fund $ 320,000 per
year and the Redevelopment Agency $ 1
million per year. This ongoing proposed
General Fund reduction has been included in
the schedule entitled “ General Fund Balance
Projections ( Governor’s Proposed Budget) –
2001/ 02 through 2007/ 08" provided in the
special analyses section of the budget.
However, the proposed 2004/ 05 Budget reflects
an alternative $ 357,000 drop in tax revenues
associated with the current State proposal to
shift $ 733,466 in ongoing annual City Motor
Vehicle- in- Lieu fee backfill revenue to City
property tax revenue and then to reduce
property taxes by $ 357,000
in each of the next two fiscal
years. As of this date, the
State’s fiscal crisis continues
to make this process
complicated and
problematic. The ultimate
effect of the State budget
negotiations was not known
at the time this budget went
to print and has therefore not
been included in the
proposed budget for 2004/ 05.
Once more information is
known about the extent of
State imposed reductions on
Morgan Hill revenues, staff
will bring additional
recommendations for budget
adjustments to the City
Council.
As projected for 2003/ 04, sales tax revenue
has declined by approximately 9% in 2003/
04 to a level of approximately $ 4.2 million,
or 24% less than the peak of $ 5.5 million
received in 2000/ 01. However, primarily due
to new businesses and modest economic
growth, we are forecasting growth of
approximately 9% to a new level of $ 4.6
million for 2004/ 05. Transient occupancy tax
revenue has increased by approximately 2%
in 2003/ 04, as projected, to a level of
$ 900,000, or 34% less than the peak of $ 1.4
million received in 2000/ 01. Growth of 5%,
to a new level of $ 945,000, is estimated for
2004/ 05.
BUDGET PROCESS
The Fiscal Year 2004/ 2005 Budget is based
upon an in- depth analysis of actual and
projected fund balances, revenues, and
expenditures. Each General Fund department
was given a target level of expenditure
reductions by the City Manager so that the
$ 900,000 in expenditure
reductions could be identified.
Each City department prepared
line item detail for each
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Budget Message ( continued)
department’s activities and recommended
certain service levels and activity goals for
the 2004/ 05 budget year. The Finance
Department prepared revenue projections
based upon input from other departments. The
City Manager, working with Executive
Management, then reviewed individual
departmental requests, prioritized activities
based upon City Council policy, and made
certain adjustments. At the conclusion of this
process, the proposed budget was prepared,
and it is being submitted to the City Council
for review.
BUDGET HEADLINES
• Prepare Walnut Grove Planned Unit
Development
• Implement Downtown Plan
• Work with Santa Clara County to develop
Morgan Hill Courthouse
• Begin construction of the 16 unit
affordable housing Royal Court
townhouse project
• Complete design and begin construction
of Indoor Recreation Center
• Prepare Indoor Recreation Center
Operational Plan
• Complete design of new Library
• Contribute $ 950,000 to help develop a
relocated and expanded regional Soccer
Complex
• Design a large Sports Complex for
organized outdoor sports
• Carry out operations in new Police
Facility and Aquatics Complex
• Conduct Police Citizen Satisfaction
Survey
• Complete Police Mobile Com-munications
Terminal Upgrade
• Develop strategy for Sub- regional Fire
Protection
• Prepare Ridgeline Mapping and
Protection Plan
• Complete Urban Limit Line Study
• Redesign Building permit applications &
develop automated system for
calculating fees
• Implement comprehensive Financial
Software System
• Complete recruitments for new Police
Chief and Community Development
Director
• Negotiate Labor Agreements with
AFSCME and CSOA
• Evaluate alternative health care benefits
for employee
• Complete construction of Boys Ranch
Reservoir
• Conduct Alignment Study for Butterfield
Boulevard to Watsonville Road
• Construct Tennant/ 101 Traffic Signal
• Construct Sewer Lift Station G
• Prepare Emergency Response Plan for
Water Service
• Aggressively deliver 5 year Capital
Improvement Plan ( CIP) of $ 136 million
HIGHLIGHTS - FISCAL ISSUES
The total budget for Fiscal Year 2004/ 05
( including capital projects, Redevelopment
Agency appropriations, and transfers out) is
$ 83,762,784, or $ 17,526,313 less than the
2003/ 04 original budget as a result of a
decrease in capital projects for 2004/ 05. The
budget includes a Capital Improvement
Program ( CIP) of $ 22.5 million for new
projects in 2004/ 05. Because of the economic
challenges facing the City, the budget also
includes the net reduction of 8.75 full- time
equivalent positions, for all funds combined,
as shown below. Budget cuts were in less
critical activities. The effect on the General
Fund is the elimination or transfer to other
funds of 10.75 full- time equivalent positions.
City Attorney: One previously unfunded full-time
equivalent position identified as Deputy
City Attorney has been eliminated.
City Manager: A total of 1.50 previously
funded full- time equivalent positions have
been eliminated, including one Assistant to the
City Manager and a half- time Municipal
Services Assistant; and the duties associated
with environmental programs have been
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Budget Message ( continued)
transferred to Public Works with the creation
of a full- time Program Administrator and
addition of a half- time Municipal Services
Assistant within the Public Works Department.
Aquatics Program: A half- time custodian
position has been added within the Building
Maintenance Division to staff the new Aquatics
Center.
Recreation: A net total of 0.25 previously
funded full- time equivalent positions have
been eliminated, comprised of a half- time
Management Analyst transferred to the
Community Development budget, a 0.25 time
addition to the part- time Administrative
Analyst position, the elimination of a
Recreation Supervisor, the addition of a 0.75
time Recreation Coordinator, and the transfer
of a 0.25 Accounting Assistant I from Finance.
Human Resources: A total of 1.50 previously
funded full- time equivalent positions have
been eliminated, including the Human
Resources Supervisor and a half- time Human
Resources Assistant.
City Clerk: A total of 1.50 full- time equivalent
positions have been eliminated, including one
previously unfunded Office Assistant I and a
previously funded 0.50 Office Assistant II.
Finance: A total of 0.50 previously funded full-time
equivalent positions have been
eliminated, comprised of a 0.25 Accounting
Assistant I transferred to Recreation and the
elimination of a 0.25 Accounting Assistant II.
Police: A total of 2.50 previously funded full-time
positions have been eliminated, including
one Police Officer, a half- time Police Records
Specialist, and one Police Cadet.
Public Works: A net total of 0.50 previously
funded full- time equivalent positions have
been eliminated, comprised of the elimination
of two Groundskeepers offset by the addition
of a Program Administrator and 0.50
Municipal Services Assistant associated with
the transfer of environmental program duties
from the City Manager budget.
Other steps taken to balance the proposed
budget and prepare for the future in light of
economic challenges facing the City:
• Eliminate recycling calendar, solid waste
audits & studies, and combine City
Visions with the Recreation Guide.
• Shift credit card merchant fees absorbed
by the City for customer payments to
applicable funds providing service.
• Reduce expenditures for employee
events, training, travel, conferences, and
advertising.
• Increase the annual transfer from the Park
maintenance Fund to the General Fund
from the historical amount of $ 100,000
( but decreased from $ 200,000 in 2003/
04), to $ 125,000.
• Use approximately $ 1.7 million in
General Fund reserves.
• Reduce the Community Promotions
budget, including subsidies for
community events, by 48%.
• Reduce Park Maintenance contract
services and water usage.
• Eliminate subsidy for summer recreation
program.
• Reduce front office hours at the
Community and Cultural Center.
• Eliminate after school program at
Village Avante.
• Eliminate various contract services and
reduce special counsel services.
• Shift certain costs from the City to the
Redevelopment Agency.
• Transfer $ 50,000 from the General Fund
to the Community Centers Fund for start-up
costs of the Indoor Recreation Center
currently being designed.
• Invest in a comprehensive new Financial
Software System to solve current system
problems and be more efficient and
effective.
• Reduce police vehicle maintenance cost
by extending vehicle useful lives.
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Budget Message ( continued)
2. The City’s costs, especially for employee
benefits, are going to increase
significantly over the next five years; and
3. 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 dramatic
service level reductions or to immediately
increasing taxes.
However, unless there are long- term structural
changes to bring the budget into balance, the
current level of spending on basic city services
is not sustainable. Over the past two years,
General Fund reserves have been used to
balance the budget. In the current year alone,
it will be necessary to use $ 930,000 in reserves
even after aggressive efforts to reduce costs
through a hiring freeze and delayed purchases.
After nearly a decade of
steadily building reserves,
the following series of
critical adverse factors
have caused us to begin
consuming reserves at an
unsustainable rate: the
lingering economic
slowdown, State actions to
cut local revenues,
substantial cost increases
( especially for employee
retirement), and changes
in the City’s revenue base.
Based on currently
foreseeable trends over the
next five years, if no
action is taken, the
General Fund reserves
will not simply fall below
reasonable target levels;
they will be depleted.
HIGHLIGHTS - CHANGES IN BUDGET
FORMAT
• Activity for Volunteer Services is now
accounted for as part of Recreation
activity.
• Activity for Building Maintenance
associated with the Community and
Cultural Center and with the Aquatics
Center are now accounted for in Building
Maintenance Fund # 740, and
expenditures for these activities are then
allocated to the Community and Cultural
Center and Aquatics Center operating
budgets as line- item charges.
FUND SUMMARIES
GENERAL FUND
Five Year Financial Plan Overview
The City is faced with three budget challenges:
1. The local economy is not generating
sufficient revenue to sustain current
services on an ongoing basis;
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Budget Message ( continued)
January calls for a combination of cuts and
new revenues. As discussed in greater detail
below, the cuts must be ongoing reductions
that permanently reduce the base level of
spending. Revenue increases can come from
economic activity greater than forecast or
from new revenue sources.
Here is a summary of the recommended
Sustainable Budget Strategy:
FY 04/ 05 Reduce base level spending by
$ 800,000 ( about 5% of the total).
FY 05/ 06 Reduce base level spending by
another $ 400,000 ( about 2% of the
modified spending for that year).
Increase revenues by $ 800,000
( slightly more than 4% above the
forecast revenue for that year).
FY 06/ 07 Increase revenues by another
$ 400,000 ( about 2% more than the
modified forecast for that year).
FY 07/ 08 Balance of revenues and
expenditures achieved at
approximately $ 20.6 million.
Consistent with the assumptions of the base
forecast, these planned actions would result
in the following revised forecast stated below.
As of June 30, 2008, the General Fund budget
would not yet be balanced because
expenditures are projected to exceed revenues
in 2007/ 08 by $ 1 million, as shown above.
However, this forecast will be revisited and a
new one prepared for the City Council
following the receipt of more information
concerning the impact that the State budget
will have on local government. The State
budget impacts may increase or decrease the
level of revenues shown above for 2007/ 08
and would therefore affect the balance between
The fiscal squeeze is real, and it must be
addressed if the community’s priorities for
services and governance are to be met. The
City Council is responsible for estab- lishing
policies that meet community needs and that
will lead to balanced budgets; and it is the
responsibility of City staff to implement such
policies in a manner that achieves the desired
results, builds confidence, and prepares for the
future. Fulfilling these responsibilities requires
a strategy that will lead to financial
sustainability.
For the Budget Strategy to be sustainable, it
must provide for a “ balance” of revenue and
expenditures, while simultaneously
maintaining an appropriate level of reserves.
The City Council therefore adopted a policy
in January 2004 that reduced the target level
of reserves to 25% of the General Fund
revenues and planned for the Budget to be
balanced by 2007/ 08. That would allow for a
gradual use of reserves while expenditures are
reduced or revenues increased.
The two simultaneous budget targets allow
for what we have called a “ soft landing,” but
they do not eliminate the need for structural
changes in the budget. For example, allowing
a greater drawdown of reserves to 25% does
not eliminate the need to modify the
expenditure and revenue trends. Using a
greater amount of reserves would allow the
major decisions to be deferred or for structural
changes to be implemented over a greater
period of time, but the underlying problem is
an imbalance between slow growing revenue
and substantial cost increases.
The recommended Sustainable Budget
Strategy adopted by the City Council in
( Dollars in $ 1,000,000' s) FY 03/ 04 FY 04/ 05 FY 05/ 06 FY 06/ 07 FY 07/ 08
Beginning Fund Balance $ 10.70 $ 9.80 $ 7.90 $ 6.90 $ 6.60
Add: Revenues 15.30 16.90 18.30 20.00 20.30
Less: Expenditures ( 16.20) ( 18.80) ( 19.30) ( 20.30) ( 21.30)
Ending Fund Balance $ 9.80 $ 7.90 $ 6.90 $ 6.60 $ 5.60
General Fund Forecast
Recommended Sustainable Budget Strategy
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Budget Message ( continued)
revenues and expenditures in that year. The
above assumes that $ 320,000 in property taxes
is taken from the General Fund in that year.
The schedule above projects that the General
Fund would have a reserve of 28% at June
30, 2008, which would exceed the 25% reserve
target.
It is anticipated that concurrent with the
presentation of the City Manager’s
Recommended Budget for FY 04, the Governor
will be presenting his revised budget proposals
to the Legislature. It may take weeks or
months before the full effect is known.
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 2004/ 05 Budget Overview
Available fund balance as of June 30, 2004, is
now projected to be $ 9,821,672, including
$ 3,622,000 in required reserves. This includes
the effect of a $ 930,000 projected operating
deficit for 2003/ 04. The 2003/ 04 budget
originally anticipated a $ 370,000 operating
deficit. This deficit was magnified by a loss
of $ 630,000 in motor vehicle in- lieu fees
caused by State actions and by a $ 410,000
drop in sales taxes; offset by higher property
tax receipts and expenditure savings. The
budget for 2004/ 05 estimates that total fund
balance will further drop by another $ 1.9
million to $ 7,896,317 as of June 30, 2005,
even with the inclusion of $ 900,000 in
expenditure reductions in the proposed budget.
Revenues in 2004/ 05 for the General Fund,
including transfers in, are estimated to be
$ 16,839,953. This represents a 10% increase
over the previous year’s projected revenues,
which is primarily related to a $ 900,000
increase in the Aquatics revenue associated
with the first full year of operations for the
new Aquatics. By excluding this Aquatics
revenue, revenues would instead increase by
approximately 4%. Sales taxes are estimated
to increase by 9%, resulting primarily from
newly opened businesses, and transient
occupancy taxes are estimated to increase by
5% in 2004/ 05. In general, the 2004/ 05 Budget
estimates reflect very modest growth for most
General Fund revenues, as
we expect that the economy
will recover slowly
beginning in the next fiscal
year.
Appropriations for 2004/ 05,
including transfers out, are
$ 18,765,308, which
represents a 14% increase
compared to the prior year
original budget. However, if
the $ 900,000 increase in
Aquatics costs associated
with the first full year of
operations were excluded,
the change in budget would
be only 8%. While most
General Fund departments
reduced their budgets for
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18
Budget Message ( continued)
next year, in connection with the $ 900,000 in
cuts approved by the City Council, the Police
and Fire budgets increased. The Police budget
increased by $ 1,250,000 primarily because of
$ 580,000 in higher retirement costs, $ 79,000
in debt service on the new police facility,
$ 140,000 in negotiated salary increases,
$ 125,000 in higher health benefit costs, and
$ 155,000 in higher vehicle replacement
charges related to the prior year’s one- time
reduction in charges. The Fire budget
increased by $ 450,000 based upon the
assumption that the proposed cost of a
renegotiated contract, with no increase in
service, included in a submittal from County
Fire, would be accepted.
Transfers out in 2004/ 05 include $ 49,025 to
the Information Systems Fund for financial
software purchases and $ 50,000 to the
Community Centers Fund to provide money
for the future start- up costs of the Indoor
Recreation Center currently under design. In
addition, the budget anticipates that the City
Council would approve, for 2003/ 04 an
additional $ 35,250 transfer to the Information
Systems Fund for financial software purchases
and a $ 60,000 transfer to the Employee
Assistance Fund, using housing loan funds
recently paid back to the City by the retired
police chief.
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 $ 133,000 for 2002/
03, $ 936,000, as projected, for 2003/ 04, and
$ 1,685,000, as projected, for 2004/ 05, these
surpluses have allowed fund balance to grow
from $ 504,095 as of June 30, 1992 to
$ 7,896,317 as of June 30, 2005, as estimated.
In order to strategically plan for the future, it
is appropriate for the City to explain the
purpose of reserves. Based upon the City
Council’s recently established policy, a total
of $ 4,109,213 has been reserved within the
General Fund as a general reserve for purposes
that include economic uncertainty and
emergencies. The reserve has been calculated
as 25% of estimated 2004/ 05 revenues.
Most of the General Fund is committed to
Public Safety. Police appropriations are
$ 7,988,250 and Fire appropriations are
$ 4,194,617, for a total of $ 12,182,867. The
General Fund Operating Gain ( Loss) – FY 1992/ 93 thru 2004/ 05
( 2.0)
( 1.5)
( 1.0)
( 0.5)
0.0
0.5
1.0
1.5
2.0
94/ 95 95/ 96 96/ 97 97/ 98 98/ 99 99/ 00 00/ 01 01/ 02 02/ 03 03/ 04* 04/ 05*
$ Millions
Fiscal Year
Operating Gain ( Loss) * Projected
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19
Budget Message ( continued)
total of these amounts accounts for 65% of
General Fund appropriations, as shown in the
pie chart below. In 2003/ 04, the original budget
provided for a total Public Safety budget of
$ 10,485,727, which accounted for 64% of the
total General Fund budget.
The remainder of the General Fund accounts
for General Government operations ( City
Council, City Clerk, City Manager, Finance,
Human Resources, and City Attorney), 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 Community &
Cultural Center and Aquatics Center are
reflected in the General Fund, creating
opportunities and commitments. It is
anticipated 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 expenditures for
Recreation, including the Community and
Cultural Center and Aquatics, is included in
the special analysis section. For the Aquatics
Center in 2004/ 05, the $ 1,179,260 in proposed
operating costs are to be financed with
$ 1,181,625 in program income.
The most significant sources of General Fund
revenues for 2004/ 05 are:
• Sales Taxes of $ 4,600,000, or 28% of
total estimated revenues
• Property Taxes of $ 2,960,896, or 18%
of total estimated revenues
• Motor Vehicle State Subventions of
$ 1,423,800, or 9% of total estimated
revenues
• Reimbursement for General
Administration Overhead of $ 1,793,851,
or 11% of total estimated revenues
• Franchise Fees of $ 965,000, or 6% of
total estimated revenues
FY 2004/ 05General Fund Expenditures by Department
Police
42.6%
Recreation
14.7%
Park Maintenance
Other 3.8%
0.5%
Human Resources
2.9%
City Attorney
3.0%
City Manager
2.3%
Finance
4.9%
City Council &
Clerk
3.0%
Fire Administration
22.4%
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Budget Message ( continued)
• Transient Occupancy Taxes of $ 945,000,
or 6% of total estimated revenues
The chart below shows how much of the 2004/
05 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.
As shown, approximately 75%, or
$ 14,063,812, of the $ 18,765,308 General Fund
budget is financed by discretionary revenues.
In the prior year, the discretionary revenue
budget equaled $ 12,193,347, or 74% of total
General Fund budgeted costs. Public safety
accounts for $ 11,485,347, or 82%, of total
discretionary revenues.
COMMUNITY DEVELOPMENT FUNDS
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 $ 3,221,845, which
represents a 9% increase over the prior year
original budget. Revenues in 2004/ 05 are
estimated to be $ 2,737,309, or 22% more than
prior year budgeted revenues. Proposed
revenues for 2004/ 05 reflect increases in
community development fees that are effective
July 6, 2004, but do not yet reflect full cost
recovery, as calculated in a consultant study.
Staff has preliminarily projected that additional
planning and engineering fee increases are
necessary on July 1, 2005, in order for costs
to be fully recovered. It should be noted fund
balance for the Community Development
Fund is projected to drop to $ 728,909 as of
June 30, 2005.
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. The costs associated with this activity
are partially financed through a 5% surcharge
on all building and planning permit fees.
STREET MAINTENANCE FUND
The Street Maintenance Fund is a special
revenue fund used exclusively for street
maintenance and traffic safety activities.
General Fund Discretionary Support LESS LESS
TOTAL DEPT TRANSFER NET % OF
Department COSTS REVENUES IN COSTS TOTAL
City Council/ City Clerk $ 555,649 $ 477,963 - $ 77,686 0.6%
City Attorney 566,191 324,687 - 241,504 1.7%
City Manager/ Comm & Marketing 389,704 220,644 - 169,060 1.2%
Recreation & Com Cultural Center 1,629,337 796,658 - 832,679 5.9%
Aquatics Center 1,179,260 1,181,625 - ( 2,365) 0%
Human Resources 485,417 292,398 - 193,019 1.4%
Finance 927,325 496,901 15,000 415,424 2.9%
Police 7,988,250 421,520 215,000 7,351,730 52.3%
Fire Administration 4,194,617 61,000 - 4,133,617 29.4%
Government Public Access 44,961 25,000 - 19,961 0.1%
Park Maintenance 705,572 - 125,000 580,572 4.1%
Transfers Out 99,025 - 48,100 50,925 0.4%
TOTALS $ 18,765,308 $ 4,298,396 $ 403,100 $ 14,063,812 100.0%
FINANCED BY DISCRETIONARY REVENUES $ 14,063,812
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Budget Message ( continued)
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
engineering, safety studies and 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
as $ 1,403,635, including $ 674,000 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 amounts into the Street
Maintenance Fund in years prior to 2003/ 04,
no funds are proposed to be transferred from
the General Fund in 2004/ 05.
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 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 2004/ 05, the
budget proposes that the annual $ 100,000
transfer from this fund to the General Fund be
increased to $ 125,000 to assist in financing
park maintenance costs paid from the General
Fund. The fund balance is projected to be
approximately $ 3.1 million as of June 30,
2005. 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 cus-tomers).
The City
water system meets or
exceeds water quality
standards. Budget
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Budget Message ( continued)
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 2004/ 05 Water
Operations budget of $ 7,292,417 reflects a
rate increase of 2% scheduled to occur on
January 1, 2005, and also includes a 5% rate
surcharge scheduled to occur on the same date.
In addition, the 2004/ 05 budget includes $ 6
million in bond proceeds necessary to pay for
water capital projects.
The Sewer Operations Fund budget of
$ 6,230,819 is slightly less than the prior year
original budget, while the Water Operations
Fund budget of $ 7,292,417 represents a 15%
increase from the prior year, primarily as a
result of perchlorate related costs. Sufficient
fund balance, combined with estimated
revenues, exists within each of these funds to
fully finance these costs. A consultant study
of the sewer and water rates was recently
completed and, based upon that study, water
rates increased by 2% in April 2003, increased
again by an additional 2% in January 2004,
and are scheduled to be increased by an
additional 2% in each January of 2005, 2006,
and 2007. In addition, as a result of the
perchlorate process, water rates were
surcharged 5% beginning April 1, 2004, and
are scheduled to be surcharged by additional
5% amounts on January of 2005, 2006, and
2007. The rate surcharges will be for the
specific purpose of paying for costs related to
managing the perchlorate clean- up and
monitoring process. However, the Finance
Director is required to report to the City
Council as to the necessity of each rate and
increase and surcharge 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.
The Information Systems budget includes
$ 51,550 in 2003/ 04 and $ 287,025 in 2004/
05, for a total of $ 338,575, to provide a new
comprehensive Financial Software Systems
package to address significant current systems
problems and to provide tools for all
departments to more efficiently perform their
duties. In particular, a new project accounting
module would greatly assist Public Works staff
in managing costs associated with the large
array of complex projects that the Public
Works Department oversees. The cost would
be distributed to the General, Redevelopment
Agency, Sewer, Water, Information Systems,
and CIP Administration funds, as described in
the special analysis section of the budget.
CAPITAL PROJECTS FUNDS
Total new capital projects are budgeted at
$ 22.5 mil as reflected in the CIP attached as
an appendix. The capital projects budget is
comprised of:
• Parks and Recreation projects totaling
$ 3,396,000
• Public Facilities projects totaling
$ 8,238,000
• Sanitary Sewer projects totaling
$ 4,023,000
• Streets projects totaling $ 2,232,000
• Storm Drainage projects totaling
$ 3,170,000
• Water projects totaling $ 1,460,000
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 2004/ 05
include:
• Parks Land Purchase ($ 1.8 million for
acquisition)
• Regional Soccer Complex ($ 1.0 million
for construction)
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• Sewer Plant Improvement Project ($ 2.5
million for construction)
• Butterfield Detention Basin ($ 2.0 million
for site acquisition)
• Community Indoor Recreation Center
($ 4.6 million for construction)
• Library ($ 3.5 million for professional
services/ site acquisition)
• Sewer Plant Improvement Project ($ 1.8
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 $ 22.5 million in capital
projects described in the CIP for 2004/ 05, $ 8.7
million will be financed by the Redevelopment
Agency.
APPROPRIATIONS LIMIT
The City’s appropriations limit for this budget
cycle has been prepared in accordance with
the uniform guidelines. The appropriations
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
$ 54,717,489 for 2004/ 05 is significantly
greater than the actual appropriations of
$ 12,102,086 subject to the limit for this year.
Therefore, it appears that the City will not
exceed its appropriations limit in the
foreseeable future.
Budget Message ( continued)
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
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General Information
About the City
Budget Overview
Fiscal Policies
Description of Funds
Glossary
Resolution Adopting City Budget
Appropriations 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 and recreation. The
Community and Cultural Center, constructed
in December 2002 for $ 13 million, features
space for community members to create art
and ceramics, to dance and exercise, and to
meet. Part of this project included converting
an historic church
into a 199- seat
theater with a 46-
foot stage. In June
of 2004, the $ 8.7
million Aquatics
Center was open
to the public and
features over
65,000 square feet
of pool and pool
deck space.
The Valley in
which Morgan Hill
is located is more
than 4 miles wide
and is surrounded
by the Santa Cruz
mountain range to
the west, and the
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Morgan Hill At A Glance
Incorporated: ...................................... 1906
Population: ........................................ 35,489
Households: ...................................... 11,839
Median Household Income: ............. $ 81,958
Persons per households: .................... 3.021
Square Miles: .......................................... 12
Elevation ( above sea level): .................... 320’
Average Rainfall: ............................... 22.28”
Average Tempature
January: High ..................................... 58.1
Low ...................................... 46.4
July: High ..................................... 81.5
Low ...................................... 54.4
Retail sales tax: ................................ 8.25%
Public Schools: ....................................... 15
Churches: ............................................... 21
Libraries: ................................................... 1
Newspapers/ New Publications: ................. 3
Top Employers ( May 2004)
Morgan Hill Unified School District 795
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
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 2004/ 05 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, 2004,
projected revenues, expenditures, transfers
in, transfers out and projected ending fund
balance at June 30, 2005. 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/
04 projected and budgeted, and 2004/ 05
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 2004/ 05.
Beginning in January 2004, 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
2004/ 05 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 2004. The
City Manager’s recommended budget was
presented to the City Council on May 14,
2004. Following a Council workshop on May
21, 2004 and a public hearing on June 2, 2004,
the fiscal year 2004/ 05 budget was adopted
June 16, 2004.
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 2004/ 05 is $ 1,793,581. 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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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, 2005:
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 $ 634,816,599.
Year Year 04/ 05 Outstanding
District of Issue of Maturity Debt Services Principal
Cochrane Bus Park 1986 2012 $ 184,243 975,000
Joleen Way 1992 2009 31,000 100,000
Due 04/ 05 Outstanding
District Date Debt Services Principal
2002 SCRWA 2023 1,809,738 23,300,000
1993 Water Facilities 2017 31,000 1,301,964
1999 COP 2021 382,233 4,185,000
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:
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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 – As adopted at the City
Council Policies & Goal Setting retreat
on February 18, 2004:
General Fund Reserves may be used to
support General Fund expenditures as
long as:
1. Revenues and expenditures balance
by June 30, 2008, and
2. Reserve levels are not depleted below
25% of revenues in any year with the
following exception:
a. reserves below 25% may be
invested in long term cost savings
projects or high return economic
development projects, and
b. reserves shall never be depleted
below 10% of revenues which shall
be maintained as an ongoing reserve
for emergencies.
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.
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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.
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.
Fiscal Policies ( continued)
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Fiscal Policies ( continued)
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.
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:
• 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.
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.)
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.)
Description of Funds ( continued)
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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.
Community Center Impact Fund ( 360)
This is a new fund set up to collect revenues
derived from a fee charged to developers to
cover the costs to construct new community
centers within Morgan Hill.
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.
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.
Description of Funds ( continued)
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Description of Funds ( continued)
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)
• MH Ranch Reassessment 2004 ( 844)
• 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.
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Capital Budget: A plan of proposed capital expenditures and the means of financing
them.
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.
Glossary ( continued)
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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.
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.
Glossary ( continued)
• CITY OF MORGAN HILL • FY 2004/ 05 • OPERATING AND CIP BUDGET • CITY OF MORGAN HILL • 2004/ 05 • OPERATING AND CIP BUDGET • CITY OF MORGAN HILL • 2004/ 05 • OPERATI