Fiscal Implications

The formula adjustment proposed under the “quarters” plan (i.e., Lieberman 2, ¼ from each of the following categories:  Assessed Valuation, Population, Call Volume, Fire Companies), is anticipated to require an increased contribution from San Carlos of $170,000 to $276,000, as compared to the current 50/50 formula, in the first year of operation dependent upon updated call volume data, departmental budget and cost recovery implementation.  This delta value will increase annually consistent with future departmental budget increases (or decrease if budgets decline).

Application of the formula to outstanding and current unfunded liabilities is estimated to have an additional value approaching $500,000. 

Background

The City of San Carlos and the Belmont Fire Protection District (BFPD) have historically shared expenses of the Belmont-San Carlos Fire Department (BSCFD) on an equal 50/50 basis since the Department's inception.  Recent negotiations with the BFPD have resulted in an adjusted formula proposal, to be effective July 1, 2007, that would stipulate that expenses would be shared dependent upon four factors weighted equally:  Assessed Valuation, Population, Call Volume, and Fire Companies.  The BSCFD discussed amendments to the BSCFD Joint Powers Agreement in an effort to effectuate implementation of the revised funding formula at its regular meeting of January 10, 2007. 

While there seems to be consensus on the funding formula moving forward, application of that formula to previously incurred liabilities remains unresolved.  The Department has identified liabilities totaling up to $18.8 million as outlined on Attachment 1.  Generally, San Carlos has suggested that these liabilities should be retired on a 50/50 basis in that they were incurred under a 50/50 formula basis.  Belmont representatives have suggested that the liabilities should be paid moving forward and over time pursuant to the new funding formula.  The differential equates to a value of approximately $432,400 if the formula split is adjusted in a static way at 52.3/47.7 (i.e., $18.8 million x 2.3% = $432,400). 

Belmont representatives, and the Department’s finance staff, have identified concerns specific to the mechanics of tracking and retiring the debt obligation on a 50/50 formula.  City staff has offered the following options for consideration:

1.       A cash credit:  The concept is that the value of the liability is known (see Attachment 1, albeit the liability should be re-assessed as of June 2007).  A payment schedule exists.  A schedule could easily be devised that would reflect two payment alternatives, one on a 50/50 basis and a second with the annual formula pursuant to the JPA.  The difference in the annual amount would be paid as a credit until the debt is retired. 

2.       Pension Obligation Bonds:  The Department may be able to issue Pension Obligation Funds to pay off the PERS Side Funds (the largest of the unfunded liabilities).  This may be one means to retire the PERS debt on an alternative schedule.

3.       PERS payment schedules:  The Department may be able to set up alternative payment schedules for obligations through PERS.  Additionally, or alternatively, the Department may be able to make annual contributions in advance.

4.       Other alternatives?  The Department could ask for outside professional consulting assistance (Bartel?) to identify other alternatives for payment of side funds and other liabilities on a separate schedule.

The Department Board agreed to allow staff the opportunity to explore the options listed above and report back to the Board on February 14, 2007.  Ultimately, however, the question revolves around whether there is conceptual agreement on funding the existing liabilities on an equal basis.  

Finally, there was mention at the Fire Department Board meeting of the need to enhance the Departmental budget to “$12 million”.  It is not entirely clear to City staff whether this target amount relates to the City/District’s combined contribution, or to the entire Departmental budget (including alternative revenues from the hazardous materials contract, et. al.).  The issue continues to be raised, however, in the context of the need to raise additional revenues to support desired fire protection services (i.e., the objective appears to be related to the desire to achieve budget targets established when pursuing last year’s assessment program).  A $12 million contribution target would require a City contribution of $6,276,900 under the formula as currently envisioned.  This year’s contribution is $5,267,000.  Even with inflationary growth in City revenues (i.e., sales and property tax), this $1 million differential will require significant reductions in other and existing City programs to fund.  Belmont representatives have indicated an interest in a new revenue measure to fund fire at these enhanced levels.

Staff is reporting on this matter in an effort to keep the City Council apprised of discussions at the Fire Board.  No action is required on this item, but discussion and policy direction is permitted pursuant to the City Council’s discretion.

Alternatives

Options available to the City Council include:

1.       Receive this report and await a recommendation from the Belmont-San Carlos Fire Department with respect to addressing the funding of currently unfunded liabilities; or

2.       Receive this report and provide any direction deemed appropriate; or

3.       Provide staff with alternative direction.

Respectfully submitted,

Mark Weiss, City Manager

Attachments

·         Attachment 1 – BSCFD Schedule of Obligations  (Adobe Acrobat PDF File, 7K)