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1 Meeting Date: January 8, 2020 2

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TOWN OF MORAGA STAFF REPORT_ 5 6 To: Honorable Mayor and Councilmembers 7 8 From: Cynthia Battenberg, Town Manager 9 10 Subject: Receive Update and Discuss Next Steps to Address Unfunded Needs 11

and Provide Direction to Staff 12 13 Background 14 15 The Town Council and Community Goals for 2019 included a goal to “Maintain and 16 improve fiscal discipline by adopting a balanced budget, continuing high quality fiscal 17 reporting, building up General fund reserves, and positioning the Town for long-term 18 fiscal sustainability and operational efficiency, including the following priorities.” A 19 portion of this goal was to “Identify infrastructure shortfall, if any, including funding 20 needs for streets, storm drains and asset replacement.” 21 22 In order to determine whether additional General Fund investment in the Town’s streets 23 was needed, the 2018 Pavement Management Report was completed. The report was 24 adopted by the Town Council on March 13, 2019. The comprehensive report revealed 25 that since 2013, 43% of the Town’s street network had received a pavement treatment 26 and the Town’s Pavement Condition Index (PCI) had increased from Poor (49) in 2012 27 to Good (74) in 2018. The report concluded that the Town’s comprehensive and 28 innovative pavement management approach is resulting in better than anticipated 29 pavement conditions which are likely to improve in the future and that no additional 30 General Fund contribution is recommended at this time. Over the summer of 2019, the 31 Town completed multiple street projects that improved another 10% of the street 32 network. This included streetscape improvements to Moraga Way, Canyon Road, and 33 a portion of Moraga Road in addition to the surface seal treatment of a portion of the 34 Town’s streets. This investment resulted in an increase in the Town’s PCI rating from 35 74 in 2018 to 75 in 2019. 36 37 In addition to assessing the condition of the Town’s roadway infrastructure, funding was 38 included in the Fiscal Year (FY) 2019/20 Budget to complete the three studies to further 39 refine the Town’s understanding of the capital asset replacement and storm drain 40 infrastructure unfunded needs and gain a better understanding of the future impact of 41 the Town’s unfunded pension liability. The cost of the three studies and the date they 42 were delivered to Council are: 43

Town of Moraga Agenda Item Ordinances, Resolutions,

Requests for Action 11. A.

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1 Capital Asset Replacement Study $20,000 September 25 2 Pension Liability Obligation Study $16,000 October 23 3 2019 Addendum to the Storm Drain Master Plan $45,000 November 13 4

5 Capital Asset Replacement: 6 The Capital Asset Replacement Study identified a $618,000 annual unfunded need for 7 the next 20 years to properly maintain the Town’s assets (buildings, parks, vehicles, 8 etc.), assuming a $1 million one-time contribution in FY 2020/21. Preliminary work to 9 prioritize the assets reduced the projected unfunded need over the next 10 years to 10 $465,000 annually, again assuming a $1 million one-time contribution. 11 12 Pension Liability Obligation: 13 The Pension Liability Obligation Study focused on developing strategies to assist the 14 Town in managing long term costs and volatility related to the Town’s unfunded pension 15 liability (which exists due to ongoing changes to CalPERS’ assumptions and CalPERS’ 16 portfolio performance). The study recommended the Town consider making additional 17 contributions to a supplemental trust. Scenarios were developed to offset or smooth 18 projected liability payment increases in future years, including: 1) a one-time $1 million 19 contribution in FY 2020/21; 2) an annual contribution of $100,000; or 3) an annual 20 contribution of $265,000. These funds would be held in trust and used to pay a portion 21 of the projected increases, reducing the annual impact on the Town’s General Fund. 22 23 2019 Addendum to the Storm Drain Master Plan: 24 The 2019 Addendum to the Storm Drain Master Plan reprioritized the capital 25 improvement projects in the 2015 Storm Drain Master Plan (SDMP) and incorporated 26 information gained over the past four years, including the data collected during the 27 storm drain field mapping project. The 2019 Addendum identified $540,000 in annual 28 funding needs for the next 10 years to implement an enhanced Operations and 29 Maintenance program and complete high and moderate priority capital improvement 30 projects. 31 32 The results of the studies have been shared with the community via the Town’s website, 33 articles in the Town’s About Town newsletter, as well as on Facebook and NextDoor. 34 The findings of the studies were also shared with the community in two community 35 meetings held on December 3 and 4 as well as with Kiwanis members on December 5. 36 FAQs for each study were produced and distributed and a feedback form was created 37 to solicit information from the community regarding how they prioritize these unfunded 38 needs (High, Medium or Low). The form also provided the opportunity for individuals to 39 write in other needs they think should be funded. The FAQs are included as 40 Attachment A and the Feedback on Unfunded Needs Assessments form is included as 41 Attachment B. The FAQs and feedback form were posted on Facebook and NextDoor 42 to provide additional opportunities for residents to submit feedback. 43 44

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Discussion 1 2 As of January 2, 23 responses have been received. The Town compiled the information 3 and weighted the rankings as follows: High – 3; Medium – 2; and Low - 1. The 4 community prioritized the needs as follows: 5 6

Capital Asset Replacement 2.61 Medium to High 7 Storm Drain Capital Projects 2.57 Medium to High 8 Storm Drain Operations & Maintenance 2.52 Medium to High 9 Pension Liability 1.78 Low to Medium 10

11 The feedback form provided space for comments and the comments received are 12 included as Attachment C. A small number of the surveys, as well as speakers at the 13 November 13, 2019 Town Council meeting, identified a perceived need for a School 14 Resource Officer (SRO). In response, Chief King has been exploring grant funding 15 opportunities, such as Federal Community Oriented Policing Services (COPS) grants to 16 possibly fund a SRO or an additional Police Officer. Staff is in the process of gathering 17 information and will provide the Council an update in the coming months. 18 19 The numerous initiatives identified by the Town Council to evaluate the Town’s financial 20 position and unfunded needs have been completed. An integrated solution, 21 incorporating this information, is recommended at this time. The recommended next 22 steps include staff’s continued implementation of operational improvements and the 23 analysis of the allocation of existing revenue. 24 25 Expense Savings and Analysis– 26 27 Expenditure Reviews: 28 The Audit and Finance Committee (AFC) completed a review of the Town’s non-29 personnel expenditures in August 2019. Major cost savings were not identified, 30 however, the AFC recommended Request for Proposals (RFP) be issued for auditing 31 and IT services. These RFPs are in process. 32 33 The Council completed a performance evaluation of the Town Attorney and shared the 34 analysis of legal fees with the public. To better track legal expenses throughout the 35 year, Burke, Williams and Sorensen (BWS) agreed to provide written quarterly updates 36 on legal expenses incurred by project and the status of major litigation cases. BWS 37 also agreed to provide a confidential status update on any matter which exceeds a 38 $5,000 threshold in any given month. Additionally, in response to a request from the 39 Town Council, BWS has capped their specialty rates at $310 per hour (a 15% 40 reduction) to more closely align the rates with the rates paid by the Cities of Orinda and 41 Lafayette. This rate reduction went into effect on November 1, 2019 and is projected to 42 result in a potential $25,000 annual reduction in legal fees. 43 44 The Town spends 33% of its General Fund budget on Police services. A comparison of 45 the per capita cost of providing police services reveals that the Town’s police services 46 are provided at the lowest cost in the county. See Table 1 below for a FY 2018/19 47 comparison of Moraga’s law enforcement services to the eight Contra Costa 48

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jurisdictions the Town uses as comparable cities. Moraga’s comparatively low costs are 1 due to a few factors: 1) Moraga’s CalPERS benefit formula is one of the lowest and 2 Moraga officers pay 4% of the employer’s contribution; 2) Moraga does not offer any 3 Other Post-Employment Benefits, (and never has); and 3) Moraga operates with 4 minimum staffing (the recommended police staffing level is one officer per 1,000 5 residents). 6 7

Table 1 - Law Enforcement Comparison Survey – FY 2018/19 Budget

Agency

Population

Budget

Officers

Officers per 1,000 residents

Cost per Resident

Moraga 16,991 $2,963,502 12 0.71 $174.42

Hercules 26,000 $6,548,623 26 1.00 $251.87

Orinda 19,730 $5,074,233 14 0.71 $257.18

Lafayette 23,893 $6960,390 17 0.71 $281.05

Danville 44,396 $9,965,204 30 0.68 $224.46

Pleasant Hill 34,853 $10,723,498 45 1.29 $307.68

Pinole 19,364 $7,612,781 28 1.45 $393.14

El Cerrito 23,500 $11,454,594 43 1.82 $487.43

San Pablo 31,156 $16,119,525 59 1.89 $517.38

8 Operational Improvements: 9 In 2019, significant work was also completed to increase the efficiency and 10 effectiveness of Town operations, and to establish systems to measure and track 11 performance. These efforts included: 12 13

• Implementation of Mobile Moraga, a work order system that enables residents to 14 use an app to report concerns (such as potholes, graffiti, code compliance, etc). 15 The app streamlines the reporting process and enables the collection of data 16 regarding the number and type of service requests. An update on Mobile 17 Moraga is scheduled to be presented to the Council in February 2020. 18 19

• Implementation of GIS mapping, an online interactive map that enables residents 20 to explore information about the Town, including parcel information, zoning, 21 evacuation zones, etc. The GIS maps also assist staff in developing plans by 22 facilitating incorporation of relevant information. 23

24 • Insourced engineering services for land use to reduce the hourly cost of services 25

(consultants are paid $135 - $180/hour), provide more consistency, and stabilize 26 department staffing. 27

28 • Consolidation of the Design Review Board and Planning Commission to 29

streamline the planning process, reduce staff time and costs, and enable the 30 Town to provide an advanced level of training to Commissioners. 31

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• Streamlined the Commercial review process to simplify the land use review and 1 approval processes for new businesses attempting to locate in the Town’s two 2 main commercial zoning districts to enhance the Town’s business environment. 3

4 • Increased the Town Manager’s spending limit to reduce the administrative 5

burden associated with budgeted purchases. 6 • Implemented a non-exclusive use policy at the Hacienda de las Flores to 7

maximize usage and increase revenue. 8 9

• Launched an After School Enrichment Program (ASEP) at the Hacienda to 10 activate the site and increase recreation revenue. 11

12 • Dedicated resources to addressing the backlog of accounting work (statement 13

reconciliation, charging of staff hours and grant reimbursements) to enable a soft 14 closing of the Town’s books at the end of each month. Accurate and up-to-date 15 financial information supports better decision making. 16

17 Additional initiatives being pursued include: 18 19

• Consider an increase in the fiscal thresholds for bidding to further reduce the 20 administrative burden associated with purchasing of goods and services while 21 retaining the benefits of competitive bidding. 22 23

• Complete the pilot program with the City of Orinda for street sweeping services 24 and determine if there are mutual benefits to having Orinda provide services to 25 the Town. 26

27 • Issuance of an RFP to identify a restauranteur to operate at the Hacienda de las 28

Flores, further activating the space and reducing the Town’s maintenance costs. 29 30

• Implementation of a CIP Budget module during the FY 2020/21 budget process 31 to reduce inefficiencies. 32

33 • Formalize the shared GIS Technician position with the Cities of Orinda and 34

Lafayette and adopt a Memorandum of Understanding (MOU) that outlines how 35 shared services are to be managed. 36

37 • Implementation of a new website to increase functionality and transparency and 38

reduce administrative burden. Anticipated launch date of May 2020. 39 40

• Continued exploration of the use of consultants to provide ongoing services and 41 the cost/benefit of bringing these services in-house. 42

43 • Reevaluation of the Town’s three-step planned development process, 44

development regulations and design guidelines. 45 46

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Efficiency Studies: 1 The Council discussed the hiring of an outside consultant to evaluate and recommend 2 operational efficiencies in the Public Works/Engineering Department, (and possibly 3 other departments) and requested a proposal for consideration at a future meeting. 4 However, the departure of the Town’s Public Works Director in November has changed 5 the landscape, such that staff is now recommending a different course of action. 6 7 The hiring of a permanent Public Works Director creates an inherent opportunity to 8 bring a new perspective to operations. The Interim Public Works Director has already 9 begun evaluating and refining contracting practices, design and delivery processes for 10 capital improvement projects, prioritization of projects, as well as billing procedures, 11 staff management and training practices. Additionally, new resources have been 12 recently dedicated to the Public Works Maintenance Division to provide administrative 13 support for Mobile Moraga, accounts payable, invoices and basic administrative duties 14 to free up the Public Works Maintenance Manager’s time to handle higher level 15 assignments and manage field work more closely. Further internal analysis of this 16 division’s operations will continue, and significant recommendations may be brought to 17 the Council for consideration in the coming months. 18 19 One of the first assignments of the permanent Public Works Director will be a complete 20 analysis of how services are being delivered, rendering an outside consultant’s services 21 unnecessary at this time. Staff recommends that we take advantage of the expertise of 22 staff (and the permanent Public Works Director) to identify process improvements, 23 rather than outsourcing that project just as new ideas and perspectives are 24 reinvigorating the department. Outside consultants recommended this approach after 25 learning about the departure of the long-term Director. 26 27 Initial discussions with outside consultants also confirmed that each department would 28 require a separate efficiency study led by experts in that field. The approximate cost 29 per department would be $10,000 - $15,000. The consultants questioned the value of 30 pursuing the studies given the small size of the Town’s departments and the fact that 31 current staff continue to make substantial progress on operational improvements in 32 Administrative Services, Parks and Recreation, and Planning. Given the above, staff 33 recommends shelving any outside studies at this time. 34 35 Existing Revenue Analysis 36 37 Staff has identified three funds that are not required by law to be restricted, but have 38 been treated as restricted by previous Councils. These funds are: Measure K revenue; 39 Fund 100 – One Time Developer Fees (Palos Colorados); and, Fund 140 – Property 40 Tax Lighting Special District (a pre-Prop 13 assessment). Reconsideration of the short-41 term use of these revenues to address the Town’s unfunded needs is recommended as 42 follows. 43 44 1) Measure K - Measure K, the one-cent local transactions and use tax approved by the 45 voters in 2012 for 20 years, was approved for general purposes. The Town may 46 lawfully use the revenue for a variety of purposes, including but not limited to 47 addressing the Town’s critical need to repair its failing streets and storm drains. 48

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Measure K was originally projected to generate $1 million annually. The methodology 1 of determining the sales tax based on destination, as opposed to point of sale, resulted 2 in the Town receiving more revenue than anticipated. In FY 2019/20, the Town is 3 projected to receive $1.97 million in Measure K funds. 4 5 The Town has used Measure K exclusively for streets and roads, including storm drain 6 repairs under the streets that are undergoing treatment. In 2015, the Town began 7 depositing Measure K funds directly into Fund 711 – Pavement Management Fund, as 8 opposed to the General Fund. The Town’s Pavement Management Program has also 9 benefitted from the following increased outside revenue sources: 1) a new SB1 Gas Tax 10 revenue that the Town began receiving in FY 2018/19; and 2) increased Garbage 11 Vehicle Impact Fees the Town began receiving in FY 2018/19 due to the RecycleSmart 12 board’s efforts to require Republic Services to fund repairs of damage to Moraga’s 13 roads by its provision of services. Funding of the Town’s Pavement Management 14 Program has grown from approximately $250,000 annually prior to FY 2012/13 to 15 $2,883,461 in FY 2019/20. A summary of the annual Pavement Management Program 16 revenue is included in the table below. 17 18

Pavement Management Program Revenue 19 20

Fiscal Year

Measure K

SB1 Gas Tax

Garbage Impact Fees

Total

FY 2012/13 $ 333,008 $ 333,008 FY 2013/14 1,492,885 $ 55,667 1,548,555 FY 2014/15 1,916,761 169,333 2,086,094 FY 2015/16 1,629,441 $ 50,000 174,704 1,854,145 FY 2016/17 1,709,325 179,074 1,888,399 FY 2017/18 1,766,158 234,406 2,000,564 FY 2018/19 1,820,000 371,170 432,667 2,623,837 FY 2019/20

$ 1,971,000 $ 279,245 $ 633,216 $2,883,461

21 The Town also receives funding for “transportation projects” from other sources and 22 agencies. These funds have been used to supplement the Pavement Management 23 Program (an average of $711,000 annually) on street improvement projects, such as 24 Moraga Way and Canyon Road/Camino Pablo, Alta Mesa, and Moraga Road. The 25 Town receives annual funding allocations from Contra Costa County Transportation 26 Authority (CCTA) from Measure J and Measure J Return-to-Source funds. The Town 27 has also been awarded grant funding from Metropolitan Transportation Commission 28 (MTC) Safe Routes to Schools; MTC Local Streets and Roads; CalRecycle, CCTA 29 Transportation for Livable Communities; and Lamorinda Fee and Financing Authority 30 funds. These grant funds, as well as Gas Tax and Garbage Vehicle Impact Fees, may 31 only be used for transportation/streets and roads. The upcoming March 2020 ballot will 32 include a transportation revenue measure sponsored by CCTA that if passed, would 33 provide the Town $379,000 annually for transportation projects. 34 35 The 2018 Pavement Management Report projects that a $2.5 million annual 36 contribution is necessary to retain a PCI of 74. The increasing financial assistance 37

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received from other dedicated sources has created an opportunity to redirect some of 1 the Measure K general purpose funds to the Town’s storm drain infrastructure 2 unfunded needs without dropping below the $2.5 million annual contribution required to 3 continue the Town’s highly successful Pavement Management Program. Staff 4 recommends the Council consider reallocation of a portion of Measure K funds in the 5 short-term, along with an analysis of the impact of this strategy on the Town’s PCI. 6 7 2) Fund 100 – One Time Developer Fees – On January 9, 2019, the Town received a 8 comprehensive update on Fund 100 – One Time Developer Fees (Palos Colorados). 9 Fund 100 is a fund established to earmark funds paid by Richfield Real Estate 10 Corporation and Bigbury Company (“Richfield”), the developers of the Palos Colorados 11 project. Richfield has paid these fees as a result of both conditions of approval imposed 12 on the project approvals and to comply with settlement agreements related to the Palos 13 Colorados development project. The January report provided information on the history 14 of the negotiations and agreements, the funds received and expended to date, an 15 outline of how much additional revenue is anticipated, and what actions trigger future 16 payments. 17 18 As there are no legal restrictions placed on the use of the Palos Colorados funds, the 19 Town has historically used the funds for one-time expenditures such as an accelerated 20 payment of the CalPERS unfunded liability, purchase of the Town Council Chambers 21 and Corporation Yard, loans to fund the Rheem Sinkhole repairs and Canyon Road 22 temporary bridge, and various capital improvement projects. As part of the FY 2019/20 23 budget, the Town Council also allocated $350,000 from Fund 100 to defend three 24 lawsuits (Hillside and Ridgeline Regulations, Bollinger Valley Development Denial, and 25 EBMUD landslide). 26 27 Fund 100 has a current balance of $2.9 million and the Town is scheduled to receive an 28 additional $3.5 million when/if Richfield pulls the grading permit for development. A 29 discussion of the best use of the Palos Colorados funds is recommended when/if the 30 next payment is received. Until that time, the fund is being used as an undesignated 31 reserve in case of an emergency and will assist the Town in making necessary 32 payments related to the Canyon Road bridge construction in 2020 and 2021. 33 34 3) Fund 140- Property Tax Special Lighting District – In 1978, Proposition 13 voided 35 all special assessments and created a 1% across the board general property tax for 36 local jurisdictions. After the passage of Prop 13, the Town allocated a portion of its 1% 37 general tax revenue to Fund 140 – a lighting special district account established by an 38 assessment levied in 1974 and voided by Prop 13. The Town now uses the funds in 39 Fund 140 to pay for the portion of streetlighting that is not covered by the Fund 500 40 Lighting Assessment District (LAD) and in the past has used the funds for streetlight 41 projects, such as undergrounding. While the annual deposits into this account are in 42 excess of $160,000, the cost of the portion of streetlighting not covered by the LAD is 43 approximately $43,000. Funds have been accumulating over the years and the 44 projected June 30, 2020 balance is $570,750. 45 46 The Town has been advised by our LAD engineer that these funds could be used for 47 other purposes. The Town Attorney has also provided a legal opinion that repurposing 48

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the funds would be appropriate as they are part of the Town’s 1% general property tax 1 revenue. 2 3 Staff recommends that the Council consider spending down a portion of this fund 4 balance, as well as the portion of the annual revenue that exceeds expenditures, over 5 the next two years to fund a portion of the Capital Asset Replacement program. 6 7 Potential Revenue Measure 8 9 Important work has been completed to determine the Town’s unfunded infrastructure 10 and pension liability needs which equate to more than $1 million annually. Work has 11 also been completed to identify expenditure savings and ongoing work continues on 12 initiatives to improve the Town’s operations. While some savings and new revenues 13 have been identified and numerous initiatives have been completed or are underway to 14 increase efficiencies and effectiveness, these savings and revenues fall short of the 15 projected $1 million annual need. 16 17 An analysis of existing revenue identified three unrestricted funding sources that have 18 been restricted by previous Council actions that could be available in the short-term to 19 fund the Town’s needs while work continues to improve operations and hone in on the 20 funding shortfall. Given that short-term funding is available and numerous major 21 projects are underway (Canyon Road bridge construction, Moraga Center Specific Plan 22 implementation, etc.), staff believes it would be rushed and disruptive, ultimately 23 impeding progress currently being made, if a ballot measure was placed on the 24 November 2020 ballot. Staff therefore recommends the Council reconsider the 25 allocation of Measure K and Fund 140 revenue in FY 2020/21 and FY 2021/22 to meet 26 the Town’s infrastructure needs, continue to allow staff to focus on operational 27 improvements, and make a final determination of the funding shortfall during the FY 28 2021/22 budget preparation process. 29 30 Fiscal Impact 31 32 There is no fiscal impact to this report. 33 34 Recommendations 35 36 Staff recommends the Town Council consider the following next steps to address the 37 unfunded needs and provide direction to staff. 38 39

• Explore the possibility of obtaining grant funds for a School Resource Officer or 40 an additional Police Officer and report back to Council at a future date. 41 42

• Shelve the Public Works operational efficiency study, (and the possible study of 43 other departments), and allow the permanent Public Works Director and his/her 44 staff to identify and implement cost savings measures. Continue implementing 45 operational improvements in all departments. 46

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• Reconsider the allocation of Measure K, general purpose tax revenue for the 1 next two years (FY 2020/21 and FY 2021/22) to fund the $540,000 public storm 2 drain infrastructure need in addition to the Town’s Pavement Management 3 Program. 4 5

• Continue the practice of limiting use of Fund 100 - One Time Developer Fees 6 (Palos Colorados funds) to one-time expenditures and loans for emergencies. 7 8

• When/if the Town receives the anticipated $3.5 million payment triggered by the 9 issuance of a grading permit for the Palos Colorados development project, 10 consider funding a Supplemental Pension Trust to manage future increases in 11 CalPERS unfunded pension liability payments and/or some of the Town’s Capital 12 Asset Replacement needs from Fund 100. 13 14

• Explore the repurposing of Fund 140 – Property Tax Special District Lighting 15 Funds (general purpose revenue) to free up approximately $100,000 annually 16 and spend down the fund balance over a two-year period (FY 2020/21 and FY 17 2021/22) to fund a portion of the approximately $465,000 annual Capital Asset 18 Replacement program need. 19 20

• Reduce the FY 2019/20 Adopted Budget by $100,000 (the amount included for a 21 proposed revenue measure) during the mid-year budget adjustment process and 22 postpone consideration of a future revenue measure until the FY 2021/22 budget 23 preparation process. 24

25 Attachments 26

27 A. FAQs for: Capital Asset Replacement Analysis and Report; Unfunded Pension 28

Liability Study; and, 2019 Addendum to the Storm Drain Master Plan 29 B. Feedback Form on Unfunded Needs Assessments 30 C. Comments from the Feedback Forms Received 31

ATTACHMENT A

FAQs for: Capital Asset Replacement Analysis and Report; Unfunded Pension Liability Study; and, 2019

Addendum to the Storm Drain Master Plan

CAPITAL ASSET REPLACEMENT ANALYSIS AND REPORT

Why do we need to invest in our capital assets? Town services are asset dependent. Proper maintenance of assets is essential to ensuring programs, services, parks, and facilities are available to the community. When infrastructure fails, service delivery is usually impaired, such as when public facilities like the library, community rooms, and parks are subjected to unscheduled closures. Infrastructure failures also can cause increased repair and maintenance costs. What are the Town’s capital assets? The Town owns more than 150 capital assets, all of which will eventually need to be replaced. A summary of the Town’s major capital assets follows: Buildings: Library, Hacienda de las Flores, Town Offices and Council Chambers/Corp Yard Parks: Restrooms, Play Structures, Sports Courts, Landscaping and Irrigation Vehicles: Police Cars and Vehicles, Public Works and Park Trucks, Equipment Asphalt: Public Parking Lots, Pathways at Parks and Town Facilities How was the Capital Asset Replacement Analysis completed? The Town inventoried each of its capital assets with a replacement cost of more than $5,000, evaluated the existing condition of those assets, and projected the estimated useful life of each item. Using an annual inflation factor of either the CPI (20-year average of 2.79%) or the Engineering News Record 20-year average Building Construction Cost Index (2.92%), a 20-year cash flow analysis was then used to identify the amount the Town should budget annually for the next 20-years to fund the replacement of its existing assets.

A summary of the total funding required over 20 years for the various assets (grouped by facility), as well as the percentage of the total by facility, follows:

20-Year Cumulative Investment by Facility Commons Park $2,233,000 17.5% Hacienda de las Flores $1,908,000 15.0% Asphalt Lots and Pathways $1,651,000 13.0% Police Vehicles $1,484,000 11.7% Library $1,231,000 9.7% Rancho Laguna Park $1,106,000 8.7% Public Works Vehicles $809,000 6.4% Town Offices $608,000 4.8% Council Chambers/Corp Yard $579,000 4.5% Pavilion $464,000 3.6% Information Technology $353,000 2.8% Casita $218,000 1.7% Recreation Vehicle $71,000 .6%

How much annual investment does the Analysis recommend to maintain the Town’s assets? The analysis evaluated three funding strategies and recommended a Reserve Fund Strategy in which an initial $1,000,000 one-time payment is made in Fiscal Year (FY) 2020/21, followed by flat $618,000 annual contributions beginning in FY 2021/22. With a Reserve Funding Strategy, a fixed dollar amount is contributed each year, and projects are completed as funding accumulates based on priority. The recommended contribution level would enable the Town to replace all scheduled assets by the 2042. The anlaysis further recommended that the Town update the replacement schedule when assets are acquired or replaced. Given the Town’s limited funds, what assets should be prioritized? The Town has preliminarily prioritized assets to focus investment over the next 10 years on those assets that are most essential to providing services to the community. High, Moderate and Low Priority categories were established based upon a number of factors including: public safety, legal mandates, liability exposure, the costs and risks of deferred maintenance, and the ability to maintain essential services. High Priority assets are essential to public safety, liability, keeping public facilities open, and maintaining basic Town operations. At the other end of the spectrum, Low Priority assets would be “nice to have,” but not essential to Town operations. Assuming a one-time $1,000,000 contribution, the Town would need to spend $456,000 annually for the next 10 years to properly maintain the High and Moderate priority assets. High and Moderate priority assets by facility are summarized below.

10-Year Cumulative High & Moderate Priority Asset Investment by Facility Library $909,000 16.1% Hacienda de las Flores $877,000 15.6% Asphalt Lots and Pathways $792,000 14.0% Police Vehicles $740,000 13.1% Rancho Laguna Park $446,000 7.9% Public Works Vehicles $369,000 6.5% Council Chambers/Corp Yard $369,000 6.5% Pavilion $345,000 6.1% Commons Park $339,000 6.0% Town Offices $240,000 4.3% Information Technology $120,000 2.1% Casita $50,000 .9% Recreation Vehicle $30,000 .5%

Questions or comments BBrandt@moraga.ca.us

Moraga’s Library is in need of a new roof, sewer lateral, flagpole,

carpets, HVAC and interior lighting

CalPERS UNFUNDED PENSION LIABILITY STUDY

What is unfunded pension liability? Unfunded pension liability is the gap between the amount of future benefits a pension fund is expected to pay out and the assets presently in the pension fund. Why hasn’t the Town fully funded its pension liability? Although the Town has an unfunded pension liability, the Town is on relatively solid ground because it has made all pension contributions required by CalPERS (California Public Employees’ Retirement System). The unfunded pension liability is a result of policy decisions made by CalPERS. At the end of the 1990s, the stock market was at an all-time high and optimism reigned among investors. At that time, CalPERS assumed future investment returns (that in retrospect were too high) and reduced the amount of payments it demanded from member cities. As a result, during those years, insufficient annual contributions were demanded and collected. Additionally, the volatility of CalPERS investment returns over the years, as well as increased life expectancies, have resulted in changes to CalPERS actuarial assumptions which have resulted in additional unfunded pension liability. CalPERS estimates the Town’s unfunded pension liability as of June 30, 2018 to be $7.3 million. How does the unfunded liability impact the Town? CalPERS updates its five-year schedule of future unfunded liability payments annually. As a result of ongoing changes to CalPERS’ assumptions, the performance of their portfolio, and their policy decision to ramp up payments to pay off the unfunded pension liability that has accrued, the payment amounts are projected to increase over the next five years. As of July 2019, CalPERS projects the Town’s future annual contributions as follows:

FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24 FY 24/25 $472,000 $554,000 $621,000 $664,000 $708,000 $728,000

Why did the Town contract for a CalPERS Actuarial Analysis? The Council was concerned about the projected 54% increase in the annual unfunded pension liability payments scheduled to occur between this year and fiscal year (FY) 2024/25, and CalPERS’ assumption of a 7% rate of return on investment (which may be unrealistic). The Town retained the services of Bartel Associates, Inc. to perform an actuarial analysis that assumes a more conservative (6.5%) rate of return, and to provide the Town with three potential scenarios for managing long term costs and volatility.

What did we learn from Bartel’s CalPERS Actuarial Analysis? Bartel used a 6.5% rate of return to calculate the Town’s unfunded liability at $9.3 million, compared to CalPERS’ calculation of $7.3 million, causing additional concern about the volatility

of this liability. Bartel recommended the Town consider making additional contributions to a supplemental trust to level out annual contributions and mitigate year-to-year volatility. The three scenarios developed assume contributions over the next ten years to stabilize future payments as follows:

Scenario 1 – The Town would make a $1 million one-time contribution in FY 2020/21 to a supplemental trust. The trust would be used starting in FY 2026/27 to offset the increase in the annual payment, eliminating the additional impact on the budget between FY 2026/27 and FY 2036/37.

Scenario 2 – The Town would contribute an additional $250,000 annually towards unfunded pension liability. A portion of this amount would be used starting in FY 2021/22 to help cover the annual increases in the unfunded liability payments. The rest of this amount would be placed in a supplemental trust for use between FY 2026/27 and FY 2036/37 to provide additional relief from the increasing unfunded liability payments.

Scenario 3 – The Town would make a $100,000 annual contribution to a supplemental trust, to be used starting in FY 2030/31 to reduce the projected increase in liability payments.

What is being done by CalPERS to reduce pension costs? Effective January 1, 2013, CalPERS implemented the Public Employees’ Pension Reform Act (PEPRA), which added a second tier of lower benefits for new hires. PEPRA limits the total compensation included in the benefit formula and extends the retirement age to 62 for most employees (57 for public safety employees). PEPRA is being phased in as the workforce ages and new members join CalPERS. Approximately 40% of current Town staff are in the PEPRA plan, which has resulted in cost savings. It is expected to take 20 years for the full impact of this reduced benefit package to be realized. What actions has the Town taken to manage its future pension obligations? The Town offers one of the lowest pension benefit formulas in the State. The Town also uses a 3-year average to determine the salary upon which an employee’s pension is calculated (as compared to other agencies which use the highest annual salary). The Town also negotiated with the employee bargaining groups for employees to pay a portion of the Town’s pension obligation. This has resulted in significant savings, as the Town’s pension contribution for most employees as a percent of salary is 6.5%, as compared to the 11.0% employee portion. For public safety employees, the Town contributes a maximum of 14.2% (comparable cities contribute 19.2%, on average) and police officers contribute 13.0%. Fortunately, the Town does not have any additional post-employment benefits, unlike many other public agencies. Can the Town leave CalPERS and stop offering employees a defined benefit pension? The Town could exit CalPERS. However, it would have to fully fund its pension obligations at an estimated cost of more than $50 million.

Questions or comments NVeloso@moraga.ca.us

2019 ADDENDUM TO THE STORM DRAIN MASTER PLAN

Why was the 2015 Storm Drain Master Plan developed? The Town Council adopted the Storm Drain Master Plan (SDMP) as part of a proactive approach to determine the needs, costs, and priorities associated with managing the storm drain infrastructure. The SDMP has been critical in helping the Town understand the storm drain system capital improvement needs. The SDMP also identified the need for increased funding for Operations and Maintenance (O&M) work. The annual funding need identified by the 2015 SDMP was $787,000.

Why is there a 2019 Addendum to the Storm Drain Master Plan? Since the SDMP was adopted, the Town has gained a better understanding of the storm drain infrastructure located in Town. With a focus on Town managed assets, the capital improvement projects were re-prioritized to: i) give more weight to condition and nuisance related projects, and ii) deemphasize capacity-related concerns (in light of the absence of flooding emergencies). The Town’s implementation during the past 18 months of a partially enhanced O&M Program enabled the Town to better understand and detail the necessary elements of a successful O&M Program. The 2019 Addendum consolidates this information and sets forth a more refined plan of action. What are the highlights of the 2019 Addendum? The 2019 Addendum identifies $540,000 in annual funding needs for the next ten years to implement an enhanced O&M program and complete high and moderate priority capital improvement projects. Capital improvement projects were reprioritized and capacity-related projects are not

recommended for funding in the 10-year plan. This resulted in a projected 10-year capital funding need of $1 million, or approximately $120,000 annually.

A field mapping project to obtain accurate Geographic Information System (GIS) data on 21 miles of public infrastructure was completed. The project identified and mapped the Town’s storm drain infrastructure, including the material, diameter, lengths and location of the assets. Funding of $420,000 annually is now recommended for an enhanced O&M Program, including visual inspections, Closed-Circuit Television (CCTV) inspections, vactor cleaning, and reactive and proactive spot repairs.

2016 Sinkhole Debris in pipe Corroded corrugated metal pipe

Questions or comments SKnapp@moraga.ca.us

Enhanced Operations and Maintenance Program: The enhanced O&M Program includes the following activities to properly maintain the Town’s storm drain system:

Additional Annual inspections $ 54,667 CCTV of 5,000 linear feet of pipe to determine pipe condition $ 12,500 5 days of Hydrovac work to ensure the system performs as designed $ 14,250 Proactive repairs (based on CCTV work) $115,000 Reactive repairs to address system failures $116,000 Program Administration $ 60,170 Maintenance of GIS storm drain asset inventory $ 27,456 Technical assistance $ 20,000

Total $420,043 Capital Improvement Program: The 2019 Addendum focused on updating cost estimates and re-prioritizing projects for the next 10 years based on the Town’s experience with failing storm drain systems and wetter winters over the past four years since the SDMP was finalized. Below is a list of the capital improvement projects recommended in the 2019 Addendum to be funded and completed in the next 10 years. 2020

Cost FY 21/22 FY 23/24 FY 25/26 FY 26/27 FY 29/30 FY 30/31

High Priority Projects Sedimentation Basin Study $20,000 $21,000 Corliss Drive Drain Inlets $40,000 $42,000 Moraga Road Drainage $220,000 $269,000 Ascot and Moraga Drain Inlet $210,000 $250,000 Bollinger Clean/Replace $70,000 $86,000 Moderate Priority Projects St. Mary’s Road Culvert Replacement

$370,000 $493,000

Del Rio Way Cleaning $5,000 $7,000 Rimer Drive Cleaning $5,000 $7,000 Update Hydraulic Modeling $50,000 $69,000

Total $990,000 $63,000 $269,000 $250,000 $86,000 $493,000 $83,000 Capital Improvement Project Example:

Name: Moraga Road Drainage (between Rheem Blvd & Dolores St) Issue: The east side of this section of Moraga Road floods Repair: Install roadside ditches and additional storm drain inlets Cost: $220,000

ATTACHMENT B

Feedback Form on Unfunded Needs Assessments

Please return this form to Marty McInturf, Town Clerk at 329 Rheem Boulevard, Moraga

or email to mmcinturf@moraga.ca.us

Name (optional) :_________________________________________

Email (optional) :_________________________________________

Please take a moment to complete this form. We have brought in subject area

experts to assist the Town in evaluating unfunded needs. We want to know

how you would prioritize these items and what other services or programs you

think are essential.

Feedback on Unfunded Needs Assessments

IDENTIFIED NEED PRIORITY LEVEL

Investment in Capital Asset Replacement

High Medium Low

Comments:

Paydown of CalPERS Unfunded Pension Liability

High Medium Low

Comments:

Investment in Storm Drain Capital Improvement Program

Investment in Storm Drain Operations and Maintenance Program

High Medium Low

Comments:

Other Needs: ___________________________________________________

High Medium Low

Comments (Additional comments can be written on the back of this form):

ATTACHMENT C

Comments from the Feedback Forms Received