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Agreement with SAPOA 2018-2021 February 5, 2019 Page 4 We began fiscal year 2018-19 with a budgeted $10.2 million use of the General Fund balance. With updated revenue estimates (including Measure X) and proposed amendments to appropriated expenditures at Midyear, and the additional cost of this MOU, the use of the General Fund balance is expected to decrease to $4.8 million for fiscal year 2018-19. The estimated impact to the projected General Fund balance at June 30, 2019 and the City Council policy reserve requirement is outlined below. Unless the structure of the General Fund budget is changed for fiscal year 2019-20 and beyond, the SAPOA employee compensation increase and any other increases negotiated by labor groups may be funded by Measure X revenue in future years. The MOU includes salary adjustments retroactive to July 1, 2018, as opposed to salary increases becoming effective upon approval of the agreement. The City's payroll system is aged; and due to the complexity of SAPOA employee compensation, retroactive pay must be manually calculated for 465 employees. The retroactive calculation is further complicated by schedule changes and overtime pay reported after each pay period. In addition, the CaIPERS pension reports will need to be resubmitted for each semi-monthly pay period (a total of approximately 288 hours of staff time, or one dedicated payroll employee for more than 7 weeks with no interruptions). Due to these factors, we expect to process SAPOA salary increases by the end of March 2019 and retroactive payments by the end of June 2019. The upgrade of the payroll system will be placed on hold until the retroactive calculations and CaIPERS reporting are complete. Once the payroll system upgrade resumes (likely in July 2019), the project may be completed by the end of fiscal year 2019-20. Unfortunately, the current payroll system will no longer be supported by the software company as of March 31, 2019, and the City's payroll system will be at risk of failure until the upgrade is complete. 6501-4 Original Revised With MOU in millions Budget at Midyear Approval Beginning Fund Balance 7/1/18 $ 56.4 $ 56.4 $ 56.4 Net Activity (10.2) (0.6) (4.8) _ Estimated Ending Fund Balance 6/30/19 $ 46.2 $ 55.8 $ 51.6 Operating Reserve (16.67% operating revenue) 1 $ 42.0 $ 43.4 $ 43.4 Economic Uncertainty Reserve (1% revenue) 2.5 2.6 2.6 Total Reserve Requirement $ 44.6 $ 46.1 $ 46.1 Unless the structure of the General Fund budget is changed for fiscal year 2019-20 and beyond, the SAPOA employee compensation increase and any other increases negotiated by labor groups may be funded by Measure X revenue in future years. The MOU includes salary adjustments retroactive to July 1, 2018, as opposed to salary increases becoming effective upon approval of the agreement. The City's payroll system is aged; and due to the complexity of SAPOA employee compensation, retroactive pay must be manually calculated for 465 employees. The retroactive calculation is further complicated by schedule changes and overtime pay reported after each pay period. In addition, the CaIPERS pension reports will need to be resubmitted for each semi-monthly pay period (a total of approximately 288 hours of staff time, or one dedicated payroll employee for more than 7 weeks with no interruptions). Due to these factors, we expect to process SAPOA salary increases by the end of March 2019 and retroactive payments by the end of June 2019. The upgrade of the payroll system will be placed on hold until the retroactive calculations and CaIPERS reporting are complete. Once the payroll system upgrade resumes (likely in July 2019), the project may be completed by the end of fiscal year 2019-20. Unfortunately, the current payroll system will no longer be supported by the software company as of March 31, 2019, and the City's payroll system will be at risk of failure until the upgrade is complete. 6501-4