HomeMy WebLinkAboutItem 12 - Engineering Division Funding Public Works Agency
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Item # 12
City of Santa Ana
20 Civic Center Plaza, Santa Ana, CA 92701
Staff Report
December 19, 2023
TOPIC: Engineering Division Funding
AGENDA TITLE
Approve General Fund Appropriation Adjustment to Cure Negative Fund Balance in the
Public Works Engineering Fund (General Fund)
RECOMMENDED ACTION
Approve a General Fund appropriation adjustment to transfer $2.9 million to the Public
Works Engineering Fund 086 to cure the negative fund balance and prepare for fund
closure during FY 2023-24. (Requires five affirmative votes)
GOVERNMENT CODE §84308 APPLIES: No
DISCUSSION
The Engineering Services Division of the Public Works Agency provides a variety of
services to support City capital projects, traffic operations, and development within the
City. The Engineering Services Division is responsible for delivering a capital
improvement program consisting of street, traffic, storm drain, parks, building facilities,
and water and sewer improvements, a large part of which are grant funded.
The Engineers are able to charge most, but not all, of their time to restricted money or
developer deposits. Staff time is charged with a fully-burdened rate; this includes
salary, benefits, and overhead such as supervision, equipment, and administrative
support. Restricted money sources such as Measure M2, grants, etc., often limit the
amount of overhead the City can charge for staff time. Realistically, an employee may
have roughly 1,800 hours per year of productive work time due to administrative tasks,
time off, training, and other demands. Therefore, between the overhead limitations and
the reality of productive work time, the Engineering Division is not able to charge 100%
of its cost to restricted money or developer deposits.
The Engineering Services Division is accounted for in a separate internal service fund
(Fund 086). Due to the inability to charge 100% of cost, the fund has been struggling
with a negative fund balance for several years. Staff has been trying to find other
solutions (e.g. updated fee studies) to increase the charge rate; but recently Orange
County Transportation Authority (OCTA) made a determination to deny charge rates
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with higher amounts of overhead. While looking for other solutions, Staff reported the
situation to City Council and the public in the following reports and presentations:
•May 24, 2021 Budget Workshop presentation indicated that a majority of Internal
Services Funds, including the Engineering Fund, are underfunded.
•March 1, 2022 Mid-Year Budget Report indicated that Public Works was currently
updating its Cost Recovery Plan, which may improve the current fund deficit; and
that future General Fund support may be needed.
•May 17, 2022 Budget Workshop presentation identified the Engineering Fund as
an issue. Staff oral comments indicated the Engineering Fund continues to
experience delays in project billing and reconciliation; and that staff would like to
fold the operation into the General Fund after staff has current information and
develops a plan.
•November 15, 2022 First Quarter Budget Report recommended moving
construction inspection costs from the Engineering Fund to the General Fund,
with a net fiscal impact of approximately $237,000. The staff report indicated that
the next phase is to transition engineering costs to the General Fund after
process improvements are completed. City Council approved the staff
recommendation.
•May 11, 2023 Budget Workshop presentation indicated the fund had a $1.5
million deficit balance and that the work of improving the business model is
ongoing. Staff oral comments included that engineers cannot charge their time
for administration, management, and non-productive time such as vacation; staff
has been working on improving the business model; and as funding allows, staff
may return with a request for a General Fund infusion.
To date, Public Works Agency staff has taken the following measures to increase
revenue and decrease expenditures in the Engineering Fund:
•Worked with Caltrans and OCTA to substantiate and increase billable rates via
approved Indirect Cost Rate Plans
•Filled vacancies in billable engineering positions
•Maintained vacancies in administrative positions
•Implemented new timekeeping solutions to demonstrate billable hours
•Prepared Indirect Cost Allocation Plans for administration cross charges
assessed to the Engineering Fund (a requirement to increase billable rates).
Staff will continue to work to increase the ability to recoup overhead costs by preparing
additional Indirect Cost Allocation Plans and further reduce the net cost of the
Engineering Services Division.
At this point, staff recommends adding the Engineering Services Division budget to the
General Fund with an approximate $900,000 per year net cost for overhead and time
that cannot be charged to projects or developer deposits. The internal service fund
would be closed.
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To cure the Fund 086 negative balance and prepare for fund closure during FY 2023-
24, staff recommends a one-time General Fund contribution of $2.9 million. During
preparation of the FY 2024-25 budget, the Engineering Services Division budget and
the corresponding charge revenue will be included as a separate program within the
proposed General Fund budget.
FISCAL IMPACT
As reported by Finance on this same Agenda, the estimated General Fund Balance of
$17.8 million available for one-time spending is sufficient for the necessary contribution
of $2.9 million.
Submitted By: Nabil Saba, P. E., Executive Director - Public Works Agency
Approved By: Tom Hatch, Interim City Manager