FY 2018-19 and 2019-20 Adopted Operating and CIP Budget

VTA Measure B, which the County of Santa Clara residents overwhelming approved in November 2016, increased the countywide sales tax by ½ cent to fund transportation priorities in the County. The projects range from local streets and roads repair, bicycle/pedestrian improvements, building Caltrain grade separations to funding Phase II of the Bay Area Rapid Transit (BART) extension. Measure B is anticipated to generate $6.3 billion in 2017 dollars over the next 30 years, of which approximately $1.2 billion is allocated for local streets and roads. The City of Morgan Hill is expected to receive $800,000 annually from the Measure B for the City’s street improvement projects. In addition, the City’s planned Hale Avenue extension is to be majority funded by VTA Measure B funds, or $14.5 million (City and VTA discussing funding to be allocated). The annual street improvement allocation and one-time funding for the Hale Avenue extension have been incorporated into the City’s FY 18-24 CIP. The Measure B funds, which the VTA has been collecting since April 2017, have been tied up in court. In January 2017, a County resident individually filed a lawsuit challenging the validity of the Measure B. The case has been dismissed by the lower court, but the plaintiff filed an appeal. As a result of the ongoing lawsuit, VTA is required to keep all Measure B tax collections in an escrow account until the case is resolved. Should the SB 1 and VTA Measure B funds not be available, funding for the City’s street improvement projects would be materially impacted and projects would be curtailed unless new revenue sources can be obtained. In the future years for pavement investment, the CIP includes a total of only $2.8 million for FY 20-21 and $2.4 million annually for fiscal years 21-22 through 23- 24. Personnel The City’s full-time and part-time employees are one of the most important resources for the delivery of its high-quality services. Annual investments in personnel account for approximately $35.9 million or 23% of organizational wide expenses in FY 18-19 and $37.4 million or 28% in FY 19-20. Of this amount, 67% is related to salaries and the remaining 33% is attributed to benefits (health insurance, retirement, etc.). As a percent of total costs, the City continues to maintain its personnel expenses by continuing to work with other organizations to collaboratively deliver services; most notably, with the YMCA for recreation services, Cal Fire for fire/emergency medical services, and the City of Gilroy for wastewater treatment services. The Council’s Long-Term Labor Policy, Principles, and Strategies’ Principle No. 4 – Fiscal Sustainability and Economic Climate states that “all compensation commitments must be made consistent with principles of fiscal sustainability and to ensure the City’s long-term success in achieving its mission.” As part of this principle, “the City will strive to hire contract employees instead of full-time benefitted employees to allow for greater flexibility during periods of peak demand.” The City continues to adhere to this principle throughout the organization and especially in development services. The City has contracted to augment its team in the planning, building, and

26 RECOMMENDED BUDGET MESSAGE