agenda city of watsonville city council/redevelopment agency meeting

BUDGETARY ACTIONS
Utility Fund payment for use of City’s land. A major change for the General Fund is the
replacement of the General Fund’s “Franchise Fee” revenue with a new revenue stream from the
Utility Funds for use of City land. This action was first approved as part of the 2010-2011 Midyear
Finance Report on February 22, 2011. As part of a completed, multi-year operational review
to adopt the 5-year rate plan in 2010, city staff found that many of the City-owned properties were
subsidizing utility fund operations that, by design, are intended to be self-supporting and
considered to be an arms-length partner. The review considered 41 sites (38 parcels) used by
the funds and found that should the City follow comparable lease rates for these types of
properties, it could levy a rate as high as $137,312 per month. Given potential for commercial
real estate market instability, staff are proposing to discount the recommended rate by 25% to
arrive at a payment, indexed to the City’s normal CPI formula, equivalent to $103,000 per month
(to be allocated to each fund based on ratio of property used). This lease will entirely replace the
previous Franchise Fee charge between the City and its utility funds (annual amount of $839,000
or translated to $70,000 per month that will no longer apply).
General Fund 8% property management rate. The City will be establishing a property
management rate of 8% for the City to administer various property use agreements between the
City’s funds and third parties. For example, the City has performed these services on behalf of
the Airport for years without additional compensation. In the last several years, various other
property use agreements and their revenue streams were transferred to the Airport but continued
to be administered by the City (lease administration including external reporting, monthly billing,
lease monitoring and collecting payments). These additional services are not included in the
base cost allocation formula that capture more generic services like payroll, personnel
management, accounts payable, etc.
Increase all Airport Hanger rates by 5% beyond CPI. Given the high demand for hangars at the
Watsonville Airport and the disparity between comparable hangar rates, staff recommends
increasing hangar rates beyond the annual CPI by another 5%. This would bring the Watsonville
Airport rates above Marina and Salinas and about 23% lower than Hollister and 33% lower than
Monterey Peninsula Airport. A summary of 2010/11 local and other comparable regional hangar
rates are shown in Exhibit 9 below.
Exhibit 9
Under $300 $300-$400 $400-500 Over $500
Watsonville (2) [$253] Monterey [$337] Paso Robles [$500] San Carlos [$639]
Marina [$245] Hollister [$312] Half Moon Bay [$425]
Watsonville (1) [$241]
Salinas [$233]
(1)Watsonville’s current 2010-2011 rate
(2) Watsonville’s Proposed rate with a 5% increase and before CPI adjustment
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