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Finance Committee
Meeting Date: 11/29/2022  
FROM: Bill Gallardo

Budget Adjustments to the City Operating and Capital Improvement Program Budgets for Fiscal Year 2021-22
Adopt the attached resolutions appropriating funds to adjust the Fiscal Year 2021-22 City Operating and Capital Improvement Program Budgets.
Budget adjustments are presented to the City Council periodically for review. These adjustments represent the appropriation of items previously approved by the City Council during the fiscal year, or staff recommended adjustments for City Council consideration, as well as requested adjustments to revenue estimates.  The recommended adjustments to the City Operating Budget are listed in City - Exhibit A. These adjustments are separated by funding source and the accounts are identified as either revenue or expenditure accounts. 

In addition, as part of the year-end process, staff administratively carries over continued appropriations previously approved by the City Council from the prior fiscal year to the current fiscal year as outlined in the City’s Fiscal Policies Statement under Expenditure Policies.  Expenditures budgeted in one fiscal year may be carried over to the next fiscal year automatically if the purpose for which the expenditures were budgeted had not been completed.  Such carryovers shall not occur for more than two budget cycles without City Council approval with only a few exceptions.  Carryovers have been processed by staff from FY 2021-22 to FY 2022-23 and are separate from budget adjustments being requested tonight.  The total carryover amount for the General Fund is $1,513,916 and the below chart summarizes the overall revenues over expenditures number for the City's General Fund (110) for FY 2021-22:
  FY 2021-22
Revenues $57,853,840
    Carryovers from FY 2020-21 1,595,714
    Transfer-In 729,500
Total Revenues $60,179,054
Expenditures $57,132,350
    Held for Carryovers for FY 2021-22 1,513,916
    Transfer-Out 4,118,985
Total Expenditures $62,765,251
Revenues over Expenditures ($2,586,197)

The revenues over expenditures for the City’s General Fund (110) is negative $2,586,197 and is mainly attributed to the timing of the receipt of American Rescue Plan Act (ARPA) Federal funds.  With the passing of ARPA, the City was projected to receive the second installment ($5,173,758) of the Federal stimulus funding in Fiscal Year 2021-22, however the funds were received in Fiscal Year 2022-23. This change is reflected in these budget adjustments for the General Fund (110) and the Disaster Recovery Fund (911).  A $5,173,758 decrease of budgeted revenues in the Disaster Recovery Fund (911) and a corresponding decrease in budgeted transfers-out to the General Fund (110).  Likewise, a $5,713,758 decrease in budgeted transfers-in for the General Fund (110) is proposed. 

To record the actual receipt date, a Fiscal Year 2022-23 budget adjustment will be proposed at a later date.  As a reminder, these funds have been identified to be used for revenue replacement as a result of the COVID-19 pandemic so that the City is able to maintain service levels to the community.  A General Fund balance is available to be used to cover this shortage, and all ARPA funds must be used by December 31, 2024.

Sales tax revenues are rebounding from the pandemic and are slowly increasing as a result of inflation and continued economic activity in various sectors including transportation, restaurant and construction.  For Fiscal Year 2021-22, sales tax revenues received exceeded estimates by $1,453,831 which is sufficient to cover a portion of the presented fourth quarter budget adjustments as highlighted below for the City’s General Fund.  The complete list including non-General Fund adjustments are provided in City – Exhibit A.
  • On June 21, 2022, the City Council directed staff to transfer $269,234, which is five percent of the Fiscal Year 2021-22 year-end estimate of $5,384,689, to the City’s Other Post Employment Benefit Fund (150).  This Fund (150) was established as a savings account for post-employment medical benefits for retired employees and supplemental funds budgeted annually for Other Post Employment Benefit (OPEB) obligations.
  • The General Fund supports the Paramedic Service Fund (174) for costs that exceed the Paramedic service revenues.  Overall expenditures were higher than budgeted primarily due to salaries, benefits, and overtime costs incurred due to disability claims, as well as shift coverage for paid time off for personnel.  The proposed adjustment of $853,861 also maintains the three-month operating reserve limit. 
  • Sanitation and Street Sweeping Fund (440) - an annual transfer is made from the General Fund (110) in lieu of franchise fees collected on trash collection.  For Fiscal Year 2021-22, staff is proposing an increase in the transfer from the General Fund (110) to the Sanitation and Street Sweeping Fund (440) of $483,303 to fund those costs not covered by revenues, as well as to maintain the three-month operating reserve limit. 
  • The Fire Services Department continues to respond to mutual aid throughout California. Fire Administration continues to be diligent in seeking reimbursement for costs incurred.  The mutual aid response cost of $19,701 includes the 2022 Emerald Bay Fire Incident in Laguna Beach which was fully reimbursed.  In addition, Fire Suppression’s budget was over $167,153 primarily due to salaries, benefits and overtime costs incurred due to disability claims, as well as shift coverage for paid time off for personnel. 
  • The Parks Division in the Public Works Department incurred water costs of $48,502 for park landscaping and maintenance from May 5, 2022 through July 7, 2022 that was not budgeted.
For Capital Improvement Projects, $6,174 in funding from the Water Fund (420) and Sewer Fund (430) was needed to complete and close out the Replacement of Fence at the City Yard Project (CIP No. 7966).  This is a result of fluctuating prices due to supply chain issues throughout the construction of the project.  The Capital Improvement Program Budget adjustment is provided in CIP - Exhibit A and consists of an increase in expenditures of $6,174 and corresponding adjustments to revenues and transfers-in as follows:
Water Fund (420) $    3,087
Sewer Fund (430) 3,087
TOTAL $    6,174
For FY 2021-22, the revenues over expenditures for the City's General Fund (110) is negative $2,586,197 and the proposed budget adjustments amend the City's General Fund Operating Budget by a net decrease in budgeted revenues and transfers-in of $4,654,292 as presented in City - Exhibit A.  A General Fund balance is available to be used to cover this shortage, and all ARPA funds must be used by December 31, 2024.

The City Operating Budget adjustments for all funds including the General Fund resulted in a decrease in budgeted revenues and transfers-in of $7,229,126 and a decrease in budgeted expenditures and transfers-out of $3,657,377 for a net increase in budgeted revenue and transfers-in of $3,571,749.

The Capital Improvement Program Budget adjustments resulted in an increase in budgeted expenditures of $6,174 and a corresponding adjustment to revenues and transfers-in.  Funding is available from the City's Water Fund (420) and Sewer Fund (430).
William Gallardo, City Manager
Prepared by:  Alicia Brenner, Senior Fiscal Analyst
Concurrence:  Kristin Griffith, Director of Administrative Services
Resolution - City
City - Exhibit A
Resolution - CIP
CIP - Exhibit A

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