The mid-year budget presentation (Attachment A) provides an opportunity to reflect on how the City's General Fund finished financially for the prior fiscal year (FY 2020-21), as well as provides an opportunity to highlight emerging financial/budgetary trends with the current fiscal year (FY 2021-22) and preliminary projections for the next four fiscal years (FY 2022-23 through FY 2025-26). Additionally, staff will provide a mid-year update of the City's Capital Improvement Program (CIP). The information below highlights the City's General Fund prior fiscal year results, the current fiscal year estimates to date and projections for the next four years as the organization transitions to a post pandemic environment.
Fiscal Year 2020-21 (Prior Fiscal Year)
Staff is pleased to report the City’s General Fund finished FY 2020-21 with revenues over expenditures of $4,779,943. At budget adoption on June 15, 2021, it was projected that revenues over expenditures would be $988,055 and included early revenue assumptions related to the American Rescue Plan Act (ARPA) funds to address the City's revenue loss from the pandemic. The improvement of $3,791,888 is attributed to an additional $1,103,758 in ARPA funding received as well as a $1,533,529 increase in favorable revenues primarily attributed to sales tax receipts coming in higher in comparison to the initial COVID-19 pandemic projection. The remaining $1,154,601 is attributed to savings realized by departments including salary savings.
Moving forward, City Council direction is needed on how to allocate the FY 2020-21 revenues over expenditures of $4,779,943. Current fiscal policy recommends 95% to be transferred to the Fixed Asset Replacement Fund (182) and 5% to the Other Post Employment Benefit Fund (150). However, staff is recommending to retain these revenues over expenditures to address future budget impacts until revenues fully recover from the pandemic and the ARPA funds are fully expended by December 31, 2024.
In addition, the County unexpectedly changed its accounting method, which resulted in a one-time receipt of property tax impounds of $3,687,836. This is reflected in the prior year beginning fund balance for FY 2020-21 from $3,250,052 presented at budget adoption on June 15, 2021 to $6,937,888 presented this evening. Current fiscal policy states that any revenues over expenditures from the prior fiscal year shall be transferred with 95% going to the Fixed Asset Replacement Fund (182) and 5% to the Other Post Employment Benefit Fund (150). Staff recommends transferring $3,503,444 to Fund 182 and $184,392 to Fund 150 accordingly. As of June 30, 2021, the ending fund balances were $5,701,619 (Fund 182) and $155,103 (Fund 150), respectively.
Fiscal Year 2021-22 (Current Fiscal Year)
At budget adoption on June 15, 2021, the General Fund for the current fiscal year was balanced with revenues over expenditures of $1,028,000 and included early revenue assumptions related to the ARPA funds to address the City's revenue loss from the pandemic. Major revenue sources including Sales Tax, Transient Occupancy Tax and Community Services Revenues were significantly impacted during the pandemic and continuously monitored as the organization adapts to a post pandemic environment during the current fiscal year and beyond. Based upon updated projections, staff is recommending to further adjust the City's budget and these adjustments are included as a separate report for consideration on this evening's consent calendar which also includes budget impacts associated with the approval of the part-time Code Enforcement Officer position and associated costs.
In summary, the current fiscal year-end estimate (including prior year carryovers, 1st and 2nd quarter budget adjustments) staff is projecting a total revenue increase of $1,892,114 of which $1,103,758 is from additional ARPA funds. Adjustments to expenditures increased by $2,841,472 which includes budget impacts associated to all but one employee labor agreement, transferring the Commercial Enforcement Officer position from the Community Benefit and Economic Development Fund (140) to the General Fund (110), as well as other adjustments that are provided by departments. The revised revenues over expenditures for the current fiscal year is $1,674,356.
Please note that staff will continue to monitor and updated as we move through the current budget process.
FY 2022-23 through FY 2025-26 (Projections)
The preliminary projections being presented for FY 2022-23 through FY 2025-26, are staff's best projections based on information known today and will be refined as we move through the budget process for FY 2022-23. ARPA funds have significantly provided financial assistance in returning to pre-pandemic times. The following projected revenues over expenditures provides a snapshot of future fiscal years WITHOUT the use of ARPA funds, are as follows:
| FY 2022-23 |
($1,689,521) |
| FY 2023-24 |
($1,477,308) |
| FY 2024-25 |
($1,445,502) |
| FY 2025-26 |
($858,711) |
These projections assume an overall increase of three percent in all operating expenditures. Staff anticipates that certain operating and maintenance contracts may increase; however as a whole, this overall growth is a reasonable assumption as staff continues to refine the projections while moving through the 2022-23 budget process.
Fortunately, the organization has ARPA funds to be spent by December 31, 2024 to offset the continued revenue loss as a result of the pandemic. Projected revenues over expenditures, WITH the use of ARPA funds, for future fiscal years are as follows:
| FY 2022-23 |
$0 |
| FY 2023-24 |
$0 |
| FY 2024-25* |
$1,635,887 |
| FY 2025-26 |
($858,711) |
*ARPA funds must be expended by December 31, 2024
Staff cautions that these projections do not take into consideration any recessionary or inflationary impacts that may occur. It also does not include any pending City Council decisions that are highlighted in the presentation including, but not limited to, the City's share of water and sewer costs, and the possible shift to a Brea-only Fire Command staffing model, etc.
Additionally, it is important to note that these projections do not include department submittals for the upcoming fiscal year (FY 2022-23) and beyond which will change the projections presented tonight. Budget submittals from departments were due February 14, and will be evaluated by the Budget Team. Staff will provide an updated five-year projection at the City Council budget workshop tentatively scheduled for May 17, 2022. |