|The City Council has reviewed and given direction on all components which are included in the proposed Fiscal Year 2021-22 Operating Budget at the Budget Workshop held on May 18, 2021. The Proposed Fiscal Year 2021-22 budget document contains an overview message from the City Manager, summary schedules, the fund balances of each operating fund, a comprehensive review of revenues, and expenditure breakdowns by department (please see attachment).
This budget message provides a comprehensive overview of the City’s General Fund budget, but please keep in mind, due to the unprecedented challenges presented by the COVID-19 pandemic, the process and approach staff used to develop this budget reflects the continued uncertainty our economy faces for the foreseeable future. Staff attempted to take objective assumptions for both revenues and expenditures, but again, these assumptions are based on very finite information since the pace of recovery is not known.
Staff will continue with strong communication at all levels of the organization as we recover and strategically position ourselves in a post-pandemic economy and gain a better understanding of the longer-term financial impacts to help guide City Council in making sound financial decisions for the future. Our organization is fostered by innovation which will be as important as ever as we transition to an open economy.
The COVID-19 pandemic has created an immediate and unforeseen financial impact on the City’s budget resulting in reductions in several major General Fund revenue sources including sales tax, transient occupancy tax (TOT), and community services-related revenues since the start of the pandemic in March 2020. Fortunately, with the passing of the American Rescue Plan Act (ARPA), the City is expected to receive federal stimulus dollars totaling $8.14 million in two installments starting in June 2021. This funding combined with the funding previously received from the Coronavirus Aid, Relief and Economic Security Act (CARES) will allow the organization to recover quicker, address priorities of the City Council, City operations, and emerging community needs while also maintaining a reasonable and responsible reserve for unforeseen circumstances. The total General Fund revenues are budgeted at $60,166,079 for FY 2021-22 and includes the 2nd installment of the ARPA funding totaling $4.07 million.
Sales tax revenue is the City’s single largest revenue source and represents 38% of the FY 2021-22 budget (including ARPA funding). Sales tax revenues are projected to increase by 14.24% over FY 2020-21 estimates based upon the assumption that the economy fully reopens. This increase in sales tax is positive, however it is $1.69 million lower than the pre-pandemic projections. Staff will be closely monitoring revenues throughout the transition to a post-pandemic economy. As the State fully reopens, staff remain optimistic that the business community will start to regain momentum entering the new fiscal year.
Property taxes are the second-largest revenue source and represent 21% of the FY 2021-22 budget (including ARPA funding). Property tax revenues are anticipated to grow by 4.26% over FY 2020-21 estimates and are anticipated to keep pace in future years. Property taxes are currently holding through this pandemic, however staff will continue to keep in touch with the development community regarding projects already under construction and projects that are anticipated to be constructed in the new fiscal year.
Total General Fund expenditures in FY 2021-22 are budgeted at $59,138,079. This budget maintains core service levels to the community and represents a 4.10% increase in budgeted expenditures when compared to the FY 2020-21 estimated year-end expenditures. Community Services expenditures assume gradual reopening of programs and services including part-time staffing levels. Overall, travel and training budgets are still reduced to essential opportunities during the gradual navigation to a post-pandemic organization. In addition, the FY 2021-22 budget includes staffing redistribution and shifts operating costs to the General Fund to better align program services with the appropriate funding source. This includes shifting part-time police cadet positions and associated operating costs from the Public Safety Augmentation Fund to the City’s General Fund allowing the Public Safety Augmentation Fund to be used solely to replace public safety capital items. Staff also evaluated non-direct administrative and support staff costs distributed to the City’s enterprise funds and shifted to the City’s General Fund.
It is also important to note that employees continue to contribute toward their retirement in accordance with the provision of Memorandums of Understanding (MOUs). All employees contribute 100% of the employee cost of retirement. The City has met its goal to have all City employees contribute the full cost per the current pension reform legislation. In addition, most employees are contributing more than the employee portion and are cost-sharing the normal employer cost. Currently, all employee bargaining unit MOUs have expired and staff anticipates negotiations to continue into the new fiscal year. The most recent personnel cost increase was in July 2019 and negotiations were put on “pause” as the organization responds to the pandemic. For FY 2021-22, a typical 2% personnel cost assumption has been budgeted.
The City’s mission is to provide quality services with the resources available. However, this organization continues to be challenged to maintain the current level of service and additional duties with existing staff. We understand that the search to reduce expenditures is continuous.
Five Year Projections
Each year, the City’s General Fund revenues and expenditures are projected for five years. The five-year projection is a planning tool and reflects staff’s best-educated guess-estimates. It does not represent approved or authorized deficit spending, rather depicts what could occur if the City were to choose not to make the necessary adjustments to operate within a balanced budget. The five-year projection allows staff to take a glimpse at potential future budget impacts so that necessary adjustments can be made to maintain a balanced budget.
These five-year projections and budget assumptions, from FY 2021-22 through FY 2025-26, are attached to this budget message. It is noted that the assumptions include a two percent (2%) personnel cost assumption for FY 2021-22 and includes revenue assumptions that mimic the gradual reopening of the economy including major revenue sources like sales tax, transient occupancy tax, and Community Service revenues.
The current projections show challenges to maintain a balanced budget over this five-year period as the economy recovers from the pandemic. However, based on our recovery projections, revenues are outpacing expenditures during this time. By FY 2025-26, revenues are projected to exceed expenditures. As mentioned previously, ARPA funding is expected to be available to close the City’s General Fund budget gap while the economy continues to rebound.
Decision packages are requests for new programs, new personnel, and/or new equipment. The decision packages for FY 2021-22 were presented to the City Council at the Budget Workshop on May 18, 2021, to receive input and identify department needs for the coming fiscal year. City Council reviewed the decision package requests and recommended staff include them in the FY 2021-22 budget with the exception of the reclassifying the Associate Planner Position from limited-term to regular status. This request was put on hold until the mid-year budget update. Below is a summary of the recommended decision packages that are incorporated in the proposed FY 2021-22 budget. It is important to note that the General Fund impact is $14,934 for FY 2021-22.
- The City’s General Fund (110) will purchase a new human resources software application that will improve the hiring process and create further efficiencies for the organization. In addition, the General Fund (110) will reclassify the Revenue & Budget Manager position to Financial Services Manager/Revenue.
- The Public Safety Augmentation Fund (Fund 172), which is restricted for public safety, will provide funding to replace and purchase tasers as well as mobile citation printers for the Police Services Department and will fund the replacement of Self-Contained Breathing Apparatus (SCBA) bottles for the Fire Services Department.
- Facility and equipment replacements, such as replacing fitness equipment, meeting room tables, replacing outdoor lighting fixtures, ADA accessibility pave way tiles, and replacing the heating and air conditioning unit in the tiny tots/kitchen area at the Community Center will be funded by the Community Center Replacement (181) Fund.
- Narcotics Enforcement Asset Seizure Fund (231), which is restricted for Police Service needs, will provide funding to purchase a new demographic data collection module and ten Toughbook tablets.
- The Air Quality Improvement Fees Fund (240) will provide funding for the Police Services Department to purchase four new electronic assisted bicycles.
- The Fire Impact Fee Fund (542) is restricted for eligible fire-related purchases and will fund the initial purchase of a new Fire Command Vehicle.
The COVID-19 pandemic has drastically changed the landscape of our community and maintaining service levels to the community despite the rapid loss of revenues has been challenging this past year and will continue as we enter a post-pandemic economy. Fortunately, through the guidance of the City Council, the organization has positioned itself with healthy General Fund reserves well above the current policy level of 25%. The excess reserves above the 25% policy limit combined with the federal assistance through the ARPA will help the organization maintain current service levels as the organization regains momentum in the coming fiscal years. This will avoid making severe service reductions until the organization has an opportunity to better understand the long-term effects of the pandemic. Staff will also continue to closely monitor actual versus projected revenues and opportunities for vacancy savings that will assist in providing more firm estimates as we navigate the new fiscal year. Staff commits to providing budget updates to the City Council as the financial picture changes.
Brea has weathered through this pandemic and phases to a new post-pandemic “norm”, it is important to note that Brea is paying all its obligations on time; is setting aside funding for ongoing capital facility and equipment replacement; and is funding a robust Capital Improvement Program (CIP) to adequately maintain City infrastructure systems.
The organization will make every effort to continue to build prudent reserves and strategic savings programs to be able to insulate the City from a downturn in the economy and minimize organizational disruption. The City Council is also committed to pension modifications and plans to continue setting aside money in an irrevocable trust fund, administered through the Public Agency Retirement Services (PARS), that is specifically designed to help stabilize pension costs. This combined with continued efforts to promote pension modifications at the legislation front are steps in the right direction.
The entire organization continues to work hard to preserve core City services. Staff will continue to be diligent in monitoring long-term economic uncertainties that could impact Brea’s budget picture. These include:
City staff uses a variety of tools, such as looking strategically at vacancies and consolidation of functions to structurally close the budget gap. Staff continues to research new and innovative ways of doing business.
- The effects of the pandemic and the likelihood of a resurgence;
- CalPERS projected rate increases that may occur; and
- Increases in the cost-of-living (inflation)
Presenting the City Council with the FY 2021-22 budget is only one of the many projects that City staff has completed during FY 2020-21. Working within the City Council priorities and under their direction, City staff was able to complete a substantial list of accomplishments, which are found in department summary sections of the proposed budget.
I would like to thank the City Council for their patience and leadership during this unprecedented economic situation. Though the development of the FY 2021-22 budget is complete, the work will continue as we enter a new phase of data gathering and forecasting to match our new economic reality.