Subject: |
Public Hearing to Consider the Adoption of the City of Brea FY 2023-24 and FY 2024-25 Biennial Operating Budget |
RECOMMENDATION |
Receive public input on the Fiscal Year 2023-25 Proposed Biennial Operating Budget as presented in the Fiscal Year 2023-25 Proposed Operating Budget document and adopt Resolution No. 2023-040 approving the Fiscal Year 2023-25 Operating Budget and appropriating funds for the City of Brea FY 2023-25 Operating Program. |
BACKGROUND/DISCUSSION |
The City Council has reviewed and given direction on all components which are included in the proposed Fiscal Year 2023-25 Operating Budget at the Budget Workshop held on June 6, 2023. The Proposed Fiscal Year 2023-25 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).
As part of this budget cycle, the organization is shifting from an annual budget to a biennial budget to assist the City Council and staff focus on long-term and strategic consideration as the organization adapts to changes in the economy as well as within the organization. The budget is the financial plan for the City of Brea for the next two fiscal years and does not constitute a mandate to spend, only the authority to do so.
This budget message provides a comprehensive overview of the City’s General Fund budget representing a restoration and investment in City services to the community including a commitment to the City Council’s top priorities and projects. The process and approach staff used to develop this biennial budget reflects cautiously optimistic projections for both revenues and expenditures, but again, these assumptions are based on very finite information in a changing economic environment.
Staff will continue to monitor several unknowns including economic uncertainty with high inflation pressures and workforce attraction/retention challenges that impact service capacity and institutional knowledge. Despite these ongoing challenges, the organization demonstrated remarkable adaptation to continue City Council priority initiatives. Looking forward, staff will continue with strong communication at all levels as more information becomes available.
Revenues
While the organization has endured economic hardship related to the pandemic, it has been able to rebound quicker than initially anticipated in comparison to this time last fiscal year. Major General Fund revenue sources that were impacted by the pandemic including sales tax, transient occupancy tax (TOT), and community services-related revenues continue to see positive growth. For FY 2023-24, the total General Fund revenues are budgeted at $67,673,486. For FY 2024-25, the total General Fund revenues are budgeted at $69,047,627 which includes the use of Excess General Fund reserves above the City’s 25% reserve policy limit in the amount of $300,871.
Sales tax revenue is the City’s single largest revenue source representing 40% of the FY 2023-25 budget. Sales tax revenues are projected to increase by 6.50% over FY 2022-23 adopted budget with an average growth of 2.8% over the next five fiscal years.
Property taxes are the second-largest revenue source representing 23% of the FY 2023-25 budget. Property tax revenues are anticipated to grow by 1.41% over FY 2022-23 adopted budget and future years beyond FY 2024-25 remain conservative. They will be adjusted as more information becomes available regarding development projects within the community and as construction begins to break ground.
Expenditures
Total General Fund expenditures in FY 2023-24 are budgeted at $67,051,036 and $69,047,627 for FY 2024-25. This budget maintains and expands service levels to the community and represents a 2.60% increase in budgeted expenditures when compared to the FY 2022-23 adopted expenditures. Community Service expenditures assume all programs, services and events to be open and available to the community. In addition, the budget includes increased service levels to the community related to the recommended decision package requests. This includes improved service levels related to public safety services and staff development, cross department efficiencies for development inspection services, enhances park maintenance services and investment of capital and equipment needs.
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.
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 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 projections allow us to take a glimpse at potential future budget impacts so that we can make the necessary adjustments to maintain a balanced budget.
These five-year projections and budget assumptions, from FY 2023-24 through FY 2027-28, are attached to this budget document. It is noted that the assumptions include all negotiated labor agreements for FY 2022-23. The projections also assume major revenue sources impacted by the pandemic to be steadily improving, such as sales tax, transient occupancy tax, and Community Service revenues.
The current projections, including one-time and on-going decision packages, illustrates revenues over expenditures for FY 2023-24 of $622,450. In Year Two of the biennial budget, excess General Fund reserves are needed in the amount of $300,871 for FY 2024-25. In totality for the biennial budget, the organization is able to maintain a balanced budget over the next five-year period and can be attributed to increased revenues and significant decreases in CalPERS retirement costs as a result of positive investment returns in FY 2020-21. As previously noted, future year projections are estimates and are provided solely for informational purposes. Staff will continue to monitor and adjust projections as new information develops for a balanced budget including the CalPERS retirement costs.
Funds
Decision packages are requests for new programs, new personnel, and/or new equipment. The decision packages for FY 2023-25 were presented to the City Council at the Budget Workshop on June 6, 2023, to receive input and identify department needs for the coming fiscal year. The City Council reviewed the decision package requests and recommended staff to include them in the FY 2023-25 budget. Below is a summary of the recommended decision packages that are incorporated in the budget. It is important to note that the General Fund impact is $821,622 for FY 2023-24 and $800,261 for FY 2024-25.
- The City’s General Fund (110) includes adding two full-time Combined Field Inspector positions, three full-time Maintenance Services Worker positions, two part-time Maintenance Services Worker positions and reclassifying a Police Records Technician position from part-time to full-time and adding part-time Jailer position hours to the Police Uniform Division. It also includes additional operating and capital costs including document scanning services to preserve public records and accessibility and software enhancements to promote efficiencies within departments. This includes the ability for the Police department to send automated notifications to victims and reporting parties that will provide better communication and timely information to our community. In addition, the City will begin taking on the full operation and support of the Olinda Oil Museum as a result of the State of California Park’s Department ending a 20-year partnership with the City. This will be effective on November 1, 2023 and the operating costs have been included in the budget.
- The General Plan Maintenance Fund (120), which is restricted for General Plan updates and modifications, includes a $1.2 million appropriation to provide a partially-comprehensive update as well as other efforts that may be determined from the General Plan Audit that is currently underway.
- The Public Safety Augmentation Fund (172) is restricted for public safety related costs and includes operating and capital related costs for police officer safety equipment, replacement of Automated External Defibrillators, an upgrade to Police Department’s digital forensic software and the purchase of a crime scene imaging software. The fund also includes the purchase of defibrillator equipment and fire hose and nozzle equipment for the Fire Services Department.
- The Paramedic Services Fund (174) accounts for revenues and expenditures associated to the City’s Paramedic Service Program in the Fire Services Department. The fund includes the addition of three (3) paramedic certification pays to provide the ability to run paramedic assistance units from Fire Station No. 4.
- Facility and equipment replacements, such as fitness equipment, facility tables, chairs and countertops, parking lot landscaping, gym floor refinishing, glass wall installation will be funded by the Community Center Replacement (181) Fund.
- The Fixed Asset Replacement Program Fund (182) will provide funding for the replacement of City network servers and storage area network that provides the ability for the organization to store and access data and files across the entire organization.
- The Narcotics Enforcement Asset Seizure Fund (231), which is restricted to Police Service needs, will provide funding for professional development programs, a police services and staffing study and lastly, funding for a five-year strategic plan for the Police Department.
- The Risk Management Fund (470) will provide partial funding of a employee performance evaluation software and the Information Technology Fund (475) will provide ongoing funding for the upgrade of the City’s personnel budgeting and labor forecasting software.
- The Equipment and Vehicle Maintenance Fund (480) will provide funding to reclassify an existing part-time Maintenance Services Worker position from part-time to full-time to assist in the maintenance of the City’s growing vehicle and equipment fleet.
Summary
While reflecting on the past three years and the adversity that came with the COVID-19 pandemic, the organization has been able to pivot and think strategically when navigating a rapidly changing economic environment while maintaining core service levels to the community. This has been especially difficult as the organization repositions itself as work capacity attributed to employee attrition (“Great Resignation”) has remained steady during this post-pandemic environment. To allow flexibility and responsiveness within the organization, the City Manager’s authority as it relates to the biennial budget appropriation carryovers is recommended to be expanded to allow the ability to carryover available appropriation from one year to another year for a new expenditure so long as the total appropriation per expenditures does not exceed the City Manager’s authority limit of $50,000. This will provide the organization the ability to respond and adapt quicker.
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 may help the organization maintain and expand 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 changing economic environment. 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 next two fiscal years. Staff commits to providing budget updates to the City Council as the financial picture changes.
Overall it is important to note that Brea is paying all of 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 City Council also took the opportunity as part of this budget process to refine the organization’s Fiscal Policies Statement to provide additional guidance regarding capital replacement reserve policies and the inclusion of the City’s Reserve Fund Transparency Ordinance.
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:
- The effects of the pandemic and the likelihood of a resurgence;
- Increases in the cost-of-living (inflation); and
- CalPERS projected rate increases
City staff uses a variety of tools, such as looking strategically at vacancies and consolidation of functions to structurally close the budget gap when needed. Staff continues to research new and innovative ways of doing business.
Presenting the City Council with the FY 2023-25 biennial budget is only one of the many projects that City staff has completed during FY 2022-23. 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 budget.
I would like to thank the City Council for their patience and leadership during this period. Though the development of the FY 2023-25 budget is complete, the work will continue as we enter a new phase of data gathering and forecasting to match our new economic reality. |
FISCAL IMPACT/SUMMARY |
The expenditures for all funds included in the Proposed Biennial Operating Budget is $118,735,915 for FY 2023-24 and $120,212,549 for FY 2024-25.
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RESPECTFULLY SUBMITTED: |
William Gallardo, City Manager
Prepared by: Alicia Brenner, Budget Manager
Concurrence: Kristin Griffith, Administrative Services Director |
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