STAFF REPORT
Meeting Date: March 7, 2023
To: Honorable Mayor & City Council
From: Jeff S. Muir, Director of Finance
Tatiana Szerwinski, Assistant Director of Finance
Brandy Gros, Budget Manager
Subject: Midyear Update on Fiscal Year 2022-23 General Fund Financial Results; Authorization to Add Two New Positions in the Public Works Department and Approval of $43,800 General Fund Appropriation Therefor; Approval of an Ongoing $324,000 General Fund
Appropriation for Fire Department Contractual Services
Attachments: None
INTRODUCTION
This item will provide a midyear update of the City’s fiscal year 2022-23 financial results compared to the same period in fiscal year 2021-22. This report will also provide a General Fund forecast for the remainder of fiscal year 2022-23. Additionally, there is a request for the addition of a Traffic Signal and Street Lighting Technician and a Lead Traffic Signal and Street Lighting Technician in the Public Works department with an associated $43,800 General Fund appropriation request to fund salaries and benefit costs. There is also a request for an ongoing General Fund appropriation of $324,000 for various contractual services utilized by the Fire Department.
DISCUSSION
Fiscal Year 2022-23 Midyear Update
On December 13, 2022, Finance presented audited General Fund financial results for fiscal year 2021-22 and first quarter fiscal year 2022-23 results. This report provides a further update on General Fund financial results through the second quarter of fiscal year 2022-23 and a comparison to the same six-month period of the prior fiscal year.
Overall, General Fund operating revenue for the first two quarters was approximately $9.1 million (8.4%) above the prior year’s results and operating expenditures were $14.3 million (11.2%) higher than results from the prior year.
Meeting Date: March 7, 2023
Meeting Date: March 7, 2023
High-level midyear revenue variances between fiscal year 2022-23 and fiscal year 2021- 22 are as follows:
• “Big Four” tax revenues are up over $10.2 million (12.8%) from the same period last fiscal year, driven largely by increases in property tax and transient occupancy tax (TOT). Property tax increases were primarily fueled by growth in assessed valuation and a higher than usual July remittance due to delayed payments attributable to fiscal year 2021-22. Fiscal year 2022-23 continues to see increased travel/tourism resulting in strong gains in TOT as the City nears pre-pandemic levels. The vast majority of business license taxes are collected when due in January.
• Federal recovery funds for fiscal year 2021-22 represent the second and final installment of American Rescue Plan relief funds.
• A dip in parking ordinance violations as compared to the prior year resulted in a decrease in revenue from fines and penalties. The volume of parking citations has declined temporarily as staff resources normally dedicated to parking enforcement have been reallocated to facilitate the implementation of the new preferential parking permit system and to meet the increasing demands of the Metro project.
• There was an increase in the category of use of money and property due to higher rates of return on portfolio investments in conjunction with the climb in interest rates.
• Service charges and fees demonstrate the significant increase in development activity, recreation programming, and special events, up $1.5 million (27.4%) over the same period in fiscal year 2021-22.
• Miscellaneous revenue rose due to an increase in municipal surcharge revenue, which is correlated to TOT revenue.
High-level midyear operating expenditure variances between fiscal year 2022-23 and fiscal year 2021-22 are as follows:
• Salaries and benefits grew as a result of the cost-of-living increases required by Memoranda of Understanding, effective in late May for sworn Police and effective in late September for all bargaining units.
• Contractual services reflect escalating costs due to prioritization of public safety through increased use of private security around the City and an increase in support to partner agencies in marketing and promotion, and the timing of when such payments were remitted.
• Internal service charges are up considerably as all of the charges that were deferred in the prior year to mitigate pandemic-induced pressure on the General Fund were reinstated in fiscal year 2022-23, and increasing insurance costs have significantly driven up the allocations for the Liability Fund. • Operating transfers out dropped slightly with the termination of a General Fund transfer to the Water Fund for lease of 621 N. Robertson Blvd., which was sold in March 2022. This was somewhat offset by an increase in the appraised value of market rent paid by the General Fund to the Water Fund for the lease of 333 S.
La Cienega Blvd.
Meeting Date: March 7, 2023
Through six months of fiscal year 2022-23, one-time revenue included a $1.5 million public benefit contribution and approximately $2.3 million in building permit and plan check fees from major development projects, net of personnel costs for the Major Projects Team dedicated to this effort. In contrast, fiscal year 2021-22 midyear one-time revenue included $5.0 in public benefit contributions, $0.7 million in major development plan check fees, and $2.0 million for development agreement term extensions.
On January 3, 2023, Council approved a General Fund appropriation of $8.0 million for the purchase of 8401 Wilshire Blvd. Due to the significance of this item, it is included in this midyear report. The funding came from existing City Council approved earmarks for land acquisition near future subway stations ($5.0 million) and the recently approved earmark towards future capital improvement program (CIP) needs ($3.0 million). At mid fiscal year 2021-22, earmarked General Fund reserves of $5.0 million had been transferred to the Water Fund in support of the capital project known as the Water Enterprise Plan.
Overall, variances between the first half of the current fiscal year compared to the prior year are explainable and generally within expectations. The fact that expenditures outpace revenues through the second quarter is a typical pattern each fiscal year because property tax is primarily received from December through June and business tax is primarily received in January.
Meeting Date: March 7, 2023
Fiscal Year 2022-23 Budget and Forecast
The table below summarizes the fiscal year 2022-23 General Fund adopted budget, revised budget, forecasted actuals and percentage of revised budget.
Property Tax 96,928 96,928 96,928 0 0.0%
Sales Tax 40,646 40,646 45,676 5,030 12.4%
Transient Occupancy Tax 44,000 44,000 48,000 4,000 9.1% Business License Tax 52,100 52,100 54,300 2,200 4.2%
"Big Four" Tax Subtotal 233,674 233,674 244,904 11,230 4.8% Other Taxes 1,965 1,965 1,455 (510) -25.9%
Intergovernmental Revenue 797 797 386 (412) -51.6%
Licenses and Permits 18,871 18,871 19,951 1,081 5.7%
Fines and Penalties 6,660 6,660 6,918 258 3.9%
Use of Money and Property 4,657 4,657 4,437 (221) -4.7% Service Fees and Charges 9,587 9,677 13,394 3,717 38.4% Miscellaneous Revenue 7,491 7,518 9,363 1,845 24.5%
Operating Transfers In 6 6 6 0 0.0%
Operating Revenue [1] 283,709 283,825 300,814 16,989 6.0%
EXPENDITURES
Salaries and Benefits 139,644 139,647 137,006 (2,641) -1.9% Materials and Supplies 2,354 2,429 1,821 (607) -25.0%
Contractual Services 45,507 63,970 47,978 (15,993) -25.0% Internal Service Charges 66,556 66,556 66,556 0 0.0%
Other Charges 10,404 10,717 10,720 2 0.0%
Transfer to Pension Trust 5,000 5,000 5,000 0 0.0%
Operating Transfers Out 4,642 4,395 4,395 0 0.0%
Operating Expenditures [2] 274,106 292,715 273,477 (19,238) -6.6% Net Operating Surplus / (Deficit) 9,602 (8,890) 27,337 36,227 One-Time Major Development Projects Net Revenue[3] 8,449 8,449 4,200 (4,249) Public Benefit Contributions 0 0 1,500 1,500
Non-Operating Transfers Out
Transfer to Infrastructure Fund (12,500) (12,500) (12,500) 0 Transfer to Parking Fund (6,000) (6,000) (6,000) 0
Stormwater Subsidy (3,400) (3,400) (3,400) 0
Transfer to PAL Fund for Unhoused Pilot 0 (451) (451) 0 Transfer for Land Acquisition 0 (7,995) (7,995) 0
Total Surplus / (Deficit) from Current Year Resources (3,849) (30,786) 2,692 33,478 Utilization of General Fund Reserves
Council Approved Earmarks (Committed Fund Balance) 0 7,995 7,995 0 Carryover from Prior Year (Assigned Fund Balance) 0 15,403 15,403 0 Carryover to Next Year (Assigned Fund Balance) 0 0 (13,280) (13,280) Required Increase in Economic/Contingency Reserve 0 0 (8,287) (8,287) Impact on Unassigned Reserves (3,849) (7,388) 4,523 11,911 [1] Operating Revenue excludes one-time revenue from major development projects, accounted for below the line. [2] Operating Expenditures exclude salaries and benefits of the Major Projects Team, accounted for below the line. [3] One-time revenue from major development projects, net of salaries and benefits of the Major Projects Team.
Variance
Revised
Budget vs.
Forecast
%
Variance
NOTE: The Section 115 Pension Trust is included in the General Fund for purposes of financial reporting in the Annual Comprehensive Financial Report. The results above exclude the Section 115 Pension Trust, as well as certain accounting/accrual entries in order to assist with comparison. Immaterial differences may exist when adding rounded figures above.
General Fund
($ Thousands)
REVENUE
FY 2022-23
Adopted
Budget
FY 2022-23
Revised
Budget
FY 2022-23
12-Month
Forecast
Meeting Date: March 7, 2023
Adopted to Revised Budget Reconciliation
Budget adjustments are posted during the year for carryovers from prior year, Councilapproved midyear appropriations, and transfers between funds. This often results in significant variances between the adopted and revised budget figures. To date, the expenditure budget has been adjusted upwards by approximately $27.1 million. $15.0 million of this amount is applicable to carryovers from the prior year ($15.4 million originally, reduced by prior year-end accounting adjustments). Carryover funds are included in assigned fund balance in the General Fund and as such, represent reserves separate and apart from unassigned fund balance.
Additionally, there have been $12.1 million in Council-approved midyear appropriations as summarized below:
Purchase of 8401 Wilshire Blvd. $ 8.0
Plan Review Services for One Beverly Hills Project 2.3
True-up for Tourism & Marketing Based on Year-End TOT Results 1.0 Enhanced Services to Further Assist the Unhoused 0.7
Jail Operations and Management Agreement 0.1
Photo Red Light Enforcement Agreement 0.1
Art Show Outreach / Salary Schedule Adjustments 0.1
Adjustments for Lease Payments to Water Fund (0.1)
Total $ 12.1
NOTE: Immaterial differences may exist when adding rounded figures above.
General Fund Appropriations
($ Millions)
Forecast for Remainder of Fiscal Year 2022-23
Operating revenue for fiscal year 2022-23 is forecasted to be 6.0% above the budgeted amount, showing an overall projected excess of $17.0 million over budget. High-level revenue comparisons of the revised budget to forecasted actuals are as follows:
• The budget estimate for sales tax was developed in early spring by the City’s consultant (HdL) prior to higher than anticipated results through the end of fiscal year 2021-22 being realized. As a result, the $40.6 million budget estimate for fiscal year 2022-23 was conservative. The $45.7 million forecast for fiscal year 2022-23 is essentially flat compared to the fiscal year 2021-22 actual results due to a minor projected slowing in retail activity offsetting overall inflationary trends.
In comparison to the conservative budget figure, the forecast is approximately $5.0 million higher.
• Transient Occupancy Tax (TOT) has seen substantial and continuous growth over the prior year that exceeded somewhat conservative projections. As the City’s TOT nears pre-pandemic levels, the rate of growth is slowing, but the fiscal year 2022-23 forecasted TOT of $48.0 million is just 4% shy of the City’s highest TOT receipts on record ($50.0 million in fiscal year 2018-19, the last full prepandemic year). • Property transfer tax and intergovernmental revenue from mutual aid reimbursements are forecasted below the revised budget based on year-to-date actuals.
Meeting Date: March 7, 2023
• Licenses and permits are forecasted to exceed the adopted budget by $1.1 million due to strong year-to-date activity from the issuance of valet parking permits, filming and special event permits, Greystone use permits and other permit issuances.
• Conservative estimates were used in developing this year’s budget for service fees and charges; however, based on year-to-date activity for safety special events, ambulance services, recreation programming, and development activity (excluding major projects), the current forecast for service fees and charges was increased by $3.7 million.
• The forecast for miscellaneous revenue exceeds the revised budget primarily because projected Metro reimbursement revenue is up significantly based on an increase in reimbursable activities.
Operating expenditures for fiscal year 2022-23 are forecasted to be 6.6% lower than the revised budget, showing an anticipated budget savings of $19.2 million overall. Highlevel expenditure comparisons of the revised budget to forecasted actuals are as follows:
• Salaries and benefits are forecasted to be 1.9%, or $2.6 million, lower than budgeted due to vacancies in authorized/budgeted positions. • Based on historical trends, it is forecasted that 75% of the revised budget for materials and supplies and contractual services will be expended during the current year. However, of the $16.6 million in projected budgetary savings, it is further assumed at the bottom of the table that $13.3 million (20% of the revised budget) will be carried over into the following fiscal year for services or ongoing projects not completed prior to June 30th.
Budgeted one-time revenue for major development projects, as originally adopted, included certain revenue assumptions for the Cheval Blanc project. $2.7 million of such revenue assumptions have been removed from the forecast until such time as the results of the referendum election are known. Additionally, $2.4 million related to certain one-time building permit revenue and fees for extending the term of other developer agreements that were budgeted to be received in fiscal year 2022-23 were actually received and recognized in late fiscal year 2021-22, thereby resulting in a negative variance compared to budget. This shortfall is slightly offset by estimated savings of about $0.5 million in budgeted personnel costs for the Major Projects Team, which was not fully staffed for the year, as well as other permit and plan check revenue realized in excess of the amount projected in the adopted budget.
Net operating results before one-time net revenue are forecasted to yield a $27.3 million surplus. After consideration of significant non-operating transfers partially offset by onetime major development net revenue, year-end results from fiscal year 2022-23 transactions are projected to yield a surplus of $2.7 million from current year resources.
However, $15.4 million of contractual services expenditures and $8.0 million for the Council directed land acquisition transfer are not being paid out of current year resources, but rather from assigned and committed fund balance, respectively, set aside in prior years for these purposes. In accordance with the City’s financial policies, it is expected that the economic/contingency reserve (set at 40% of operating expenditures) will be required to increase to $109.5 million based on the forecasted operating expenditures. Overall, the net impact on unassigned General Fund reserves from fiscal year 2022-23 projected activity is an estimated increase of $4.5 million.
Meeting Date: March 7, 2023
General Fund Reserves
General Fund Reserves (Fund Balance)
($ Millions)
FY 2021-22
Audited
Actuals with
Prior
Earmarks
FY 2022-23
Unaudited
Forecated
Actuals
Change from
Prior Year
Economic/Contingency Reserve (minimum 40%)
Contingency Reserve (minimum 25%) $ 63.3 $ 68.4 $ 5.2
Economic Reserve (minimum 15%) 38.0 41.1 3.1
Total Economic/Contingency Reserve 101.3 109.5 8.3
Budget Stabilization Reserve 13.0 13.0 -
Committed Fund Balance (Council earmarks) -
Property Acquisition (Subway related) 5.0 - (5.0)
Street Tree Removal & Replacement 1.1 1.1 -
One-time Public Benefit Contributions 5.0 5.0 -
One-time Capital Improvement Plan Contributions 29.1 26.1 (3.0) Committed Fund Balance Total 40.2 32.2 (8.0)
Nonspendable (long-term receivables/advances to other funds) 5.7 5.7 - Restricted (Pension trust) 19.2 19.2 -
Restricted (Metro Projects) 2.2 2.2 -
Encumbrances/Carryovers 15.4 13.3 (2.1)
Unassigned 28.9 33.5 4.5
Total Fund Balance $ 225.9 $ 228.6 $ 2.7
NOTE: Immaterial differences may exist due to rounding.
Based on audited results, the City had total General Fund reserves of $225.9 million as of June 30, 2022, as detailed in the table above.
The economic/contingency reserve required by the City’s financial policies is comprised of at least 40% of General Fund operating expenditures, and shall not decrease unless approved by the Council. Based on the current fiscal year 2022-23 forecast, it is estimated that the economic/contingency reserve will be increased by $8.3 million for fiscal year 2022-23 to meet policy requirements. Council has also established a $13.0 million budget stabilization reserve available for one-time deficits. Additional elements of total reserves include funds committed by Council for specified purposes ($8.0 million of which was used towards a property purchase in fiscal year 2022-23) or other restricted funds. Unassigned fund balance (the amount above current restrictions and Council earmarks, contingency, and stabilization reserves) is forecasted to increase by $4.5 million to $33.5 million, which can be available for one-time uses at the direction of the City Council. The City’s General Fund reserves continue to exceed the amount required by its adopted financial policies.
Other Items
Addition of Two Traffic Signal and Street Lighting Positions The Street Signals and Street Lighting Section of Public Works plays a critical role in ensuring public safety and maintaining the infrastructure of the City. Increasing the staffing within this section is essential to ensure proper maintenance and reliability of the City's fiber network, CCTV and ALPR cameras, traffic signals, and street lighting infrastructure. The proper functioning of these systems is crucial to ensure public safety on the roads and in public spaces. Malfunctioning traffic signals and street lights can cause accidents, while a poorly maintained CCTV’s and fiber network can compromise public safety.
Meeting Date: March 7, 2023
Hiring additional technicians would ensure that these critical systems are regularly maintained and inspected, reducing the risk of malfunctions and equipment failures. In addition, having more staff available to respond to emergency repairs would improve response times and ensure that any issues are quickly resolved. This is especially important considering that the Real Time Watch Center (RTWC) uses 24/7 monitoring of CCTV’s to deter crime. Ultimately, the investment in additional technicians would help the City to provide a safer and more reliable infrastructure for its residents and visitors.
Two positions in this unit were eliminated through the CalPERS Golden Handshake program, implemented during COVID to mitigate the detrimental impact on revenues through personnel cost reductions. The estimated annual cost of the two requested positions is detailed below.
Position Salary Benefits Total Cost
Lead Traffic Signal and Street Lighting Technician $ 94,000 $43,900 $ 137,900 Traffic Signal and Street Lighting Technician 82,600 42,300 124,900 Total $176,600 $86,200 $ 262,800
A fiscal year 2022-23 General Fund appropriation of $43,800 is requested to fund the positions for a partial year, and if approved by Council, these positions will be incorporated into the fiscal year 2023-24 proposed budget at the full ongoing cost of approximately $262,800.
Contractual Services for Fire Department Operations
Over the last ten years, the Fire Department has demonstrated fiscal prudence with respect to its existing discretionary budget (materials, supplies and contractual services) by absorbing rising costs with only moderate budget enhancements, often in connection with expansion of services. Due to inflation, increasing development activity, and adequately addressing City Council priorities for the current and future fiscal years, the Fire Department requests City Council approval of an ongoing appropriation of $324,000 from the General Fund to various contractual services accounts.
The matrix and subsequent explanations provided below detail the request.
VENDOR AMOUNT PURPOSE
REVENUE
OFFSET
FlameMapper $ 35,000 Wildland Fire Modeling No
RCS Investigations and Consulting LLC $ 63,000 Background investigative services No SUBTOTAL $ 98,000
VENDOR AMOUNT PURPOSE
REVENUE
OFFSET
COMSEC Associates, Inc. $ 20,000 Emergency Responder Radio Coverage Systems inspection Yes JAS Pacific $ 100,000 Plan review for projects Yes
Fire Recovery USA $ 51,000 Fire inspection billing Yes
SUBTOTAL $171,000
VENDOR AMOUNT PURPOSE
REVENUE
OFFSET
The Counseling Team International $ 55,000 Health and mental wellness services for fire personnel No SUBTOTAL $ 55,000
TOTAL ONGOING APPROPRIATION REQUEST $324,000
FIRE ADMINISTRATION DIVISION
COMMUNITY RISK REDUCTION DIVISION
EMERGENCY RESPONSE SERVICES DIVISION
Meeting Date: March 7, 2023
Fire Administration
As part of the City’s focus on fire prevention through strategic pre-wildfire mitigation, the City performed a Wildfire Assessment Report and engaged FlameMapper to perform wildfire modeling. The maps enable the City to identify and reduce vulnerabilities, thus reducing the potential risk of a wildfire event and its overall impact on the City. The Fire Department, in close collaboration with Public Works, has utilized these models to implement multiple phases of the Urban Forest Management Plan (UFMP). An ongoing appropriation of $35,000 is requested to consistently update the wildfire model and review risk, as the City continues to complete various phases of the UFMP.
The City began standardizing investigations for public safety positions in 2021 and entered into an agreement with RCS Investigations and Consulting, LLC in lieu of the Fire Department performing the background investigations in-house. At that time, no new appropriations were issued to cover the cost of these added services, but this will be a consistent cost now and moving forward. The Department currently has eight firefighter vacancies and five vacant Fire Cadet positions that will require background investigation services to be utilized in the recruitment process. Each background investigation for sworn and non-sworn fire positions costs $1,700 and $1,550, respectively. A single vacancy may require more than one background investigation where a candidate fails the intensive background process. The Department estimates it will need $63,000 annually to fund the cost of prospective background investigation services to fill attrition rates from upcoming retirements.
Community Risk Reduction
The City is required to inspect high-rise buildings to ensure that there is adequate Emergency Responder Radio Coverage to enable our firefighters’ communication equipment to remain operational in the event of an emergency. These inspections are pursuant to the California Fire Code Section 510 and the Beverly Hills Fire Department Emergency Responder Radio Coverage System regulations. The agreement with COMSEC, identified as having the necessary skills and experience to fulfill these requirements, ensures compliance with Title 47 CFR (Code of Federal Regulations) Section 90.219 (Federal Communications Commission Regulations). Currently, the Fire Department is working with Finance to bring forward a new fee for approval to bill development projects and property owners as a cost recovery measure. The Department is requesting an ongoing appropriation of $20,000 for as needed COMSEC services.
The Fire Department performs fire safety plan review for projects in the City and employs JAS Pacific for plan review services. With the changes to the fuel modification standards inclusive of projects involving new construction, 50% or greater remodels and projects over $1 million, there is expected to be significantly more plan review services needed in the coming years, especially in hillside areas. The Department is requesting an ongoing appropriation of $100,000 to cover the cost of the anticipated increased volume of plan review services, which will be billed back to applicants through permit fees.
Fire Recovery USA provides a comprehensive billing solution exclusively for fire inspections and permit services. Currently, the processing fee for each paid inspection is billed at $18.50. These services have a cost recovery mechanism, as they are built into the rates of the associated fees charged for inspection and permit services. An ongoing appropriation of $51,000 is requested for fire inspections, permits, and collection services.
Meeting Date: March 7, 2023
Emergency Response Services
According to the Centers for Disease Control and Prevention (CDC), firefighters (and law enforcement officers) are more likely to die by suicide than in the line-of-duty.
Furthermore, Emergency Medical Services providers are 1.39 times more likely to die by suicide when compared to the general public. A study by Florida State University of more than 1,000 firefighters showed that 50% of those surveyed had suicidal thoughts at some point in the course of their careers. As a proactive measure, the Fire Department contracted with The Counseling Team International last year. To date, they are serving over 100 public safety agencies throughout Southern California. They provide a department-wide behavioral health training to all fire personnel; peer support and annual refresher training; and professional short-term confidential counseling services. An ongoing appropriation of $55,000 is requested to fund these health and mental wellness services.
FISCAL IMPACT
This financial update to the City Council is informational and has no specific fiscal impact. If approved by Council, a $43,800 General Fund appropriation would be required for the addition of two positions in the Public Works department in fiscal year 2022-23, and would result in increased budgeted personnel costs of approximately $262,800 on an ongoing annual basis. Additionally, a $324,000 General Fund appropriation is requested to fund Fire Department contractual services starting in fiscal year 2022-23, and would be incorporated into the proposed budget on an ongoing basis, starting with fiscal year 2023-24.
RECOMMENDATION
It is recommended that City Council provide direction as needed regarding this financial report, authorize the addition of two budgeted positions in Public Works’ Street Maintenance division and the $43,800 General Fund appropriation therefor, and approve a General Fund appropriation of $324,000 to the Fire Department operational budget for contractual services.
Tatiana Szerwinski
Assistant Director of Finance
Jeff S. Muir
Director of Finance
Approved By Approved By