Fiscal Year 2022-23 General Fund Revenues
The majority of the General Fund r evenue is received during the second half of the fiscal year. For the first quarter of the current fiscal year, the General Fund received $23.7 million in recurring revenue, which represents 11% of the estimated revenues, compared to $22 million this time last year. This represents an increase of $1.7 million, or 7.7%, growth over last year’s revenues for the same period. Table 1 summarizes General Fund recurring revenues by category, including actual results for the year ended June 30, 2022, the adopted forecast for FY 2022-23, forecast revisions, and actual receipts of recurring revenues for the first quarter of this fiscal year.
As noted in Table 1, changes to the revenue forecast are proposed for sales tax, property tax, Transient Occupancy Tax (TOT), and Transient Parking Tax (TPT). The City ended FY 2021-22 with General Fund revenues $20 million over the revised budget, largely attributable to income in these revenue categories. This is an indication of both a continuing economic rebound from the Pandemic as well as a byproduct of inflation . Higher prices for various consumer goods increased sales tax revenues by 11.4% for FY 2021 -22. TOT and TPT revenues increased over prior year projections by 25.7% and 16.1% , respectively, due to the surge in travel and tourism. As discussed below, the revised projections recommended by staff are supported by continuing growth to these revenues.
Table 1 - General Fund Recurring Revenues as of September 30, 2022
Sales Tax 58,548,585$ 54,417,033$ 4,000,000$ 58,417,033$ 4,797,541$ 8.2% Property Tax 63,295,371 61,786,895 1,500,000 63,286,895 1,015,176 1.6% Utility Users Tax 16,391,931 16,312,400 16,312,400 4,436,173 27.2% Services Charges - Intra City 13,360,309 13,499,790 13,499,790 3,395,254 25.2% Services Charges 21,608,257 18,405,990 18,405,990 4,235,022 23.0% In Lieu of Tax 8,484,508 8,728,076 8,728,076 2,219,343 25.4% Interest/Use of Money 2,602,548 2,271,472 2,271,472 538,136 23.7% Parking/Traffic/Other Fines 1,666,688 2,002,000 2,002,000 341,151 17.0% Transient Occupancy Tax 10,525,619 10,048,000 500,000 10,548,000 1,166,756 11.1% Building Permits/License Fees 7,420,263 5,593,503 5,593,503 1,255,410 22.4% Transient Parking Tax 3,691,234 3,339,000 360,000 3,699,000 - Business Taxes 2,378,814 2,400,000 2,400,000 74,378 3.1% Franchises 1,487,933 1,471,179 1,471,179 - Intergovernmental Revenues 631,575 1,558,715 1,558,715 183,334 11.8% TOTAL RECURRING REVENUE 212,093,634$ 201,834,053$ 6,360,000$ 208,194,053$ 23,657,675$ 11.4%
RECURRING REVENUE
CATEGORY
ACTUAL
RECURRING FY
2020-21
ADOPTED
RECURRING FY
2022-23
ACTUAL
RECURRING
9/30/22
% OF
REVENUE
RECV'D
YTD
CHANGE
FROM
ADOPTED
REVISED
RECURRING FY
2022-23
Sales Tax: Inflation will continue to top historical norms into 2023. Despite a sixth interest rate hike since March 2022, prices on taxable goods show no signs of decreasing.
Notwithstanding i nventory shortages on new and used vehicles, auto dealers experienced positive growth due to elevated pricing resulting from increased demand.
Restaurants have experienced a dynamic turnaround and their revenues have rebounded. Fuel and service stations have also seen significant gains due to rising prices and sales of jet fuel at the Hollywood Burbank Airport as a result of increased travel. FY 2021-22 ended the year with gains of 11.4% higher than forecasted. To compensate for the prior year’s performance and expected returns this year, staff is proposing an adjustment to sales tax, increasing the FY 2022 -23 forecast to meet last year’s actual revenue.
Property Tax: A total tax of 1% is levied on the Assessed Value (AV) of property as determined by the Los Angeles (LA) County Assessor. The City of Burbank receives approximately 18.5% of the 1% levy on AV. Compared to FY 2021-22, the AV for the entire C ity increased by 8.5%. General Fund related AV increased by 6.8%. Rising interest rates and inflation are decreasing the volume of home sales yet median sale prices continue to increase. The median sales price of a detached single -family residential home in Burbank f or the third quarter (July through September) of 2022 is $1,183,000. This is down 6.6% from the previous quarter but up 6.7% from the same period of the previous year. Increases to the property tax revenues are due to reassessments from new developments in the City and an increase in the number of aircraft returning to the Hollywood Burbank Airport. Additionally, FY 2021-22 revenues for property taxes were $3.5 million higher than the revised projection. The payoff of the prior redevelopment loan to the City’s General Fund resulted in an increase in residual payments to all taxing entities, including the City of Burbank . Staff is proposing an increase to the FY 2022 -23 property tax forecast to account for the residual payments, in addition to the aforementioned increase in citywide AV.
Transient Occupancy Tax (TOT): According to the U nited States Travel Association, after fou r straight months of exceeding p re-Pandemic levels, total travel spending nationally was 3% below August 2019 levels. Burbank’s hotel occupancy rate for August 2022 was 74.8% compared to 71% in August 2021. The pre-Pandemic occupancy rate from January through September 2019 was 82.6% while the occupancy rate from January through September 2022 is at 74.5%. Although occupa ncy rates have not reached pre-Pandemic levels, b usiness and leisure travel have rebounded faster than predicted and several of the City’s hotels ended FY 2021-22 well above their forecasted amounts. Burbank has experienced a steady rise in hotel occupancy as well as average daily rate, and staff is proposing an increase to the FY 2022-23 forecast. Chart 1 shows Burbank’s hotel occupancy rates from FY 2019-20 through September 2022.
Chart 1 – Burbank Hotel Occupancy Rates
Transient Parking Tax (TPT): With a majority of the parking tax revenue derived from parking lots at or directly servicing the Hollywood Burbank Airport, the City’s TPT revenue is dependent on the travel demand. As with hotel occupancy, airport activity ha s experienced a rebound from the pent -up demand for travel. While it is still early in the fiscal year, initial results are positive . Passenger counts at the airport from January through June of 2022 increased by 161% over the same period in 2021. Since TPT remits quarterly, there are no receipts to report at this time, but staff is proposing an increase to the FY 2022-23 forecast to meet last year’s actual revenue. Chart 2 compares the airport passenger counts for FY 2019-20, FY 2020-21, FY 2021-22, and FY 2022-23 to date.
Chart 2 – Hollywood Burbank Airport Passenger Counts
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JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN
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JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN
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The Fiscal Year 2022-23 General Fund Expenditures
Table 2 provides budget to actual results by department for the General Fund at the end of the first quarter. As of September 30, 202 2, General Fund expenditures were at $67.4 million, representing 28.8% of the budgeted appropriations. Expenditures at the end of the first quarter slightly exceeded the general expectation of 25%, primarily due to large payments within the Non -Departmental expenditure category. The first is the $8 million payment made to CalPERS in July as part of the City Council’s multi -year pension funding plan. The second is the annual $4.7 million General Fund Infrastructure Funding Commitment to the Municipal Infrastructure Fund 534. Lastly, $1.2 million in one-time General Fund contributions and $5.8 million from the American Rescue Plan Act ( ARPA) funding were transferred to the Information Technology Fund 537 for the implementation of 24 major citywide technology projects approved by the City Council during the budget adoption process . Fire Department expenditures are also trending above expectation at 26%, due primarily to reimbursable strike team participation.
Table 2 - General Fund Expenditures as of September 30, 2022
EXPENDITURE APPROPRIATIONS EXPENDITURES PERCENT
NO. CATEGORY FY 2022-23 as of 9/30/2022 EXPENDED
1 City Attorney 4,684,880 1,140,878 24.4%
2 City Clerk 2,520,636 367,727 14.6%
3 City Council 816,410 171,454 21.0%
4 City Manager 2,990,737 628,049 21.0%
5 City Treasurer 919,317 202,717 22.1%
6 Community Development 18,866,822 2,725,270 14.4%
7 Financial Services 6,430,894 1,322,205 20.6%
8 Fire 40,033,611 10,411,868 26.0%
9 Library Services 9,020,187 1,948,054 21.6%
10 Management Services 7,588,299 1,355,655 17.9%
11 Non-Departmental 25,180,967 20,399,917 81.0%
12 Parks and Recreation 30,728,092 7,031,191 22.9%
13 Police 65,393,364 15,641,625 23.9%
14 Public Works 19,232,977 4,093,825 21.3%
TOTALS 234,407,193 67,440,435 28.8%
*Appropriations include all carryovers as well as any additional General Fund budget amendments approved by the City Council since the adoption of the FY 2022-23 Budget. The original General Fund adopted budget totals $219,630,830.
General Fund Financial Forecast
The purpose of the financial forecast is to provide insight into the potential long-term financial trends for the General Fund. This perspective will allow the City Council to make informed financial decisions today , while fully understanding the future financial impacts of these decisions.
Based on the actual ending balance for FY 202 1-22, revised FY 202 2-23 revenue projections, and FY 2022 -23 adopted appropriations, the General Fund five -year forecast for the current year projects a recurring budget balance of approximately $ 6.8 million (see detail within the FY 202 2-23 Financial Forecast in Attachment 2 ) and is expected to decrease to $1.5 million by FY 2026 -27. Based on current assumptions, staff expect s that General Fund recurring revenues will grow by an average of 2.9% over the next four years while General Fund expenses will increase by an average of 3.6%. Expenditure growth projections are fueled by anticipated increases to labor costs, rising pension payments due to CalPERS recent investment loss, and general price increases due to inflation.
Projected Revenues
Forecasted revenues are driven by the p arameters included in Attachment 2. Recent increases to mortgage rates have already begun to slow down the residential housing market; however, existing home values remain strong, and the incorporation of new developments into the City’s tax roll will result in steady increases to p roperty. Sales tax revenue is projected to have minimal increases for the next few of years , as inflation is projected to subside, and the prices of commodities such as fuel return to reasonable levels.
Currently, the average revenue growth over the next four years includes projected increases in sales tax by 1.8% and property tax by 4%. Revenue projections included in the forecast are based on staff’s best estimates and may be subject to fluctuations resulting from economic cycles and legislation. Staff will continue to monitor projected revenues throughout the year and provide the City Council with updates as new information becomes available.
Memorandum of Understanding (MOU) Projected Costs
Salaries and benefits currently comprise approximately 75% of the General Fund recurring budget. As such, the MOU negotiation process for the various bargaining groups plays a significant role in determining the City’s financial position. All of the City’s bargaining groups have current MOUs except for the Burbank City Employees’ Association (BCEA), Burbank Management Association (BMA), and Burbank Fire Fighters Association (BFF) which are all in negotiations. Aligning with the City Council’s Financial Policies related to empl oyee compensation, the General Fund forecast includes assumptions for salary and benefit growth over the next five years based on projected market rates for all employee groups.
Market rates are determined through salary and benefits surveys which compare the City’s job classifications to those of similar organizations throughout the region. The City of Burbank calculates the average salary paid for the compatible positions to determine whether employee salaries are at market value. The City’s Financial Policies also dictate that the City and employees evenly share 50% of the normal cost of the CalPERS pension benefits. This has been completed and implemented in accordance with the provisions of each MOU.
Public Employees Retirement System (CalPERS) Costs
Managing costs associated with CalPERS pensions continues to be a challenge for the City, leading to a significant fiscal constraint. In recent years, Burbank has taken measures towards mitigating pension cost increases, including sending lump sum contr ibutions to CalPERS to decrease the City’s unfunded liability for the past four years , implementing a Section 115 trust to offset future pension volatility, increasing employee contributions
towards their pension rates, and implementing the changes directe d by the Public Employees’ Pension Reform Act (PEPRA) adopted by the State of California in 2012.
In July 2022, the City received the CalPERS actuarial re ports for the FY 2023 -24 budget.
Based on the most recent reports, Burbank currently has an Unfunded Actuarial Liability (UAL) of just under $248 million across the City’s three pension plans , a decrease of $137 million from the previous year, due to CalPERS 21.2% investment earnings achieved in FY 2020-21. Subsequently, the funded status for the City’s three plans were updated to 86.8% for Miscellaneous, 79.7% for Police, and 85.8% for Fire. Table 3 shows the actual CalPERS employer rates and UAL contributions for the three employee classifications for the previous fiscal year (FY 2021-22), the adopted fiscal year (FY 2022-23), and the projected employer rates and contributions for the following two fiscal years (FY 2023-24 and FY 2024-25).
Table 3 – City of Burbank Pension Costs FY 2021-22 – FY 2024-25
Classification
Actual
FY 2021-22
Actual
FY 2022-23*
Actual
FY 2023-24
Projected
FY 2024-25
Police 3% @ 50 Rate 23.10% 22.05% 24.01% 23.20%
Police Liability Payment $7,300,248 $8,152,664 $7,175,729 $7,064,000 Fire 3% @ 55 Rate 17.55% 17.71% 18.80% 18.40%
Fire Liability Payment $4,561,502 $5,028,014 $4,465,006 $4,306,000 Misc 2.5% @ 55 Rate 10.38% 10.00% 11.11% 10.90%
Misc Liability Payment $19,578,570 $21,224,820 $18,843,953 $18,221,000 * Amounts shown are the total employer contribution amounts required for FY 2022 -23. The City has completed the prepayment of the additional UAL payment to CalPERS which will result in a net savings of $1,661,016 citywide.
In July 2021, CalPERS reported a 21.3% net return on investments for FY 2020 -21. This investment return decreased the City’s UAL payment amount by $1.7 million for FY 2023- 24 and increased the overall funded status of all three plans from an average of 72.9% to an average of 84.1% Offsetting the investment gains was CalPERS’ decision to lower the discount rate from 7% to 6.8%, as well as the adoption of new assumptions regarding retirement age, life expectancy, and salary inflation , all of which resulted in an increase to the normal cost rates for each plan . In July 2022, CalPERS reported a negative (6.1%) investment loss for FY 2021-22. This loss will result in an increase to UAL payments in FY 2024-25 that will nearly negate the reduction the City received for FY 2023-24. The forecast accounts for the FY 2021 -22 CalPERS investment results but does not account for any potential losses in FY 2022 -23. Barring a complete turnaround in the stock market, it is unlikely that CalPERS will achieve its 6.8% expected rate of return for FY 2022 -23, which will impact the City’s pension costs beginning in 2025-26.
In July 2022, the City made an additional discretionary payment (ADP) of $12 million to CalPERS to complete the implementation of the City Council’s multi -year pension funding plan that was approved as part of the FY 2019 -20 Budget process to help reduce future pension obligations. Over a four-year period ending in FY 2022-23, the City has made $53
million in additional discretionary payments to CalPERS across all funds. The total General Fund portion of this contribution is approximately 68% ($36 million). In August 2022, CalPERS provided the City with an update of the UAL payment amounts for FY 202 3-24, which accounts for the July payment . The total citywide savings generated were over $1.6 million citywide ($1 .1 million General Fund) , as shown in Table 4. In total , the City has achieved over $6 million in recurring savings as a result of the City Council’s pension funding plan. Staff will reevaluate various options to continue funding additional pension payments and provide a recommendation for the City Council’s consideration during the FY 2023-24 Budget process.
Table 4 – Savings FY 2023-24: Fourth Year Payment of Multi-Year Plan
Classification
Original
FY 2023-24
Payment
NEW
FY 2023-24
Payment SAVINGS
Miscellaneous Plan $18,843,953 $17,708,252 $1,135,701
Police Plan $7,175,729 $6,785,493 $390,236
Fire Plan $4,465,006 $4,334,927 $130,079
Citywide Total $30,484,688 $28,828,672 $1,656,016
Estimated General Fund Savings: $1,126,091
CONCLUSION:
Over the past year, Burbank’s revenues have experienced rapid growth as the economy has recovered from the P andemic, but there have also been significant challenges. The consumer bounce back in demand triggered supply chain disruptions and caused a sharp rise in inflation. The economy is expected to slow down, as the Federal Reserve continues to tighten monetary policy and COVID economic relief programs come to an end. At the end of the first quarter of FY 2022 -23, the City’s revenues are performing significantly above expectations, placing Burbank’s fiscal health in a strong position moving into the FY 2023 - 24 budget development process. As shown in Chart 3, the General Fund five-year financial forecast includes a balance of approximately $6.8 million for both the current fiscal year, and in FY 2023 -24. This balance decreases to $1.5 million by FY 2026-27 as rising expenses outpace revenue growth and the impacts of CalPERS investment losses affect future pension costs. It should be noted that there are several risks associated with our projections, including further potential changes to CalPERS assumptions, impacts of local development projects, and potential fluctuations in the overall economy.
Chart 3 - General Fund Financial Forecast FY 2022-23 through FY 2026-27
The City Council has consistently pursued sound fiscal policies and strategies like strengthening revenues, paying down pension liabilities, and working with labor groups to implement equal cost-sharing of pension costs. Additionally, to ensure that Burbank is well- positioned to address any future economic fluctuations and downturns, the City Council increased General Fund formal reserves from 20% to up to 25% as part of the FY 2022-23 budget adoption. In addition to the projected FY 2022-23 year-end General Fund Balance of $39 million, Burbank’s working capital, emergency, and budget stabilization reserves total approximately $50.4 million. These funds will allow Burbank to make strategic investments to offset future costs and weather any potential economic slowdown over the next several years. Staff will continue to monitor any economic conditions or legislative actions that may impact the City’s financial position and provide updates to the City Council.
ATTACHMENTS:
Attachment 1: General Fund Projected Spendable Fund Balance for June 30, 2023 Attachment 2: General Fund Financial Forecast FY 2022-23 through FY 2026-27
$208.2
$213.5
$220.1
$226.8
$233.8
$201.4
$206.7
$216.4
$223.9
$232.3
$160
$170
$180
$190
$200
$210
$220
$230
$240
2022-23 2023-24 2024-25 2025-26 2026-27
Revenue Expenses
Balance: $6.8 $6.8 $3.7 $3.0 $1.5