2 while meeting the community’s needs and addressing the goals established by the City Council for the upcoming year . The FY 202 3-24 Proposed Budget is balanced on a recurring basis. However, the five-year financial forecast reflects a recurring budget deficit starting in FY 2026-27 as growing expenses outpace anticipated revenue growth. Staff is committed to mitigating the future recurring deficit by implementing prior cost saving initiatives and identifying future efficiencies, revenue -generating opportunities, and financial policies that will provide long -term recurring savings to the City . The Proposed FY 2023 -24 Budget also includes additional one -time funding towards paying down pension liabilities and the ongoing investment in maintaining and improving the City’s infrastructure, in support of continuous improvement and financial sustainability.
DISCUSSION
FY 2023-24 General Fund Budget Overview:
Based on the projected FY 2023-24 revenue and proposed recurring appropriations, staff is projecting a recurring balance of approximately $4.8 million in FY 2023-24 (see detail contained within the FY 20 23-24 Budget Matrix in Attachment 1). Factoring in the anticipated ending balance from FY 20 22-23, contributions to reserves , and proposed one-time appropriations, staff is expecting an available balance of $ 19 million in the General Fund at the end of FY 2023-24.
FY 2023-24 Recurring General Fund Revenue Projections and Trends:
Economic growth in FY 2022 -23 surpassed consensus expectations despite the continued increases to the Federal interest rates to calm inflation . Households and businesses maintained a surprising amount of activity and spending. Although not as robust as FY 202 2-23, it is expected that there will be moderate growth in revenues for FY 2023-24, as the economy is expected to grow but at a slower rate. If the Federal Reserve continues to increase rates aggressively, this could result in higher mortgage rates, businesses investing less, and consumers cutting back on spending.
Burbank’s General Fund recurring revenue estimates for FY 2023-24 represent a 5.9% increase over the revised FY 2022-23 projections. Sales tax and property tax continue to be the General Fund's largest revenue sources, representing 57% of recurring revenue.
Table 1 shows the actual FY 2021-22 revenue, the adopted and revised estimates for FY 2022-23, and the projection for FY 202 3-24. For further detail on the City’s revenues, please refer to the “Revenues” section of the FY 2023-24 Proposed Budget.
3 Table 1 - General Fund Recurring Revenues FY 2023-24
REVENUE
CATEGORY
ACTUAL
TOTAL
FY 2021-22
ADOPTED
RECURRING
FY 2022-23
REVISED
RECURRING
FY 2022-23
PROPOSED
RECURRING
FY 2023-24
%
CHANGE
Sales Tax $ 58,548,585 $ 54,417,033 $ 58,417,033 $ 60,002,899 2.7% Property Tax 63,295,371 61,786,895 63,286,895 65,817,908 4.0% Utility Users Tax 16,391,931 16,312,400 17,222,400 17,997,000 4.5% Services Charges - Intra City 13,360,309 13,499,790 13,499,790 14,621,839 8.3% Services Charges 21,585,346 18,405,990 18,935,990 22,740,816 20.1% In Lieu Tax 8,484,508 8,728,076 9,103,076 9,512,850 4.5% Interest/Use of Money 2,602,548 2,271,472 2,471,472 3,248,614 31.4% Parking/Traffic/Other Fines 1,666,688 2,002,000 1,370,000 2,401,000 75.3% Transient Occupancy Tax 10,525,619 10,048,000 10,548,000 10,759,000 2.0% Building Permits/License Fees 7,420,263 5,593,503 5,593,503 5,995,478 7.2% Transient Parking Tax 3,691,234 3,339,000 3,699,000 3,772,980 2.0% Business Taxes 2,378,814 2,400,000 2,400,000 2,464,190 2.7% Franchises 1,487,933 1,471,179 1,471,179 1,442,000 -2.0% Intergovernmental Revenues 631,575 1,558,715 1,558,715 1,067,051 -31.5% TOTAL REVENUE $ 215,883,005 $ 201,834,053 $ 209,577,053 $ 221,843,625 5.9%
• Sales Tax: Sales tax results for the second quarter of FY 202 3-24 (fourth quarter calendar year 2022) were recently released. Burbank’s receipts from October through December were 4.8% above the fourth quarter of the prior year, on an adjusted basis.
The Business and Industry sales tax category experienced a 19.3% increase in the fourth quarter of 2022 (4Q22) , driven by the sale of motion picture equipment and supplies generated from the bustling activity at local production studios . General Consumer Goods increased by 5.4% for 4Q22 when compared to 4Q21 , which , indicates a slowdown from the double digit increases experienced in prior quarters .
As prices continue to climb, retailers are experiencing a shift in consumer spending away from buying retail goods , with overall growth just slightly below the level of inflation. However, spending on travel and entertainment remains strong, with the Restaurants and Hotels category experiencing a robust 12.1% increase in 4Q22.
Measure P, which is the City’s Transaction and Use Tax (TUT), is performing better than anticipated since this r evenue is collected based on the location where goods are delivered. Measure P revenues experienced a 6.9% increase for the fourth quarter of 2022 versus the same period in 2021. Measure P revenues performed well, largely
4 due to the high volume of new and used car purchases among Burbank residents.
Overall, sales tax revenues are anticipated to grow by 2.7% for FY 2023 -24 largely due to higher than anticipated receipts in the current fiscal year and the continued strong performance of Burbank’s destination-based TUT 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 the AV. Under Prop 13, AV on parcels with continuing ownership may change by inflation as defined by the California Consumer Price Index (CPI), up to a maximum increase of 2%. The State has released CPI growth, and for FY 2023-24, the AV of properties will increase by 2%. Other sources of AV growth are change of ownership, new construction, recapture of prior Prop 8 impairments of value, change to values for unsecured items such as aircraft, and post Redevelopment residual distribution.
Compared to FY 202 1-22, the AV for the entire city increased by 8.5% for FY 2022-
23. General Fund related AV increased by 6.8%. The Citywide AV increase between FY 2021-22 and FY 2022-23 was $2.3 billion. The reappraisal of a recently completed large development added over $258.55 million in value to the property tax base. While recent interest rate hikes had a negative impact to both home sale volume and the price of homes, prices seem to be steadily on the rise again. The median sales price for a single-family home in Burbank during the first quarter of 2023 was $1.2 million, an increase of 9% from the fourth quarter of 2022, bu t still slightly below the peak of just under $1.3 million in the second quarter of 2022 . Though future AV growth and sales volume may be somewhat tempered by higher interest rates , staff is still projecting property tax revenue to increase by 4% for FY 202 3-24, buoyed by the steady growth in development throughout the City.
• Utility User’s Tax (UUT) : The UUT rate of 7% is applied to telephone, gas, and electric usage. Unlike other cities, Burbank does not apply this tax to water, cable television, sewer, and refuse collection usage/sales. The UUT revenue is anticipated to increase by 4.5% for FY 2023-24. The growth is attributable to the proposed 8.5% electric rate increase and higher natural gas prices, but offset by reduced electric usage due to efficiencies as well as the decline in telecom revenue as a result of the Federal Communications Commission (FCC) reclassification of data to non -taxable information services.
• Service Charges: Service charges are fees charged to users of city-provided services and are designed to at least partially cover the incurred costs. The full reopening of
5 indoor park facilities, the surge in passport applications and renewals, and the resumption of the film industry have all contributed to the growth in this category. This resulted in increased service charge revenues during FY 2022-23. It is anticipated that Parks and Recreation related revenues will increase by 15% for FY 2023-24 due to a rise in special events at DeBell Golf Club and the soccer league pilot program. With the new legislation passed in January of 2023, AB 3182 shortened the approval process for permits for an Accessory Dwelling Unit (ADU) or Junior Accessory Dwelling Unit (JADU) to 60 days. As a result, Plan Check fees are anticipa ted to increase by 25% for FY 2023 -24. The Burbank Fire Department is restructuring the emergency medical service fees based on the First Responder and Ambulance Fee Study. The bundled service fee will increase revenues from insurance payouts by $205,000. Lastly Burbank conducted a Citywide Fee Study during FY 2022-23, which, if approved as proposed, will increase service charge revenues for the General Fund by approximately $2.9 million annually. (Further discussion of the Fee Study can be found later in this report.) Considering the above factors, staff is forecasting an increase in service charges of 20% for FY 2023-24.
• Interest/Use of Money: This category includes interest, rent, and lease income received by the City. The City Treasurer invests static funds in various investment instruments and the City’s portfolio receives interest income. The City Treasurer’s goal is to achieve an average annual investmen t portfolio yield of 3% for FY 2023 -24 due to the increased impact of inflationary interest rates.
• Transient Occupancy Tax (TOT): The City receives 10% TOT on short-term lodging rentals within the city limits. The return of travel following the Pandemic has precipitated more frequent and longer stays for both business and leisure travelers.
Although not fully recovered to pre-pandemic levels, hotel occupancy rates for March 2023 were at 80.5% compared to the prior year’s occupancy rate of 77%, indicating continued moderate improvement for Burbank’s tourism industry. The average daily rate for a hotel in Burbank increased by 5% during that same time period, reflecting increased demand for lodging as well as inflation. For FY 2023-24, TOT is anticipated to increase by a steady 2% from the revised FY 2022-23 projection.
• Transient Parking Tax (TPT): The current rate for TPT is 12% and is charged by parking lot operators for short -term parking (e.g., airport, businesses, hotels, and restaurants). With approximately 80% of the parking tax revenue derived from lots at or directly serving the Hollywood Burbank Airport, the City’s TPT is dependent on travel demand. Similar to the increase in hotel occupancy, airport activity has experienced an increase from the previous year result ing from the pent-up demand for leisure travel. Passenger counts at the airport increased by 58% in 2022 when
6 compared to 2021. As the airport is largely back to full activity , staff anticipates TPT revenues to increase by a modest 2% in FY 2023-24, compared to the revised budget of FY 2022-23.
FY 2022-23 Recurring General Fund Expenditures:
At the Mid -Year Financial Report on February 28, 2023, staff projected a recurring balance of $8.1 million heading into FY 2023 -24. The high rates of inflation reflected widespread price increases among goods and services, labor costs, and contracts with service providers. In addition, the rental rates collected from department s to support the City’s Internal Services funds were significantly impacted by cost increases related to vehicles as well as various insurance rates including general liability and property insurance. Proposed recurring General Fund appropriations for FY 2 023-24 are $217 million, an increase of approximately 7.7% over last year’s adopted recurring budget of $201 million.
As part of the budget process, the City Manager met with all City departments and reviewed in detail the proposed budget requests from Fe bruary through April. New appropriations were prioritized in accordance with their adherence to the City Council’s stated goals for the year. Staff has made significant efforts to maintain spending at existing budget levels citywide. However, several depar tments did identify immediate needs for items that required funding. Roughly $4.8 million in new General Fund recurring budget items ($2.4 million net of revenue) and $7.9 million in one-time items ($7.5 million net of revenue) were incorporated into the F Y 2023-24 Proposed Budget. The following are some of the notable new budget items:
➢ The Fire Department is prop osing to enhance the Emergency Medical Services (EMS) program by adding three Firefighter/Emergency Incident Technicians, a Fire Captain, two Ci vilian Fire Inspectors, and equipment. These enhancements are Center for Public Safety Excellence (CPSE) strategic recommendations and will vastly enhance operations and service levels for the community.
➢ The Community Development Department is proposing t o add an Administrative Analyst I and an Administrative Analyst II for Homeless Services to implement the City’s five -year homeless plan (2022 -2027). Several planning positions and upgrades are proposed to support long-range planning efforts, including the City’s Burbank 2035 Plan Realization, the 2022 Housing Element’s Programs, the 2022 Greenhouse Reduction Plan, and the Rancho Specific Plan.
➢ The Public Works Department ’s proposed budget includes enhanced staffing within the Engineering Division to support increased workloads in the Capital
7 Improvement Program (CIP) and Inspection, Land Development and Permits, and Traffic Sections.
➢ The Parks and Recreation Department is adding funding to enhance sports camps, classes, and other activities for the community. Additional one-time funding is also requested for a reforestation plan that would remove and replace mature parkway trees.
➢ Additional funding has been incorporated across all departments in anticipation of increased utility costs for City buildings, parks, and facilities.
The following chart summarizes the total new proposed General Fund budget requests (net of revenue) by departm ent. A comprehensive listing of all budget requests by department is included in the Proposed FY 2023 -24 Budget under the “New Budget Requests” tab.
DEPARTMENT
NEW BUDGET
ITEMS
(Recurring)
NEW
BUDGET
ITEMS
(One-Time)
TOTAL
REVENUE
OFFSET
NET
TOTAL
City Attorney $88,871 $88,871
City Clerk $20,576 $20,576
City Council
City Manager $7,448 $7,448
City Treasurer
Community
Development $934,445 $1,720,000 $869,666 $1,784,779
Financial Services $195,328 $195,328
Fire $897,317 $4,862,773 $809,317 $4,950,773
Library Services $60,401 $169,080 $229,481
Management Services $166,149 $226,847 $392,996
Non-Departmental $584,032 $100,000 $684,032
Park & Recreation $1,459,737 $839,114 $982,438 $1,316,413 Police $184,366 $50,000 $234,366
Public Works $269,805 $243,053 $26,752
TOTALS: $4,868,475 $7,967,814 $2,925,050 $9,911,239
Fee Study
As mentioned previously, i n FY 2022 -23, the City contracted with Willdan Financial Services (Willdan) to conduct a comprehensive citywide Fee Study to review the City’s fee structure and determine an accurate accounting for the true cost of providing various programs and services within city operations. The goal was to establish a consistent and objectively based fee structure to align with industry-accepted best practices, reaffirm the
8 City’s compliance with Proposition 26 , and realign fees with the City Council’s Cost Recovery Policy. Proposition 26, approved by California voters in 2016, limits certain fees collected to the reasonable cost of providing the service.
Departments worked collaboratively with Willdan to determine the proper time allocation for positions involved in prov iding city services related to fees and allocating overhead accurately amongst these positions. The City Council’s Cost Recovery Policy provides further guidance on how to set fees based on the benefits a user receives above a general taxpayer, offering greater fairness in pricing services to users. The City’s cost recovery policy consists of three categories:
➢ Public Benefit or Core Services – Core services provide the broadest public and community benefit to the City. The cost of providing core services could be a significant General Fund subsidy.
➢ Public and Individual Benefit or Important Services – Important services deliver a higher benefit to the user than the general taxpayer. The cost of important services could be shared between general taxes and fees paid by participants via program and/or rental fees.
➢ Individual or Value-Added Services – These services primarily provide a benefit to the individual utilizing the program or service. The goal should be full, or close to full cost recovery through user and rental fees.
Most General City (non-utility) fees and services were included in the study, with some notable exceptions such as fines, penalties, taxes, and development impact fees . The recommended fee changes are included in the FY 2023-24 Proposed Fee Schedule and the corresponding revenues have been incorporated in to the FY 2023 -24 Proposed Budget.
It is important to note that t he Burbank Program, Activity, and Service Subsidy (PASS) Program continues to provide Burbank residents in need of financial assistance the opportunity to engage and participate in Citywide services. Subsidy amounts vary from 40%-80% depending on the activity or service. The Parks and Recreation department oversees the administration of the PASS program, and detailed information can be found under the department’s website.
City Utility Rates
Utility expenses are rising due to infrastructure costs impacted by inflation, government regulations and policy, higher consumption, overseas politics affecting commodity
9 supplies, and forces of nature. Adapting to climate change, manag ing unprecedented costs for resources like natural gas, potable water, and equipment, and maintaining Burbank’s critical infrastructure are just some of the challenges that require Burbank Water and Power (BWP) rates to reflect the increasing costs of providing water and power to the City of Burbank. In order to meet the community’s largest challenges, BWP is proposing an 8.5% increase in electric rates for FY 2023-24 and an 8% increase for FY 2024-25. Similar increases are proposed for water rates, with 9% increases proposed for both FY 2023-24 and FY 2024-25.
The Public Works Department is also proposing increases to rates for citywide sewer and refuse services. The proposed Sewer Fund budget incorporates 4% rate increases for both FY 2023-24 and FY 2024-25 due to higher charges from the City of Los Angeles for sewage treatment services and capital improvement projects. The Refuse Fund is proposing 6% rates increases in FY 2023-24 and FY 2024-25 to meet rising operational costs, particularly those associated with new State mandates, and to continue providing comprehensive refuse services.
For the typical residential customer, the total proposed fees and charges for FY 2023-24 reflect monthly increases of approximately $ 12.77 for electric services, $6.44 for water services, $1.05 for sewer services, and $2.09 for refuse services. The public hearing for all utility rates is scheduled for June 6, 2023 . Staff has complied with the noticing requirements established by the California Supreme Court in 2006 in the Bighorn-Desert View Water Agency v. Verjil decision. The requirements include mailed notices to all rate payers at least 45 days prior to the public hearing at which the fees may be imposed or increased. These noticing requirements apply to the City’s water rates, sewer service charges, and refuse collection fees.
American Rescue Plan Act of 2021 (ARPA)
In response to the Pandemic, the U.S. government enacted a series of measures to mitigate the effects of the health and economic crises. In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The American Rescue Plan Act (ARPA) was signed into law in March 2021. ARPA established the Coronavirus State and Local Fiscal Recovery Funds (SLFRF), providing $350 billion to state, local, territorial, and Tribal governments.
The City of Burbank was allocated $25.5 million from the ARPA funding. To date, the City has committed $23. 4 million and proposes to spend the approximately $2 million in remaining ARPA funds on the following projects:
10 ➢ Computer-Aided Dispatch (CAD) / Record Management Systems (RMS) Equipment
➢ Integrate Mobile 311 application with required internal systems ➢ Personnel Action Form (PAF) process automation
➢ Electronic Onboarding/Offboarding
➢ Probabilistic Risk Assessment (PRA) Efficiency
➢ Agenda Management Software
FY 2023-24 State Budget Proposal
In early January, Governor Newsom released his proposed budget for FY 2023 -24. This proposal serves as the beginning of deliberations in the State Legislature leading to final budget adoption in June 2023. The proposal calls for a $297 billion budget, with a General Fund total of approximately $224 billion. After years of budget surpluses, the proposed budget is projected to have a deficit of $22.5 billion in FY 2023-24. To deal with the deficit, the Governor proposes to delay funding for new programs, and in some cases tie new program implementation to future year revenue. The budget also shifts certain expenditures from the General Fund to other funds. The Governor’s proposal avoids major cuts, retains significant budget reserves, and maintains investments from previous budgets. The spiraling inflation and weakened stock market, particularly in the California- based tech sector, has clouded the economic forecast for the state, which depends heavily on capital gains from its wealthiest residents.
Additionally, $3.9 billion in “trigger reductions,” or cuts from the budget would be restored in the future if economic conditions improve. The proposed forecast does not currently account for a recession. If economic conditions worsen, inflati on drops more gradually than expected, or the Federal Reserve enacts policies to further slow the economy, the administration may propose withdrawals from reserve accounts, as well as additional program reductions.
The administration is continuing to implement the Road Repair and Accountability Act of 2017, Senate Bill 1 (SB 1), which provides funding for both state and local transportation infrastructure. SB 1 increased the gas fuel tax by 12 cents, providing a stable and ongoing increase in state transpo rtation funding. The federal Infrastructure Investment and Jobs Act (IIJA) provided a large influx of funding for California to continue prioritizing transportation infrastructure. The City of Burbank is estimated to receive SB 1 funding of $2.6 million in FY 2023-24, which assumes the inflationary adjustment. Staff will continue to monitor developments in the state budget process and provide updates to the City Council as necessary.
11 General Fund Financial Forecast
The intended purpose of the financial forecast is to foster an understanding of long -term financial trends and their impact on the City’s overall financial picture. This long -term perspective allows the City Council and City management to make informed fin ancial decisions today while fully understanding the future financial impacts of decisions.
Projected Revenues and Expenditures:
Forecasted revenues are driven by the parameters included in Attachment 2 . These assumptions are inherently conservative; however, there is a risk that certain revenues may not perform as projected due to economic cycles, new legislation, and other external factors. Staff will update p rojected revenues periodically throughout the year as new information becomes available.
It is staff’s expectation that recurring revenue growth over the next five years (FY 20 23- 24 through FY 202 7-28) will average 3.8% while recurring expenditures will average
5.1%. Revenue expectations have been revised based on the most recent economic data available, as well as recent and planned business openings and developments . The average revenue growth in the current forecast includes projections of 2.2% for Sales Tax and 4.0% for Property Tax, the City’s largest general fund revenue sources.
The two main drivers of expenditures for the General Fund are salaries and benefits, including the CalPERS rates that are applied to the base salaries. The forecasted expenditure growth assumes the following costs:
Memorandum of Understanding (MOU) Projected Costs:
Salaries and benefits currently account for approximately 80% of the General Fund ’s recurring budget. As such, the City’s MOU negotiation process for the City’s bargaining groups plays a significant role in determining the City’s financial position. Currently, all of the City’s bargaining groups have MOUs except for the Burbank City Employees’ Association (BCEA) , Burbank Management Association (BMA) , and the International Brotherhood of Electrical Workers (IBEW). Aligning with the City Council’s Financial Policies related to employee compensation, the General Fund forecast includes assumptions for salary and benefit growth over the next five years based on projected market rates for all the City’s labor groups. Market rates are determined through salary and benefit s 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 comparable positions to determine whether employee salaries are at market value. Financial policies also dictate that the City and employees evenly share 50% of the normal cost of the CalPERS pension benefits which has been implemented according to the provisions of each MOU.
12 Public Employees Retirement System (PERS) 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 toward mitigating pension cost increases including:
➢ Sending Additional Discretionary Payments (ADPs) to CalPERS over the City’s required contributions to decrease the City’s unfunded liability ➢ Establishing a Section 115 trust to offset future pension volatility ➢ Increasing employee contributions toward their pension rates ➢ Implementing the changes directed by the Public Employees’ Pension Reform Act (PEPRA) adopted by the State of California in 2012.
Burbank currently has an Unfunded Actu arial Liability (UAL) of just under $248 million across the City’s three pension plans. The funded status for the City’s three pension plans is as follows: 86.8% for Miscellaneous, 79.7% for Police, and 85.8% for Fire. Table 2 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 2 – 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 amounts due for FY 202 3-24 if the City were to pay CalPERS on a monthly basis. For FY 2023-24, staff is proposing to prepay the liability payments, which will result in a net savings of $932,860 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
13 to the normal cost rates for each plan. In July 2022, CalPERS reported a negative (6.1%) investment loss for FY 202 1-22. 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.
As part of the City Council’s pension funding plan, the City made $53 million in ADPs to CalPERS across all funds over a four-year period ending in FY 2022 -23. to help reduce future pension obligations . Over $6 million in recurring annual savings ($4.2 millio n General Fund) was generated as a result of this effort. Given the success of this plan and the recent volatility of CalPERS’ annual investment earnings, staff is recommending that the City Council consider funding additional pension payments for the next two fiscal years to further mitigate pension cost increases. For FY 2023 -24 and FY 2024 -25, staff is proposing a citywide ADP contribution of $4.5 million for each year for a total of $ 9 million. Roughly 65%, or $5.8 million of this total will come from the General fund. These additional discretionary payments are estimated to generate a cumulative citywide recurring pension savings of $ 1.5 million ($1 million General Fund) at the end of the second year, offsetting a large portion of the projected deficit in the later years of the General Fund forecast.
The City continues to maintain the Section 115 trust for pension obligations, which was established in June of 2020 in accordance with the City Cou ncil’s Pension Funding Commitment Policy. The Section 115 Trust allows the City to set aside funds that could be used to help support future pension -related economic volatility. In adherence to the aforementioned policy, staff is proposing to contribute another $5.8 million to the trust in FY 2023-24. As of March 2023, the current balance in the trust is $16.8 million.
Financial Reserves
The City of Burbank has continued to fulfill the City Council’s Financial Policies by fully funding our financial reserves. The City’s policy is to designate 15% of the General Fund’s operating budget to its working capital reserve and 5% to a designated emergency reserve and up to 5% to a Budget Stabilization reserve, as adopted by the City Council during the prior budget adoption process. Based on the current figures for the proposed budget as presented, the City will contribute the following amounts to the reserves for FY 2023-24:
➢ $2,339,489 to the Working Capital Reserve
➢ $779,830 to the Emergency Reserve
➢ $779,830 to the Budget Stabilization Reserve
14 The City also maintains a Compensated Absences reserve, which was established to offset the City’s unfunded accrued leave payout liability and fund estimated annual payoffs that are not included within the operat ing budget. As part of the FY 2022 -23 budget adoption process, the City Council also approved an increase to the funding level of the compensated absences reserve from 20% to 25% of the Gen eral Fund’s total liability. As of June 30, 2022, the City’s total General Fund accrued leave payout liability is estimated at $ 14.5 million. Currently, th e City ha s $3.4 million set aside in the Compensated Absences reserve. To fulfill the policy approved by the City Council that this reserve is maintained at or above 25% of the General Fund’s total outstanding liability, staff is recommending a contribution of $259,405 in FY 2023-24.
Infrastructure Funding
Adhering to the City Council’s adopted Infrastructure Maintenance, Repair , and Improvement Policy, the FY 2023-24 Proposed Budget continues to contribute half of the Measure P sales tax revenue to the Municipal Infrastructure Fund 534, in addition to the annual $4.7 million General Fund maintenance of effort.
The FY 2023 -24 Proposed CIP continues the City’s efforts towards addressing the infrastructure needs, with nearly $37.3 million in capital spending proposed, alongside $4.6 million in annual Fund 534 maintenance dollars. Included in the $37.3 million proposed infrastructure appropriation is an $8 million annual investment in the City’s streets and sidewalks, along with a variety of capital projects which include building improvements, park playground and facility upgrades, street and pedestrian improvements, and funding towards the future development of a new Central Library and Civic Center. Proposed Municipal Infrastructure projects include the Brace Canyon Park ballfield improvements, irrigation replacements at DeBell Golf Course and McCambridge Park, and the annual residential and arterial pavement rehabilitation program. Proposed projects were given a prioritization score based on five categories, including health and safety, system condition, joint agreement/legal requirements, coordination opportunity, and community interest. The prioritized projects were then presented to the Infrastructure Oversight Board (IOB) for review at two public meetings on February 23 and April 27, 2023, the second of which the IOB formally approved the capital plan for inclusion in the Proposed Budget. Information on individual CIP project appropriations proposed for FY 2023-24 can be found in the “ Capital Improvement Program ” tab of the FY 2023 -24 Proposed Budget.
15 Environmental Review
This activity includes the FY 2023-24 Proposed Budget and has no potential for resulting in either a direct or a reasonably foreseeable indirect physical change in the environment.
As such, is not a “project” subject to the requirements of the California Environmental Quality Act (CEQA) 14 Cal. Code Regs § 15378.
CONCLUSION:
As illustrated in Chart 1, staff is projecting a recurring General Fund balance of $4.8 million in FY 2023-24, with that balance giving way to a budget deficit of approximately $2 million by FY 2027-28. The City’s cash position remains strong, with a projected year- end non-recurring General Fund balance of $19 million at the end of FY 2023-24, if the budget is adopted as proposed . It should be noted that there are still several risks associated with our projections, including outstanding labor agreements, potential changes to future CalPERS assumptions, future developments, and the overall health of the economy.
Chart 1 - General Fund Financial Forecast FY 2023-24 through FY 2027-28 (in millions)
$221.8
$230.4
$237.8
$245.4
$252.6
$217.0
$229.8
$237.7
$246.6
$254.6
$200
$210
$220
$230
$240
$250
$260
$270
2023-24 2024-25 2025-26 2026-27 2027-28
Revenue Expenses
Balance/
(Deficit): $4.8 $0.6 $0.1 ($1.2) ($2.0)
16 Burbank is heading into FY 2023 -24 with a proposed budget that reflects the City Council’s goals and priorities, but still adheres to the City’s values of fiscal responsibility.
The City is realizing higher revenues in the current inflationary environment and at the same time dealing with an increased cost of providing services to the community. The volatilities in the stock market are impacting pension costs, resulting in significant increases starting in FY 2024-25 and beyond. All these factors combined continue to drive expenditure growth at a faster pace than the growth in revenues. There is still a question of an impending recession that may result from rising interest rates, decreasing consumer confidence, and continued instability in the stock market and banking industry . Staff is committed to implementing the City Council’s strategic initiatives to enhance re venues and invest one-time funds in order to eliminate future recurring budget gaps and ensure the long-term fiscal health of the City.
A dedicated City Council meeting to review the proposed FY 202 3-24 Budget is scheduled for May 9, 2023, with continued discussion scheduled for May 16, 2023. The public hearing and adoption of utility rates is scheduled for June 6, 2023, and the public hearing and adoption of the citywide budget and fee schedule is scheduled for June 13, 2023. Per the City’s Charter, the FY 2023-24 Budget must be adopted by June 30, 2023.
ATTACHMENTS:
Attachment 1: General Fund Projected Spendable Fund Balance FY 2023-24 Attachment 2: General Fund Financial Forecast FY 2023-24 through FY 2027-28