STAFF REPORT
DATE: February 27, 2024
TO: Justin Hess, City Manager
FROM: Jennifer Becker, Financial Services Director
BY: Leana Mkrtchyan, Deputy Financial Services Director Joy Escalante, Budget Manager
Susan Langford, Revenue Manager
SUBJECT: Review of the General Fund’s Financial Status as of December 31, 2023, and Adoption of a Resolution Amending the Fiscal Year 20 23-24 Budget for the Purpose of Mid-Year Adjustments
RECOMMENDATION:
Adopt A RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK AMENDING THE BUDGET OF FISCAL YEAR 20 23-2024 FOR THE PURPOSE OF MID -YEAR ADJUSTMENTS.
BACKGROUND:
The purpose of this report is to provide the City Council with a comprehensive review of the General Fund’s financial performance as of December 31, 2023 , and to request Council’s approval of mid- year adjustments to the Fiscal Year (FY) 2023-24 Adopted Budget. This report also provides information as it relates to the development of the City’s FY 2024-25 Budget.
Six months into each fiscal year, the City’s Budget Office asks each department to review their adopted revenues and appropriations to determine how they are tracking and identify necessary amendments to their budgets. Through the first half of the year, most departments are generally performing within expected budgetary levels . However, several departments have identified unanticipated expenses that require additional appropriations, generating the need for the mid-year budget requests outlined in Attachment 4.
FINANCIAL
SERVICES
DISCUSSION:
General Fund’s Financial Status - Updated FY 2023-24 Budget Based on the actual FY 2023-24 ending balance, revised revenue projections, and adopted appropriations, staff is expecting a recurring balance of $15.8 million (see detail contained within the FY 2023-24 Budget Matrix in Attachment 2). This balance is considerably higher than the $11.1 million project ion during the first -quarter report, due to certain revenue streams trending above expectations . Staff is expecting an available balance of approximately $25.8 million in the General Fund at fiscal year-end, pending the approval of the mid-year budget adjustments discussed later in this report.
Fiscal Year 2023-24 General Fund Revenues
For the first six months of the fiscal year, the General Fund received $84,671,556 in recurring revenues, which represents 36.3% of the revised revenue forecast. For perspective, revenues for the first six months of FY 20 22-23 were at $ 78,558,558 and 3 7.5% of the forecast. The economy continues to be resilient despite high-interest rates, mixed consumer confidence, and a shift in spending trends from tangible goods to services and entertainment. Slow but steady growth is expected in 2024 as inflation is stabilizing and the post-pandemic spending boom is receding. After reviewing Burbank’s FY 2023-24 second quarter receipts, staff is recommending adjustments to revenue projections for Sales Tax, Utility Users Tax (UUT), and Building Permits, totaling approximately $4.6 million. The total combined adjustments between the first quarter report to Council in November and mid-year adjustments are approximately $11.7 million.
Table 1 outlines the adjustments to FY 2023-24 recurring General Fund revenue projections by category. This is the best estimate of General Fund revenue available at this time, which is based on actual receipts during the first half of the year.
Table 1 - General Fund Recurring Revenues as of December 31, 2023
Sales Tax 61,697,887$ 60,002,899$ 3,100,500$ 63,103,399$ 21,112,854$ 33.5% Property Tax 69,425,311 65,817,908 4,000,000 69,817,908 18,413,569 26.4% Utility Users Tax 18,645,937 17,997,000 887,000 18,884,000 8,575,999 45.4% Services Charges - Intra City 13,380,003 14,621,839 14,621,839 6,760,264 46.2% Services Charges 22,729,064 22,740,816 22,740,816 10,584,295 46.5% In Lieu of Tax 9,077,939 9,512,850 9,512,850 4,616,106 48.5% Interest/Use of Money 4,004,406 3,248,614 1,000,000 4,248,614 1,835,436 43.2% Parking/Traffic/Other Fines 1,198,285 2,401,000 2,401,000 789,984 32.9% Transient Occupancy Tax 12,208,382 10,759,000 1,500,000 12,259,000 4,856,557 39.6% Building Permits/License Fees 5,129,260 5,995,478 661,200 6,656,678 4,859,340 73.0% Transient Parking Tax 4,302,522 3,772,980 500,000 4,272,980 1,143,444 26.8% Business Taxes 2,316,840 2,464,190 2,464,190 335,648 13.6% Franchises 1,538,954 1,442,000 1,442,000 214,393 14.9% Intergovernmental Revenues 1,823,976 1,067,051 1,067,051 573,669 53.8% TOTAL RECURRING REVENUE $227,478,765 $221,843,625 7,000,000 4,648,700 $233,492,325 84,671,556$ 36.3%
RECURRING REVENUE
CATEGORY
ACTUAL
RECURRING
FY 2022-23
ADOPTED
RECURRING
FY 2023-24
Q1
CHANGES
FROM
ADOPTED
REVISED
RECURRING
FY 2023-24
ACTUAL
RECURRING
12/31/23
% OF
REVISED
REC'D
MID-YEAR
CHANGES
FROM
ADOPTED
Sales Tax: The California Department of Tax and Fee Administration (CDTFA) has released sales tax information for sales occurring in the third quarter of the calendar year 2023. After corre cting for one -time adjustments , traditional (Bradley Burns) sales tax receipts for the third quarter increased by 5.2% compared to the same quarter in the prior year exceeding the state and regional trend s. Receipts declined in several categories, including Business and Industry and General Consumer Goods. The writer and actor’s strike impacted the Business and Industry category with motion picture equipment down (49.1%) when compared to the same quarter of the prior year. However, those declines were offset by a surge in tax receipts resulting from a recent account correction within the Auto and T ransportation category. Restaurants also experienced strong growth as increased menu prices, consistent desire to dine out, and strong tourism contributed to the gains. A new account that provides fuel for the airport submitted a one-time payment for previous quarters , which boosted the revenues in the Fuel and Service Station category for FY 2023 -24. The increased sales tax revenue for the third quarter contributed to the City’s share in the Countywide pool with an increase of 11.6% compared to the prior year.
The City’s Transactions and Use Tax (TUT) revenues, which are derived from Measure P, experienced a slight decline in revenues (2.7%) when compared to the prior year.
Restaurants experienced a positive gain with an 18.8% increase for the third quarter. Of the $21 million that was received in sales tax for the first six months of FY 2023-24, $5.3 million was generated from TUT revenue, which represents the General Fund’ s 50% share of Measure P funds.
Due to the factors mentioned above, our consultants from HdL Companies have revised their FY 2023-24 forecast for Burbank to reflect an increase in sales tax revenue above their initial projections for the year. Revised projections reflect an increase of $3,100,500 in revenue from the originally adopted FY 2023-24 projection.
Property Tax: A total tax of 1% is levied on the Assessed Value (AV) of property as determined by the Los Angeles County Assessor. The City of Burbank receives approximately 18.5% of the 1% levy on AV. Compared to FY 202 2-23, the AV for the entire City increased by 9.7% or $2.8 billion. General Fund related AV increased by 8.9%.
The City received a recent quarterly report for home sales in Burbank from our property tax consultant, HdL Coren and Cone. The median sales price of a detached single-family residential home in Burbank for the fourth quarter of 202 3 was $1,100,000. This is a
15.5% decline from the third quarter of 2023 but equivalent to sales prices from the same time period in the prior year. It is expected that home sales will bounce back in the next quarter and throughout 2024 as buyers and sellers return to a more favorable market with declining mortgage rates.
Transient Occupancy Tax (TOT): Domestic leisure travel continues to improve although not fully recovered to the pre-Pandemic levels. Burbank’s hotel occupancy rate for December 2023 was 69% compared to 63.5% in December 2022. TOT revenues for the first six months of FY 2023- 24 are $4.8 million, an increase of 8.1% over the same period from the prior year. Adjustments were made during the first quarter for FY 2023-
24 so staff is not recommending any further changes for this period. Chart 1 shows the hotel occupancy rates from FY 2020-21 through December 2023.
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. Activity around the Airport has experienced a rise in leisure and business travel. Passenger counts at the Airport for 202 3 from January through December have increased by 2.3% over the same period in 2022 . Revenue adjustments were made in the first quarter for TPT, and staff is not recommending any additional adjustments at this time. Chart 2 compares the airport passenger counts for FY 2020-21, FY 2021-22, FY 2022-23, and FY 2023-24 to date.
Chart 2 – Hollywood Burbank Airport Passenger Counts
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
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90.0%
JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN
FY 20-21 FY 21-22 FY 22-23 FY 23-24
-
100,000
200,000
300,000
400,000
500,000
600,000
JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN
FY 20-21 FY 21-22 FY 22-23 FY 23-24
Utility Users Tax (UUT): The City of Burbank collects a 7% tax on qualifying electricity, natural gas, and telecommunication utility charges. Unlike many other cities, Burbank does not assess UUT on water or video services. With the colder weather, natural gas is experiencing a spike in revenues. Rev ised UUT projections reflect an increase of $887,000 in revenue from the originally adopted FY 2023-24 projection.
Building Permits and License Fees: The activity in this revenue category is projected to surpass the forecast for FY 2023 -24. Several large developments have applied for building permits during the current fiscal year, and with the need to acquire additional housing units in the S tate of California, there is a rise in the issuance of permits for Accessory Dwelling Units (ADUs). Staff is recommending an increase of $661,200 to this category.
Fiscal Year 2023-24 General Fund Expenditures
As of December 31, 2023 , 46.3% of the General Fund’s appropriations have been expended, coinciding with the general expectation of 50% for the halfway point of the fiscal year. For perspective, 49.1% of appropriations were expended for the same period last year.
Table 2 provides budget to actual results by department for the General Fund expenditures at the end of the second quarter. Expenditures for the Fire Department are trending above expectations six months into the fiscal year at 52% due to higher overtime costs resulting from reimbursable strike team participation and Industrial Accident leave.
Table 2 - General Fund Expenditures as of December 31, 2023*
EXPENDITURE APPROPRIATIONS EXPENDITURES PERCENT
NO. CATEGORY FY 2023-24 as of 12/31/2023 EXPENDED
1 City Attorney 5,137,183 2,413,354 47.0%
2 City Clerk 2,357,630 661,391 28.1%
3 City Council 1,047,489 502,580 48.0%
4 City Manager 3,334,848 1,443,004 43.3%
5 City Treasurer 977,108 451,473 46.2%
6 Community Development 23,875,992 7,288,605 30.5%
7 Financial Services 6,558,930 3,169,917 48.3%
8 Fire 50,471,065 26,268,242 52.0%
10 Library Services 10,059,379 4,682,156 46.5%
11 Management Services 7,886,377 3,433,731 43.5%
12 Non-Departmental 28,009,018 13,308,208 47.5%
13 Parks and Recreation 34,660,820 15,988,475 46.1%
14 Police 69,891,074 33,647,180 48.1%
15 Public Works 20,329,249 9,192,400 45.2%
TOTALS 264,596,162 122,450,716 46.3%
*Appropriations include all carryovers as well as any additional General Fund budget amendments approved by the City Council since the adoption of the FY 2023-24 Budget. The original General Fund adopted budget totals $232,531,072.
Mid-year Budget Adjustments
As was previously discussed, departments were asked to identify necessary adjustments to their budgets r esulting from changed circumstances and/or unanticipated expenses that exceed their budget authority. Each of the requested adjustments (both appropriations and revenues) are itemized and described in detail in Attachment 4.
General Fund appropriation requests total $ 1,491,129 and are offset by revenue adjustments and the use of restricted funding of $545,160 for a net impact of $945,969.
Requests include additional funding for the Parks and Recreation Department for recreation contract services to pay instructors and sports officials , which are revenue offset by class registration fees. The Community Development Department is requesting temporary staffing to support increased activi ty at the public counter, as well as consulting services to assist with planning reviews. The Police Department is requesting additional funding to continue with the parking enforcement pilot program by expanding the capacity of its current services.
Non-General Fund appropriation requests total $ 2,513,918 and are offset by revenue adjustments of $ 190,318 for a net impact of $2,323,600. Municipal Infrastructure Fund requests include funds to address five new slope failures at DeBell Golf Course caused by heavy rainstorms and the purchase of hard barricades to ensure safe and effective street closures for programs and events . In addition, the Public Works Department is requesting increased funding for facility maintenance. The Burbank Water and P ower (BWP) Department is requesting additional funds for the upgrade of the Advanced Metering Infrastructure project . BWP is also requesting an increase to a professional service agreement for engineering resources to provide support for large developments occurring around the City.
General Fund Financial Forecast
The purpose of the Financial Forecast is to provide insight on the potential long- term financial trends for the General Fund, allowing Council to make informed decisions today while fully understanding the future impacts of these decisions. Based on current assumptions as described below, staff expects that General Fund recurring revenues will increase by an average of 5.2% over the next five years of our forecast. General Fund expenditures are projected to grow by an average of 5.9% over the same time period.
Projected Revenues
Forecasted revenues are driven by the parameters included in Attachment 3 . The forecast assumes continued economic growth in FY 2023 -24 and beyond , but it is expected to normalize and return to the more stable levels of growth seen before the Pandemic.
Currently, the average revenue growth projected in the five-year forecast includes increases in Sales Tax by 3.6%, Property Tax by 6.1%, and Utility Users Tax by 4.6% . Forecasted revenues include modest increases to sales tax receipts. Property taxes will have moderate growth as interest rates are expected to recede and development continues throughout the City. Revenue projections included in the forecast are based on staff’s best estimates and may be subject to fluctu ations resulting from economic cycles and legislation . Staff will continue to monitor projected revenues periodically throughout the year and provide Council with updates as new information becomes available.
Projected Expenses
The two main drivers of expenditures for the General Fund are salaries and benefits, and most significantly, 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 comprise approximately 74% of the General Fund recurring budget. As such, the City’s MOU negotiation process for the various bargaining groups plays a significant role in determining the City’s financial position. All the City’s bargaining groups have current MOUs for FY 2023 -24. Aligning with 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 employee groups. Market rates are determined through salary and benefits surveys that compare the City’s job classifications to those of similar organizations throughout the region. The City of Burbank calculates the average salary paid for compatible comparable positions to determine whether employee salaries are at market value. The City’s Financial Policies also maintain that the City and employees evenly share 50% of the normal cost of the CalPERS pension benefits. This policy has been implemented in accordance with the provisions of each MOU.
Public Employees Retirement System (PERS) Costs:
Managing costs associated with CalPERS pensions continues to be a challenge for CalPERS cities throughout California, and Burbank is no exception. In recent years, the City has taken measures towards 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 towards their pension rates. • Implementing the changes directed by the Public Employees’ Pension Reform Act (PEPRA) adopted by the State of California in 2012.
In July of 2023 , the City received the CalPERS actuarial reports for F Y 2024-25 budget.
Based on the most recent reports, Burbank currently has an Unfunded Actuarial Liability (UAL) of just under $433 million across the City’s three pension plans , a decrease of $185 million from the previous year, due to CalPERS i nvestment losses (6.1%) in FY 2021- 22.
Subsequently, the funded status for the City’s three plans w as updated to 76.5 % for Miscellaneous, 69.8% for Police, and 75.4% for Fire. This equates to an overall decrease in the funded status of all three plans from an average of 84.1% to an average of 73.9%. Table 3 shows the actual CalPERS employer rates and UAL contributions for the three employee classifications for the previous fiscal year (FY 202 2-23), the adopted fiscal year (FY 202 3- 24), and the projected employer rates and contributions for the following two fiscal years (FY 2024-25 and FY 2025-26).
Table 3 – City of Burbank Pension Costs FY 2022-23 – FY 2025-26
Classification
Actual
FY 2022-23
Actual
FY 2023-24*
Actual
FY 2024-25
Projected
FY 2025-26
Police 3% @ 50 Rate 22.05% 24.01% 23.20% 22.60%
Police Liability Payment $8,152,664 $7,175,729 $7,997,927 $8,697,000 Fire 3% @ 55 Rate 17.71% 18.80% 18.42% 18.00%
Fire Liability Payment $5,028,014 $4,465,006 $5,066,096 $5,597,000 Misc 2.5% @ 55 Rate 10.00% 11.11% 10.96% 10.70%
Misc Liability Payment $21,224,820 $18,843,953 $20,417,782 $22,415,000 * Amounts shown are the total employer contribution amounts required for FY 2023-24. The City has completed the prepayment of the additional UAL payment to CalPERS which will result in a net savings of $735,492 citywide.
To continue th e successful practice of making additional discretionary payments (ADP) towards the City’s pension liabilities, Council adopted a new two-year pension funding plan as part of the FY 2023-24 budget process. In July 2023, the City made the first ADP of $4.5 million to CalPERS. In September 2023, CalPERS provided the City with an update of the UAL payment amounts for FY 2024- 25, which accounts for the July payment. The total savings generated were $735,492 citywide ($499,920 General Fund). Additionally, Council’s Pension Funding C ommitment Policy require s the City to contribute half of any year -end General Fund balance in excess of 6% of the General Fund’s budgeted recurring appropriations to fund employee pension liabilities. This funding is required if employee pension benefits are less than 90% funded. Correspondingly, $5.8 million was contributed to the Section 115 Trust in FY 2023-24. The trust has a balance of just over $23.9 million as of December 30, 2023.
FY 2024-25 State Budget Proposal
In early January, Governor Newsom released his proposed budget for FY 2024- 25. This proposal serves as the beginning of deliberations in the State Legislature leading to final budget adoption in June 2024. The proposal calls for a $291.5 billion budget, with a General Fund total of $208.7 billion.
The proposed budget estimates a $37.9 billion shortfall in FY 2024-25, partly attributable to the revenue deficit from the FY 2023- 24 budget. The State will manage this shortfall by drawing on reserves, reducing programs, shifting certain expenditures from the General Fund (GF) to other funds, and delaying the funding for multiple items by spreading them across a three-year period beginning in FY 2025-26.
The budget shortfall for FY 2024- 25 is rooted in two separate but related developments during the past two years - the delay in income tax collections for 2023 and the substantial decline in the stock market that drove down revenues in FY 2022 -23. Following natural disasters that impacted the State in January 2023, the IRS extended various income tax filings and payment deadlines from April 2023 to November 2023. These unforeseen extensions caused the State Administration to go without critical cash data from the prior
year and current year taxes that are utilized to determine projected revenues for the FY 2023-24 budget and make any necessary adjustments. Due to the extensions through November 2023, the State was unable to make necessary revenue adjustments for FY 2023- 24 and was required to adjust along with the newly proposed FY 2024- 25 budget due in early January 2024. The stock market decline drove down revenues in 2022 after having growth over the past two fiscal years. The 2022 decline resulted in a revision of FY 2022-23 revenues and continued to 2023.
The FY 2024-25 Budget proposes to pull back $131.3 million of the $439 million in one-time General Fund support for the Local Library Infrastructure Grant Program in the 2021 Budget Act and forego planned one-time GF investments of $33 million, $33 million, and $34 million, respectively through FY 2026-27. The City of Burbank was allocated a $10 million grant and remains on schedule to be paid out at 50% this year, 40% after a year and proof of project progress, and 10% at completion in FY 2026-27.
The administration is continuing to implement the Road Repair and Accountability Act of 2017, Senate Bill 1 (S B-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 transportation funding. SB -1 funding is protected under Article 19 of the California state constitution for transportation purposes only and is not impacted by the reduction to revenues. The City of Burbank is estimated to receive SB -1 funding of $2.7 million in FY 2024 -25, which assumes the inflationary adjustment. Staff will cont inue to monitor developments in the state budget process and provide updates to Council as necessary.
FY 2024-25 Budget Development Process
The FY 2024-25 budget process is underway and City departments are currently working on their respective budgets. Staff is projecting a recurring General Fund balance of approximately $6 million, due to the increases to recurring revenues. However, the recurring balance is expected to decrease to less than $1.2 million by the last year of the Five- Year Forecast due to rising expenses that continue to outpace revenue growth and the impacts of CalPERS investment losses affecting future pension costs. Staff will continue to focus on strengthening revenues and developing additional cost -saving initiatives to provide long- term fiscal stability and prevent future structural imbalances in the City’s financial forecast.
The City Manager’s Office is in the process of reviewing each department’s proposed budget and incorporating revisions as needed, with the goal of preparing a Proposed FY 2024-25 Budget for Council review in early May. Should Council Members have specific requests for the upcoming fiscal year, staff encourages Council to inform them before the scheduled budget study sessions in May to provide for adequate research time, if necessary.
Environmental Review
This activity includes amendments to the FY 2023-24 Adopted Budget and has no potential for resulting in either a direct or a reasonably foreseeable indirect physical change in the environment. A s such, is not a “project” subject to the requirements of the California Environmental Quality Act (CEQA) 14 Cal. Code Regs § 15378.
FISCAL IMPACT:
If approved, the requested mid-year adjustments for the General Fund will total $1,491,129 and are offset by revenue adjustments and the use of restricted funding of $ 545,160 for a net impact of $9 45,969. Overall, mid -year appropriation requests for all funds total $3,269,569 net of revenue (total appropriations are $4,005,047).
CONCLUSION:
After facing economical fluctuations in recent years, Burbank ’s economy has shown resilience, providing a positive outlook for the City’s finances in the near future. Given the recent easing of inflation and likely end to related interest rate hikes, economists are hopeful for a steady growth in 2024 as the overall economic data related to labor markets, industrial production, and retail sales show s improvement. As shown in Chart 3, the General Fund five-year financial forecast includes a balance of approximately $15.8 million for the current fiscal year. This balance dec reases to $1. 2 million by FY 202 7-28 as rising expenses outpace revenue growth and the impacts of CalPERS investm ent challenges 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 2023-24 through FY 2027-28
$233.5
$242.2
$251.4
$260.6
$269.9
$217.7
$236.2
$248.3
$259.0
$268.7
$200
$210
$220
$230
$240
$250
$260
$270
2023-24 2024-25 2025-26 2026-27 2027-28
Revenue Expenses
Balance/
(Deficit): $15.8 $6.0 $3.2 $1.7 $1.2
The City Council has consistently pursued sound fiscal policies and strategies like strengthening revenues, paying down pension liabilities , building up reserves, and utilizing one-time funds to make strategic investments to reduce future recurring expenses. In addition to the projected FY 202 3-24 year-end General Fund Balance of $ 25.8 million, Burbank’s working capital, emergency, and budget stabilization reserves total approximately $54.4 million. These funds will allow Burbank to make strategic investments to offset future costs and weather any potential economic fluctuations 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 Council.
ATTACHMENTS:
Attachment 1: Resolution
Attachment 2: General Fund Projected Spendable Fund Balance for June 30, 2024 Attachment 3: General Fund Financial Forecast FY 2023-24 through FY 2027-28 Attachment 4: Mid-Year Appropriation Requests and Revenue Adjustments