STAFF REPORT
DATE:
TO:
FINANCIAL
SERVICES
November 19, 2024
Justin Hess, City Manager
FROM: Jennifer Becker, Financial Services Director r.P-, BY: Leana Mkrtchyan, Deputy Financial Servi';;e} ·6irector Susan Langford, Revenue Manager
Joy Escalante, Budget Manager
Nathan Lightell, Senior Administrative Analyst
SUBJECT: Review of the General Fund's Financial Status as of September 30, 2024
RECOMMENDATION
Note and file.
BACKGROUND
The purpose of this report is to provide the City Council (Council) and the public with a comprehensive review of the City's financial status following the end of the first quarter of the Fiscal Year (FY) 2024-25 and to look at the impact of recent economic trends on the City's General Fund five-year forecast.
DISCUSSION
General Fund Year-End Reconciliation - Fiscal Year (FY) 2023-24 Staff is estimating the June 30, 2024, General Fund spendable fund balance to be $43.6 million. This is $17.8 million higher than the balance projected during the FY 2024-25 budget process. The difference is due to higher-than-expected fiscal year-end budget savings and the stronger-than-anticipated revenues in several categories. After contributing $7.4 million to reserves as dictated by Council's Financial Policies, the adjusted beginning General Fund spendable balance as of July 1, 2024, is estimated at $36.2 million. Year-end numbers are not considered final until the City receives an unmodified or "clean" audit opinion letter from the City's auditors, Lance, Soll, & Lung hard (LSL). The City is in the process of completing its year-end audit and will return to Council in January 2025 to present the FY 2023-24 Annual Comprehensive Financial Report (ACFR).
1 2
FY 2024-25 General Fund Revenues
The majority of General Fund revenue is received during the second half of the fiscal year. For the first quarter of the current fiscal year (FY 2024 -25), the General Fund received $2 4.5 million in recurring revenue, which represents 9.6% of the estimated revenues, compared to $2 4 million this time last year. This represents an increase of approximately $530,000 or 2.2% 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, 202 4, the adopted forecast for FY 202 4-25, forecast revisions, and actual receipts of recurring revenues for the first quarter of this fiscal year.
As noted in Table 1, revisions to the revenue forecast are proposed for Property Tax, Service Charges, Interest/Use of Money, Building Permits/License Fees, and Transient Parking Tax (TPT). The City ended FY 202 3-24 with General Fund revenues of $16 million over the revised budget, largely attributable to the increase in property taxes. The additional surge in revenue was also attributable to the influx of building permits from large development projects. The high interest rates from the Federal Reserve along with an increased General Fund balance have remarkably impacted the interest earnings for the City in FY 2023 -24. Transient Occupancy Tax (T OT) and TPT revenues increased over the prior year by 8% and 6%, respectively, due to the continued growth in travel and tourism. As discussed below, the adjustments recommended by staff are supported by the continuing growth of these revenues.
Table 1 - General Fund Recurring Revenues as of September 30, 2024
REVENUE
CATEGORY
ACTUAL
TOTAL
FY 2023-24
ADOPTED
RECURRING
FY 2024-25
CHANGE
FROM
ADOPTED
REVISED
RECURRING
FY 2024-25
ACTUAL
RECURRING
9/30/24
% OF
REVISED
REC’D
Sales Tax $63,522,092 $64,412,066 $64,412,066 $5,085,504 7.9% Property Tax 76,196,111 74,955,921 3,670,000 78,625,921 124,487 0.2% Utility Users Tax 18,687,489 19,639,000 19,639,000 3,824,754 19.5% Services Charges - Intra City 15,439,505 15,657,042 15,657,042 3,166,166 20.2% Services Charges 27,323,615 25,558,890 2,400,000 27,958,890 4,433,032 15.9% In Lieu of Tax 9,564,335 9,893,000 9,893,000 2,482,855 25.1% Interest/Use of Money 5,027,099 4,318,156 500,000 4,818,156 551,890 11.5% Parking/Traffic/Other Fines 2,167,922 2,601,000 2,601,000 630,761 24.3% Transient Occupancy Tax 13,184,332 13,853,000 13,853,000 1,316,687 9.5% Building Permits/License Fees 9,006,020 6,152,195 750,000 6,902,195 2,537,152 36.8% Transient Parking Tax 4,564,487 4,401,000 300,000 4,701,000 2,538 0.1% Business Taxes 2,294,821 2,464,190 2,464,190 133,932 5.4% Franchises 1,508,310 1,519,650 1,519,650 0.0%
Intergovernmental Revenues 1,238,384 2,011,018 2,011,018 256,397 12.7%
TOTAL RECURRING
REVENUE $249,724,522 $247,436,128 7,620,000 $255,056,128 $24,546,155 9.6% 3 ➢ Sales Tax: Consumer spending remained steady in FY 2023-24 despite inflation and higher interest rates on loans and credit cards. Households have slowly begun to pay more attention to essential needs while limiting discretionary purchases. Surges in insurance and utility expenses have also impacted discretionary spending. Although the Writers Guild of America Strike and the SAG-AFTRA labor disputes were resolved in November of 2023, the impact of the events had lingering effects on Business and Industry, mostly driven by the motion picture category. Motion picture equipment sales fell by 47% for FY 2023 -24 when compared to FY 2022 -2023. Fortunately, the City has a diverse sales tax base, and the negative impact on Business and Industry was offset by corrections to revenue allocations for an auto dealership in the Autos and Transportation category. Despite declining fuel prices, f uel and service station revenue experienced growth, attributable to the increased consumption of jet fuel at the Hollywood Burbank Airport. In FY 2023 -24, fuel and service stations increased sales tax revenue by $725,000 over FY 2022-23. Looking forward, economists project sales tax to have moderate growth for FY 2024-25. Even though the Federal Reserve has recently reduced the federal funds rate, helping to temper the cost of financing, consumers are likely to wait for greater improvement in household economic conditions before extending themselves further. S taff is not recommending any changes to the sales tax revenue forecast at this time.
➢ 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 2023-24, the AV for the entire City increased by $1.6 billion or 4.9%. General Fund related AV increased by
5.3%. A reassessment from a large development in the City, a change in the corporate ownership for a n aerospace company , and the sale of a commercial office building were the main top contributors to the AV increase. Unsecured property, which includes three new private aircraft at the Hollywood Burbank Airport , and unsecured assessments for several entertainment companies also attributed to the AV increase.
In the residential sector, the median sales price of a detached single -family home in Burbank for the third quarter (July through September) of 202 4 remained stable at $1.26 million. The inventory of homes for sale has gradually improved as interest rates slowly return to historic averages.
FY 2023-24 revenues for property taxes were $6.4 million higher than the revised projection of $63.1 million. The increase was a result of the payoff of the City loans in FY 2022-23 and the bond principal reduction in FY 2023-24 based on the debt service schedules. The payments that would have been used to pay off the debt are now part of residual distributions to the General Fund. Property taxes increased by 9.7% for FY 2023-24 when compared to FY 202 2-23. Staff is proposing an increase to the FY 2024-25 property tax forecast to account for the increase in citywide AV as well as an increase to residual distributions from the Successor Agency due to the payoff of bond payments.
4 ➢ Service Charges: Plan check fees and building fees were largely responsible for the remarkable increase in revenues for FY 2023-24. This level of construction activity is expected to continue in FY 2024 -25. Additionally, several other charges, such as Emergency Medical Services ( EMS), filming services , and curb inspections are proposed to be adjusted to true -up from actual year -end results. Staff is recommending increasing Service Charges by an additional $2.4 million.
➢ Building Permits/License Fees: Similar to planning fees, construction activity has driven the surge in building permits for FY 2023 -24. Large one-time developments, such as the new airport terminal and improvements to residential and commercial properties, boosted building permits by $2.3 million in FY 2023 -24, or 72% , when compared to the prior fiscal year. Also contributing to the growth in this category are fire permits with an increase of $83,449 for FY 2023 -24 over the prior period. Staff is recommending a more modest increase of $750,000 in this category for the first quarter, as construction of major projects is expected to continue in FY 2024-25.
➢ Interest/Use of Money: Interest earnings on the cash held by the Treasurer’s Office surpassed the revised forecasted amount in FY 202 3-24, due to high interest rates and a larger-than-anticipated General Fund balance. In anticipation of this trend continuing, staff is proposing an adjustment of $ 500,000 for FY 202 4-25 to true-up with last year’s actual revenues.
➢ Transient Occupancy Tax (TOT): According to a report released by Visit California in May of 2024, California’s tourism economy generated $150.4 billion in travel spending in 2023, surpassing the record $144.9 billion spent in 2019. Burbank’s hotels are performing favorably in both occupancy and Average Daily Rate (ADR). Hotel occupancy rates from January through September 2024 is 74.8% compared to 75.7% over the same period in 2023. This decrease is attributable to the opening of Cambria Hotel in January of 2023, adding 150 hotel rooms to the City’s inventory. The ADR for Burbank hotels in September 2024 was $192.38 compared to September 2023 at $189.81, reflecting an increased demand for hotel stays as well as the impact of inflation. Although o ccupancy rates in Burbank have not quite reached the pre- pandemic level of 83.2% in 2019, TOT revenues ended FY 202 3-24 well above revised projections. This revenue growth, as well as the addition of the Cambria hotel were accounted for in the adopted FY 2024 -25 projections; thus, s taff is not recommending any changes to the FY 2024 -25 forecast at this time. Chart 1 shows Burbank’s hotel occupancy rates from calendar year 2019 through September 2024.
5 Chart 1 – Burbank Hotel Occupancy Rates and Average Daily Rate
➢ Transient Parking Tax (TPT): With the majority of the parking tax revenue derived from parking lots at or directly servicing the Hollywood Burbank Airport (BUR), the City’s TPT revenue is dependent on travel demand. As with hotel occupancy, airport activity has experienced an increase in revenues with the rise in tourism. The airport is a favorite for those seeking a more relaxed and accessible alternative to LAX. In 2023, BUR handled approximately five million passengers. Passenger counts at the airport from January through September of 2024 increased by 8.8% over the same period in 2023. Staff is proposing an increase of $300,000 to TPT revenues to true up to the prior year’s performance and expected FY 2024-25 returns. Chart 2 compares the airport passenger counts for the Calendar Year 2019 through 2024 to date.
Chart 2 – Hollywood Burbank Airport Passenger Counts
$0
$50
$100
$150
$200
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
2019 2020 2021 2022 2023 2024
(to date)
Occupancy Rate ADR
500,000
1,500,000
2,500,000
3,500,000
4,500,000
5,500,000
6,500,000
2019 2020 2021 2022 2023 2024
(to date)
6 Fiscal Year 2024-25 General Fund Expenditures
Table 2 below provides the budget to actual results by department for the General Fund at the end of the first quarter. As of September 30, 202 4, General Fund expenditures were at $74.5 million, representing 26.1% of the budgeted appropriations. Expenditures at the end of the first quarter are slightly above the general expectation of 25%. The Fire Department expenditures are trending above expectation s at 28.7%, due primarily to reimbursable strike team participation. Additionally, t he Non -Departmental category is trending at 58.1%. This is due to a $5.8 million payment made to CalPERS in July as part of Council’s pension funding plan and the annual $4.7 million General Fund Maintenance of Effort (MOE) commitment to the Municipal Infrastructure Fund 534. It should be noted that the budgeted appropriation numbers shown in the table include carryovers.
Table 2 - General Fund Expenditures as of September 30, 2024
EXPENDITURE APPROPRIATIONS EXPENDITURES PERCENT
NO. CATEGORY FY 2024-25 as of 9/30/2024 EXPENDED
1 City Attorney 6,485,948 1,355,101 20.9%
2 City Clerk 2,676,090 348,765 13.0%
3 City Council 1,662,036 356,974 21.5%
4 City Manager 3,281,600 722,259 22.0%
5 City Treasurer 1,187,048 235,922 19.9%
6 Community Development 26,302,619 4,235,715 16.1%
7 Financial Services 7,732,251 1,614,246 20.9%
8 Fire 53,378,284 15,329,160 28.7%
9 Library Services 10,862,489 2,610,912 24.0%
10 Management Services 8,930,352 1,664,678 18.6%
11 Non-Departmental 23,594,239 13,696,702 58.1%
12 Parks and Recreation 39,536,998 8,809,524 22.3%
13 Police 78,493,931 18,627,495 23.7%
14 Public Works 21,471,542 4,918,333 22.9%
TOTALS 285,595,427 74,525,786 26.1%
*Appropriations include all carryovers as well as any additional General Fund budget amendments approved by Council since the adoption of the FY 2024-25 Budget. The original General Fund adopted budget totals $258,693,806.
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 Council to make informed financial decisions today, while fully understanding the future financial i mpacts of these decisions.
Based on the actual ending balance for FY 202 3-24, revised FY 202 4-25 revenue projections, and FY 2024-25 adopted appropriations, the General Fund five-year forecast projects a recurring budget balance of approximately $8.8 million in the current fiscal year (see detail within the FY 202 4-25 Financial Forecast in Attachment 2). However, based on current assumptions, that balance is expected to decline to a deficit of $4 million in FY 7 2028-29. Staff expects that General Fund recurring revenues will grow by an average of
4.8% over the next five years while General Fund expenses will increase by an average of 6.5%. Expenditure growth projections include anticipated increases in labor costs and general price increases for goods and services.
Projected Revenues
Forecasted revenues are driven by the parameters included in Attachment 2. Sales tax revenue is projected to have modest but stable increases for the next few years, as inflation is projected to subside and the prices of commodities such as fuel return to reasonable levels. Property tax growth remains strong due to the City’s gro wth in assessed value reflecting the inclusion of new developments into the City’s tax roll and steady increases in property values. Service charge revenue projections reflect an increased demand for city services combined with forecasted Consumer Price Index (CPI) increases. The average growth over the next five years for the City’s largest revenue sources includes projected increases in sales tax by 2.5% , property tax by 6.5%, and service charges by 7.1%. Revenue projections included in the forecast are based on staff’s best estimates and may be subject to fluctuations in the economy . Staff will continue to monitor projected revenues throughout the year and update Council as new information becomes available.
Memorandum of Understanding (MOU) Projected Costs
Salaries and benefits currently comprise approximately 7 4% 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 the City’s bargaining groups have current MOUs for FY 2 024-25 except for the Burbank City Employees Association (BCEA) and the International Brotherhood of Electrical Workers (IBEW) .
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 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 whethe r 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 and this has been in effect in accordance with the provisions of each MOU.
Public Employees Retirement System (CalPERS) Costs
Managing costs associated with pensions continues to be a challenge for CalPERS cities throughout California, and Burbank is no exception . In recent years, the City has taken measures toward mitigating pension cost increases including:
➢ Sending Additional Discretionary Payments (ADPs) to CalPERS over the City’s required contributions to decrease Burbank’s unfunded liability; ➢ Establishing a Section 115 Trust to offset future pension volatility; and ➢ Increasing employee contributions toward their pension rates.
8 Based on the most recent CalPERS actuarial reports received in July 2024, Burbank has an Unfunded Actuarial Liability (UAL) of just over $439 million across the City’s three pension plans . The funded status for the City’s three plans is currently 77.1% for Miscellaneous, 70.9% for Police, and 74.6% for Fire, for an average of 74.2%, up just slightly from 73.9% in the prior year . Table 3 shows the actual CalPERS employer rates and UAL contributions for the three employee classifications for the current fiscal year (FY 2024-25), the upcoming fiscal year (FY 2025 -26), and the projected employer rates and contributions for the following two fiscal years (FY 2026-27 and FY 2027-28).
Table 3 – City of Burbank Pension Costs FY 2023-24 – FY 2026-27
Classification
Actual
FY 2024-25*
Actual
FY 2025-26
Projected
FY 2026-27
Projected
FY 2027-28
Police 3% @ 50 Rate 23.20% 22.80% 22.30% 21.80%
Police Liability Payment $7,997,927 $8,314,615 $9,314,000 $9,906,000 Fire 3% @ 55 Rate 18.42% 18.32% 17.90% 17.50%
Fire Liability Payment $5,066,096 $5,818,144 $6,579,000 $7,014,000 Misc 2.5% @ 55 Rate 10.96% 10.76% 10.60% 10.40%
Misc Liability Payment $20,417,782 $21,711,502 $24,828,000 $26,482,000 * Amounts shown are the total employer contribution amounts required for FY 2024-25. The City has completed the prepayment of the additional UAL payment to CalPERS which will result in a net savings of $1,547,461 citywide.
In July 2024, CalPERS reported a 9.3% return on investments for the year ending June 30, 2024. This return outpaced the 6.8% discount rate and shows continued improvement following a return of 5.8% in FY 2022 -23 and a 6.1% loss in FY 2021 -22. The improvement was driven by investments in public equity (+17.5%) and private debt (+17%) and will result in decreased employer contribution rates in FY 2026 -27. The forecast does not account for the FY 2023 -24 CalPERS investment results or any potential returns or losses in FY 2024-25.
As part of the FY 2024-25 budget process, Council adopted an expanded pension funding plan which includes a citywide ADP contribution of $9 million in FY 2024-25 and another $4.5 million ADP in FY 2025-26 to help reduce future pension liability. In July 2024, the City made the $9 million ADP to CalPERS. Subsequently, in September 2024, CalPERS provided the City with an updated UAL payment schedule for FY 2025-26, which accounts for the July payment. The total savings generated were $1,547,461 citywide ($1,019,090 General Fund), as shown in Table 4.
9 Table 4 – Pension Savings from FY 2024-25 Additional Discretionary Payments
Classification
Original
FY 2025-26
Payment
NEW
FY 2025-26
Payment SAVINGS
Miscellaneous Plan $22,768,244 $21,711,502 $1,056,742
Police Plan $8,591,440 $8,314,615 $276,825
Fire Plan $6,032,038 $5,818,144 $213,894
Citywide Total $37,391,722 $35,844,261 $1,547,461
Estimated General Fund Savings: $1,019,090
Additionally, Council’s Pension Funding Commitment Policy requires the City to contribute half of any year-end General Fund balance over 6% of the budgeted recurring appropriations to fund employee pension liabilities. This funding is required if employee pension benefits are less than 90% funded. Correspondingly, $6.4 million was contributed to the Section 115 Trust in FY 2024-25. The trust has a balance of over $32.7 million as of September 30, 2024.
ENVIRONMENTAL REVIEW
This activity includes 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.
As such, it is not a “project” subject to the requirements of the California Environmental Quality Act (CEQA) 14 Cal. Code Regs § 15378.
FISCAL IMPACT
There is no fiscal impact associated with this informational report to Council.
CONCLUSION
Economic indicators provide a positive outlook for Burbank’s General Fund revenues over the next five years of the City’s forecast. The City’s revenues perform ed above expectations in FY 2023-24, continuing into the first quarter of FY 2024-25. The challenge for the City in the years ahead will be to maintain expenses within the projected growth in revenue. Recent increases to labor agreements and related pension costs as well as overall inflationary price increases for goods and services are currently outpacing projected revenue growth . As shown in Chart 3, the General Fund's five-year financial forecast includes a balance of approximately $8.8 million for the current fiscal year and roughly $1.2 million heading into the FY 2025-26 budget process. If not addressed, this balance will decrease to a $2.4 million deficit in FY 2026-27, growing to a $4 million deficit by FY 2028 -29. It should be noted that several risks may impact the City’s financial projections, including economic and political uncertainties at home and abroad, further labor-related actions within the local entertainment industry , and of course, further prospective changes to CalPERS returns and assumptions.
10 Chart 3 - General Fund Financial Forecast FY 2024-25 through FY 2028-29
Council has consistently pursued a conservative approach to fiscal policies, including building up reserves and utilizing one-time funds to make strategic investments to reduce future recurring expenses. Sound financial strategies like strengthening revenues, paying down pension liabilities, and working with labor groups to implement pension cost-sharing have proven to be beneficial for Burbank in the long run. In addition to the FY 2023 -24 year-end General Fund Balance of $ 43.6 million, Burbank’s formal reserves total approximately $ 61.4 million. These funds will allow Burbank to make strategic investments to offset future costs and address any potential economic turbulences 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 – General Fund Projected Spendable Fund Balance for June 30, 2025 Attachment 2 – General Fund Financial Forecast FY 2024-25 through FY 2028-29 $254.5
$264.0
$273.7
$283.7
$294.2
$245.7
$262.8
$276.1
$286.5
$298.1
$200
$210
$220
$230
$240
$250
$260
$270
$280
$290
$300
2024-25 2025-26 2026-27 2027-28 2028-29
Revenue Expenses
Balance/
(Deficit): $8.8 $1.2 ($2.4) ($2.8) ($4.0)