Introduction to the Budget
2023 City Council Workshop Series
February 7, 2023
2 Agenda
Budget Overview
Purpose
Timeline
Guiding Documents
City Charter & Municipal Code
Council Policies & Financial Policies
Resources & Uses
Revenues and Reserves
Expenditures
3 The Budget
Central policy document
Spending plan
Management and evaluation tool
Communication tool
4 Annual
Budget
Cycle
Budget
Cycle
Long-Term
Financial Plan
Budget
Development
Public
Hearings and
Workshops
Budget
Adoption
Budget
Monitoring
5 Budget Timeline
• Long-Term Financial PlanFebruary 7th
• FY 2022-23 Second Quarter Financial ReportFebruary 21st • Public community workshopApril 19th
• Public community workshopApril 26th
• Proposed BudgetMay 9th
• Public Hearing and Adoption of BudgetMay 23rd
• FY 2022-23 Third Quarter Financial ReportJune 6th
• GANN Limit ApprovalJune 13th
6 This Photo by Unknown Author is licensed under CC BY-SA Guiding Documents
• City Charter
• Municipal Code
• Labor Agreements
• Council Policies
Budget Considerations
• Fund restrictions – Fund type (ex: endowments, special purpose funds), grant terms (ex: "Uniform Guidance)
• State laws – California Constitution (ex: City personal income tax is illegal) • Gann Limit (1979) – Tax expenditure limits
• Proposition 13 (1978) – Limits on property tax growth (2%) and assessment percentage (1%)
• Proposition 218 (1996) – Ensure all taxes and most charges on property owners are subject to voter approval
• Proposition 26 (2010) – Clarifications on taxes vs. charges, fees, fines benefit assessments
• General versus special taxes
• Local measures – Measures A & P (sales tax), Q (Cannabis) 7 Types of Budgeted Funds
8 Governmental
•General Fund
•Capital Projects
•Debt Service
•Special Revenue
Proprietary
•Enterprise
•Internal Service
All Funds Resources – FY 2023
9 Fiscal Year 2023 Adopted Budget
(In Millions)
GENERAL FUND
REVENUES
11 Major GF Revenues
Revenue Source General Fund
Adopted FY23
% General Fund
Revenues
Sales Tax 1% sales tax on tangible goods $42.3M 17.0%
Property Tax Property tax roll, based on assessed value $40.9M 16.4% Motor Vehicle License Fee
(MVLF)
State allocation, additional property tax in
lieu of vehicle registration fees
$26.9M 10.8%
Measure P (Sales Tax) 0.5% sales tax on tangible goods $25.9M 10.4% Measure A (Sales Tax) 0.5% sales tax on tangible goods $25.9M 10.4% Franchise Fees Agreements with Cox, SDGE, AT&T and
Republic Services for use of public right-of-
way
$14.5M 5.8%
Transient Occupancy Tax
(TOT)
10% tax on hotel/motel/campsite rental
revenues
$5.2M 2.1%
Utility Users’ Tax (UUT) Tax on usage of natural gas, electric and telecommunications
$3.8M 1.5%
Total $185.5M 74.5%
12 City Share of Sales Tax
Sales Tax (General Fund)
• Bradley-Burns Sales Tax
• 1% City share from
County pool
• Discretionary use of
funds
• The County Pool is the tax
reported by the taxpayer to
be distributed to each
jurisdiction in that county
on a pro-rata share of
taxable sales.
Measure A Sales Tax
(Measure A Fund)
• District Tax
• Voters approved in 2018
to begin October 1, 2018
• General Fund passthrough
• Restricted funds for public
safety staffing and
services
• Citizen’s Oversight
Commission
Measure P Sales Tax
(Measure P Fund)
• District Tax
• Voters approved in 2016
to begin April 1, 2017
• General Fund passthrough
• Restricted funds for high
priority deferred
maintenance and capital
needs (infrastructure,
fleet, technology)
• Citizen’s Oversight
Commission
• Sunsets in 2027
Percent Sales Tax – State & County Pools
• Increase from ongoing shift from brick-and-mortar retail to internet purchases, exacerbated by the pandemic
• Increase form Wayfair/Assembly Bill 147 legislative change that made additional internet purchases taxable
• Decrease from major retailer changed structure, resulting in shift of revenue from pools to fulfillment centers in specific jurisdiction
Brick and Mortar County Pool
Brick and Mortar
14 Per Capita Sales
15 Sales Taxes vs. District Taxes
• District Taxes (Measures A & P) follow the merchandise. • Distributed to the district where the goods are delivered (and presumably used)
• Example: Car buyer pays total sales tax rate where vehicle will be registered
Sales Tax
Allocated to city
where dealership is
located
District Taxes
(Measures A & P)
Allocated to city where
the vehicle is registered
(city of residence)
• General Fund revenues (discretionary)
• Stays local to County, City, Special Districts, etc.
• Includes special taxes, special assessments
• City receives property tax allocations monthly
• Taxes due November and February, annually
16 Property Tax
17 County of San Diego Allocations
• Taxable Property
– Secured property (real property/land), unsecured property (boats, business fixtures, mobile homes), utility property • Tax Assessment
– Limited to 1% of assessed value of property; annual maximum increase lesser of 2% or annual CPI (Proposition 13)
• Allocation
– Assembly Bill 8: City share of the 1% General Property Tax (County pool) is based on property taxes levied in 1970s – Receive what you got prior year, plus the change in current year for population growth in your jurisdiction
18 Property Tax
GENERAL FUND
EXPENDITURES
2023 General Fund Expenditures
by Budget Category (Excludes Transfers Out)
20 Personnel Services, 76%
Supplies &
Services, 12%
Utilities, 4%
Other Expenses,
4%
Other Capital, 0%
Internal Service,
2%
Non-CIP Proj
Expense, 2%CIP Project
Expense, 0%
2023 General Fund Expenditures
by Department (Excludes transfers out)
21 Police $42.0M
Fire $22.8M
Parks and Recreation
$5.5M
Information
Technology Srvcs
$3.8M
Public Works $2.7M
Finance $2.4M
Administration $2.4M
City Attorney $2.4M
Human Resources $2.1M
Library $2.1M
Animal Care Facility $1.6M
City Council $1.6M
City Clerk $1.3M
Economic Development $0.9M
Development Services $0.3M
Engineering & Capital Projects $0.0M
Other $19.9M
22 2023 General Fund Net Cost
by Department (Excludes transfers out)
Other ($19.9M) Detail
Major General Fund Expenditures
• Personnel Services
– 76% of General Fund expenses in FY 2023 when including health insurance and retirement costs
– Driven by labor agreements with City bargaining groups – Health care cost increases (“Flex”)
– Pension Costs, mitigated in part by POBs
– Vacancies / Salary savings
• Supplies & Services
– Contracts with professional services
• Utilities
– Water, natural gas, electricity
23 24
City Reserves
RESERVE TARGET PERCENTAGE
General Fund Operating Reserve 15%
Economic Contingency Reserve 5%
Catastrophic Event Reserve 3%
Pension & Other Post-Employment Benefits Reserve 15%
Measure A Reserve 60 days of operating
budget
General Fund Operating Reserve
25 OTHER HIGHLIGHTS
City Pension Costs
• In recent years, large Unfunded Accrued Liability to CalPERS retirement system
• Feb. 2021, City issued $355 million in Pension Obligation Bonds (POBs) at an interest rate of 2.54%, to pay off UAL*
• Policy to set aside 75% of any surpluses generated into the Pension Reserve Fund (Section 115 Trust) to fund future liabilities/UAL that may arise
• Potential for new UALs to arise based on changes in staffing/labor agreements, CalPERS market performance, other factors
27*as of June 30, 2019 CalPERS valuation report
Pension Obligation Bonds
28 -$10,000,000
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
2022-22
2022-23
2023-24
2024-25
2025-26
2026-27
2027-28
2028-29
2029-30
2030-31
2031-32
2032-33
2033-34
2034-35
2035-36
2036-37
2037-38
2038-39
2039-40
2040-41
2041-42
2042-43
2043-44
2044-45
2045-46
2046-47
2047-48
2048-49
2049-50
Projected UAL/POB Payment Schedule
June 30, 2022
UAL Payment Post-POB POB Debt Service UAL Pmt Pre-POB CalPERS
schedule
Operating Budget vs. Capital Budget
• Operating Budget
– Ongoing expenditures = ongoing revenues
– One-time revenues fund one-time expenditures
• Capital Improvement Projects (CIP) Budget
– The capital budget is for long-term capital improvements, facilities, and equipment where revenues are collected over time. Capital programs often extend beyond a single fiscal year and because of this capital budgets often include expenditures funded by both current year revenues and funds previously collected. – Procurement, construction or installation of facilities or related equipment which improves, preserves, enhances or modernizes the City’s provision of municipal services
– Useful life of at least 5 years, costs in excess of $50K 29 CIP Sources – FY 2021-2023
30 Funding Source FY 2021 FY 2022 FY 2023
American Rescue Plan (ARPA) -$ -$ 9,500,000$ Capital Improvement Projects (CIP) Fund 202,052 - 11,700,000 State Gas Tax/Road Maintenance and Rehabilitation 8,092,505 7,751,588 9,860,065 Measure P 3,674,630 27,452,933 9,659,500
Sewer Facility Replacement Fund 2,650,000 2,754,000 782,000 TransNet County Sales Tax 6,224,329 7,204,500 8,799,500 Other 1,031,000 4,057,841 229,940
Total 21,874,516$ 49,220,862$ 50,531,005$
CIP Uses – FY 2021-2023
31 Project Type FY 2021 FY 2022 FY 2023
Buildings 2,957,582$ 20,720,338$ 26,257,500$
Drainage 50,000 4,124,790 3,414,000
General Government 703,052 764,000 310,000 Parks 717,048 2,825,636 1,359,940
Roadway 14,796,834 16,679,098 18,709,565
Wastewater 2,650,000 4,107,000 480,000
Total 21,874,516$ 49,220,862$ 50,531,005$
• Quarterly Financial Reports
• Mid-year budget amendments
• Mid-year personnel changes
• Updates to Long-Term Financial Plan
32 Budget Monitoring
33 Budget Timeline
• Long-Term Financial PlanFebruary 7th
• FY 2022-23 Second Quarter Financial ReportFebruary 21st • Public community workshopApril 19th
• Public community workshopApril 26th
• Proposed BudgetMay 9th
• Public Hearing and Adoption of BudgetMay 23rd
• FY 2022-23 Third Quarter Financial ReportJune 6th
• GANN Limit ApprovalJune 13th
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