Agenda #: 1
Meeting Date: May 17, 2022
CITY COUNCIL STUDY SESSION REPORT
TO: Honorable Mayor and Members of the City Council
VIA: Daniel Fox, City Manager
FROM: Jason Jacobsen, Finance Director
TITLE: STUDY SESSION RE: FISCAL YEAR 2022/23 OPERATING BUDGET BACKGROUND:
Each year, the City prepares an annual Operating Budget and Capital Improvement Program for City Council consideration that implements the Council’s priorities and Strategic Plan Goals, and provides the financial resources to deliver services to the community. The preparation of the annual budget is a significant and important undertaking that takes place over the course of more than five months.
Below is the schedule for the preparation of the FY 2022/23 City Budget:
• Council Study Session on FY 2022/23 General Fund Special One-Time Funding – Held April 19, 2022.
• Council Study Session on FY 2022/23 Capital Improvement Program and Five-Year Capital Improvement Program Review – Held May 3, 2022. • Council Study Session on Draft FY 2022/23 Operating Budget – Scheduled for May 17, 2022.
• Adoption of the FY 2022/23 City Budget – Scheduled for June 7, 2022.
On May 3, 2022, the City Council held a Study Session to review the Draft Capital Improvement Program. At that meeting the City Council requested that staff prioritize the future Maple Hill Park Playground and Restroom Renovation Project. As a result, funding for this project in the amount of $660,000 ($60,000 for design cost/$600,000 construction) has been added to the Draft FY 2022/23 CIP Budget and will be funded by the Park & Facilities Development Fund (estimated available fund balance will be approximately $700,000 as of July 1, 2022). The City’s Draft FY 2022/23 CIP Program Budget now stands at $9,360,000.
The purpose of this Study Session is to provide the City Council with an opportunity to review the combined Draft FY 2022/23 Operating Budget and Capital Improvement Program. Based on direction received, appropriate revisions and refinements will be made and presented to the City Council for adoption at the June 7, 2022 City Council meeting. It is anticipated that there will be other minor adjustments identified subsequent to that study session. Staff will summarize all differences from the draft budget reviewed at the study session with the City Council at the June 7, 2022 meeting.
ANALYSIS:
It goes without saying that throughout this past year, the COVID-19 global pandemic continued to be a devastating worldwide health crisis impacting the United States, including California, LA County and Diamond Bar. Conditions have continually improved following the significant surge in cases fueled by the Omicron variant in January/February 2022. While not totally eradicated, there is optimism that as more persons are vaccinated and boosted, new cases, hospitalizations and related deaths will remain low and community spread will be held in check to allow for the State, County and City to restore programs and services to pre-pandemic levels.
On March 11, 2021 the President signed the American Rescue Plan Act (ARPA) which is a $1.9 trillion relief package to mitigate the continuing effects of the COVID-19 pandemic. Of that amount, approximately $64 billion has been allocated through the State and Local Fiscal Recovery Program to provide direct and flexible financial resources for every city and town in the nation. The City of Diamond Bar anticipates receiving $6.8 million in ARPA funds, with the final installment expected in July 2022.
These funds may be used for a broad range of purposes including the replacement of lost revenue, restoration of City programs and services, COVID-19 expenses not otherwise reimbursed, and projects that help build resiliency and financial stability for the residents and businesses of the City.
As a result, the proposed FY 2022/23 Budget provides a positive outlook and continues to restore many City programs and services, advance deferred maintenance and Capital Improvement Projects, and focuses on key initiatives consistent with the City’s Long-Term Financial Stability Report and Strategic Plan. However, the City remains cautious given the pressure on rising costs driven by a competitive labor market, higher fuel prices and the possibility that the recent steep rise in inflation may lead to a recession.
FY 2022/23 Proposed General Fund Budget Overview
The Draft Operating Budget for the General Fund currently reflects the following estimated resources and expenditures as well as a minor surplus of $566,132. No use of General Fund Reserves is programmed for the FY 2022/23 Operating Budget:
Estimated Resources $31,940,212
Estimated Expenditures $31,374,080
Surplus +$566,132
The above estimates reflect a budgeted 8.0%, or $2.0 million increase in General Fund revenue from the prior’s year revised revenue budget, less Transfers-In. This increase is in large part due to a return to a pre-COVID-19 operating environment.
One-Time Resources Related to the American Rescue Plan Act (ARPA) The Transfers-In for both the current FY 2021/22 and proposed FY 2022/23 include amounts being transferred from the COVID-19 Recovery Fund to replace “lost revenues” as a result of the pandemic. As mentioned above, the source of these funds is the Federal Government’s American Rescue Plan Act (ARPA) State and Local Fiscal Recovery Program. The City of Diamond Bar received $3.4 million in FY 2021/22 which was used to fund essential government services (e.g. public safety) housed in the General Fund. Additionally, the City anticipates receiving another $3.4 million in FY 2022/23 to be used for similar purposes. As a result of these one-time federal monies, and a strong fiscal recovery for the City, staff identified sufficient resources in the amount of $5.1 million that could be utilized for thirteen (13) projects needed throughout the City. These projects will protect and enhance existing critical facilities such as the Diamond Bar Center and City Hall, provide resiliency in technology that benefits the community and city operations, and make investment in the long-term economic future of the community. These projects were presented and approved to move forward by the City Council at the City’s Draft FY 2022/23 Budget Study Session held on April 19, 2022:
PROJECT BUDGET
Diamond Bar Center Slope Stablization (CIP) $ 1,245,000 Town Center Specific Plan $ 940,000
Diamond Bar Center HVAC Replacement (CIP) $ 750,000
Enterprise Land Management System $ 500,000
City Hall Roof Rehab/Solar Panels (CIP) $ 500,000
Diamond Bar Center Lighting / AV Rplmt (CIP) $ 350,000
Diamond Bar Center Door Replacements/ADA Upgrades (CIP) $ 350,000 Citywide Camera Replacements/Upgrades $ 188,300
Park Info Signage Replacements City-Wide $ 75,000
Network Hardware Replacement - Fat Pipe $ 72,000
DBC Furniture/Kitchen Equipment Replacements $ 70,000
Sportfield Lighting Control Link (CIP) $ 60,000
Tablet Replacements $ 31,000
TOTAL $ 5,131,300
Revenue Highlights – General Fund: $31,940,212
The following are noteworthy General Fund revenue items incorporated into the proposed FY 2022/23 Operating Budget. The table below displays the current FY 2021/22 Council-authorized budget, the proposed budget for next FY 2022/23, and the percent of change for next fiscal year.
Property Taxes Revised
FY 21/22
Proposed
FY 22/23
The estimated change in the City's net taxable value of real property (including unsecured property) in the City increased by
4.4% for FY 2022/23 which will result in an overall increase to Property Tax revenue of 3.4%. The City uses HdL as a
consultant to help monitor and project this major City revenue sources. Property Taxes have not have been impacted by the COVID-19 pandemic.
$6,036,150 $6,241,789
+3.4%
Property Tax in Lieu of VLF (Vehicle License Fees) Revised FY 21/22
Proposed
FY 22/23
This revenue source grows at the same general pace as the City's net assessed valuation. The City’s consultant, HdL, also assists with the projection of this significant revenue item. The same kind of sustained growth was experienced through the pandemic.
$6,908,000 $7,209,762
+4.4%
Sales Taxes Revised
FY 21/22
Proposed
FY 22/23
Sales tax revenue continue to show signs of improvement and is projected to increase by 6.0% $5.8 million. This amount is partially driven by continued strength in the building industry sector, strong demand for consumer goods, restaurants and hotels, online sales, and higher fuel prices which are expected to remain high through most of the year. This amount exceeds preCOVID levels by approximately $600 thousand. $5,563,000 $5,798,000
+6.0%
Transient Occupancy Taxes Revised
FY 21/22
Proposed
FY 22/23
With the reopening of the economy to travel and gatherings, Transient Occupancy Tax is projected to increase by 40.0% to $1,300,000. This amount represents a return to pre-COVID-19 revenues and surpasses FY 2018/19 revenues by $140,000. $1,000,000 $1,300,000
+40%
Use of Money & Property - Investments Revised
FY 21/22
Proposed
FY 22/23
Investment Income is anticipated to increase as the City's portfolio holdings benefit from the rising interest rate environment.
$417,500 $630,000
+50.9%
Current Service Charges Revised
FY 21/22
Proposed
FY 22/23
Building Permit Activity – Revenue from Building, Planning and Engineering activity is estimated to be higher than projected in the current year.
$1,273,150 $1,473,049
+15.7%
Facility Rentals – Facility Rentals were essentially eliminated during the COVID-19 period, and only Cell Tower rental revenue remained. Staff is projecting a full year of activity and rentals at the Diamond Bar Center with revenue anticipated to more than double in FY 2022/23. Cell Tower revenue remains unchanged at $160,000.
$345,550 $759,250
+119.7%
Recreation Programs – Similar to Facility Rentals (above), staff is anticipating a return to normal for these programs in the new fiscal year, and the anticipated revenue reflect an increase in this activity for FY 2022/23
$463,265 $591,955
+27.8%
Gas Tax – Transfer In Revised
FY 21/22
Proposed
FY 22/23
The Transfer-In from the Gas Tax fund supports the City’s street maintenance budget. This amount varies from year to year based on the level of budgeting set by Public Works for the anticipated maintenance activities for a particular year. The FY 2022/23 overall Transfer-In will remain unchanged from the prior year, and will reimburse all eligible costs included in the General Fund budget.
$1,049,000 $1,049,000
+0.0%
Expenditure Highlights - General Fund: $31,374,080
Proposed General Fund expenditures for FY 2022/23 have increased $1.7 million, or
5.9%, when compared to the current FY 2021/22 Revised Budget. The following highlighted items have been incorporated into the expenditure estimates:
• Public Safety
Law Enforcement – The FY 2022/23 Los Angeles County Sheriff’s Department contract amount is approximately $7.77 million, representing the single largest line item and approximately 23.2% of proposed General Fund expenditures— this figure is down from 26.5% in FY 2021/22. The LASD contract amount reflects a net increase of $41,000 year over year, inclusive of a contract rate increase of 1.45% plus a Liability Trust Fund (LTF) surcharge of 11% on each contracted position.
The General Fund includes a transfer-in from the Law Enforcement Reserve Fund in the amount of $100,000 for as-needed special assignments and suppression patrols which have proven to be a cost-effective approach to reducing crime and responding to specific public safety issues throughout the year.
Crossing Guard Services – The City provides Crossing Guard Services at seven (7) elementary schools and two (2) middle schools with a total of 17 guards. This represents a decrease in two (2) guards from previous years due to the closure of Diamond Point elementary school. The total budget for crossing guard services in currently estimated at FY 2022/23 is $230,000. Staff is currently reviewing proposals for a new contract and may need to revise the amount prior to budget adoption.
Animal Control – The City has contracted with the Inland Valley Humane Society (IVHS) for animal control and licensing services since incorporation.
The IVHS contract includes the total gross cost, with ALL licensing revenue collected to be credited to the City. The net contract cost is the amount included in the annual operating budget which anticipates that the contract will be based on a total gross cost of $499,200. This amount reflects a $19,200 increase compared to the prior year to accommodate for a 4% CPI adjustment.
Canvassing is anticipated to take place citywide during FY2022/23, and based on the anticipated increase in licensing revenue, the overall net cost for animal control services is expected to be $384,200 which is a 2.7% or $10,800 decrease from the previous year. Though slightly lower year over year, similar to the City’s other Public Safety service providers the IVHS contract cost has increased over time due to variability in licensing revenues. Staff is working with the IVHS Liaison Committee to better understand future contract costs and identify ways to better mitigate future cost increases. At the request of IVHS, the City anticipates working with IVHS on a comprehensive Municipal Code update to ensure a consistent operating environment with the goal of standardizing procedures and minimize cost increases.
• Human Resources
“Human Capital Investment Program” – Each year, the City Council adopts the Compensation and Benefits Plan for the upcoming fiscal year which includes cost of living adjustments, and employee positions with associated salary ranges and benefits. Regionally speaking, the City is experiencing a considerably volatile and evolving human resources environment. To remain an “Employer of Choice” in the region the City must continue to reinvest in its personnel (i.e. human capital) in a manner similar to its capital projects and infrastructure. To identify and prioritize investment in organizational staffing and organizational structure, and to maintain, enhance and expand City programs, the City has developed a focused effort, led by members of the City Manager’s executive team, referred to as the Human Capital Investment Program (HCIP).
Cost-of-Living Adjustment – The City’s Personnel Rules and Regulations specify that the City Manager may request that the City Council authorize a Cost-of-Living Adjustment (COLA) for employees based on the March-to-March rates of the federal Consumer Price Index (CPI) for Wage Earners and Clerical Workers in Los Angeles/Orange Counties. This year’s CPI calculation sharply rose in March 2022 to 8.67%. In order to avoid real wage losses and remain an “Employer of Choice” in the surrounding Los Angeles, Orange, Riverside and San Bernardino counties, it is recommended that the salary schedules for all benefitted classifications of employment including all executive positions, such as Department Directors, Assistant City Manager and City Manager, be increased by 5% in July 2022 and again by 3% in January 2023. A $50 per month increase to the Benefit Allotment is also recommended for all benefitted classifications of employment including the executive positions and members of the City Council to help keep up with corresponding health premium rate increases. The annual cost of the COLA and Benefit Allotment increase is approximately $497,107.
Departmental Reorganizations – The City Council, through its Strategic Plan, has made the development of a high-performing organization with a positive, value-based culture that attracts and retains talent a priority. It is the duty and responsibility of the City Manager to periodically review departmental operations and staffing structures, and conduct long-term organizational and succession planning for the efficient and cost-effective delivery of services to the public. To continue to be known as an “Employer of Choice” in the region and improve customer experience, a series of reclassifications and new positions are recommended. To recognize increased responsibilities of certain positions, it is recommended that two existing full-time employees be reclassified from Administrative Assistant to Administrative Coordinator, that a full-time Senior Office Specialist be reclassified to Administrative Assistant and one Senior Maintenance Worker be reclassified to a Facilities and Asset Maintenance Technician. The fully burdened cost (salary plus benefits) to implement the four reclassifications is $25,225.
Additionally, to enhance the customer service experience, increase productivity and accuracy, and to create business process efficiency, it is recommended that a full-time benefitted Accounting Technician and Permit Technician be added. It is also recommended that a full-time benefitted Neighborhood Improvement Officer be added so that a more proactive approach to code enforcement efforts can be attained as well as provide opportunity for as-needed weekend coverage. All three of these new positions will be FLSA non-exempt. The City budgets for new positions conservatively at the top step of the salary range; therefore, the approximate cost, including benefits, to fill all three positions in FY 2022/23 is budgeted at $249,932.
It should be noted that excluding the aforementioned increases to personnel, the total General Fund budget for full-time benefitted staff in FY 2022/23 would be $163 thousand less than the prior year. This is due to retirements of longtenured staff as well as reduced retirement costs related to the recruitment of new employees, and reflects the long-term trend towards stable personnel costs for the City.
• Parks & Recreation Programs – The proposed Budget is optimistic that valuable programs, services, and events can return to the community with the ability to reinstate community services while focusing on participant and staff safety.
Programs and events offered this year include summer youth day camp, full park amenities, field allocations, contract classes, picnic reservations, and Concerts-inthe-Park. Virtual programs such as BINGO, Tiny Tots, the Windmill Hunt, and “May the Fourth Be With You” continue to bring together a diverse community of all ages.
Based on recent community interest and as guidelines are modified, the gradual reopening of the Diamond Bar Center for rentals can also be anticipated this summer. In addition, we look forward to the return of senior activities, youth indoor sports, and other in-person activities.
Expenses for recreation programs and operations at the Diamond Bar Center have been increased commensurate with the anticipated activities, and with a combined budget of $3.9 million the budget has slightly surpassed pre-COVID levels of $3.5 million. Taken alone, the Recreation Department’s program budget of $1.25 million for FY 2022/23 represents an increase of $152 thousand year over year. Moreover, operations at the Diamond Bar Center are budgeted at $1.48 million, and increase of $60 thousand from the prior year.
Special Revenue Fund Highlights
• Lighting & Landscape Assessment Districts (LLADs) – Much work has been done over the past two years to help address the operating deficits and reduce the General Fund subsidies to the LLADs. In May 2021, LLAD 41 was formally dissolved, and in July 2021, a new Prop 218 ballot process was approved by the property owners. In January 2022, LLAD 39 was formally dissolved, and in March 2022 a new Prop 218 ballot process was approved by the property owners. The new assessments will make each of the Districts more sustainable over time without reliance on General Fund resources. Total contributions to the Districts for FY 2022/23 are budgeted at $212 thousand. Budgeted resources and expenditures for all three districts for FY 2022/23 are as follows:
Proposed FY 2022/23 Budget LLAD No. 38 LLAD No. 39-2022 LLAD No. 41-2021 Resources
Assessment Revenue $ 276,720 $ 612,713 $ 293,471
General Fund Contributions 157,689 43,443 10,986
Use of Fund Balance 17,462 -
Total Resources $ 451,871 $ 656,156 $ 304,457
Total Expenditures $ 451,871 $ 597,189 $ 286,079
Addition to Fund Balance $ - $ 58,967 $ 18,378
• AB 2766 Air Quality Management District Fund (251) – The proposed budget of $199,000 is recommended for the acquisition of approximately ten (10) new laptops, to accommodate citizen requests for neighborhood traffic management improvements, and to fund the purchase of one (of two) zero emissions vehicles to satisfy the grant funding requirements for the new electric vehicle charging station.
Internal Service Funds Highlights
• Debt Service Fund (401) – In May 2021, the City refunded the outstanding Lease Revenue Bonds associated with the original acquisition and construction of the Diamond Bar Center. This achieved a gross savings of $1.736 million and present value savings of $1.63 million (or 20.85%) for the General Fund, which translates to approximately $144,700 in average annual debt service savings for the remainder of the term through June 1, 2033 at an effective interest rate of 1.15%. The 2021 Bonds were rated by S&P as AA+ (top rating for this type of bond) which is a testament to the Council’s conservative and prudent fiscal policies. The total debt service (principal and interest) will be $716,200 for the upcoming year and are funded by a transfer-in to the Debt Service Fund from the General Fund. • Self-Insurance Fund (501) – CJPIA covers the City’s property, pollution liability, crime, workers’ compensation and general liability needs. The premiums are anticipated to be approximately $512,600, which is an increase of $85,000, or
19.9%, over the FY 2021/22 premiums.
• Vehicle Maintenance & Replacement Fund (502) – The proposed budget of $205,650 is recommended for necessary operations and maintenance of the City’s fleet, as well as the purchase of two zero emissions vehicles to satisfy the grant funding requirements for the new electric vehicle charging station. Funding for one vehicle is provided by the AQMD Fund (251) as noted above. • Equipment Maintenance & Replacement Fund (503) – The proposed budget of $855,800—of which $791,300 comes from a one-time General Fund transfer-in of funds offset by ARPA revenues—is recommended for necessary information systems, hardware upgrades, and replacements, such as:
• Citywide Camera Updates.
• Network Hardware Replacements.
• Tablet replacements.
• Creston/AV/Lighting project at City Hall (design).
• Sat Phone Replacements (4 quantity).
• Server Replacements.
• Printer Replacements.
• Replacement Laptops (5 quantity).
• Building Facility & Replacement Fund (504) – The proposed budget of $235,000 is recommended for necessary facility improvements not categorized as CIP expenses, such as:
• Replacement vinyl flooring at Diamond Bar Center (four rooms). • Civic Center Exterior Paint.
• Engineered wood fiber for three (3) playgrounds and dog park (Sycamore Park (2) and Diamond Canyon Park).
• Drinking fountain upgrades and ADA improvements at up to (4) locations pending needs assessment.
• Replacement tennis court wind screens at Reagan and Maple Hill Park.
Fiduciary Fund
OPEB Trust Fund (601) – The proposed budget for this fund consists mainly of a transfer-in from the General Fund in the amount of $88,000 to fund the City’s Other Post-Employment Benefits (OPEB) Trust, an investment vehicle managed by CalPERS for the purpose of reducing the City’s long-term OPEB liabilities (e.g. retiree medical costs). This amount is unchanged from the prior fiscal year.
Capital Improvement Fund
• Capital Improvement Fund (301) - The FY 2022/23 Capital Improvement Program (CIP) includes a total of $9.36 million in new projects and advances many of those projects that were previously deferred due to COVID-19. The General Fund contribution to these projects is $2.17 million (of which $2.145 million comes from a one-time General Fund transfer-in of funds offset by ARPA revenues) with the remaining balance of funding supplied by other sources such as the City’s Measure M, Measure R, Measure W, Gas Tax, SB-1, Prop. A, and Prop. C funds. Some of the major CIP projects include:
• Maple Hill Park Playground/Restroom Replacement and ADA Upgrades. • Pantera Park Hard Court Rehab and LED Lighting Retrofit. • Residential and Collector Street Rehab – Area 2.
• Arterial Street Rehab – Golden Springs (Brea Canyon to Grand). • ADA Curb Ramp Improvements – Area 3.
• LED Illuminated Street Name Sign and Highway Safety Light Replacements.
• Citywide Bus Shelter/Stop Renovations.
• Groundwater Drainage Improvements - Phase 4/5 (Copley & Moon Lake). • Diamond Bar Center Slope Stabilization Project.
• Diamond Bar Center AC Replacement and Air Quality Upgrades. • Continued Construction of the Grand/Golden Springs Intersection Enhancement Improvements.
The CIP was reviewed for consistency with the City’s General Plan at the May 10, 2022 Planning Commission Meeting.
Recommendation
The proposed FY 2022/23 Operating Budget and Capital Improvement Program provides a positive outlook to restore a wide range of City programs, services and projects as the State, County and City following the impacts of COVID-19. It prioritizes the one-time use of General Fund resources on projects that help build resiliency and financial stability for the residents and businesses of the City. The recommended strategic realignment and investment in human capital will improve the customer experience and respond to changing demands brought on by a rapidly evolving human resources environment. Should the City Council desire to modify any part of the proposed FY 2022/23 Operating Budget and Capital Improvement Program, staff will ensure to incorporate all revisions for final adoption at the June 7, 2022 City Council Meeting.
Attachments:
1. 1.a Proposed General Fund Budget Summary FY 2022-23
2. 1.b Draft FY 22-23 Proposed Budget Book