Agenda #: 1
Meeting Date: May 16, 2023
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: DRAFT FISCAL YEAR 2023/24 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 public meetings related to the FY 2023/24 City Budget:
• Council Study Session on Draft FY 2023/24 CIP and Draft Five-Year CIP Review – Held on 5/2/2023
• Council Study Session on Draft FY 2023/24 Operating Budget – Scheduled for 5/16/2023
• Adoption of the Proposed FY 2023/24 City Budget & CIP – Scheduled for 6/6/2023
On May 2, 2023, the City Council held a Study Session to review the recommended Draft Capital Improvement Program (CIP). Following Council discussion, there were no recommended changes to the presented Draft FY 2023/24 CIP (see below for details on the CIP).
The purpose of this Study Session is to provide the City Council with an opportunity to review the combined Draft FY 2023/24 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 6, 2023 City Council meeting. At the City Council meeting on June 6, 2023 staff will provide a summary of any changes to the draft budget reviewed at tonight’s study session that were incorporated into the final Proposed FY 2023/24 Operating Budget.
ANALYSIS:
This past year marks the end of the Emergency Declarations at the federal, state, county and local levels related to the COVID-19 global pandemic. While not totally eradicated, there are now adequate tools and resources in place to minimize the impacts of COVID-19 on the health care system and individuals allowing for the complete restoration of City programs and services.
The City of Diamond Bar has received its full allocation of American Rescue Plan Act (ARPA) Funds over the past two years totaling just over $6.8 million. In January 2022, the U.S. Treasury issued a final rule that provides for municipalities to attribute up to $10 million in ARPA Funds to be used on governmental services. As such, these funds have been 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 general governmental services and projects that help build resiliency and financial stability for the residents and businesses of the City.
The proposed FY 2023/2024 Budget provides a positive outlook and continues to provide and expand 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 the recently adopted 2024-2027 Strategic Plan. However, the City continues to remain cautious given the pressure on rising costs driven by a competitive labor market, higher fuel prices and other economic pressures may lead to a possible recession in the near term.
FY 2023/24 Proposed General Fund Budget Overview
The Proposed Operating Budget for the General Fund currently reflects the following estimated resources and expenditures as well as a one-time use of General Fund Undesignated Reserves in the amount of $1,310,496. The uses of Undesignated Reserves is appropriate for one-time costs and is only made possible due to savings the City has realized over the years. When factoring in these one-time uses of reserves the General Fund’s ongoing operating surplus is $326,504 and reflects a balanced budget:
GENERAL FUND
PROPOSED
FY 2023/24
Proposed Resources $ 30,614,475
Proposed Ongoing Expenditures (30,287,971)
Proposed One-Time Expenditures
Office Furniture and Equip (5 new employees) (100,000)
City 35th Birthday (160,000)
Transfer to Fund 103: Objectives Standards Ord. (185,000) Transfer to Fund 103: Town Center Specific Plan Supplies (22,000) Transfer to CIP Fund 301 (1,110,000)
City Fee Study (60,000)
Total $ (1,637,000)
One-Time Use of Undesignated Reserves $ (1,310,496)
Ongoing Surplus (Less One-time Expenditures) $ 326,504
Revenue Highlights – General Fund: $30,614,475
Proposed General Fund revenues for FY 2023/24 have decreased $2.1 million, or -6.4%, when compared to the prior FY 2022/23 Revised Budget. This is mainly due to the FY 2022/23 receipt of ARPA funds in the amount of $3.4 million which are no longer budgeted as a Transfer-In for FY 2023/24. What follows are other noteworthy General Fund revenue items incorporated into the proposed FY 2023/24 Operating Budget. The table below displays the current FY 2022/23 Council-authorized budget, the proposed budget for next FY 2023/24, and the percent of change for next fiscal year.
Property Taxes Revised
FY 22/23
Proposed
FY 23/24
The estimated change in the City's net taxable value of real property (including unsecured property) in the City
increased by 3.84% for FY 2023/24 which will result in an overall increase to Property Tax revenue of 3.15%. The
City uses HdL as a consultant to help monitor and project this major City revenue sources.
$6,241,789 $6,438,183
+3.15%
Property Tax in Lieu of VLF (Vehicle License Fees) Revised FY 22/23
Proposed
FY 23/24
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.
$7,209,762 $7,510,497
+4.17%
Sales Taxes Revised
FY 22/23
Proposed
FY 23/24
Sales tax revenue remains stable with a projected increase of $113,000. The City expects decreases in revenues from fuel and services stations to be offset by gains in consumer goods, online sales, restaurants, food & drug sales, and business and industry.
$6,048,080 $6,161,000
+1.87%
Transient Occupancy Taxes Revised
FY 22/23
Proposed
FY 23/24
Transient Occupancy Tax is projected to increase by 6.15% to $1,380,000 based on current trends.
$1,300,000 $1,380,000
+6.15%
Use of Money & Property - Investments Revised
FY 22/23
Proposed
FY 23/24
Investment Income is anticipated to increase as the City's portfolio holdings benefit from the rising interest rate environment.
$630,000 $800,000
+26.98%
Current Service Charges Revised
FY 22/23
Proposed
FY 23/24
Building Permit Activity – Revenue from Building,
Planning and Engineering activity is estimated to be higher than projected in the current year.
$1,586,313 $1,873,920
+18.13%
Facility Rentals – Staff is projecting a full year of activity and rentals at the Diamond Bar Center with revenue
anticipated to increase by $152,000. An increase in the amount of $21,000 is also anticipated for Security Charges related to events held at the Diamond Bar Center.
Cell tower lease revenue is included herein and is projected to increase $6,000 due to CPI.
$759,250 $939,000
+23.67%
Recreation Programs – Staff is projecting a $90,000
decrease in program revenues mainly due to a $83,000
decrease in revenues from Contract Classes, as the City is no longer able to provide a venue for swimming classes.
Staff is working to find a new venue and will update the budget at mid-year as necessary. Additional reductions are due to decreases in athletic programs (basketball, soccer, volleyball).
$804,455 $714,095
-11.23%
Gas Tax – Transfer In Revised
FY 22/23
Proposed
FY 23/24
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 overall Transfer-In will reimburse all eligible costs included in the General Fund budget for this service.
$1,049,000 $1,204,000
+14.78%
Expenditure Highlights - General Fund: $31,924,971
Proposed General Fund expenditures for FY 2023/24 have decreased $814,000, or -2.5%, when compared to the prior FY 2022/23 Revised Budget. The following highlighted items have been incorporated into the expenditure estimates:
• Public Safety
Law Enforcement – FY 2023/24 Los Angeles County Sheriff’s Department expenditures are expected to be approximately $8.1 million, representing the single largest line item and approximately 25% of proposed General Fund expenditures. LASD expenditures reflect a net increase of $602,757 year over year, inclusive of a contract rate increase of 7.61% plus a Liability Trust Fund (LTF) surcharge of 12% 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 16 guards. The total budget for crossing guard services in FY 2023/24 is $280,000.
This amount is the same as the current fiscal year, since the agreement will be in its second year and provides no rate adjustment for the first three years.
Animal Control – The City has contracted with the Inland Valley Humane Society (IVHS) for animal control and licensing services since incorporation. The City’s IVHS agreement was last amended in 2021, and is based on a gross contract model where the City pays for all contract services minus any licensing revenue collected by IVHS. The FY 2023/24 gross cost for services is $544,256, which reflects a $45,056 increase compared to the prior year. The increase is driven by a pooled adjustment factor, which is calculated by the total percentage use of all IVHS services by the City compared to the other twelve contract agencies. The City’s pooled use percentage increased from 6% to 6.6% over the previous two years. Taking into account estimated licensing and fees for services revenue the proposed net cost as reflected in the FY 2023/24 proposed budget is $432,500, which is an increase of $48,300 compared to the prior year. While there will be no pet license canvassing this fiscal year, the IVHS DocuPet online licensing system will be operational and could provide additional revenues that, if realized, may result in a lower net cost to the General Fund. • 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. 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 Costof-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 in March 2023 was 2.84%. 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 3% on July 1, 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 $243,654.
No Cost Policy Recommendations – From time to time, City staff brings forward policy recommendations that do not have any financial impact but add value to City operations. This year, it is recommended that the Martin Luther King, Jr. holiday be observed starting in 2024, that all City facilities close on the third Monday of January each year and that benefitted City staff be given holiday pay in accordance with the City’s Personnel Rules & Regulations. Additionally, to better represent the work that the Public Information Division currently does and anticipates doing in FY 2023/24 and beyond, it is recommended that their Division Name and associated job titles be updated from “Public Information” to “Community Relations”. There is no cost to implement the aforementioned recommendations.
Departmental Reorganizations – The City Council Strategic Plan prioritizes the development of a high-performing organization with a positive, value-based culture that attracts and retains talent. The Employer of Choice and Human Capital Investment Programs were developed to meet these City Council goals, leading to extensive organizational analysis of long-term departmental structural needs, employee development opportunities, and necessary succession planning efforts, all in an effort to provide the most positive and effective local government customer service experience possible.
To develop the most appropriate departmental succession planning structures, recognize increased responsibilities of certain positions, and to invest in highperforming employees, it is recommended that five existing full-time employees be reclassified as indicated below.
Department/Division Current
Classification
Proposed
Reclassification
Salary
Range
City Manager’s Office Senior Management
Analyst
Principal
Management Analyst
36E
City Manager’s Office Senior Management
Analyst
Principal
Management Analyst
36E
Community
Development
Senior Planner Planning Manager 40E
Community
Development
Associate Planner Senior Planner 36E
Community Relations Public Information
Coordinator
Senior Community
Relations Coordinator
36E
The fully burdened cost (salary plus benefits) to implement the five reclassifications is $50,696; however, it is anticipated that only $4,166 will be paid for by the General Fund with the remaining balance paid for out of special revenue funds.
In addition to the reclassifications, five new full-time benefitted positions are recommended. These positions will add to overall organizational service capacity to address current and future mandates, manage contracts, administer projects, maintain key City facilities and infrastructure, and engage and educate the public.
Department/Division Classification Salary
Range
FLSA
Status
City Manager’s Office Management Analyst 24E Exempt
City Manager’s Office Management Analyst 24E Exempt
Community Relations Community Relations
Coordinator
30E Exempt
Public Works Management Analyst 24E Exempt
Public Works Maintenance Worker 6NE NonExempt
For budgeting purposes, these new positions are conservatively identified for nine months of the fiscal year at a fully burdened rate and at top step of the salary range; therefore, the approximate cost, including benefits, to fill all five positions in FY 2023/24 is estimated at $606,396; however, it is anticipated that only $238,015 will be paid for by the General Fund with the remaining balance paid for out of special funds (primarily AB 939 fund) or savings due to vacancies. • Parks & Recreation Programs – The proposed department budget was created based on continued community interest in valuable programs, services, and events. Several programs and events offered this year to support an active and healthy community include summer youth day camp, senior dances, field allocations with sports organizations, contract classes, picnic reservations, and Concerts/Movies-in-the-Park. This next fiscal year the City will also celebrate its 35th birthday and the Diamond Bar Center’s 20th anniversary in April 2024 with a large community celebration. A budget of $160,000 has been included for this event. A budget of $26,000 has also been included for another Windmill Lighting event to commence the holiday season.
Expenses for recreation programs ($2.62 million) and operations at the Diamond Bar Center ($1.65 million) have been increased commensurate with the anticipated activities, and with a combined budget of $4.27 million, the Parks & Recreation Department’s Proposed FY 2023/24 budget has surpassed preCOVID levels of $3.43 million (the proposed budget represents an increase of $190,000 from the prior year). As would be expected, operations at the Diamond Bar Center have returned to pre-pandemic levels as rental revenue continues to increase and is budgeted at $625,000, an increase of $152,000 from the prior year.
Special Revenue Fund Highlights
• Lighting & Landscape Assessment Districts (LLADs) – Much work has been done over the recent 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. Similarly, 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 newly approved assessment calculations will make these two districts more sustainable over time without reliance on General Fund resources.
Total contributions to the three districts for FY 2023/24 are budgeted at $272,000, and increase of $54,000 from the prior year due mainly to an increase in the contribution for LLAD No. 38 which serves the medians citywide. Budgeted resources and expenditures for all three districts for FY 2023/24 are as follows:
Proposed FY 2023/24 Budget LLAD No. 38 LLAD No. 39-2022 LLAD No. 41-2021 Resources
Assessment Revenue $ 276,720 $ 642,890 $ 301,806
General Fund Contributions 218,097 42,560 11,298
Use of Fund Balance -
Total Resources $ 494,817 $ 685,450 $ 313,104
Total Expenditures $ (494,817) $ (616,005) $ (300,088)
Addition to Fund Balance $ - $ 69,445 $ 13,016
• AB 2766 Air Quality Management District Fund (251) – The proposed budget of $174,000 is recommended to accommodate citizen requests for neighborhood traffic management improvements, and to partially fund the purchase of two zero emissions replacement vehicles.
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 $712,600 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 $609,380, which is an increase of $97,000, or
18.8%, over the FY 2022/23 premiums.
• Vehicle Maintenance & Replacement Fund (502) – The proposed budget of $224,750 is recommended for necessary operations and maintenance of the City’s fleet, as well as the purchase of two zero emissions replacement vehicles.
Funding in the amount of $100,000 is provided by the AQMD Fund (251) as noted above.
• Equipment Maintenance & Replacement Fund (503) – The proposed budget of $1,727,500 is recommended for necessary information systems, hardware upgrades, and replacements, such as:
• Creston/AV/Lighting project at City Hall (Construction). • Replace End-of-Life Support Backup Systems
• Server Replacements (2 quantity).
• Printer & Copier Replacements.
• Enterprise Land Management System.
• Replacement Laptops (18 quantity).
• Building Facility & Replacement Fund (504) – The proposed budget of $201,000 is recommended for necessary facility improvements not categorized as CIP expenses, such as:
• Diamond Bar Center Landscape Rehab.
• Replacement of Automatic Vehicle Gate at City Hall.
• Furnishing Replacements at Sycamore Canyon Park (tables, benches, BBQ, etc.).
• Detention Basin Landscape Rehab. at Diamond Canyon Park.
Fiduciary Fund
• OPEB Trust Fund (601) – The proposed budget for this fund consists of a transfer-in from the General Fund in the amount of $88,000 and investment earnings in the amount of $26,600 designated to fund the City’s Other PostEmployment 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.
There are no expenses budgeted in this fund.
Capital Improvement Fund
• Capital Improvement Fund (301) - The Draft FY 2023/24 CIP budget includes 10 new projects totaling $12.03 million. Some proposed projects have already received funding for the design phase in FY 2022/23 and are now proposed to move to the construction phase. One-time General Fund savings for the construction of prioritized facilities and parks projects in the amount of $1.11 million is proposed for three projects which have received funding for the design phase in the previous fiscal year. The remaining balance needed to fund the program is 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.
The proposed FY 2023/24 CIP projects list includes the following:
Project No. Street Improvements: $9,720,464
SI24101 Residential and Collector Street Rehab.- Area 3 (Construction) SI24103 Arterial Street Rehab (Construction):
• Golden Springs Dr from Grand Ave to Temple Ave
• Grand Ave from Diamond Bar Blvd to East City Limits
• Gateway Center, Copley Dr, Bridgegate Dr
SI24104 CDBG Area 4 ADA Curb Ramp Project (Construction) Project No. Traffic Management/Safety Projects: $64,000 TM24201 Battery Back-Up and CCTV Replacement Program (Construction) Project No. Transportation Infrastructure Improvements: $336,500 TI24301 Intersection Safety Improvements (Construction) Project No. Miscellaneous Public Works Improvements: $300,000 PW24401
Steep Canyon Erosion Control and Sedimentation Prevention (Design & Const.)
Project No. Facilities, Parks and Rec Improvements: $1,610,000 FP24500 DBC GVBR Lighting & Controls Upgrade (Construction) FP24501 DBC Main Entry/Doors & ADA Improvements (Construction) FP24505
City Hall Roof Rehabilitation/Solar System Removal and Reinstallation (Const.)
FP24502 Heritage Park Renovation Phases 1 and 2 (Design) The CIP is scheduled to be reviewed for consistency with the City’s General Plan at the May 23, 2023 Planning Commission Meeting.
Recommendation
The proposed FY 2023/24 Operating Budget and Capital Improvement Program provides a positive outlook to continues to expand a wide range of City programs, services and projects. It prioritizes the one-time use of General Fund resources for projects that help build resiliency, financial stability, and projects that create valuable City assets. The recommended strategic realignment and investment in human capital will improve the customer and resident 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 2023/24 Operating Budget and Capital Improvement Program, staff will ensure to incorporate all revisions for final adoption at the June 6, 2023 City Council Meeting.
Attachments:
1. 1.a General Fund Rev & Exp Schedule - FY 2023-24
2. 1.b Consolidated Fund Balance Schedule - FY 2023-24
3. 1.c Draft Budget Schedules - FY 2023-24_WatermarkReduced