MEMORANDUM
DATE: May 16, 2023
TO: Paul Buddenhagen, City Manager
FROM: Lawrence Chiu, Finance Director
SUBJECT: Discussion of Revised Preliminary Budget for Fiscal Years 2024 and 2025 and Council Goal Setting
RECOMMENDATION
Staff recommends that the City Council review and comment on the revised preliminary budget for Fiscal Years (FYs) 2024 and 2025.
BACKGROUND
At its meeting on May 2, 2023, the City Council reviewed the preliminary General Fund budget, reserve funds, Measure F and the use of General Fund ending fund balance to balance the budget shortfall.
As part of the budget balancing strategies, Department Heads were asked to maintain costs as close to the FY 2023 level as possible, to minimize the budget shortfall. In addition to those cost containment approaches, vacant positions are reviewed by the City Manager before filling and the current allocation for the Residual Property Tax Reserve and Use Policy are maintained.
The following table summarizes staff presentation on May 2, 2023 for the projected FY 2023 General Fund year end results and the preliminary FYs 2024 and 2025 General Fund Budget. The figures below include assumptions on revenue and expenditure growth and do not reflect changes which have occurred since the May 2nd meeting which are explained in the following sections below. Also, additional amounts related to negotiations for the City’s three bargaining units are not included. Once negotiations are finalized updated figures will be included in the proposed budget presented to the City Council. The projections include the use of the General Fund ending fund balance of $1.5 million and $2.7 million to balance FYs 2024 and 2025 proposed budget respectively.
The Budget & Governance Committee and Budget Advisory Committee reviewed the Preliminary Budget for FYs 2024 and 2025 on April 25th and 27th respectively and recommended the preliminary budget to the full Council for consideration.
The Budget & Governance Committee recommended the following transfers from the Unassigned General Fund balance.
Transfer of $1.8 million to Disasters Reserve Fund to meet reserve target of $5 million; Transfer of $1.0 million to Measure O Critical Needs Fund to meet reserve target of $1.0 million; and (c) Transfer of $1.0 million to Urban Tree Program.
The Budget Advisory Committee recommended adding a review cycle on the use of Measure F fund.
DISCUSSION
Since the preliminary budget presentation to the City Council on May 2nd , Finance staff received additional budget information from departments. The table below summarizes the projected FY 2023 General Fund year end results, and the Revised Preliminary Budget for FYs 2024 and 2025 General Fund Budget. The projections increase the existing FY 2024 and 2025 deficits by $400,000 and $500,000 respectively and include the use of the General Fund ending fund balance of $1.9 million and $3.2 million to manage the deficits in the FY 2024 and 2025 proposed budgets respectively.
Revenues
The table below provides a detailed explanation of the change in revenues projection between the first draft and the second draft of the preliminary budget. In FY 2023, building permits and plan checking fees are projected to increase by $1.9 million. The revised budget also includes Measure O – Real Property Transfer Tax of $0.6 million annually for FYs 2024 and 2025.
Measure O – Real Property Transfer Tax (RPTT)
The Real Property Transfer Tax includes Residential RPTT and Commercial RPTT. As illustrated in the chart below, the RPTT is a relatively unpredictable revenue stream due to its dependence on the volume and size of property sales in any given year.
FY 2021 saw an increase of 144% or $6 million in Commercial RPTT mainly due to several large commercial property transactions. As the local economy slows down due to a high interest rate environment, FY 2023 projected revenue for Commercial RPTT declined by 38% or $0.9 million compared to prior year. We are assuming conservate growth resulting in $1.2 million annually in Residential RPTT and $1.2 million annually in Commercial RPTT in the next few years.
According to the Measure O Fund Reserve Policy, 50% of the Measure O fund will go toward the Capital Improvement Program and 50% of the remaining balance will go toward the City’s unfunded liabilities, including pension liability and OPEB. The Commercial RPTT is budgeted in the General Capital Fund. The proposed budget for FYs 2024 and 2025 included the transfer of $600,000 annually from the General Capital Fund to the General Fund for unfunded liabilities.
Expenses
The table below summarizes the change in expense projections between the first draft and the second draft of the preliminary budget. In FY 2023, insurance, the West Coast Code Consultants (WC3) contract, professional services, supplies, and utilities are projected to increase by $2.1 million. The WC3 expenses are netted out with the receipt of nearly $1.9 million in additional revenue. Major changes to the proposed FYs 2024 and 2025 budget include additional insurance and IT allocation costs. The fire station alerting system is budgeted in the Capital Improvement Program and its $161,000 cost is removed from the proposed FY 2024 General Fund budget.
RESERVE REQUIREMENT
The proposed budget relies on using a portion of the General Fund ending fund balance. The Economic Uncertainty Reserve requirement established by the Council remains intact, meeting 50% of the of the budgeted expenditures policy.
FISCAL IMPACT
The revised preliminary budget for FYs 2024 and 2025 will establish the Operating and Capital Budgets for both the City of Emeryville and for the Successor Agency to the Former Redevelopment Agency of the City of Emeryville. In addition, the proposed budget includes the use of General Fund ending fund balance of $1.9 million and $3.2 million to balance the FYs 2024 and 2025 budget respectively.
CONCLUSION
The revised preliminary FYs 2024 and 2025 budget takes into consideration the fiscal impacts of the pandemic, while continuing to move the City forward as it recovers and regains its momentum. Staff requests that Council provide comments on the revised preliminary FYs 2024 and 2025 budget. A final budget will be submitted to the City Council in June for approval.
PREPARED BY: Lawrence Chiu, Finance Director
APPROVED AND FORWARDED TO THE
CITY COUNCIL OF THE CITY OF EMERYVILLE:
__________________________________
Paul Buddenhagen, City Manager
ATTACHMENTS
Attachment A – Revised Preliminary Budget for Fiscal Years 2024 and 2025 Attachment B – City Council Goals for Fiscal Year 2023
Revised Preliminary Budget FYs 2024 and 2025
City Council Meeting | May 16, 2023
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City of Emeryville
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