General Fund Mid-Year Update FY 23-24 — Special City Council, March 20, 2024

City of Fort Bragg
Mid-Year Budget FY 2023/24

Page 3 ends

GENERAL FUND
The General Fund supports many of the City's day-to-day operations, including police and fire protection, street and park maintenance, community development, and general administrative functions. The General Fund receives the broadest variety of revenues, and many of its revenue sources are cyclical in nature. By contrast, the revenue sources for the Enterprise Funds are received monthly and, as a result, are more evenly distributed throughout the fiscal year. The General Fund includes all services that are funded through general taxes. It is the funding source for all City programs except those that are paid for through dedicated taxes, user fees, impact fees, or grants.

FISCAL YEAR 2022/23 RECAP
For the fiscal year concluding on June 30, 2023, the General Fund closed with a budget surplus of $528,783, contributing to an increase in the Fund balance. However, this surplus was partially offset by the return of $3.5 million in Lease Revenue Bonds, resulting in an overall decrease in the fund balance from $8,592,235 to $5,975,337. Expenditures for the year totaled $10.6 million, marking a 27 percent increase compared to the previous year, as expenditures, especially personnel costs, returned to pre-pandemic levels.

Despite these changes, the General Fund maintained reserves, including an operating reserve of $1.6 million, a litigation reserve of $200k, and a recession reserve of $489k.

GENERAL FUND REVENUES OVERVIEW
General Fund revenue for the second quarter amounted to $6.02 million, which represents 52% of the amended budget. This figure compares favorably to the $5.4 million reported at the mid-year point of the prior fiscal year.

Projections suggest that General Fund revenue will reach approximately $11.7 million by the end of the fiscal year, slightly below the budgeted amount by approximately $13k.

The table below provides a breakdown of actual FY 2023/24 General Fund revenue collections up to December, comparing them with budgeted revenue estimates and the actual figures from the last two fiscal years for historical context. Additionally, it outlines the recommended changes to each category as part of this report.

The Fiscal Year 2023/24 Budget was formulated with the anticipation of potential declines in General Fund and other economically sensitive City fund revenues. This cautious approach reflects an acknowledgment of prevailing economic conditions and aims to maintain conservative budgeting practices while harboring a sense of cautious optimism as economic conditions evolve in 2024.

REVENUE SOURCE
Audited
FY 2021/22
Actuals
Audited
FY 2022/23
Actuals
Adopted
Budget
Approved Net
Budget
Amendments
Amended
Budget
Pro Rated
Budget as of
12/31/2023
YTD Actual
12/31/2023
Mid-Year
Variance %
Variance
Budget vs.

Actual
Estimated
Year End
Forecast
Surplus/
(Shortfall)
Transient Occupancy Tax $ 3,444,990 $ 3,192,486 $ 3,242,118 $ - $ 3,242,118 $ 1,621,059 $ 1,765,102 54% $ 144,043 $ 3,242,118 $ - Sales and Use Tax 2,215,161 2,146,974 1,959,500 - 1,959,500 979,750 1,105,665 56% 125,915 1,959,500 - Property Tax 1,150,352 1,141,020 1,150,257 - 1,150,257 575,128 236,079 21% (339,049) 1,150,257 - Other Taxes 851,622 953,026 903,985 - 903,985 451,993 420,754 47% (31,238) 903,985 - Sub Total Tax Revenue 7,662,122 7,433,505 7,255,860 - 7,255,860 3,627,930 3,527,600 49% (100,330) 7,255,860 - Licenses & Permits 86,176 94,598 94,293 - 94,293 47,147 39,322 42% (7,825) 95,493 1,200 Fines and Forfeitures 51,396 53,799 25,100 - 25,100 12,550 4,650 19% (7,900) 20,050 (5,050) Intergovernmental 30,089 15,538 30,000 - 30,000 15,000 - 0% (15,000) 30,000 - Use of Money/Property (166,316) (377,584) 90,000 - 90,000 45,000 387,448 430% 342,448 105,000 15,000 Charges for Services 62,387 91,600 81,343 - 81,343 40,672 53,481 66% 12,809 92,530 11,187 Operating Grant Revenue 133,985 571,569 647,262 81,900 729,162 364,581 394,060 54% 29,479 648,851 (80,311) Reimbursements 3,333,187 3,764,941 3,380,722 - 3,380,722 1,690,361 1,602,363 47% (87,998) 3,452,339 71,617 Other Revenue 22,576 143,257 20,200 - 20,200 10,100 20,889 103% 10,789 20,300 100 TOTAL REVENUES $11,215,601 $11,791,224 $11,624,780 $ 81,900 $ 11,706,680 $ 5,853,340 $ 6,029,814 52% $ 176,474 $11,720,423 $ 13,743

GENERAL FUND REVENUES
City of Fort Bragg
Mid- Year Budget FY 2023/24

Page 4 ends

Transient Occupancy Tax and Sales Tax were forecasted to decline by 6% from the "best year to date" achieved in FY 2021/22. A comprehensive review of all General Fund revenue accounts has been performed based on activity through the year's first six months. Based on the available data through December, General Fund Tax revenues have continued the strong performance and are anticipated to end the year approximately $7.3 million in line with budgeted levels due to solid growth in Transient Occupancy Tax (TOT), Franchise tax and Sales Tax categories.

Partially offsetting this tax revenue growth is lower than anticipated Operating Grant Revenues to reimburse staff time administering these grants and carrying out Grant activities. Much of the reimbursable time is for Community Development Block Grant (CDBG), which includes: the Code Enforcement Program, Business Loans, Fire Station Rehabilitation design work, water meter replacement program, and general administration.

Similar to the prior year, these unspent funds will be transferred to the next fiscal year. There are no revenue adjustments included in the Mid-Year Budget Review.

Notable variances in Revenues are listed below.

 Transient Occupancy Tax (TOT)
Fort Bragg relies heavily on tourism, which contributes significantly to its revenue, constituting 28% of the total General Fund revenue. In FY 22, Transient Occupancy Tax (TOT) experienced a rebound from COVID-19 impacts, achieving its highest performance to date with $3.4 million in revenue by the end of the fiscal year.

FY 22/23 saw another strong showing for TOT, with an 18% growth of $186k compared to pre-pandemic levels.

However, despite this positive trend, receipts witnessed a 10% decline compared to the exceptional quarter recorded in FY 21/22, as outlined in the historical revenue figures provided. The Adopted Budget for FY 23/24 took a conservative approach, projecting just 1% growth. While July, September, and November revenues surpassed the prior year's figures, the other months experienced a 10% decline. Despite being down 2% compared to the same period last year, revenues have surged by 46% or $575k compared to pre-pandemic levels.

Fort Bragg's economy heavily relies on tourism, which contributes significantly to its revenue, accounting for 28% of the total General Fund revenue. In FY 22, the Transient Occupancy Tax (TOT) experienced a rebound from the impacts of COVID-19, reaching its highest performance to date with $3.4 million in revenue by the end of the fiscal year.

Considering the 7% decline experienced in the first two quarters, the results of the third quarter will be crucial in determining whether revenue adjustments are needed, especially if TOT fails to meet budget expectations.  Sales Tax:

The Sales Tax category includes General Sales Taxes, Local Sales Taxes, and Proposition 172 Sales Taxes.

Inflation accelerated last year as the U.S. economy recovered from the COVID-19 Pandemic. Prices rose as strong consumer demand—stoked by lower interest rates and government stimulus—collided with constrained supply chains and pandemic-related shortages. Russia's invasion of Ukraine in 2022 further spurred inflation worldwide, hitting food, energy, and other commodity prices.

Actual
Estimated
Year End
Forecast
Surplus/
(Shortfall)
Transient Occupancy Tax $ 3,444,990 $ 3,192,486 $ 3,242,118 $ - $ 3,242,118 $ 1,621,059 $ 1,765,102 54% $ 144,043 $ 3,242,118 $ -

Actual
Estimated
Year End
Forecast
Surplus/
(Shortfall)
Sales and Use Tax 2,215,161 2,146,974 1,959,500 - 1,959,500 979,750 1,105,665 56% 125,915 1,959,500 - City of Fort Bragg
Mid-Year Budget FY 2023/24

Page 5 ends

The ongoing impact of the Federal Reserve's interest rate hikes on the economy remains a topic of concern among many analysts. This rate increases primarily aim to mitigate inflationary pressures by rendering borrowing more costly. The intended consequence is reduced spending by households and businesses, potentially resulting in slower wage growth as employers exercise caution in hiring. The Consumer Price Index, increased by 3.7% in September 2023 from the same month a year ago, pulled down by a drop in gasoline prices that was partially offset by higher food costs. The reading was down from 8.3% in August to 9.1% in June, the highest inflation rate in four decades. The CPI measures what consumers pay for goods and services a closely watched inflation gauge, rose 6% in February from a year earlier, down from a 6.4% gain the prior month, according to the Labor Department. It was the smallest increase since September 2021. Inflation has certainly eased from the 9.1% highs in June last year and is expected to fall to 3.1% by the end of 2023 and end in 2024 at 2.4%, which will impact consumer spending habits, particularly when making large purchases.

Locally, Quarter two results were $1,105,665 (56% of the total budget) in line with Budget projections. Compared to the prior year, Sales Tax was only down 3% but still up 9% compared to Pre-Pandemic, which is optimistic news for the City as this revenue category continues to record gains. All sales tax categories have experienced year-overyear growth, the largest of which includes Food Products, Construction, and transportation. In addition, the County Pool, where most online transactions are captured, has continued to grow. This growth is attributable to the Pandemic's sustained impact of redirecting significant activity to online sales. The recent growth in County Pool receipts has been fueled by online purchases during the Pandemic and is facilitated by the South Dakota vs.

Wayfair, Inc. Supreme Court decision in 2018, which provided states with the authority to require online retailers to collect sales tax even without a local presence in that State. The County Pool revenue is distributed to all cities within Mendocino County based on a distribution formula administered by the CDTFA.  Reimbursements
Reimbursements include the annual COPS grant reimbursements for the City's Community Service officers (CSO) costs ($159k), developer deposit reimbursements ($35k), and cost allocations transfers ($993k), which are considered a cost to the Enterprise funds but revenue to the General Fund. At mid-year, actuals totaled $1.6 million or 47 percent of the budget and are expected to come in over budget by $72k at the end of the fiscal year due to the timing of some of the reimbursements, the newly approved indirect cost reimbursement from eligible grants and the true-up of hours worked by Staff during the fiscal year per the City's Cost Allocation Plan.
 Operating Grant Revenues

Operating Grant revenues are currently at 54% of the budgeted amount at mid-year and are projected to end the year $80,311 below budget. This revenue category primarily consists of staff time reimbursement for administering the City's various grant programs and conducting grant-related activities. A significant portion of the reimbursable time is attributed to the BHJIS Grant for Social Liaison Officers and Community Development Block Grant (CDBG), encompassing activities such as the Code Enforcement Program, Business Loans, Fire Station Rehabilitation design work, water meter replacement project, and general administration.

The variance in revenue can primarily be attributed to the timing of reimbursements for certain CDBG Grants and other grants. These unspent grant funds will be carried over and utilized in the next fiscal year. It is

Actual
Estimated
Year End
Forecast
Surplus/
(Shortfall)
Reimbursements 3,333,187 3,764,941 3,380,722 - 3,380,722 1,690,361 1,602,363 47% (87,998) 3,452,339 71,617

Actual
Estimated
Year End
Forecast
Surplus/
(Shortfall)
Operating Grant Revenue 133,985 571,569 647,262 81,900 729,162 364,581 394,060 54% 29,479 648,851 (80,311) City of Fort Bragg
Mid- Year Budget FY 2023/24

Page 6 ends

noteworthy that the code enforcement department was transferred to the Police Department in the previous year. Currently, the program employs two code enforcement officers, with the program scheduled to conclude in March 2024.
 Other taxes
Franchise Fees are collected in the Cable Television, Solid Waste, and PG&E Electric. Through December, Franchise Fee receipts of $420k, in line with the mid-term budget and consistent with the prior year's collection level. As further discussed below, Electric and Gas Franchise Fees collected through December are formuladriven advance amounts, with the true-up occurring in April 2023. Based on historical collection trends, it is currently anticipated that overall Franchise Fees will meet or exceed budgeted levels by year-end. Revenues from Cable television franchise fees have slowly declined as more customers move to satellite and internetbased services.

Additionally, the Business License Tax collected was also down by $18k, which is consistent with the prior year as most Tax is collected during business license renewal season in February and March of each year.

STATUS OF GENERAL FUND EXPENDITURES
General Fund expenditures totaled $6.7 million for the first half of FY 2023/24, representing 57 percent of the amended annual budget. Appropriations of $11.5 million were adopted. Throughout the year, budgeted appropriations have increased by $363k resulting in an amended budget of $11.9 million. The following chart displays the year-to-date expenditures compared to the prior years.

Some of the notable variances in expenditures include:

Actual
Estimated
Year End
Forecast
Surplus/
(Shortfall)
Other Taxes 851,622 953,026 903,985 - 903,985 451,993 420,754 47% (31,238) 903,985 -

DEPARTMENT
Audited
FY 2021/22
Actuals
Audited
FY 2022/23
Actuals
Adopted
Budget
Approved Net
Budget
Amendments
Amended
Budget
Pro Rated
Budget as of
12/31/2023
YTD Actual
12/31/2023
Mid-Year
Variance %
Variance
Budget vs.

Actual
Estimated
Year End
Forecast
Surplus/
(Shortfall)

GENERAL
City Council $ 214,276 $ 224,220 $ 185,314 $ - $ 185,314 $ 92,657 $ 125,222 68% $ 32,566 $ 183,987 1,327 Administrative Services 1,225,232 1,066,104 1,037,505 49,654 1,087,159 543,580 516,580 48% (27,000) 1,078,732 8,427 Marketing & Promotions 226,875 210,230 240,650 11,808 252,458 126,229 103,647 41% (22,581) 252,458 - Finance 536,978 551,250 635,770 2,000 637,770 318,885 335,076 53% 16,192 542,703 95,067 Non-Departmental 985,342 967,992 1,138,196 3,338 1,141,534 570,767 888,306 78% 317,539 1,136,513 5,020 Community Contributions 97,297 70,231 147,588 27,369 174,957 87,479 135,183 77% 47,704 174,957 - DEBT SERVICE 547,580 3,793,587 556,303 - 556,303 278,151 124,770 22% (153,382) 555,971 331 COMMUNITY DEVELOPMENT 365,418 420,928 443,898 6,897 450,795 225,397 291,873 65% 66,476 429,844 20,950

PUBLIC SAFETY
Police Department 3,891,473 3,485,290 4,169,509 3,377 4,172,886 2,086,443 1,964,812 47% (121,631) 4,040,908 131,978 Social Services - 134,556 313,862 78,000 391,862 195,931 195,818 50% (113) 387,755 4,107 Fire Department 434,423 430,755 453,708 - 453,708 226,854 339,658 75% 112,804 449,099 4,609

PUBLIC WORKS
Administration & Engineering 679,782 684,218 934,012 156,395 1,090,407 545,204 399,281 37% (145,922) 962,676 127,732 Parks and Facilities 36,479 50,505 40,000 - 40,000 20,000 21,154 53% 1,154 40,000 - Street Maintenance 124,497 119,863 142,000 23,878 165,878 82,939 51,113 31% (31,826) 165,878 - Storm Drains 12,681 13,415 25,500 - 25,500 12,750 7,539 30% (5,211) 24,067 1,433 Corporation Yard 494,217 481,227 380,483 - 380,483 190,241 248,407 65% 58,166 449,345 (68,862) Traffic and Safety 24,873 84,488 39,500 1,078 40,578 20,289 10,579 26% (9,710) 40,578 - COST ALLOCATION 789,396 1,222,680 656,999 - 656,999 328,499 985,498 150% 656,999 656,999 - TOTAL GENERAL FUND EXPENDITURES $10,686,818 $14,011,539 $11,540,795 $ 363,793 $ 11,904,589 $ 5,952,294 $ 6,744,518 57% $ 792,223 $11,572,470 $ 332,118

GENERAL FUND EXPENDITURES
City of Fort Bragg
Mid-Year Budget FY 2023/24

Page 7 ends

 The Finance department is projected to end the year at $95,067 under budget primarily due to salary savings from the vacant Finance Director position vacated in January 2024, and the Accountant position vacant from December 2023. As of mid-year, the department budget is $335k, or 53 percent of the amended budget.
 The Non-Departmental category records expenditures not associated with a specific department of the City. These include Retiree Medical costs, Insurance costs, Utilities, and OPEB funding, to name a few.

Year-to-date actuals are at 78% of the annual budget and are projected to end the fiscal year with a positive variance of $6,020. The costs of REMIF liability and property premium payments paid in the first quarter were much lower than anticipated. Conversely, utility costs increased by 10%, and retiree medical were up by 3% from the adopted budget.

Additionally, a budget of $150k has been set aside to be contributed to Section 115 to accumulate and invest funds to smooth the impacts of future pension cost increases. A total of $1.6 million has been invested into the trust.
 The second half of the fiscal year will see the payment of $442,513 for the 2021 Lease Revenue Bond and $113,790 for Caspar Landfill closure costs. It's worth noting that the return of the $3.5 million Debt2021 Lease revenue bonds in August 2022 significantly reduced the City's debt from $11.4 million to $7.9 million, thereby reducing future annual debt payments.
 The Police Department has been actively addressing vacancies in both sworn and community service officer positions. During Quarter Two, the department successfully filled a vacant sergeant position, two officer positions, and one community service officer position. Looking ahead, plans are in place to send another recruit to the academy in the fourth quarter of the fiscal year. Due to these vacancies, the Department is projected to finish the fiscal year under budget by $151,978, offset by increases in the department's overtime and comp time budget. A budget amendment is requested to use the salary savings to offset the increases in overtime/comp costs.

Included in the police department is Project Right Now of $345,000 grant from the Youth Opioid Resistance Fund, allocated for a full-time position and a success coach. This grant, received in the last quarter of the prior fiscal year, is set to expire in the upcoming quarter. Furthermore, the Care Response unit, which falls under the public safety department, is another grant-funded program. The program received funding through 2025 via an expansion of the California Department of Health Care Services (DHCS) grant acquired in 2022. Notably, the Care Response unit has proven successful in delivering services and resources to address homelessness and mental health issues in the community, directly assisting over 300 community members in 2023.

The Code Enforcement Program, bolstered by $418,457 in Community Development Block Grants (CDBG), sustains two code enforcement grant officer positions. However, this funding is slated to conclude in the third quarter. The City is currently assessing if there is an alternative funding option for the program's continuity and will present a recommendation to the City Council accordingly. General fund salary savings will fund the program through the end of the fiscal year.  At mid-year, the Community Development Department has utilized 65% of the amended budget due to professional services overages and anticipates ending the fiscal year under budget by $21k. This is attributed to personnel cost savings resulting from the vacancy in the Director position. Plans are underway to commence recruitment for a full-time Community Development Director or a Senior Planner in the fourth quarter of the fiscal year. In the interim, the department has extended the contract of Marie Jones Consulting to fulfill planning obligations.

City of Fort Bragg
Mid- Year Budget FY 2023/24

Page 8 ends

 The Public Works department made operational changes by replacing the Project Analyst position with an Administrative position. This adjustment resulted in annual savings of approximately $30,000, which were reallocated to support the addition of a full-time Engineering Technician, increasing the department's full-time equivalents (FTEs) to eight. Furthermore, the special projects manager position was transferred to the public works department in the previous fiscal year. The projected budget surplus is $117,732, primarily attributed to a budget amendment during the fiscal year of $78k to add the two new positionscharging out employee salaries allocation to the enterprise department for the engineering technician.

Despite this surplus, the department's workload has remained busy, particularly with the $70 million water projects scheduled for the next three years.
 The Corporation yard department is made up of eight employees. A mid-year budget request for $20,000 to accommodate the addition of a Full-time Equivalent (FTE) Maintenance Worker. With an annual cost of $74,000, this position will be instrumental in addressing the City’s many backlog maintenance tasks, including parks, street signs, curb painting (10ft to 20ft), guest house museum, and other storm drain activities. The estimated year-end variance is attributed to the allocation of Maintenance work time which should be charged to the enterprise. This will be addressed during the Q3.

GENERAL FUND NET RESULT AND FUND BALANCE
With projected revenues totaling $11.7 million and total expenditures at $11.5 million, the General Fund is expected to conclude FY 2024 with a surplus of $163,952. This surplus will bolster the General Fund's balance to $2.8 million, representing a 1% increase compared to the previous year. It's worth noting that although the projected surplus is modest, expenditures, particularly personnel costs, have reverted to pre-COVID levels.

Additionally, additional staff has been hired across all departments including filling Director positions except for the Community Development and Finance Department, which is slated to be filled soon.

Moving forward into the next fiscal year, there will be increased pressure on the top tax revenue categories, specifically Transient Occupancy Tax and Sales Tax, to accommodate General Fund costs, particularly personnel expenses.

In the prior fiscal year, an initial investment of $1.6 million was deposited into the Section 115 trust with PARS.

While this investment decreased the General Fund reserves, there is an additional budget allocated for the Section 115 Trust.

Committed Reserves
Operating Reserves 2,095,784
Recession Reserves 547,759
Litigation Reserves 200,000
$2,843,543
FY 2023-24
Budget
FY 2023-24
Projected
Beginning Reserves $ 2,695,591 $ 2,695,591
Revenues 11,624,780 11,720,423
Expenditures (11,540,795) (11,572,470)
Net Transfers - -
Surplus/(Deficit) $ 83,985 $ 147,952
Ending Committed Reserves $ 2,779,576 $ 2,843,543
Committed Reserves as a %
of Operating 24% 25%

Special City CouncilMarch 20, 2024

Special City Council
March 20, 2024