Agenda Report
Fullerton City Council
MEETING DATE: APRIL 26, 2022
TO: CITY COUNCIL / SUCCESSOR AGENCY
FROM: JEFFREY W. COLLIER, ACTING CITY MANAGER
PREPARED BY: ELLIS CHANG, DIRECTOR OF ADMINISTRATIVE SERVICES
STEVEN AVALOS, BUDGET AND PURCHASING MANAGER
CINNDY BARRIOS, BUDGET ANALYST II
SUBJECT: FISCAL YEAR 2022-23 BUDGET STUDY SESSION
SUMMARY
Preliminary Fiscal Year (FY) 2022-23 Proposed General Fund Budget and Capital Infrastructure Projects Plan for City Council review and direction. City Council will consider All City Funds Proposed FY 2022-23 Budget, including General Fund, Water and Sewer Enterprise Funds and Capital Improvement Plan, with all other funds, on June 7, 2022.
RECOMMENDATION
Provide direction on the FY 2022-23 Proposed General Fund Budget and preliminary Capital Infrastructure Projects Plan.
Receive and file.
BUDGET POLICY PRIORITY STATEMENT
This item matches the following Budget Policy Priority Statement:
Fiscal and Organizational Stability.
FISCAL IMPACT
No fiscal impact associated with the Budget Study Session and preliminary review of the FY 2022-23 Proposed General Fund Budget and Capital Projects Plan. Staff will incorporate City Council direction and communicate any resulting fiscal impacts via a subsequent meeting at the request of City Council or at budget adoption tentatively scheduled for June 7, 2022.
DISCUSSION
Introduction
The budget study session provides a preliminary overview of the Proposed General Fund Budget for FY 2022-23. Staff will incorporate City Council direction resulting in fiscal impacts into the FY 2022-23 Proposed General Fund Budget ahead of formal budget adoption. An initial budget study session fosters fiscal transparency and gives Fullerton’s residents, and the general public, an opportunity to preview the FY 2022-23 Proposed General Fund Budget.
The Budget Study Session will provide:
a preliminary review of the FY 2022-23 Proposed Operating Budget for the General Fund (the City’s primary operating fund) outline the General Fund’s underlying budget revenue and expenditure assumptions in development of the proposed budget provide a high-level overview of the City’s planned Infrastructure and Capital Improvements for FY 2022-23.
The Budget Study Session will also highlight new changes implemented for FY 2022-23, including City Council’s Identified Priorities and formalized Department Work Plans, which both serve as the basis for the FY 2022-23 Proposed Budget. Staff will also present a preliminary FY 2022-23 General Fund financial projection incorporating the budget assumptions and changes.
Staff will present the All City Funds Proposed FY 2022-23 Budget, which includes the General Fund, all special revenue, enterprise, internal service, all other funds and the CIP Program at budget adoption in June 2022.
City Council Work Plan Priorities
City Council identified a number of City Council priorities in FY 2021-22, determining Street Infrastructure, Public Safety and Economic Development as the consensus top three priorities. City Council provided direction on several projects and program areas identified as City Council priority projects for consideration and inclusion in the FY 2022-23 budget during its February 15, 2022 meeting.
The City Council priority list identifies a number of ongoing projects, initiatives and programs incorporated in departments’ base budget and respective department work plans. These include an Economic Development Strategic Plan and Arts programming, to name a few. Staff included other City Council priority projects, such as tree trimming services for Park Safety and Downtown trash and space availability study, as budget additions in the FY 2022-23 Proposed Budget.
The FY 2022-23 Citywide All Funds Proposed Budget will include an outline of “Unfunded / Unmet” projects or programs not included in the FY 2022-23 budget as they exceed the City’s current available resources. These unfunded / unmet projects or programs include much needed investment to the City’s infrastructure, including street rehabilitation, traffic system, streetlights, utilities, ADA improvements and other facilities. While the City has ongoing unfunded / unmet needs, City Council has obligated $18.3 million of ARPA funding for infrastructure, which support capital investment in public health related improvements, address initial street rehabilitation improvements, water main replacements and information technology infrastructure needs. These ARPA-funded projects will span over the next few years.
Department Work Plans
The FY 2022-23 budget development process incorporates “formalized” documentation of each department’s work plan . Documentation of each department’s work plan supports service level and operational transparency with respect to staff time and resources needed to support each department’s efforts in providing services to the community. Formalizing department work plans establishes a uniform, working document that will serve as the basis for department budgets for FY 2022-23.
Work plans also identify each department’s objectives and goals for the upcoming fiscal year, classified by priority and function, so the City allocates resources accordingly. Work plans may include day-to-day, core operations and responsibilities (i.e. public safety, maintaining parks), functions required by law (i.e. street sweeping, process payroll) and any department goals or new initiatives for the new fiscal year. Staff will present a high-level summary of all department work plans in the Budget Study Session presentation. Attachment 2 includes all detailed department work plans.
General Fund (including Parks and Recreation and Library) The FY 2022-23 Proposed General Fund Budget includes $114.3 million in operating expenditures and $1.5 million in transfers-out, for a General Fund Budget totaling $115.8 million. Staff projects a balanced FY 2022-23 Proposed General Fund Budget with $113.6 million in operating revenues and $2.5 million of transfers-in. Transfers-in include anticipated application of $2.0 million of ARPA Revenue Replacement for stabilization of government finances and a one-time transfer-in from the Brea Dam Fund to repay the General Fund from a prior-year subsidy.
The following outlines the underlying revenue and expenditure assumptions for the Proposed FY 2022-23 General Fund Budget.
Revenue Assumptions
Staff projects FY 2022-23 General Fund operating revenues (excluding transfers in) to total $113.6 million, which reflects a $7.6 million increase (or 7.2%) from FY 2021-22 adjusted revenues of $106 million. A stronger than anticipated economic recovery from the COVID-19 pandemic drove this positive revenue growth, as evidenced by significant increases in sales tax and transient occupancy tax receipts, continued property tax growth and anticipated return to full operating levels in the City’s programming and charges for services.
Property Tax. Staff projects property tax, the City’s largest General Fund revenue, to total $52.2 million in FY 2022-23, which equals an increase of $1.0 million (or 1.5%) over FY 2021-22 projected revenues, on top of a stable, anticipated 3.0% growth from the FY 2020-21 pandemic year. Although staff estimates a conservative 1.5% property tax growth for FY 2022-23, the City’s property base has proven itself a reliable and stable revenue source due to the strong assessed property valuations in Fullerton. In addition, the City benefits from increased residual RDA property tax revenues in recent years.
The City has several large development projects in the works, such as the Goodman Logistics, Streetlights and The Hub projects, that will contribute to the City’s future property tax base. Following completion of these projects, and with the addition of a property tax consultant, the City’s property tax base will likely increase and staff will include in future forecasts.
Sales Tax. Staff projects sales tax, the second largest General Fund revenue, to total $29.4 million, reflecting a $1.9 million increase (or 7% increase) from FY 2021-22 projected revenues. Anticipated sales tax revenue increases reflect recovery to levels above pre-pandemic projections at a 17% increase from FY 2020-21 actuals of $24.6 million.
Several factors generated the City’s strong sales tax recovery with the quicker than anticipated economic recovery and higher inflation rates at the forefront. Other factors include new sales tax contributors doing business in the City, as well as increased County Pool allocations as the City continues to benefit from the new online sales tax law (“Wayfair” AB 147) enacted by the State in 2019. The City’s sales tax revenues have shown a strong and positive recovery from the pandemic and reach above pre-COVID sales tax growth levels.
Transient Occupancy Tax (TOT). The pandemic negatively impacted TOT revenues, a major revenue source for the City. Staff projects FY 2022-23 TOT to total $3.2 million, reflecting a $1.0 million increase from FY 2021-22 projected revenues. As COVID-19 restrictions continue to diminish, and large local tourist attractions such as Disneyland remain open, the demand for travel has led to a recovery in hotel occupancy. The City anticipates a conservative return to approximately 85% to 87% of pre-COVID TOT revenue levels in FY 2022-23. In addition, the City’s new Short-Term Rental (STR) program, approved in FY 2020-21, applies TOT to short-term rentals in the City with a projected additional $400,000 in TOT revenues in FY 2022-23.
Charges for Services (Program Revenue), Fines and Penalties. Staff budgeted program revenue, fines and penalties, including Parks and Recreation and Library fees, to restore pre-COVID levels as staff anticipates City programming, rental facilities and enforcement citation services become fully operational in FY 2022-23.
Staff projected an additional $400,000 in revenues resulting from Community and Economic Development fee increases approved in FY 2021-22 to support cost recovery and anticipates an additional $150,000 of new electronic billboard lease revenue for FY 2022-23.
As staff reviews fees and recommends for adjustment to more fully recover costs, staff will factor any additional revenue generated to cover cost of these specific services or programs into future revenue projections. City Council will consider Public Works user fee adjustments in May 2022 and staff will factor any approved fee adjustments into projected FY 2022-23 revenue estimates in advance of, or subsequent to, budget adoption in June 2022, as time permits.
Expenditure Assumptions
Staff projected FY 2022-23 General Fund operating expenditures (excluding transfers out) to total $114.3 million, which reflects an increase of $9.5 million (or 9.1%) from FY 2021-22 Adjusted Expenditure budget of $104.8 million. The FY 2022-23 proposed expenditure budget carries forward $3.8 million of identified vacancy savings adopted in FY 2021-22 resulting in approximately 34.5 full-time equivalent (FTE) positions held unfunded in FY 2022-23. The FY 2022-23 proposed expenditure budget also carries forward the additional 2.5% budget reductions approved by the City Council in FY 2021-22 resulting in an additional 17 FTE positions to hold unfunded in FY 2022-23.
The $9.5 million increase in projected FY 2022-23 expenditures over the prior year results from the following three areas necessary to support continued service levels and ongoing government operations:
Standalone Fire Department with Unified Command ($1.1 million) – With the termination of the Fullerton-Brea “Shared Command” structure on June 20, 2022, the FY 2022-23 proposed budget includes the addition of four critical fire command positions:
One Fire Chief
Two Battalion Chiefs
One Emergency Medical Services Manager.
To support fire and paramedic service levels, the City has restored the four Firefighter positions held unfunded as part of the 2.5% additional budget reductions enacted in FY 2021-22 in the FY 2022-23 proposed budget. The net impact from the termination of the shared command agreement and reinstating funding for the four Firefighter positions equals $1.1 million.
Liability Insurance Increase ($2.5 million) – The City’s Liability Insurance Fund will increase by $4.7 million citywide in FY 2022-23, with $2.5 million of this increase attributed to the General Fund, largely due to significant increases to the City’s insurance premiums, compounded by the recent increase of the City’s Self-Insured Retention (SIR) coverage level from $2 million to $4 million, as the City administers a self-insured liability program.
Negotiated Labor Impacts ($1.5 million) – The City recently completed labor negotiations and entered agreements with Fullerton Fire Management Association (FFMA), Fullerton Firefighters Association (FFA), Fullerton Management Association (FMA), Fullerton Municipal Employee Federation (FMEF), Confidential / Non-Represented and Executive groups and an amendment to the employment agreement with the Chief of Police in FY 2021-22. As a result, the General Fund budget will increase by $1.5 million in negotiated salary and benefit costs in FY 2022-23.
The remaining General Fund increase of $4.4 million attributes to the following:
Of the $4.4 million, only $3.6 million attributes to actual anticipated expenditure increases as $800,000 results from grossing-up expenditures and corresponding revenues from implementation of the new Cost Allocation Plan in FY 2022-23.
Cost Allocation Plan ($800,000) – The FY 2022-23 budget includes an $800,000 budgetary adjustment to implement the new Cost Allocation Plan (CAP) completed in FY 2021-22. The CAP allows the General Fund to recover indirect administrative costs incurred by central services staff (i.e., human resources, finance and administration) in support of all departments and funds. While the CAP will shift administrative salaries (previously charged to other funds) back to the General Fund, the net recovery back to the General Fund equals a net positive of $700,000.
Budget Additions or Changes ($600,000) – The budget additions and changes to the FY 2022-23 General Fund budget largely tie to City Council’s identified priorities and initiatives identified in the department work plans (Attachment 3). Of the $600,000 budget increase, $375,000 relates to professional and contract services, which include funding for park safety services (trails maintenance), Downtown Fullerton trash improvements (economic development) as well as other revenue-generating services.
Personnel changes account for a $79,000 net increase to the General Fund, which includes the addition of new positions to support City Council priorities (i.e., revenue-generating positions) and improving service delivery and efficiencies. Reallocating staff salaries to ARPA Administrative Allowance to support the required grant management and reporting, as well as temporary vacancy savings yielded from the time needed to recruit and onboard which will extend into FY 2022-23, partially offsets these personnel changes.
Other operating costs of $130,000 include security services, as well as other miscellaneous adjustments, such as restoring department training budgets.
Maintenance-of-Effort (MOE) Related Increases ($2.6 million) – Typically, the City’s annual budget development process, anticipates operating cost escalations and departments strive to cap escalations at 2.5%. This $2.6 million increase includes contractual increases for current City agreements and contracts, good and services’ cost of business increases up to 2.5% cap, additional internal service cost allocation increases (i.e., information technology and vehicle replacement allocations), annual step or merit adjustments and CalPERS retirement related increases.
Preliminary FY 2022-23 General Fund Financial Projection The following outlines the preliminary FY 2022-23 Financial Projection for the General Fund, based on the underlying operating revenue and expenditure assumptions for FY 2022-23:
When looking at operating revenues of $113.6 million against projected expenditures of $114.3 million, the General Fund anticipates an operating deficit of $700,000 for FY 2022-23. Staff will balance this operating deficit with ~$2 million of ARPA Revenue Replacement and one-time Brea Dam Fund repayment of $0.3 million to the General Fund. Staff will apply ARPA Revenue Replacement as necessary to balance the General Fund budget to stabilize government finances.
In addition, the General Fund will maintain contingency reserves at 17% of operating expenditures to end FY 2022-23.
Proposed Infrastructure and Capital Projects for FY 2022-23 In addition to public safety, economic development and the several City Council priority projects identified at the February 15, 2022 meeting, City Council identified infrastructure as one of the top three City Council priorities. The following outlines the City’s planned capital infrastructure funding levels for: Street Rehabilitation, Utility (Water, Sewer and Storm Drain Repairs and Replacements), Traffic Systems and other facility infrastructure improvements.
Street Rehabilitation - $11.8 Million
Street Rehabilitation capital improvements planned for FY 2022-23 will total $11.8 million, which includes the use of $5.5 million of the total $13.1 million obligated ARPA funding classified under the Revenue Replacement category in accordance with US Treasury guidelines. The following shows the funding sources:
Funding Source
Amount
ARPA
$5.5 M
SB1 / RMRA Fund
$3.2 M
Measure M2
$1.5 M
Grant Fund
$0.8 M
Infrastructure Fund
$0.5 M
Other
$0.3 M
Streets and Roads Total
$11.8 M
Significant Projects planned for FY 2022-23 include:
Orangethorpe Avenue – State College Boulevard to Placentia Avenue Associated Road – Yorba Linda Boulevard to Bastanchury Road Associated Road – Rolling Hills Drive to Imperial Highway Brookhurst Road at SR-91 Interchange.
Utility Infrastructure (includes Water, Sewer and Storm Drains) - $23.2 Million Water infrastructure capital improvements (water mains, PFAS treatment, system upgrades and repairs, etc.) planned for FY 2022-23 will total $19.9 million, which includes the use of $2.0 million of obligated ARPA funding under the Water Infrastructure category. Other utility improvements for sewer systems and storm drainage systems will total $3.3 million. Staff will submit an additional request for $5.9 million of ARPA for water mains to City Council in May 2022. As the City has $1.0 million of ARPA to obligate, in May, staff will request obligating the remaining $1.0 million for water main replacement and reallocate $4.9 million from the $9.6 million of ARPA obligated to stabilize government operations. The following shows the proposed funding sources:
Funding Source
Amount
Water Fund
$17.9 M
ARPA
$2.0 M
Sewer Fund
$1.7 M
Drainage Cap. Outlay
$1.5 M
Grant Fund
$0.1 M
Utilities Total
$23.2 M
Add’l ARPA (to be requested)
$5.9 M
Utilities w/ Add’l ARPA Total
$29.1 M
Significant Projects planned for FY 2022-23 include:
Water Main Replacement – Associated Road - Rolling Hills Drive to Imperial Highway Water Main Replacement – Associated Road - Yorba Linda Boulevard to Bastanchury Road Sewer Main Improvements – Barris-Fern Residential Area.
Traffic Systems Infrastructure - $2.9 million
Traffic system infrastructure capital improvements such as new traffic signals, equipment replacement and upgrades and neighborhood traffic management planned for FY 2022-23 will total $0.9 million. Traffic Signal Synchronization projects will total $2.0 million. The following shows funding sources:
Funding Source
Amount
Measure M2 Grants
$1.6 M
Gas Tax
$0.6 M
Measure M2
$0.6 M
Traffic Mitigation Fees
$0.1 M
Traffic Systems Total
$2.9 M
Significant Projects planned for FY 2022-23 include:
Euclid Street Traffic Signal Synchronization
Yorba Linda Boulevard Traffic Signal Synchronization.
Facility and Park Infrastructure - $5.7 million
Facility Infrastructure improvements planned for FY 2022-23 will total $3.7 million. Park site improvements will total $2.0 million. The following shows funding sources:
Funding Source
Amount
Grant Funding
$3.0 M
Park Dwelling
$1.2 M
Facility Capital Funds
$0.5 M
Infrastructure Fund
$0.5 M
Brea Dam Fund
$0.5 M
Facility and Park Total
$5.7 M
Significant Projects planned for FY 2022-23 include:
Fullerton Transportation Center Accessibility Improvements Gilbert Park Repairs and Accessibility Improvements
Park Playground Equipment Replacement
Hunt Library Renovation.
While investment in the City’s infrastructure totals much higher and significantly above these funding levels for FY 2022-23, the use of ARPA towards its Streets and Water infrastructure will assist in addressing the City’s immediate and major arterial and water main replacements for the present time. The City should consider investment of resources and new revenue generating opportunities in the near term to address the City’s larger, unfunded and unmet capital investment needs.
Next Steps
As presented in the FY 2022-23 Budget Study Session, staff projects a balanced General Fund while maintaining 17% contingency reserves. Staff anticipates presenting the FY 2022-23 All Funds Budget including General Fund, all other funds and the Capital Improvement Program (CIP) for formal adoption the June 7, 2022 City Council meeting. Staff will also request City Council adopt the annual Appropriations Limit and Fee Schedule resolutions at that meeting.
Attachments:
Attachment 1 – Department Work Plans
Attachment 2 – Summary of Budget Additions / Changes
FY 2022-23 Budget Study Session
April 26, 2022 - Page 10