Agenda Report
Fullerton City Council
MEETING DATE: JUNE 7, 2022
TO: CITY COUNCIL / SUCCESSOR AGENCY
FROM: ERIC J. LEVITT, CITY MANAGER
PREPARED BY: ELLIS CHANG, DIRECTOR OF ADMINISTRATIVE SERVICES
STEVEN AVALOS, BUDGET AND PURCHASING MANAGER
CINNDY BARRIOS, BUDGET ANALYST II
SUBJECT: ANNUAL OPERATING BUDGET, SCHEDULE OF FEES AND CHARGES AND ANNUAL APPROPRIATIONS LIMIT FOR FISCAL YEAR 2022-23
SUMMARY
A public hearing to consider adoption of the City of Fullerton’s Annual Operating Budget for Fiscal Year (FY) 2022-23, including the General Fund, the Capital Improvement Program and all other City Funds; approval of the City’s Schedule of Fees and Charges and Annual Appropriations Limit for FY 2022-23.
RECOMMENDATION
Adopt the following resolutions:
RESOLUTION 2022-XXX – A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF FULLERTON, CALIFORNIA, APPROVING AND ADOPTING THE PROPOSED OPERATING BUDGET FOR FISCAL YEAR 2022-23 AND APPROPRIATING THE FUNDS NECESSARY TO MEET THE EXPENDITURES SET FORTH THEREIN RESOLUTION 2022-XXX – A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF FULLERTON, CALIFORNIA, ADOPTING THE ANNUAL APPROPRIATIONS LIMIT FOR FISCAL YEAR 2022-23 PURSUANT TO ARTICLE XIII B OF THE CALIFORNIA STATE CONSTITUTION RESOLUTION 2022-XXX – A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF FULLERTON, CALIFORNIA, AMENDING OR ESTABLISHING NEW FEES AND CHARGES FOR MUNICIPAL SERVICES FOR FISCAL YEAR 2022-23 AND REPEALING RESOLUTION NO. 2021-36
BUDGET POLICY PRIORITY STATEMENT
This item matches the following Budget Policy Priority Statement:
Fiscal and Organizational Stability.
FISCAL IMPACT
The Proposed FY 2022-23 Citywide Budget for all City Funds, including the General Fund, Enterprise Funds, Special Revenue Funds and the Capital Improvement Program for FY 2022-23 will total $248,821,980 in citywide expenditures, supported by $243,564,280 in citywide revenues. Available fund balances and transfers will support the $5,257,700 operating shortfall.
The Proposed FY 2022-23 General Fund Budget will total $114,318,468 in operating expenditures and $1,490,085 in transfers out for a total General Fund Budget of $115,808,553. Staff proposes balancing the FY 2022-23 Proposed Budget with $113,624,927 in operating revenues and $3,137,045 of transfers in, which includes the use of ARPA revenue replacement funds, for a total General Fund revenue budget of $116,761,972.
After factoring in the net transfers ins and outs, the General Fund is balanced and budgeted to maintain a 17% contingency reserve level for FY 2022-23.
DISCUSSION
Introduction
Staff first presented the preliminary Proposed FY 2022-23 Operating Budget to City Council at a Budget Study Session on April 26, 2022, with a primary focus on the General Fund as it is the City’s chief operating fund that supports traditional municipal services, and the City’s Capital Improvement Program (CIP) for FY 2022-23. Staff provided an overview of the major budget highlights for FY 2022-23 at the budget study session, including City Council’s identified top priorities of Public Safety, Infrastructure and Economic Development and highlighted the department work plans for FY 2022-23. In addition, staff presented key revenue and expenditure assumptions and provided a projected initial outlook of the Proposed General Fund Budget’s year-end position to end FY 2022-23.
The budget study session enabled City Council to provide input on the Proposed FY 2022-23 General Fund Budget and CIP in advance of budget adoption. Staff has submitted the FY 2022-23 Operating Budget for all City Funds, which includes the General Fund, all enterprise and special revenue funds and the CIP budgets for consideration for adoption at the June 7, 2022 public hearing. Staff will also present the annual resolution adopting the City’s Schedule of Fees and Charges and the required Annual Appropriations Limit (GANN Limit) for FY 2022-23 for approval at the budget adoption meeting.
The Proposed Budget reflects a combination of the preliminary Proposed Budget discussed in April 2022, reflecting all elements from the study session. Staff is looking at the feasibility of a TOT ballot measure as well as reflecting the emphasis City Council has on the infrastructure component of the budget.
The Proposed FY 2022-23 Budget Adoption Report provides a high-level overview of the Citywide All Funds Budget for FY 2022-23, with emphasis on the Proposed FY 2022-23 General Fund Budget, the City’s primary operating fund that supports traditional municipal services, such as public safety, community and economic development, landscape and maintenance services, parks and recreation and library programming, to name a few.
All City Funds
The Proposed Citywide FY 2022-23 All Funds’ Budget totals $248.8 million in expenditures, supported by $243.6 million in citywide revenues and $5.2 million in available fund balances. The Proposed All Funds budget includes the General Fund, Enterprise Funds such as Water and Sewer funds, Special Revenue Funds such as Gas Tax and Measure M transportation funds, Capital Improvement Program (CIP) and Successor Agency. The following Tables 1 and 2 present an overview of the City’s All Funds Budget.
Table 1 – All City Funds FY 2022-23 Expenditure Budget
All Funds Budget
by Fund or Fund Type
FY 22-23
Proposed Budget
General Funds
114,318,468
Special Revenue Funds
34,486,487
Water Fund (excluding water capital projects)
36,301,025
Other Enterprise Funds
9,424,122
CIP Budget
44,572,340
Successor Agency
9,719,538
Total All Funds Budget
$248,821,980
Table 2 – All City Funds FY 2022-23 Budget Overview
All City Funds Overview
FY 22-23
Proposed Budget
All Funds Revenues
243,564,280
All Funds Expenditures
248,821,980
All Funds Surplus / (Deficit)
($5,257,700)
The All City Funds’ Budget is balanced for FY 2022-23, supported by ongoing revenues, available fund balance and transfers in each respective fund. The ‘Schedule of Changes to Fund Balances’ lists all specific City funds’ budgets, included in Attachment 3 of the FY 2022-23 Proposed Budget Book, Fund Balance section.
General Fund (including Parks and Recreation and Library) The Proposed FY 2022-23 General Fund Budget totals $114.3 million in operating expenditures and $1.5 million in transfers out for a total General Fund Budget of $115.8 million. The Proposed FY 2022-23 General Fund Budget is balanced with $113.6 million in operating revenues and $3.1 million of transfers in, which include application of $2.6 million of ARPA Revenue Replacement for stabilization of government operations and a one-time transfer in from the Brea Dam Fund to repay a prior-year General Fund subsidy.
The following outlines the underlying revenue and expenditure assumptions and budget highlights for the Proposed FY 2022-23 General Fund Budget.
Revenues
Staff projects FY 2022-23 General Fund operating revenues (excluding transfers in) to total $113.6 million, which reflects an increase of $7.6 million (or 7.2%) from FY 2021-22 adjusted revenues of $106 million. A stronger than anticipated economic recovery from the COVID-19 pandemic, continued property tax growth and anticipated return to full operating levels in the City’s programming and charges for services drive this positive growth.
Property Tax. Staff projects Property Tax, the City’s largest General Fund revenue, to total $52.2 million in FY 2022-23, 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. The City’s diverse and stable property base continues to pace consistent revenue growth due to strong assessed property valuations in Fullerton. In addition, the City benefits from increased residual RDA property tax revenues in recent years.
Sales Tax. Staff projects Sales Tax, the second largest General Fund revenue, to total $29.4 million and reflects an increase of $1.9 million (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 pandemic year actuals of $24.6 million.
The quicker than anticipated economic recovery from the pandemic as well as higher inflation rates have primarily driven the City’s strong sales tax recovery. 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.
Transient Occupancy Tax (TOT). The pandemic negatively impacted TOT which provides another major revenue source for the City. Staff projects FY 2022-23 TOT to total $3.2 million and reflects an increase of $1.0 million from FY 2021-22 projected revenues and represents a conservative return to approximately 85% to 87% of pre-COVID TOT revenue levels in FY 2022-23. Staff projects the new Short-Term Rental (STR) program to generate approximately $400,000 in TOT revenue in FY 2022-23.
Charges for Services (Program Revenue) and Fines and Penalties. Staff restored budgeted Charges for Services (Program Revenue) and Fines and Penalties, which include Parks and Recreation and Library fees, to pre-COVID levels as the City anticipates programming, rental facilities and enforcement citation services to return to full operation in FY 2022-23.
Staff projected an additional $400,000 in revenues as a result of Community and Economic Development fee increases approved in FY 2021-22 to support cost recovery, as well as an additional $150,000 of new electronic billboard lease revenue for FY 2022-23.
Expenditures
Staff projects 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. The Proposed FY 2022-23 General Fund Budget includes the $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 and carries forward the additional 2.5% budget reductions approved by City Council in FY 2021-22, resulting in an additional 17 FTE positions held unfunded in FY 2022-23.
The following provides an overview of the major General Fund expenditure changes over prior year:
Standalone Fire Department with Unified Command ($1.1 million) – The Proposed FY 2022-23 General Fund Budget includes a standalone, “unified” fire command structure, as the Fullerton-Brea “shared command” structure will end in FY 2021-22. This includes the addition of four Fire Command positions: one Fire Chief, two Battalion Chiefs and one Emergency Medical Services Manager. The budget restores four unfunded Firefighter positions (previously identified in the 2.5% additional budget reductions enacted in FY 2021-22) to support fire and paramedic service levels in the Proposed FY 2022-23 General Fund Budget. The resulting net impact to the General Fund totals $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. 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 largely account for this increase.
Negotiated Labor Impacts ($1.5 million) – In FY 2021-22, the City completed labor negotiations and entered into 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 a new agreement with the Chief of Police. The resulting net impact to the General Fund totals $1.5 million.
With implementation of the Cost Allocation Plan (CAP) in FY 2022-23, the net impact to the General Fund is a net positive of $700,000 recovery to the General Fund.
Other budget additions and changes in FY 2022-23 tie to City Council’s identified priorities and department workplans and initiatives. These include funding for park safety services (trails maintenance), Downtown Fullerton trash improvements (economic development) and other revenue-generating services. This also includes new positions added to support City Council priorities (i.e., revenue-generating positions) and improving service delivery and efficiencies.
Lastly, the Proposed FY 2022-23 Budget includes standard maintenance-of-effort increases, which includes operating cost escalations, annual step and/or merit adjustments and annual CalPERS related increases.
FY 2022-23 General Fund Financial Projection
The following table outlines the preliminary FY 2022-23 Financial Projection for the General Fund.
Table 3 – FY 2022-23 General Fund Financial Projection (incl. Parks and Rec and Library) When looking at projected operating revenues of $113.6 million against proposed expenditures of $114.3 million, staff anticipates the General Fund to initially have an operating deficit of $700,000 for FY 2022-23. The budget will balance this operating deficit with approximately $2.6 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 funds as necessary to balance the General Fund budget and stabilize government finances.
Lastly, the General Fund will maintain contingency reserves at 17% of operating expenditures to end FY 2022-23.
Capital Improvement Program (CIP)
City Council identified infrastructure as one of its top three priorities. The Proposed CIP Budget totals $44.6 million to support the FY 2022-23 capital projects plan. The following table outlines the City’s planned capital infrastructure funding level for: Street Rehabilitation, Utility Infrastructure, Traffic Systems Infrastructure and other facility and park infrastructure improvements.
Table 4 – FY 2022-23 CIP Projects by Category
CIP Budget by Category
Amount
Streets and Roads
$12.0 M
Utility Infrastructure (includes Water, Sewer and Storm Drains) $23.2 M
Traffic Systems Infrastructure
$2.9 M
Airport Infrastructure
$0.3 M
Facility and Park Infrastructure
$6.2 M
FY 2022-23 CIP Budget Total
$44.6 M
The application of $7.5 million of ARPA funds enhances the Proposed CIP Budget for FY 2022-23, which provide $5.5 million for street rehabilitation and $2 million for water main replacements in FY 2022-23. Further, City Council obligated $13.1 million of ARPA funds for street rehabilitation in FY 2021-22, which staff will budget and program in the CIP over the next few years.
The Proposed CIP Budget also includes application of Infrastructure Fund monies transferred from the General Fund to support ADA improvements. In addition, the CIP is supported by Gas Tax funds and Measure M2 in transportation funding for street rehabilitation, $19.6 million in water and sewer funds for utility improvements and regular investment from other special revenue funds. $6.1 million in grant funds and other local and developer public-private partnerships also support the CIP program.
Appropriations Limit
The Annual Appropriations Limit, also known as the GANN Limit, is a maximum spending amount for tax proceeds (i.e., property and sales tax) placed on cities in California. California Government Code requires cities to annually adjust the annual appropriations limit for changes in population and consumer price index as provided by the State and can utilize change in population of the County or City, whichever is greater, as its growth factor. Cities must remain under the annual appropriations limit.
For FY 2022-23, staff utilized the City’s growth factor and set the City’s Appropriations Limit amount at $252,688,683. The appropriations amount subject to the limitation totals $88,000,132, in which the City is $164,688,551 under the limit. Attachment 4 contains the GANN Limit calculation and the authorizing resolution.
Schedule of Fees and Charges
Staff also presents a resolution for the City’s Annual Schedule of Fees and Charges for FY 2022-23 for adoption. The Schedule proposes no new fees for FY 2022-23. The Schedule of Fees and Charges includes administrative fee changes in Library and Parks and Recreation fees and incorporates the adjustments to development user fees approved by City Council in FY 2021-22. The redlined Proposed Schedule of Fees and Charges changes for FY 2022-23 and the resolution to adopt the Schedule of Fees and Charge for FY 2022-23 are presented in Attachments 5 and 6, respectively.
Next Steps
Following City Council adoption of the FY 2022-23 Operating Budget, staff will complete the final budget book document in June or July 2022 and effectuate all funds-departments’ budgets into the City’s financial system at start of the fiscal year. The City will continue to exercise fiscal due diligence throughout the new fiscal year and monitor budgets and revenues through its quarterly financial reports in FY 2022-23.
Attachments:
Attachment 1 – Presentation
Attachment 2 – Resolution No. 2022-XXX Operating Budget for FY 2022-23 Attachment 3 – Resolution No. 2022-XXX Annual Appropriations Limit Attachment 4 – Resolution No. 2022-XXX Schedule of Fees and Charges Attachment 5 – Proposed Schedule of Fees and Charges for FY 2022-23 Redline FY 2022-23 Annual Operating Budget
June 7, 2022 - Page 7