Agenda Report
Fullerton City Council
MEETING DATE: JANUARY 17, 2023
TO: CITY COUNCIL / SUCCESSOR AGENCY
SUBMITTED BY: Ellis chang, director of administrative services PREPARED BY: STEVEN AVALOS, BUDGET AND PURCHASING MANAGER
CINNDY BARRIOS, BUDGET ANALYST II
SUBJECT: FISCAL YEAR 2023-24 BUDGET PROCESS OVERVIEW
SUMMARY
An overview of the City’s Fiscal Year (FY) 2023-24 Budget Development Process (Budget Process). This agenda report outlines the underlying principles guiding budget development for the new fiscal year, including City Council priorities, budget policies and methodology as well as new budget development initiatives for FY 2023-24.
RECOMMENDATION
Receive and file FY 2023-24 Budget Process Overview report.
CITY MANAGER REMARKS
This represents an overview of the process for FY 2023-24 Budget.
PRIORITY POLICY STATEMENT
This item matches the following Priority Policy Statement:
Fiscal and Organizational Stability
FISCAL IMPACT
The information provided in this report provides an overview of established guiding budget principles and financial parameters that facilitate budget development and the FY 2023-24 Proposed Budget that staff will present in April 2023.
DISCUSSION
The FY 2023-24 Budget Process officially began with a Citywide Budget Kickoff Meeting on December 20, 2022. The City operates on a fiscal year basis, from July 1st to June 30th of every year, and per its financial policies, the City must adopt its operating budget annually before July 1st. The Administrative Services Department administers the Budget Process with oversight and leadership from the City Manager’s Office, ensuring that the Budget incorporates City Council input and priorities in each year’s process.
The FY 2023-24 Budget Process is a collective “citywide” and “collaborative” approach, in which all departments play a key role in the overall citywide budget development and develop their department budgets. The City Council identified priorities, City financial policies and current-year budget guidelines, which take into consideration the City’s overall fiscal condition, guide the budget process.
The budget will implement new budget development initiatives in FY 2023-24, including: developing and reporting Performance Measures, a review system that includes looking at service levels and needs and evaluating current needs and methods to reduce costs and an in-depth review of the City’s internal service funds. These new initiatives continue the planned enhancements to the budget. The following discusses these initiatives in detail.
City Council Priorities
City Council-identified priorities serve as the basis of budget development and guide departments in creating their work plans to ensure budgets align with City Council priorities. City Council reaffirmed its top three priorities in February 2022, which are: Fiscal and Organizational Stability, Public Safety and Infrastructure. These City Council established priorities will carry forward to FY 2023-24 and serve as the basis of budget development.
City Council identified other key policy areas, including economic development, new revenue-generating or revenue opportunities and recruitment and retention as secondary priorities. These will also guide budget development for FY 2023-24.
Budget Methodology
Expenditures
The City will employ a “Maintenance-of-Effort”, or MOE, budget approach for FY 2023-24, which allows departments to increase operating budgets due to: ‘cost of doing business’ or inflationary increases subject to a capped percentage, prior approved contractual and agreement increases and obligated salary and pension-related increases. Departments can include any of these MOE increases in department budget submissions. The inflationary cap for FY 2023-24 equals 4.5% due to the current inflationary environment.
Departments may submit new budget requests that align with City Council priorities, City Manager initiatives and statutory requirements. Staff then evaluates these budget requests taking into consideration the City’s overall fiscal condition. Administrative Services reviews and approves all MOE budgets and the City Manager approves final budget requests, which staff then incorporates into the FY 2023-24 Proposed Budget presented to City Council in April 2023.
Revenues
Staff develops Revenue Budgets utilizing a variety of factors and quantitative / qualitative methodologies. Departments develop their revenue projections for user fees and department-based revenues for FY 2023-24 utilizing a variety of metrics, ranging from specialized software that tracks data and input values (i.e., permits software) to historical data and trend analysis and/or any approved fee increases.
Staff develops budgets for the City’s major Property Tax and Sales Tax revenues utilizing a combination of support from specialized consultants, as well as current year and historical data. Staff regularly compares consultant projections against revenue receipts and evaluates with consideration of historic growth factors. Staff also factors consultant projections against the current economic outlook and budgets property tax and sales tax revenues at reasonable budget levels based on known information including economic projections.
Staff uses a combination of trend analysis, current year data and economic factors to project revenues for other major tax revenues such as Transient Occupancy Tax (TOT or hotel taxes), franchise fees, lease revenue and non-tax and other revenues, such as fines and penalties.
Staff evaluates ‘low’, ‘medium’ and ‘high’ scenarios for all revenues and typically submits conservative Citywide revenue budgets ‘to not overstate’ anticipated revenues and present a reasonably projected financial condition of the City to assist City Council in the decision-making process for budget adoption.
New Budget Initiatives for FY 2023-24
Performance Measures. The City will implement Performance Measures in FY 2023-24 as part of the City’s continuous enhancements to the budget process and in alignment with Government Finance Officers Association (GFOA) best practices to improve its budget document. Per GFOA, performance measures collect information about operational activities, achievement of goals, community conditions or other environmental factors so users may better understand a situation and make informed decisions. Departments will initiate development and reporting of performance measures as part of their department budget submission and develop ‘measurable’ and ‘quantifiable’ performance measure metrics that pertain to each department work plan.
The City will use these performance measures as data-driven metrics to assist departments to better monitor and track operating goals set forth for the fiscal year. It will also provide City Council an additional decision-making resource and planning tool to make informed decisions based on measurable results and outcomes. Performance measures were also a key metric and noted improvement for the City to continue receiving the GFOA Distinguished Budget Award.
Review of Internal Services Funds. Staff have initiated a review of all City Internal Service Funds (ISF) in preparation of FY 2023-24 budget development. The City has several ISF funds that provide citywide services and benefits on behalf of the entire organization, such as the Vehicle Replacement Fund, Information Technology Fund, Building Maintenance Fund and Liability Insurance Fund. This review will assess appropriate funding levels.
Continued Use of ARPA. The City will continue use of obligated ARPA Funds in FY 2023-24, in alignment with City Council priority projects and programs, per the ARPA Spending Plan approved in FY 2021-22. The City will also utilize ARPA as needed for Revenue Replacement purposes to stabilize government finances.
FY 2023-24 Budget Calendar
The FY 2023-24 Budget Calendar (Attachment 2) identifies the key budget dates and benchmarks for this year’s budget development process. The following provides a high-level summary:
Table 1 – FY 23-24 Budget Key Dates
FY 2023-24 Key Budget Events
Date
Budget Kickoff Meeting
12/20/22
Department Budget Requests Due
2/17/23
City Manager-Dept Budget Reviews
2/27/23 – 3/10/23
Budget Study Session
4/25/23
FY 2023-24 Budget Adoption Meeting
6/6/23
Start of New Fiscal Year
7/1/23
Staff began the FY 2023-24 budget process earlier than previous budget cycles, launching the process in December 2022 (normally in January in prior years), to provide departments a longer timeframe (i.e., six weeks versus four weeks) to submit department budget requests. Initiating the budget process earlier gives departments additional time to thoroughly review and assess their operating budgets and submit meaningful work plans and budget requests in alignment with City Council priorities. This also allows Administrative Services to conduct its review of all budget requests and finalize citywide projections. This gives the City Manager adequate time to review all budget requests with respect to City Council priorities and the City’s overall fiscal condition, make final recommendations and submit a balanced Proposed Budget for City Council consideration at budget adoption.
Departments must submit budget submissions and budget requests by February 17, 2023. Administrative Services reviews all department submissions and budget requests and verifies for compliance with budget policies, priorities and initiatives. The City Manager then reviews department budgets with all departments in early March 2023. After department budget reviews, the City Manager makes final recommendations with respect to new budget requests, which staff then incorporates in the Proposed Budget to present to City Council.
Staff plans to present the FY 2023-24 Proposed Budget to City Council at a special Budget Study Session tentatively scheduled for April 25, 2023. The Budget Study Session will include a review of the City’s projected fiscal position, a preliminary Five-Year Forecast and an initial review of the FY 2023-24 Proposed Budget. The study session provides a public forum for City Council to provide feedback and direction with respect to the FY 2023-24 Proposed Budget.
Staff anticipates City Council will hold the first public hearing to formally adopt the FY 2023-24 Operating Budget, annual Appropriations Limit and annual Fees and Charges Schedule on June 6, 2023. Staff will duly post the public hearing and gives the community the opportunity to provide public comment on the Proposed Budget.
Staff has attached the FY 2023-24 Budget Calendar (Attachment 2) for reference.
Attachments:
Attachment 1 – FY 2023-24 Budget Calendar
cc: City Manager Eric J. Levitt
FY 2023-24 Budget Process Overview
January 17, 2023 - Page 2