Agenda Report
Fullerton City Council
MEETING DATE: JANUARY 16, 2024
TO: CITY COUNCIL / SUCCESSOR AGENCY
SUBMITTED BY: Ellis chang, director of administrative services PREPARED BY: STEVEN AVALOS, BUDGET AND PURCHASING MANAGER
CINNDY BARRIOS, SENIOR BUDGET ANALYST
SUBJECT: FISCAL YEAR 2024-25 BUDGET PROCESS OVERVIEW
SUMMARY
An overview of the Fiscal Year (FY) 2024-25 City budget development process (Budget Process) reviewing the underlying principles guiding budget development including the City Council top priorities and City policy areas, budget policies and methodology and new FY 2024-25 budget initiatives.
RECOMMENDATION
Receive and file.
CITY MANAGER REMARKS
This item is intended to provide the City Council with an overview of the upcoming budget calendar and process.
PRIORITY POLICY STATEMENT
This item matches the following Priority Policy Statement:
Fiscal and Organizational Stability.
FISCAL IMPACT
This item generates no fiscal impact.
DISCUSSION
This report identifies the guiding budget principles and financial parameters that facilitate the FY 2024-25 Proposed Budget development. Staff has tentatively scheduled to present the FY 2024-25 Proposed Budget for City Council review, input and direction on April 16, 2024 and preset the final Proposed Budget for City Council adoption on June 4, 2024.
The FY 2024-25 Budget Process began with a citywide Budget Kickoff Meeting on December 13, 2023. The City operates on a July 1 to June 30 fiscal year and must adopt an operating budget before July 1 each year, per City financial policies. The Administrative Services Department administers the budget process with City Manager oversight to ensure the process incorporated City Council goals and priorities.
The FY 2024-25 Budget Process uses a citywide, collaborative approach with all departments responsible for developing their department budgets. City financial policies and the current-year budget guidelines which consider the overall City fiscal condition guide the budget process.
The City established new budget initiatives in FY 2024-25 including improved budget timeline and deadlines to ensure thorough and proper review of department budget submittals, continual review of City internal service funds to ensure adequate funding and potential cost-saving opportunities and continued Performance Measure enhancements.
City Council Priorities
City Council priorities provide the basis for budget development and guide departments in developing their work plans. City Council reaffirmed its top three priorities, Fiscal and Organizational Stability, Public Safety and Infrastructure, in FY 2023-24. These priorities will carry forward to the FY 2024-25 budget development.
The City identified other Citywide policy areas in FY 2023-24 including Community Preservation, Community Events and Services and Organizational Efficiencies, which will also guide budget development for FY 2024-25.
Budget Methodology
Expenditures
Maintenance of Effort Budget Approach. The City will employ a “Maintenance-of-Effort”, or MOE, budget approach for FY 2024-25 which maintains existing department operating service levels while allowing department budgets to increase due to the following:
salary increases from approved MOA employee agreements
annual benefit and CalPERS retirement increases
contractual increases for current City agreements and contracts ‘cost of doing business’ or inflationary increases for goods and services subject to a capped percentage.
The MOE inflationary cap totals 3% for FY 2024-25.
Budget Requests. Departments may submit new budget requests in alignment with City Council priorities, City Manager initiatives and/or new statutory requirements. Staff evaluates these budget requests in consideration of the overall City fiscal condition. Administrative Services initially reviews and approves all MOE budgets followed by final approval by the City Manager. Administrative Services incorporates approved requests in the FY 2024-25 Proposed Budget scheduled for presentation at the April 16, 2024 City Council meeting.
Revenues
Staff develops revenue budgets each fiscal year based on known information at the time and uses a variety of factors and quantitative and qualitative methodologies to present reasonable estimates to assist City Council in its decision-making process. Departments develop user fee and department-based revenue projections for FY 2024-25utilizing a variety of metrics, ranging from software to track data and input values (i.e., permits software) to historical data and trend analysis and/or any approved fee increases.
Staff develops the major City revenue (Property Tax and Sales Tax) budgets utilizing a combination of support from outside specialized consultants and current year and historical data. Staff regularly compares consultant projections against revenue receipts and evaluates based on historic growth factors. Staff factors consultant projections against the current economic outlook and budgets property and sales tax revenues at reasonable budget levels based on information available at that time.
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) and franchise fees and non-tax and other revenues such as fines, penalties and lease revenue.
Budget Initiatives for FY 2024-25
Budget Timelines and Deadlines. Staff implemented accelerated budget and deadlines in FY 2024-25 to facilitate department budget submittals and allow Administrative Services time for thorough budget. This includes submitting pre-budget schedules, such as salary spreadsheets and Internal Service Funds (ISF) workbooks early in January 2024 which maintains the expanded two month budget development period and allows departments to submit FY 2024-25 budgets with adequate time for City Manager review with respect to the overall fiscal condition and submit a balanced Proposed Budget for City Council consideration.
Continued Review of Internal Services Funds. Staff continues the initiative started in FY 2023-24 and reviews all City Internal Service Funds (ISFs) in preparation of FY 2024-25 budget development. The City has eight 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, Workers Compensation and Liability Insurance Fund. Staff reviewed the City Workers Compensation and Liability Insurance ISFs in FY 2023-24 and will review additional ISF funds in FY 2024-25. This review identifies and assess appropriate funding levels and potential savings.
Enhancement of Performance Measures. The City implemented new Performance Measures in FY 2023-24 to enhance the budget process, align with Government Finance Officers Association (GFOA) best practices and meet the Distinguished Budget Award requirements. Staff uses performance measures to collect information about operational activities, goals, community conditions or other environmental factors to make informed decisions. Departments will incorporate performance measures as part of the department budget submission and develop ‘measurable’ and ‘quantifiable’ performance measure metrics.
The City will look to improve upon its department performance measures in FY 2024-25, with the goal that these data-driven metrics will assist departments to better monitor and track its operating activities and set goals for the upcoming fiscal year in support of community-based services provided.
Continued Use of ARPA. The City will continue the use of obligated ARPA Funds in FY 2024-25 in accordance with the ARPA Spending Plan approved by City Council. The City must obligate ARPA funds by December 31, 2024 and fully expend by December 31, 2026 per US Treasury Guidelines. Anticipated ARPA projects in FY 2024-25 include street rehabilitation, water main replacements and shelter beds for the unhoused population. The City continues to diligently prioritize ARPA projects to meet the obligation deadline.
FY 2024-25 Budget Calendar
The FY 2024-25 Budget Calendar (Attachment 1) identifies the key budget events and dates for this year’s budget development process. The following provides a high-level summary:
Table 1 – FY 2024-25 Budget Calendar
The FY 2024-25 Budget Process started in December 2023 with a budget kickoff meeting with all departments and staff to introduce City budget policies and instructions for the new budget year. Starting the budget process earlier in December provides departments additional time to thoroughly review and assess operating budgets and submit meaningful work plans and budget requests that align with City Council priorities.
Department will provide budget submittals to the Administrative Services Department by February 15, 2024 including all budget entries into the financial system, required budget forms, new budget requests and any proposed fee revisions. Administrative Services staff reviews all department submissions and budget requests to ensure compliance with established budget policies, priorities and initiatives. Department Budget Reviews take place in early March 2024. The department, Administrative Services staff and City Manager review and finalize all budget requests. The City Manager makes final recommendations on all budget requests with respect to the City’s overall fiscal condition which staff incorporates in the Proposed Budget presented to City Council in April 2024.
Staff will present the FY 2024-25 Proposed Budget to City Council on April 16, 2024 and provide an initial review and presentation of the FY 2024-25 Proposed Budget, an overview of the City’s fiscal position and preliminary Five-Year Financial Forecast. The study session provides a public forum for City Council to provide feedback and direction regarding the FY 2024-25 Proposed Budget.
City Council will hold a public hearing to adopt the FY 2024-25 Operating Budget, annual Appropriations Limit and annual Fees and Charges on June 4, 2024. The public will have an opportunity to provide comments on the Proposed Budget.
Staff attached he FY 2024-25 Budget Calendar (Attachment 1) for reference.
Attachments:
Attachment 1 – FY 2024-25 Budget Calendar
cc: City Manager Eric J. Levitt
FY 2024-25 Budget Process Overview
January 16, 2024 - Page 2