Agenda Report
Fullerton City Council
MEETING DATE: JUNE 4, 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: BUDGET ENHANCEMENT OPPORTUNITIES
SUMMARY
City Council directed staff to present potential revenue and financing options to consider for the coming year at a future meeting on April 23, 2024. Staff would bring back any options requested by City Council with additional information for further consideration.
PROPOSED MOTION
Identify items for staff to bring back for further consideration.
ALTERNATIVE OPTIONS
Approve the Proposed Motion
Receive and file
Provide direction to not move forward with further consideration Provide direction on additional options not presented
Other options brought by City Council.
STAFF RECOMMENDATION
Staff recommends the Proposed Motion.
CITY MANAGER RECOMMENDATIONS
The City of Fullerton is working diligently to provide basic city services that make our community a more desirable place to live, work, and raise a family, including:
Safe, repaired streets
Clean neighborhood parks/public spaces for our children and families Maintaining 911 emergency response, police and fire services Addressing homelessness
With historical State takeaways of local funds, increased service need, and the rising cost to provide basic services, Fullerton has had to make difficult choices to provide a balanced budget including budget cuts and use of one-time funds to address ongoing basic service needs.
At the budget study session, Council provided direction to staff to identify potential additional revenue sources to address basic service needs our residents and local businesses rely upon.
Staff is recommending three potential two local revenue sources which will begin to provide additional needed funds to address basic city needs, without increasing the tax burden on local residents, as well as a finance option to accelerate road repair which would depend upon additional local revenue to continue:
At this time, one potential revenue option that the City Council could consider would be placing on the ballot a potential 2% increase to the hotel bed tax rate (Transient Occupancy Tax or TOT). This option would provide potential for some additional revenue to the City with visitors contributing to the City’s revenue stream.
Another potential revenue option that City Council could consider would be to direct staff to evaluate possibility of a billboard lease on City land.
In addition, there is the option of financing streets with current revenues which could increase street paving. Although if the City moves forward, the City would be using future revenue streams to fund the accelerated street paving.
BUDGET POLICY PRIORITY STATEMENT
This item matches the following Budget Policy Priority Statements:
Fiscal and Organizational Stability
Public Safety
Infrastructure and City Assets.
FISCAL IMPACT
Staff identified potential revenue and financing options for City Council direction for further evaluation based on City Council request for information. The fiscal impact varies by option. The Background and Discussion section presents the fiscal impact for each option. Any options pursued would not impact the FY 2024-25 Proposed Operating Budget given the time needed to evaluate and implement.
BACKGROUND AND DISCUSSION
Introduction
City Council requested staff bring back potential revenue and financing options for City Council consideration during the April 23, 2024 Budget Study Session (Study Session).
Staff identified the following options for City Council direction: revenue ballot measures, revenue enhancements to existing revenues and financing.
Potential Options
Revenue ballot measures require two-thirds majority City Council approval to place a measure on the ballot. Measures on the ballot require a 50% + 1 majority electorate vote to pass a general tax or two-thirds majority electorate vote to pass a special tax.
Orange County cities passed revenue ballot measures to maintain and enhance service levels for their communities (Attachment 2).
The following outlines potential revenue ballot measure options:
Increasing TOT Tax Rate – The City TOT (hotel tax) rate is 10% and generates about $3,000,000 in revenue annually. TOT rates in Orange County vary from 8% to 15%. A 2% increase in the TOT rate (from 10% to 12%) could generate an additional $400,000 to $600,000 annually. A TOT ballot measure would require a 50% + 1 majority approval vote. Increasing the City TOT rate more closely aligns the City rate with surrounding cities (Attachment 2) with proximity to Disneyland and other nearby tourist destinations.
The City could pursue other revenue enhancement options for user fees, leases and other fee charges. City Council can approve adjustments by majority vote and without voter approval. Potential revenue enhancements include:
Lease Agreements – Re-evaluate and re-negotiate lease agreements more in line with current market rates, accounting for cost of doing business increases and inflationary factors.
Electronic Billboard Revenue – The City could evaluate building and managing a billboard.
The City Council could evaluate feasibility of negotiating in lieu fees with tax exempt entities doing business in Fullerton. Fullerton is fortunate to have multiple universities and a regional hospital, however these place more pressure on the City to find sufficient revenues to meet the needs of the community due to property tax exemptions.
Street Financing Option
The City could utilize financing to provide additional funding for street improvements. Staff included this option in the Study Session presentation. This option could generate $35 million in financing (maximum annual debt service of $2.5 million over 20 years) and support street improvements with $9.5 million in bond proceeds over the next four fiscal years. This would also help the City meet required MOE over the next few years and continue receiving approximately $3.4 to $3.6 million OCTA M2 funding per year. Infrastructure and Measure M2 funds would support the annual $2.5 million debt service.
The following table projects the City ability to fund street improvements and maintenance with financing:
Table 2 – Proposed Road Expenditures-Street Financing
Street financing, while not without risks, would enable the City to continue improving road conditions, thereby minimizing potentially larger future financial investments by delaying rehabilitation. Street financing would also provide the time for the City to evaluate revenue and cost containment options to stabilize the General Fund financial condition and identify resources for continued street improvement allocations.
Moving forward with street financing without identifying new revenues risks General Fund to support $2.5 million annual debt service payments and additionally in four years to meet the MOE requirement.
Other potential options to consider in future years:
Pension Obligation Bonds (POB) (payment reduction through issuing bonds paid by savings on pension costs) The City previously evaluated issuing Pension Obligation Bonds. Staff will continue monitoring future opportunities as the POB landscape continues to evolve and bring back for future discussions if the economic environment provides an opportunity for substantive savings in City pension debt.
Direction received from City Council on any of the presented options would not impact the FY 2024-25 Budget. Staff would bring back an in-depth evaluation of any of these options for City Council consideration, if so directed.
Attachments:
Attachment 1 – Budget Enhancements Opportunities Presentation Attachment 2 – Orange County Sales Tax and TOT Rates
cc: City Manager Eric J. Levitt
Budget Enhancement Opportunities
June 4, 2024 - Page 10