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: FISCAL YEAR 2024-25 ANNUAL OPERATING BUDGET, MASTER SCHEDULE OF FEES AND CHARGES AND ANNUAL APPROPRIATIONS LIMIT
SUMMARY
Consideration of City of Fullerton Fiscal Year 2024-25 Annual Operating Budget including General Fund, Capital Improvement Program and all other City Funds, City Schedule of Fees and Charges and Annual Appropriations Limit.
PROPOSED MOTION
Adopt the following resolutions:
RESOLUTION NO. 2024-XXX – A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF FULLERTON, CALIFORNIA, APPROVING AND ADOPTING THE CITY OF FULLERTON OPERATING BUDGET FOR FISCAL YEAR 2024-25 AND APPROPRIATING FUNDS NECESSARY TO MEET THE EXPENDITURES SET FORTH THEREIN RESOLUTION NO. 2024-XXX – A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF FULLERTON, CALIFORNIA, ADOPTING THE ANNUAL APPROPRIATIONS LIMIT FOR FISCAL YEAR 2024-25 PURSUANT TO CALIFORNIA STATE CONSTITUTION ARTICLE XIII B RESOLUTION NO. 2024-XXX – A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF FULLERTON, CALIFORNIA, ADOPTING THE CITY OF FULLERTON MASTER SCHEDULE OF FEES AND CHARGES FOR FISCAL YEAR 2024-25
ALTERNATIVE OPTIONS
Approve the Proposed Motion
Other options brought by City Council.
STAFF RECOMMENDATION
Staff recommends the Proposed Motion.
CITY MANAGER RECOMMENDATIONS
The Proposed Budget for Fiscal Year 2024-25 reflects the City Council’s top priorities, incorporates direction provided at the April 23, 2024 Budget Study Session and achieves the City’s financial goal of maintaining a 17% reserves level. Over the last two years, the City has taken a variety of steps to accomplish the goals of the City Council in providing quality services to the community, bringing stability to the organization, and in enhancing funding for infrastructure such as streets. In working toward those goals, we have accomplished several initiatives collectively with the City Council.
Infrastructure. Now that ARPA funding has been fully allocated, the City will utilize $1 million of General Fund next fiscal year to allocate a total of $8 million for street improvements.
Over the previous two years, the City increased its funding of streets to $12 and $14 million. This was done in major part by allocating revenue replacement ARPA funding for this purpose. Prior to ARPA, the City had spent $4 to $6 million annually on streets.
In addition, subsequent to Budget Study Session, the City was notified and approved for State funding of $7.1 million for the Nutwood Ave Mobility Project and Federal funding of $305,000 for Harbor Complete Streets Project. This brings our total Streets funding to $15.6 million in FY 2024-25.
We also submitted a grant application for $6 million in grant funding for Harbor Blvd. In addition to this funding, the City has also submitted for $7 million in funding for streets sponsored by Congress Member Steel. If approved in appropriations later this year, that funding would occur in Fiscal Year 2025-26.
Financial Stability. The City has been able to over the last two years (for the first time in recent history of the City) to reach and maintain a 17% contingency reserve level. This budget maintains that reserve level; however due to an operating deficit, we will be utilizing one-time excess reserves this year and coming close to that 17% level in FY 2024-25 and below that in years beyond next year.
Organizational Stability. Due to freezing salaries over multiple years, the City had been losing employees from our work force and having difficulty with recruitment. Due to the City Council’s leadership and actions over last few years, we have seen an increase in retention and recruitment and lowered our vacancy rate from in excess of 20% in the organization to approximately 14%. The City continues to lower the vacancy rate and attract quality staff as we move forward into the new fiscal year.
Public Safety. The City continues to maintain and improve Public Safety service levels to the community. As a result of improved retention efforts, we are able to maintain a higher level of police service with reduced use overtime and are coming closer to fully staffing our full command Fire Department. Further, the Proposed Budget will enhance service levels by adding a 4th ambulance unit to better respond to emergencies and adds staff to initiate the Real-Time Crime Center in collaboration with the County.
Community Preservation. As prioritized last year in FY 2023-24, the City continues putting higher level of maintenance in the parks, trails and right of ways.
Community Services & Events. Finally, we are bringing back valued community events in FY 2024-25, with the return of Fourth of July and First Night events. The Hunt Library also re-opened and will be fully operational with library services and community programming in FY 2024-25.
While the City has taken a variety of steps to accomplish the City Council’s top priorities and goals through enhanced quality services to the community, the Proposed Budget will use one-time reserves to continue meeting these goals in the upcoming fiscal year. While this budget will support current service levels this year, it is critical to create strategies to address our fiscal situation moving forward.
If the Budget is adopted, the City Manager plans to bring concepts narrowing the gap in the first quarter of 2025. Part of the first quarter of 2025 review will be both efficiency potential and alternative revenues. Some neighboring cities have looked at in-lieu fee options for tax exempt entities. This may be one alternative to look at.
It is recommended that the City Council formally adopt the City of Fullerton Operating Budget, including All City Funds, for FY 2024-25, along with the City’s Schedule of Fees and Charges and Annual Appropriations Limit as required by State law.
POLICY PRIORITY STATEMENT
This item matches the following Policy Priority Statements:
Fiscal and Organizational Stability
Public Safety
Infrastructure and City Assets.
FISCAL IMPACT
The Proposed FY 2024-25 All City Funds Budget, including the General Fund, Enterprise Funds, Special Revenue Funds and the Capital Improvement Program totals $285,662,901 across all City funds. Staff proposes balancing with $288,261,954 in Citywide revenues, transfers in for capital project funds and available fund balances.
The FY 2024-25 Proposed Budget for the General Fund totals $138,462,319 (including Transfers Out), balanced with $129,036,705 in revenues (including Transfers In) and $9,425,614 million of available one-time excess reserves (also referred to as unassigned fund balance). This includes $5 million Maintenance of Effort (MOE) reserves City Council set aside in FY 2023-24. The Proposed General Fund Budget maintains the 17% contingency reserve level goal per City financial policy.
BACKGROUND AND DISCUSSION
Introduction
Staff presented the initial FY 2024-25 Proposed Operating Budget to City Council on April 23, 2024 with a focus on the General Fund, the chief operating fund supporting traditional municipal services, and the City Capital Improvement Program (CIP) to outline capital projects planned for FY 2024-25.
Staff provided an overview of the key budget highlights for FY 2024-25, included key revenue and expenditure changes from prior fiscal year (FY 2023-24), City Manager proposed service level enhancements and fiscal challenges facing the City. Staff identified alternative Budget Options for City Council consideration to include in the FY 2024-25 Proposed Operating Budget. Staff also presented the General Fund Five-Year Financial Forecast showing the financial outlook over a multi-year period for financial planning and decision-making efforts for financial and organizational stability.
The proposed FY 2024-25 Budget accomplishes and reaffirms the top City Council priorities, including public safety service level enhancements, returning key community programs and services, implementing organizational efficiencies to streamline operations and committing and allocating infrastructure resources. The FY 2024-25 Budget also incorporates City Council direction from the Budget Study Session to allocate additional Library services and economic development funding.
Staff requests City Council adopt a resolution approving the Schedule of Fees and Charges for FY 2024-25, typically adopted in conjunction with the budget. Staff also presents the FY 2024-25 Annual Appropriations Limit (GANN Limit), required by California State law for all local agencies, for approval.
All City Funds
The FY 2024-25 All City Funds Proposed Budget totals $285.7 million in expenditures across all funds, supported by $288.3 million in citywide revenues, transfers in (including funds designated for capital projects) and available fund balances. The Proposed All Funds Budget includes:
General Fund
Enterprise Funds, such as Water and Sewer Funds
Special Revenue Funds, such as Gas Tax and Measure M2 transportation Funds Internal Service Funds
Capital Improvement Program
Successor Agency.
Table 1 presents a high-level overview of the City All Funds Budget for FY 2024-25.
Table 1 – All Funds Proposed FY 2024-25 Budget Overview
* Note: CDBG and HOME grant funds budgets subject to availability of funds and review and approval by additional legislative bodies and subject to change following budget adoption.
Ongoing Citywide revenues across all funds total $271.1 million, combined with $17.1 million of set aside or designated funds of available fund balance from funds (i.e., Measure M2 or SB1 gas tax) that support capital projects and will balance and support the All City Funds Budget for FY 2024-25.
Governmental Funds. The General Fund is the chief operating fund supporting traditional municipal services and totals $132.9 million in FY 2024-25.
City Special Revenue Funds total $36.8 million in FY 2024-25 and include City Gas Tax funds, Measure M2 transportation funds, Sanitation and Drainage Capital Outlay funds, Community Development Block Grant Program (CDBG) federal funds and other Grants Funds. These funds are restricted for special purposes, such as City street maintenance efforts, housing and community assistance programs and capital projects.
Enterprise Funds. The City Water Enterprise Fund (excluding capital projects) totals $40.0 million in FY 2024-25 and supports operating the City water utility system. The City maintains its sewer utility and other enterprise funds, anticipated to total $11.6 million in FY 2024-25. Enterprise funds are self-supporting and generate their own revenues through fees passed to customers to support operations.
The City Capital Improvement Projects Program (CIP) totals $49.2 million in FY 2024-25. Special revenues such as Measure M2 and SB1 gas tax, water and sewer utility improvement enterprise funds and grant revenues largely support the CIP Program. The City will receive $8.8 million in new grant revenue for vital projects for the Airport, Harbor and Nutwood street projects in FY 2024-25.
General Fund (including Parks and Recreation and Library) The FY 2024-25 Proposed General Fund Budget totals $132.9 million in operating expenditures and $5.6 million in transfers out for a total $138.5 million General Fund expenditure budget. $127.7 million in operating revenues and $1.3 million of transfers in resulting in a $9.4 million deficit covered with excess reserves balance the FY 2024-25 Proposed General Fund Budget. Transfers in include the remaining $0.7 million ARPA Revenue Replacement funds for stabilization of government finances which the City must fully obligate by December 2024.
Table 2 – FY 2024-25 Proposed General Fund Budget Overview The following outlines the FY 2024-25 Proposed General Fund Budget revenue and expenditure assumptions.
Revenues
Staff projects FY 2024-25 General Fund operating revenues (excluding transfers in) to total $127.7 million, a $7.0 million (or 5.8%) increase from FY 2023-24 $120.7 million budgeted revenues. Continued economic growth, illustrated by increased property tax revenue, stable sales tax revenue and increased cost recovery efforts drive this revenue growth.
Property Tax – Property Tax comprised the largest City General Fund revenue at 45% of General Fund operating revenues, projected to total $58.0 million in FY 2024-25, which represents a $3.4 million (or 6.2%) increase over FY 2023-24 budgeted levels, primarily due to increased property tax in lieu revenue, secured assessed property valuation growth and increased residual property tax receipts from successor agencies paying down former redevelopment agency (RDA) obligations. Overall, the City’s diverse and stable property tax base (mixture of commercial, industrial and residential) continues to provide consistent revenue growth due to the strong assessed property valuations.
Sales Tax – Staff projects Sales Tax, the second largest General Fund revenue, to total $30.5 million in FY 2024-25, a slight increase of $0.1 million (or 0.4%) from FY 2023-24 budgeted levels. The projected sales tax revenue in FY 2024-25 remains relatively flat compared to last fiscal year and represents a stable revenue source for the City. The City’s diverse economic base, consumer spending and continued County Pool allocations from a State law enacted in 2019 account for the stable City sales tax revenue.
Transient Occupancy Tax – Staff projects Transient Occupancy Tax (TOT) revenue to remain flat, totaling $3.4 million in FY 2024-25. TOT revenues have recovered from the pandemic with increased occupancy rates, despite a hotel closure in FY 2022-23 and aided by the City Short-Term Rental program.
Charges for Services - The City incurs costs to provide certain services and charges fees to recover those costs which includes staffing and administrative costs. City Council approved a three-year plan last year to incrementally increase Fire Department user fees to achieve full cost recovery. FY 2024-25 implements Year 2 of this plan with Fire Department user fees incrementally increasing towards cost recovery efforts.
The Fire Department joined the Public Provider Ground Emergency Medical Transport program administered by the State of California Department of Health Care Services in FY 2023-24. The City pays annual and administrative fees to this program but anticipates additional revenue from higher medical transport reimbursements. Staff projects Ambulance billing revenue to total $6.0 million in FY 2024-25, a $1.7 million increase (or 38.5%) from the previous fiscal year. Staff anticipates overall charges for service to increase by $2.4 million in FY 2024-25.
Staff expects all other General Fund revenues to either increase in line with market trends or remain flat in FY 2024-25.
Expenditures
Proposed FY 2024-25 General Fund operating expenditures (excluding transfers out) total $132.9 million, an $12.0 million (or 9.9%) increase from FY 2023-24. Pension costs, salaries, labor agreement benefit costs, the cost of doing business and inflation-related operating increases primarily attribute for expenditure increases, summarized as follows:
Salaries and Benefits ($7.3 million) – Staff anticipates salaries and benefits to increase by $7.3 million in FY 2024-25 due to agreements with all labor groups approved in FY 2023-24 as well as increases to CalPERS pension costs.
Salaries and Wages ($2.9 million) – Staff anticipates salaries and wages to increase by $2.9 million across all labor groups in FY 2024-25 due to labor Memorandum Agreements approved in FY 2023-24.
CalPERS Pension Costs ($3.2 million) – Staff expects CalPERS pension costs to increase by $3.2 million in FY 2024-25. A -7.5% CalPERS negative investment return in FY 2021-22 primarily caused the Unfunded Accrued Liability (UAL) increase. The Safety group UAL will increase by $2.1 million and the Miscellaneous group UAL will increase by $525,000. CalPERS normal costs will also increase dues to the approved salary increases.
Groups Insurance and Other Benefits ($1.2 million) – Cost of the employee benefits program (medical, dental and vision) will increase by $1.2 million in FY 2024-25 due to the new Flex Credit benefit approved in the labor agreements.
Maintenance and Operations ($1.3 million) – Staff anticipates a $1.3 million increase to maintenance and operations budgets in FY 2024-25 due to the inflationary environment and annual contractual obligation increases from existing agreements. Staff capped the cost of doing business at 3% while developing the base FY 2024-25 budget.
Internal Services Funds ($3.3 million) – General Fund contribution increases to Internal Services Funds (ISF) total $3.3 million in FY 2024-25, largely attributed to salary and benefit-related increases within the ISF funds such as Building Maintenance and Equipment Maintenance ISFs. The cost of business increases and contractual obligation increases, such as software and support agreement increases in the Information Technology (IT) Fund, increased ISF expenditures.
FY 2024-25 General Fund Budget Highlights
Staff developed the Proposed FY 2024-25 General Fund Budget to support the top City Council priorities, centering around the following major program areas and priorities: Public Safety, Community Preservation, Community Events and Services and Organizational Efficiencies and Sustainability.
Public Safety – The Proposed Budget adds Public Safety service level enhancements, includes adding a fourth ambulance unit to better respond to emergencies and staffing to initiate the Real-Time Crime Center in collaboration with the County. The Proposed Budget invests in upgrades to critical emergency medical equipment and safety personal protective equipment (PPE).
Community Events and Services – The Proposed Budget includes funding for the Fourth of July and First Night community events and enhances community services with the Hunt Library re-opening and full operation in FY 2024-25. Staff proposed to expand the Summer Camp Hillcrest capacity in FY 2024-25. Library circulation hours will increase by two hours per day Tuesday through Thursday and increase by one hour per day Friday and Sunday with additional part-time staffing.
Community Preservation – The Proposed Budget includes increased funding to provide around the clock security services at the Hunt Library. The Proposed Budget also includes an Economic Development Project Manager position to support City economic development efforts per City Council direction at the Study Session.
Organizational Efficiencies and Sustainability – Staff identified Citywide operating reductions to support the proposed enhancements to the FY 2024-25 Budget and held certain positions vacant and implemented a one-time all funds cost allocation reduction to the Workers Compensation Fund.
Infrastructure – Staff designated $1.0 million of General Fund and $2.0 million of Infrastructure Funds in the proposed CIP Budget to support residential street improvements. The Infrastructure Fund will also support $900,000 towards other City facility and Americans with Disability Act (ADA) improvements.
The General Fund will support $1.6 million of critical IT Infrastructure improvements, which include replacing end-of-life Police Department laptops and network improvements, continuing the PC Refresh project to replace outdated computers, Citywide Phone Upgrade Project and other critical upgrades to City financial and payroll software.
City Council Direction
City Council directed staff to increase funding for Library services and City economic development efforts at Budget Study Session. Staff added part-time Library staffing hours ($37,000) to the updated Proposed Budget to expand Library circulation hours by one hour per day, Tuesday through Saturday. The City will also add a 1.0 full time equivalent (FTE) Economic Development Project Manager (added to proposed budget for half year) to enhance and increase City economic development efforts beginning in January 2025. Other administrative reductions included in the FY 2024-25 Proposed Budget will partially offset these service level enhancements (Attachment 5).
The FY 2024-25 Proposed Budget Book document (Attachment 2) provides all Citywide financial budget information and schedules in more detail, and includes the Citywide Fund Balances, Revenue and Expenditure Summaries, and Department Budget Sections to name a few.
Capital Improvement Program (CIP) Budget for FY 2024-25 The Capital Improvement Program (CIP) outlines a comprehensive capital projects plan for the City in the coming fiscal year. The FY 2024-25 Proposed CIP Budget totals $49.2 million, which includes $15.6 million for Street Rehabilitation and $20.2 million for Water Infrastructure projects in addition to Sewer Utility, Storm Drain repairs, Traffic Systems, and other City Facility capital improvements. The $15.6 million for Street Rehabilitation includes $7.6 million of Federal and State earmarks for streets projects with the corresponding City match requirement. CIP for City Facilities also includes the $2.5 million Federal earmark for Police facility improvements.
The following summarizes the planned CIP by major category.
Table 3 – FY 2024-25 Proposed CIP Budget
CIP Project Category
FY 24-25
Proposed
Street Rehabilitation
8,000,000
Street Rehabilitation – State & Federal Earmarks
7,645,000
Utility – Water System
20,225,000
Utility - Sewer and Storm Drain Systems
1,700,000
Traffic Systems
1,234,050
Airport
1,173,000
City Facilities (Buildings, Accessibility, etc.)
1,800,000
City Facilities – Federal Earmark
2,500,000
Parks
4,550,000
Misc. Projects (Sidewalk, PMP, etc.)
400,000
Total Proposed CIP Budget
$49,227,050
Street Rehabilitation ($8 million) – The City will allocate $8.0 million for Street Rehabilitation projects from the following resources: $3.5 million SB1 gas tax funds, $1.5 million County Measure M2 funds and $3.0 million General Funds (including the Infrastructure funds) in FY 2024-25. Projects entail one or two arterial streets but the majority of funds focus on residential streets that received a water main replacement. Traffic system improvements will consist of safety and traffic signal operation enhancements, equipment upgrades and street light conversion analysis.
Staff updated the Proposed Budget to include a combined $7.6 million State and Federal earmarks for street improvements and $0.2 million City matching funds. The City received a $7.1 million State earmark for the Nutwood Avenue Mobility Project to enhance pedestrian and bicycle connectivity and $305,000 federal earmark for the Harbor Boulevard Complete Streets Project to improvement pedestrian and bicycle mobility.
Utility Infrastructure: Water, Sewer and Storm Drains ($21.9 million) – Water projects will focus on main pipe replacements with additional work addressing PFAS issues, equipment and operations upgrades and reservoir rehabilitation. Sewer and storm drain projects will repair and maintain the existing facilities.
Airport – The Federal Aviation Administration awarded a $1.2 million grant to the City to rehabilitate hangars at the Fullerton Airport.
City Facilities ($1.8 million) – Various City buildings and other facilities will receive equipment repairs, replacements and accessibility improvements in FY 2024-25. Staff updated the Proposed Budget to reflect a $2.5 million federal earmark for Police Department building renovations.
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 Section 7902 (Article XIII B) requires cities to annually adjust annual appropriations limits for changes in population and consumer price index as provided by the State and can utilize change in population of either the County or City, whichever is greater, as its growth factor. Cities must remain under the annual appropriations limit to remain in compliance.
Staff utilized the County growth factor for FY 2024-25 and set the City Appropriations Limit amount at $274,034,954, leaving the City $178,417,681 under the limit and in compliance with this statute. Staff attached a resolution to adopt the Appropriations Limit and GANN Limit worksheets for reference (Attachment 3).
Schedule of Fees and Charges
Staff presents the Annual Master Fee and Charges Schedule for FY 2024-25 with the Proposed Budget for adoption. City Council received a report on the FY 2024-25 Proposed Fee Changes on May 21, 2024, summarized as follows:
Previously Approved User Fees for Cost Recovery Year 2 for Fire Department and Public Works Water Utility user fees to support City Council efforts towards full cost recovery.
Police Towing Rates to align with surrounding cities and market rates to support higher cost of doing business. This does not impact revenues received from City towing franchise fees.
Other Administrative Fee Changes to Library and Parks and Recreation fee schedules to support programming and facility rentals to align with market rates and cost of doing business.
Staff requests City Council adopt the resolution for the FY 2024-25 Schedule of Fees and Charges, included as Attachment 4.
Fiscal Challenges
Staff highlighted the following City fiscal challenges at the Budget Study Session:
Expenditures Outpacing Revenues – increasing pension and labor costs primarily drive expenditures outpacing revenues.
Labor Group Agreements – Completing multi-year labor agreements with all labor groups in FY 2023-24 stabilized the workforce and service delivery levels across services areas including public safety, however, the financial impacts have and will continue to pressure the City operating budget.
Rising CalPERS Pension Costs – CalPERS UAL pension costs continue to increase in FY 2024-25 and will do so over the next several years as City pension costs approach the peak of the UAL amortization period. Further, other external factors and decisions at the State level, such as changes in investment strategies and lowering the discount rate, have affected and contributed to increased pension costs.
Infrastructure – The City needs additional Investment to address aging infrastructure: repairing streets and potholes, including residential streets, protecting local drinking water through investment in the water utility as well as sewer and sanitation systems, investment in parks, trails and community facilities and IT infrastructure.
Other Issues – The City needs additional Investment to address other important issues facing the City, including homelessness and community preservation efforts to keep public and right of way areas safe and clean.
The FY 2024-25 Proposed Budget will support service levels this year and accomplishes the 17% reserves level financial goal. However, the City must develop strategies to address the fiscal situation moving forward. Staff will bring future strategies and options for City Council consideration in early FY 2024-25.
Next Steps
Staff will complete the final FY 2024-25 Adopted Budget Book document following adoption and post on the City website. Staff will effectuate all Funds-Departments budgets in the financial system at the start of the 2024-25 Fiscal Year.
Certain new fees become effective July 1, 2024 and certain development-related fees become effective sixty days after fee resolution approval. Staff will post the final FY 2024-25 Master Fee and Charges Schedule on the City website.
Attachments:
Attachment 1 – FY 2024-25 Budget Adoption Presentation
Attachment 2 – Draft Resolution FY 2024-25 Proposed Budget Attachment 3 – Draft Resolution Annual Appropriations Limit Attachment 4 – Draft Resolution Master Schedule of Fees and Charges Attachment 5 – Proposed Recommendations
cc: City Manager Eric J. Levitt
FY 2024-25 Annual Operating Budget, Fees Schedule and Appropriation Limit June 4, 2024 - Page 10