Item 253/2024
Final
City of Garden Grove
INTER-DEPARTMENT MEMORANDUM
To:
Lisa L. Kim From: Patricia Song
Dept:
City Manager Dept: Finance
Date: June 11, 2024
Subject: Adoption of Budget Resolutions Amending Fiscal Year 2024-25 Budget. (Action Item)
OBJECTIVE
To adopt a resolution amending the City's adopted biennial budget for Fiscal Year 2024-25.
BACKGROUND
On June 13, 2023, the City Council approved a biennial budget for fiscal years 2023 -24 and 2024-25. The City is approaching the end of the first fiscal year of the biennial budget cycle.
Based on current and projected economic circumstances, it is necessar y to amend the adopted budget estimates for the second fiscal year to align available resources with various programs, projects, and operational needs while also ensuring continued progress in achieving the City Council’s six priorities: addressing homelessness; enhancing public safety; providing economic development and support of local businesses; focusing on infrastructure; providing resources for Code Enforcement; and celebrating cultural diversity.
DISCUSSION
FY 2023-24 General Fund
Revenues:
The General Fund revenues were adopted at $167.2 million for FY 2023-24, along with $1.6 million from other sources for a grand total of $168.9 million. Overall, the City’s General Fund revenues are anticipated to exceed budget estimates by $15.3 million. Thi s is primarily due to a surge in property taxes of 13% or $8.1 million in comparison to the adopted budget estimates. The property tax growth is based on property values and increases at a maximum of 2%, due to Prop 13, unless the property is sold and/or c hanges ownership. During FY 2023-24, the housing market’s continued growth contributed to the increases in property tax revenues.
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Additionally, the Hotel Visitor’s Tax is projected to generate $3.3 million or 13% above original budget estimates reflecting stronger consumer behavior during the year as the City continued to promote tourism. There are also projected increases in other General Fund revenue sources including Business License Tax, Charges for Services (such as Building and Planning fees and Community Services programs), Licenses & Permits (such as Building Permits), and revenue derived from lease rentals.
In addition, a one-time contribution from the General Fund’s fund balance in the amount of $18.4 million was added to the overall FY2023 -24 revised revenue estimate to fund for two one-time capital initiatives approved by the City Council during the year. These items included the defeasance of the 2015 Bonds (cost was $20.3 million), and the acquisition of an office building located in the Civic Center area (cost was $11.9 million).
Table 1 below presents projected operating revenues as well as one-time sources for FY 2023-
24. Table 1 – FY 2023-24 General Fund Revenues
Expenditures:
The General Fund expenditure budget was adopted at $168.9 million. However, as mentioned above, two subsequent capital items approved by the City Council during FY2023 -24 that totaled $32.2 million were added to the amended budget , along with carryover funding associated with the Pavement Management Program, Purcell Building Improvements, and the Civic Center Revitalization Project, brought the amended FY 2023-24 General Fund budget to $214.5 million. This reflects a $45.6 million increase from the adopted budget amount.
The $45.6 million additional funding enabled the City to achieve significant progress in the following areas: improving the City’s street/road infrastructure, carrying out the Civic Center Revitalization project, stimulating economic development, maintaining public safety, FY 2023-24 FY 2023-24
Revenue Source Adopted Projected $ %
Property Tax 60,890,200$ 69,032,800$ 8,142,600$ 13% Sales Tax 60,307,600 60,116,000 (191,600) 0% Hotel Visitor's Tax 25,000,000 28,284,000 3,284,000 13% Other GF Revenue 21,039,600 25,146,000 4,106,400 20% Total Operating Revenue 167,237,400 182,578,800 15,341,400 9% One-Time Funding:
Use of FY 22-23 Surplus 1,648,200 1,648,200 - 0% Use of GF Fund Balance - 18,431,600 18,431,600 N/A Total Sources 168,885,600$ 202,658,600$ 33,773,000$ 20% Variance
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addressing homelessness, connecting with the community through various events. All were accomplished while maintaining the City’s General Fund in a healthy position.
The table below displays the Revised Budget by Department as well as projected amounts at the end of FY 2023-24.
Table 2 – FY 2023-24 General Fund Expenditures
Although t he current budget for FY2023 -24 is $214.5 million, staff is projecting budget savings of $11.9 million due to salary savings from vacancies and on -going projects with remaining funding that will be carried over to the next fiscal year. Projected expenditures for the year is $202.7 million, which matches the projected General Fund revenues, including the use of one-time fund balance.
General Fund Stability Reserve
The City Council’s General Fund Reserve policy requires the Stability Reserve be maintained at a minimum level of 16.7% or two-month worth of adopted operating revenues. Currently, the Stability Reserve has a balance of $25.7 million as of June 30, 2023. To comply with the policy, staff is recommending transfer $2.2 million from the unassigned fund balance to the Stability Reserve to bring the total reserve to $27.9 million, equivalent to 16.7% of FY 23- 24’s adopted operating revenues. The resolution to authorize the transfer is attached to the staff report.
FY 2024-25 General Fund
Revenues:
FY 2023-24 FY 2023-24
Department Revised Projected $ %
Fire 31,759,700 31,604,000 155,700 0% City Administration 12,476,200 11,606,100 870,100 7% Community Development 6,879,310 6,531,400 347,910 5% Community Services 6,851,700 6,201,000 650,700 9% Police 80,570,200 77,355,300 3,214,900 4% Public Works 21,621,200 18,835,600 2,785,600 13% Economic Development 6,926,400 6,058,800 867,600 13% Non-Departmental 2,245,000 1,784,200 460,800 21% Other Expenditures* 45,207,290 42,682,200 2,525,090 6% Total 214,537,000 202,658,600 11,878,400 6% Variance
* Other Expenditures include 2015 Bond defeasence, Euclid Building Acquisition, Pavement Mgmt. Program, P3/Civic Center, and Purcell
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For FY 2024 -25, the adopted General Fund operating revenues were $171.6 million, total sources for the General Fund was $174.3 million, which included $2.7 million from the fund balance. The use of the fund balance was to c over one-time expenditures. Given recent revenue trends along with updated information from the City’s revenue consultant, staff is recommending an upward adjustment of $11.1 million for FY 2024-25 for an amended total revenue of $185.4 million. The vast majority of the increase are from the Property Tax ($5.0 million) and the Hotel Visitor’s Tax ($2.3 million). Other adjustments include $1.1 million in additional lease revenue, $0.5 million from building permits, $0.4 million f rom investment earnings, $0.3 million from business license tax, and $0.4 million from fines, forfeitures and penalties, as well as charges for services.
The table below demonstrates the recommended amendments to the GF revenue sources.
Table 3 – FY 2024-25 General Fund Revenues
Expenditures:
The Adopted FY 2024 -25 General Fund budget was $174.3 million. The budgeted expenditures included each department’s base budget, anticipated Cost of Living Adjustments (COLAs) from the negotiated M emorandum of Understandings (MOUs), anticipated salary step increases, benefit increases, approved su pplemental requests for the second year , supplemental requests deferred to FY 24-25, and Orange County Fire Authority contract cost increases.
Prior to considering any supplemental requests for FY 24 -25, the adopted budget amounts were increased by the following three items:
1. Additional unfunded accrued liability (UAL) payment to CalPERS in the amount of $3.6 million, among which $3.1 million from the General Fund . Th is cost impact was embedded across all departments’ personnel budgets;
FY 2024-25 FY 2024-25
Revenue Source Adopted Amended $ %
Property Tax 62,096,500$ 67,134,400$ 5,037,900$ 8% Sales Tax 61,823,500 61,823,500 - 0% Hotel Visitor's Tax 25,750,000 28,000,000 2,250,000 9% Other GF Revenue 21,952,700 24,614,500 2,661,800 12% Total Operating Revenue 171,622,700 181,572,400 9,949,700 6% One-Time Funding:
Use of FY 22-23 Surplus 2,652,700 2,652,700 - 0% Use of GF Fund Balance - 1,130,100 1,130,100 N/A Total Sources 174,275,400$ 185,355,200$ 11,079,800$ 6% Difference
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2. Additional debt service payment of $7.2 million, due to the issuance of the 2024 Lease Revenue Bonds for the construction of the Public Safety Facility and Reimagined Civic Center Park. The amount is partially offset by the defeasance of the 2015 Lease Revenue Bonds. N et impact to the General Fund is $5.6 million. The debt service payment is included in the Non-Departmental budget; and
3. Additional capital expenditure in the amount of $2.5 million for Euclid building parking lot and tenant improvements. Funding for these improvements is included in the Economic Development & Housing Department’s budget.
After revising the projected revenue amount for FY 2 024-25 to confirm available resources to fund additional operational needs, the Departments submitted supplemental requests for FY 2024-25. Each request was carefully reviewed by the Budget Committee, and the following are recommended to be included in the amended FY2024-25 General Fund budget:
Community Development:
o Delete 1 Building Inspector and add 1 Plan Check Engineer – net cost $31,000 ($9,700 in the Water fund) per year;
o Delete 2 PT Parking Control Specialist and add 1 PT Code Enforcement Officer – net cost $33,700 per year;
o Delete 1 Plan Check Engineer and add 1 Building Division Manager – net Cost $33,400 per year.
City Manager’s Office:
o One-time funds for community enhancements - $250,000; o Add 1 Intern for the City Manager’s Office - $28,600 per year. Economic Development & Housing: Delete 1 Administrative Aide and add 1 Administrative Analyst (both General Fund and Non-General Fund) – net cost $17,900 per year – there are anticipated savings to the General Fund of $63,900 as the cost of the Administrative Analyst will be funded by different funding sources. The position will have administrative duties related to Economic Development activities, Housing activities, as well as other grant funded activities.
These proposed changes total $11.1 million, bringing the overall proposed amended General Fund budget to $185.4 mill ion. The following table shows the FY 2024 -25 General Fund Adopted Budget and Amended Budget with differences:
Table 4 – FY 2024-25 General Fund Adopted vs. Amended Budget
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Amended appropriations for public safety is 70.0% of the total amended General Fund’s operating budget, excluding capital expenditures. A breakdown of the amended FY 2024-25 General Fund public safety appropriations is shown in Table 5.
Table 5 –Public Safety Appropriations
Other Funds
In addition to General Fund supplemental requests, there are couple of proposed Non-General Fund supplemental requests including the following:
Public Works Utilities:
o $2,000,000 for operations and maintenance of four PFAS water treatment plants for the routine replacements of pre -filters and ion exchange resin. This is required to remove PFOS/PFOA and other contaminants to comply with state and federal regulations.
o Add 1 Sr. Water Production Operator - $147,200 per year o Utility Truck purchase - $93,300
There is sufficient revenue in the Water fund to support the proposed amendments.
FY 2024-25 FY 2024-25
Department Adopted Amended $ %
Fire 32,966,400$ 33,667,500$ 701,100$ 2% City Administration 12,966,300 13,562,200 595,900 5% Community Development 6,845,800 7,064,500 218,700 3% Community Services 7,092,200 7,217,400 125,200 2% Police 84,531,600 85,737,800 1,206,200 1% Public Works 20,902,500 21,038,500 136,000 1% Economic Development 6,723,900 9,038,200 2,314,300 34% Non-Departmental 2,246,700 8,029,100 5,782,400 257% Total 174,275,400$ 185,355,200$ 11,079,800$ 6% Difference
Amended Appropriations Amended Amount
Public Safety - Fire 33,667,500$
Public Safety - Police 85,737,800
Police Building Debt Service 7,171,800
Be Well Contract 1,200,000
Total Public Safety Appropriations 127,777,100$
Amended Budget Excluding Capital Exp. 182,555,200
Public Safety Appropriations as a % of Budget 70%
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Economic Development & Housing:
o Increase of Medal of Honor Trail Maintenance - $65,000 o Housing software & training - $53,000
These supplemental requests have been embedded within their respective funds.
Other Governmental Funds: Other Governmental funds are comprised primarily of federal, state and county grants for specialized programs, such as the CDBG, CalHOME, AQMD, etc. and funds used to fund the CIP projects such as Gas Tax, Citywide Park Fees, Measure M, etc. In addition to the estimated increase in labor costs where applicable, major proposed changes to the other governmental funds’ adopted budget include:
Increases in Gas Tax funding, primarily from the Road Maintenance and Rehabilitation Account (RMRA) from the state ($1.7 million);
Increases in the Citywide Park Fee funds for the Woodbury park expansion and renovations ($5.1 million);
Grant expenditure amendments in various grant funds ($4.1 million).
Internal Service Funds: Internal Service funds consist of the Fleet Operations, Information Technology (IT), Worker’s Compensation, General Liability and Building Rehab funds and others (listed in the attached resolut ion). The Internal Service funds account for the acquisition of goods and services provided by one City department to other City departments on a cost -reimbursement basis. The proposed amendments to the Internal Service funds include estimated labor cost increases where applicable and a $2.3 million increase to the Risk Management fund due to increases in settlements and associated legal fees as well as increases to insurance premiums.
Water: The Water Enterprise Fund’s adopted FY 2024 -25 budget totaled $52.8 million. In order to comply with federal and state regulations concerning PFOA/PFAS treatment and continue to meet operational and capital goals, staff is proposing an increase of $4.9 million for a total amended FY 2024-25 budget of $57.7 million. The amendment will enable Water staff to complete the following improvements and replacements:
Operate and flush 4,000 fire hydrants;
Replace 300 service lines;
Operate gate valves through the City;
Replace 130 gate valves;
Install new water service lines for Additional Dwelling Units (ADUs); Address leaks identified through the new Leak Detection Program offered by the Municipal Water District of Orange County;
Design and construction of the Above Ground Reservoir Repair Projects; Design and construction of Water Improvement Projects to address fire flow deficiencies; Design, construction and operation of new PFAs water treatment facilities; Continue with the upgrades of the SCADA System, involving Trask and Westhaven Reservoirs and BPS Stations;
Construction of the SCADA upgrade at the Lampson, Magnolia, and West Garden Grove Reservoirs and BPS Stations;
Construction of the Pressure Monitoring Upgrade; and
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Perform miscellaneous improvements and/or repairs.
Housing Authority: The Housing Authority’ s adopted budget for FY 2024 -25 totals $51.9 million. The budget includes funding from the Department of Housing and Urban Development for the Mainstream Vouchers Program and Housing Assistance Program portability. The authority provides rent subsidies fo r over 2,500 low -income families and provides several outreach activities to tenants and landlords and conduct annual and special inspections of properties.
Although there are several increases to the Housing Authority Admin Budget including labor cost increases and supplemental requests (reclassification of Administrative Aide to Administrative Analyst and funding for software and training), these increases are offset by the removal of the budgeted lease payments since the Housing division no longer leases the first floor of 12966 Euclid Building. The division operates out of the Purcell building currently.
The specific budget amendments for each fund is listed in the attached resolution.
Capital Improvement Plan
Various amendments are proposed to the Capital Improvement Plan (CIP) for FY2024-25 due to new funding sources identified after the adoption of the CIP budget last June. The largest amendment of $140.0 million is due to the new Public Safety Facility construction that is funded by the proceeds from the newly issued 2024 Lease Revenue Bonds. A summary of the amounts increased to the FY2024-25 CIP is listed in Table 6.
Table 6 – Budget Amendment to Capital Improvement Projects – FY2024-25
FINANCIAL IMPACT
The total amended budget proposed for FY 2024 -25 for all funds is approximately $547.0 million, representing an increase of $173.9 million from the adopted budget , which is primarily due to the Civic Center Revitalization Project and other increases mentioned throughout the staff report . The proposed increase is supported by projected revenue increases and other readily available sources.
RECOMMENDATION
It is recommended that the City Council adopt the following resolutions:
Fund Description Amended
Amount
Capital Fund Police Station Construction 140,000,000
Citywide Park Fee Funds Woodbury Park Expansion and Renovation 4,200,000 Sewer Utility Fund Various Sewer Main replacements and rehabilitation 4,096,100 Water Utility Fund Various Water Capital Projects 3,193,100 General Fund 12966 Euclid Building Parking Lot & Tenant Improvements 2,500,000 Gas Tax Funds Various street rehabilitation projects 1,669,500 Item 253/2024
Resolution of the City Council of the City of Garden Grove amending the City’s Adopted Biennial Budget for Fiscal Year 2024-25;
Resolution of the City Council of the City of Garden Grove adopting an appropriations limit for Fiscal Year 2024-25 implementing A rticle XIII B of the State Constitution pursuant to Section 7900 et. Seq. of the Government Code;
Resolution of the City Council of the City of Garden Grove amending the City’s Stability Reserves for Fiscal Year 2023-2024;
Resolution of the City Council of the City of Garden Grove appropriating fund balances as of June 30, 2024 to reserves for future year reappropriation; and
Resolution of the City Council of the City of Garden Grove reappropriating certain Fiscal Year 2023-24 Project Balances and Encumbrances for the Fiscal Year 2024-25.
ATTACHMENTS
1. Resolution of the City Council of the City of Garden Grove amending the City’s Adopted Biennial Budget for Fiscal Year 2024-25;
2. Resolution of the City Council of the City of Garden Grove adopting an appropriations limit for Fiscal Year 2024-25 implementing Article XIII B of the State Constitution pursuant to Section 7900 et. Seq. of the Government Code;
3. Resolution of the City Council of the City of Garden Grove amending the City’s Stability Reserves for Fiscal Year 2023-24;
4. Resolution of the City Council of the City of Garden Grove appropriating fund balances as of June 30, 2024 to reserves for future year reappropriation; and
5. Resolution of the City Council of the City of Garden Grove reappropriating certain Fiscal Year 2023-24 Project Balances and Encumbrances for the Fiscal Year 2024-25.