Financial Update & FY 2022/23
Mid-Year Budget Adjustments
City Council Meeting
February 21, 2023
1 Presentation Overview
• City FY 2022/23 Budget Update
• FY 2022/23 Mid-Year Budget Adjustment Requests
• Staffing Levels and Vacancies
• Financial Health Indicators
2 City FY 2022/23 Budget Update
3 Financial Update
• The City ended FY 2021/22 with a $3.4 milli on surplus primarily due to a stronger recovery in sales tax and transient occupancy tax than originally anticipated • Recent economic indicators in 2022 signal caution
• These economic factors are creating headwinds for expansion, investment, and consumer demand
• Consumers are saving less, drawing fr om savings, and increasing credit usage • State unemployment December 2022 is 4.1% after 16.1% COVID peak (May 2020) although ratio of job openings to job seekers is starting to decline 4 Interest Rates
•F e d raised rates 7
times in 2022 to
4.25‐4.50%
•I n v e r t e d yield curve
Inflation
•9 . 1 % June 2022
•8 . 2 % Sept 2022
•6 . 5 % Dec 2022
GDP
• 1Q2022: ‐1.6%
• 2Q2022: ‐0.6%
• 3Q2022: +3.2%
• 4Q2022: +2.9%
Market Index
• 2022
• Bond: ‐12.3%
•U S Stock: ‐19.4%
•I n t ’ l Stock: ‐14.79%
General Fund Long-Term Financial Plan
6.8% CalPERS Return FY22/23
5 (in thousands)
Actual
FY21/22
Adopted
FY22/23
Projected
FY22/23
Projected
FY23/24
Projected
FY24/25
Projected
FY25/26
Projected
FY26/27
Revenue (Recurring) $256,246 $253,552 $273,293 $276,763 $282,097 $287,695 $293,546 Revenue (One‐Time) ‐ 29,607 29,607 ‐‐ ‐ ‐
Total Revenues $256,246 $283,159 $302,900 $276,763 $282,097 $287,695 $294,546 Expenditures less UAL 234,277 234,415 251,031 256,408 262,956 269,158 274,718 CalPERS UAL 4,891 4,891 4,891 5,000 5,000 8,270 12,380 POB Payment 13,688 13,556 13,556 13,276 12,989 12,687 12,537 One‐Time Expenditures ‐ 16,135 16,135 ‐‐ ‐ ‐
Total Expenditures 252,856 268,997 285,613 274,684 280,945 290,115 299,635 HB Recovery Reserves ‐ (13,472) (13,472) ‐‐ ‐ ‐
Surplus/(Deficit) $3,390 $690 $3,815 $2,078 $1,153 ($2,421) ($6,089) • Requires use of Section 115 Trust reserves (per UAL Policy) starting in FY25/26 • Insufficient funds projected to be available in Section 115 Trust and Pension Stabilization Reserve to structurally balance the budget starting FY28/29
CalPERS Update
FY2021/22 CalPERS return of -7.5% (original estimate -6.1%) requiring escalating UAL payments by the City
October 18 – City Council approved $3 million to fund the Section 115 Trust to address CalPERS’ unfavorable return
Section 115 Trust balance as of June 30, 2022: $15.4M CalPERS Gains & Losses amortized over 20 years with a 5 year ramp-up Projections assumes CalPERS earns 6.8% in FY23/24 going forward which is CalPERS’ discount rate
6 Years
CalPERS
Plan Return
1 Year ‐7.5%
5 Years* 6.7%
10 Years* 7.7%
20 Years* 6.9%
30 Years* 7.7%
Decrease
UAL
Payments
Increase
UAL
Payments
CalPERS Return
CalPERS Return
CalPERS’ investment policy
focuses on long-term plan
returns
POB is financially advantageous
as long as CalPERS long-term
return is > 2.925%
* Based on original est. ‐6.1% return
CalPERS UAL Payment Projection
7 6
‐
4 9
15 20
25 26 26 26 26
6 ‐
4 8
12 16
21 20 20 20 20
6 ‐
4 7
10 13
16 15 15 15 15
0 5
10 15
20 25
30 6/30/2023 6/30/2024 6/30/2025 6/30/2026 6/30/2027 6/30/ 2028 6/30/2029 6/30/2030 6/30/2031 6/30/2032 6/30/2033 Millions
3.4% Return 6.8% Return 10.2% Return
CalPERS UAL Payments based on projected FY22/23 CalPERS Returns scenarios, with 6.8% return from FY 2023/24 onward.
CalPERS UAL Payment Projection
8CalPERS UAL Payments based on projected CalPERS 6.8% Return in FY22/23 and moving forward
6.1 8.8
12.0 11.3 10.1
8.1 5.1 3.9
4.9 ‐
5.0 8.3
12.4 16.5
20.5 20.4 20.3 20.2 20.1 20.0
‐
5 10
15 20
25 2022‐23 2023 ‐24 2024 ‐25 2025 ‐26 2026 ‐27 2027 ‐28 2028 ‐29 2029 ‐30 2030 ‐31 2031 ‐32 2032 ‐33 2033 ‐34 Millions
Baseline Addt'l General Fund Section 115 Trust Shortfall UAL Payment FY 2022/23 Mid-Year Budget Adjustments
9 Mid-Year Budget Adjustment Requests
10 Mid‐year budget adjustments are requested in 6 separate funds:
1. General Fund (100)
2. Asset Forfeiture (212)
3. Equipment Replacement (324)
4. Workers’ Compensation (551)
5. Supplemental Law Enforcement Services Fund (SLESF) (984)
6. New grant fund (TBD)
Adequate funding is available for all requested budget adjustments General Fund Adjustments
11 Community & Library Services Department
• $537K – increased demand for contract class instructors and increased printing costs for Spring & Summer SANDS offset with recreational and art class revenues for a net zero impact
Community Development Department
• $700K – increased building plan check services offset with plan check permit revenues for a net zero impact
Finance Department
• $115K – increase in credit card processing fees for payments made through the City’s Enterprise Land Management (ELM) system
General Fund Adjustments
12 Fire Department
• $525K –F i r e strike team reimbursement costs offset with strike team reimbursement revenues for a net zero impact
• $175K –M e d i c a l & safety supplies for City ambulances offset with emergency medical response revenues for a net zero impact
Police Department
• $189K increased payment to County for 800MHz cost sharing Public Works Department
• $752K – increased citywide fuel costs
• $590K – increased vehicle maintenance and accident repair costs General Fund Adjustments
13 Non‐Departmental
• $250K – increased utility costs for natural gas
• $500K transfer to the Equipment Fund to ensure adequate funding for essential capital equipment needs and address rising equipment costs • $4.3M transfer to the Workers’ Compensation Fund to ensure adequate funding for workers’ compensation claims
• $2.0M transfer to the Section 115 Trust to protect the City from future pension cost increases
General Fund Adjustment Summary
14 Department Appropriation Revenue Offset Net Increase Community & Library $537,000 $537,000 ‐
Community Development 700,000 700,000 ‐
Finance 115,000 ‐ 115,000
Fire 700,000 700,000 ‐
Police 189,000 ‐ 189,000
Public Works 1,342,000 ‐ 1,342,000
Non‐Departmental 7,050,000 ‐ 7,050,000
General Fund Total $8,633,000 $1,937,000 $8,696,000
Other Fund Adjustments
15 • Other Fund Adjustments requested in the following funds:
• Narcotics Forfeiture ‐ Federal (212)
• Equipment Replacement (324)
• Refuse Collection Service (504)
• Workers’ Compensation (551)
• Supplemental Law Enforcement Services Fund (SLESF) (984) • CalAPP Grant Fund (new)
Other Fund Adjustments
16 Workers’ Compensation (Fund 551) –H u m a n Resources • $4.3M for increased costs of claims due to rising medical costs and an expanded list of injuries that are presumed to be work related under California law, including cancer, post‐ traumatic stress, and long‐term impacts of COVID. Appropriation is funded by requested $4.3M transfer in from the General Fund.
Supplemental Law Enforcement Services Fund (SLESF) (Fund 984) – Police • $750K appropriation for temporary relocation of the dispatch center to Central Net and for the purchase and implementation of a new software to facilitate efficient real‐time, fact‐based decision making.
CalAPP Grant (new Fund) ‐ Community Development
• $80K CalAPP Grant for solar permit platform. Offsetting grant revenues and expenditures for net zero impact.
Other Fund Adjustments
17 Narcotics Forfeiture ‐ Federal (Fund 212) – Police
• $60K for overtime costs arising from participation in the Orange County Regional Narcotics Suppression Program.
Equipment Replacement (Fund 324) –N o n‐Departmental
• $500K appropriation in the Equipment Replacement Fund to ensure adequate funding for essential capital equipment needs and address rising equipment costs. Appropriation is funded by requested $500K transfer in from the General Fund.
Refuse Collection Service (Fund 504) – Public Works
• $531K to fund pass‐thru costs associated with the Refuse Collection and Disposal Services contract. Based on current revenue collection amounts, these adjustments will have a net zero impact.
Other Funds Adjustment Summary
18 Fund Fund Name Appropriation Revenue Offset Net Increase 212 Narcotics Forfeiture ‐ Federal $60,000 ‐ $60,000
324 Equipment Replacement 500,000 500,000 ‐
504 Refuse Collection Services 531,000 531,000 ‐
551 Workers' Compensation 4,300,000 4,300,000 ‐
984 Supplemental Law Enforcement Services 750,000 ‐ 750,000 New CalAPP Grant 80,000 80,000 ‐
Other Funds Total $6,221,000 $5,411,000 $810,000
Sufficient revenues, cash, and/or fund balances are available to support the requested other funds adjustments
Summary of Mid-Year Budget Requests
• Approve appropriations
and/or transfers of
$16.8M
• Projected General Fund
FY22/23 surplus after
appropriation: $3.8M
• Approve professional
service contract
increases
• Approve CalAPP Solar
Permit Grant
19 Fund Description Amount Total
General
Fund
Department appropriation requests $3,833,000
$10,633,000
Equipment Transfer 500,000
Workers’ Compensation Transfer 4,300,000
Section 115 Trust Transfer 2,000,000
Other
Funds
Narcotics Forfeiture ‐ Federal 60,000
$6,221,000
Equipment Fund Appropriation 500,000
Refuse Collection Services 531,000
Workers' Compensation Appropriation 4,300,000
Supplemental Law Enforcement 750,000
CalAPP Grant 80,000
Total $16,854,000
Less: Offsetting revenues ($7,348,000)
Net Increase $9,506,000
Staffing Levels and Vacancies
20 FY 2022/23 Full Time Equivalent – General Fund
Pre‐COVID
21 FY 2022/23
Adopted
Budget
Historical Vacancies – General Fund
22 Average Salary + Benefits = Fully Burdened
Non‐Sworn: $90,876 31,405 $122,281
Sworn: $139,124 65,649 $204,773
Financial Health Indicators
23 Financial Position
Can the City Pay Its Bills Now?
24 • FHI # 1 General Fund Reserve Ratio – Building up reserves which is useful in identifying deteriorating fund balance reserves.
• FHI #2 General Fund Liquidity Ratio – Ability to pay expenses which is useful in identifying the City’s ability to pay bills on time.
FHI #1 General Fund Reserve Ratio
25 A declining fund balance reserve can be a sign of fiscal stress. This indicator is important in identifying a trend of a deteriorating fund balance reserves as well as how rapidly it is deteriorating. A higher ratio suggests larger reserves for dealing with unexpected resource needs in the long run.
FY 17‐18
(9 mos)
35%
FY 18‐19
31%
FY 19‐20
33%
FY 20‐21
34% FY 21‐22
33%
5‐Year General Fund Reserve Ratio
City of Huntington Beach
Fullerton, 21%
Anaheim, 31%
Orange, 32%
Huntington Beach, 33%
Newport Beach, 34%
Costa Mesa, 34%
Santa Ana, 43%
Garden Grove, 80%
Irvine, 95%
FY 21‐22 General Fund Reserve Ratio ‐ Comparable Cities FHI #2 General Fund Liquidity Ratio
26 A declining ratio indicates a city does not have sufficient cash available to meet its current obligations as they come due. This indicator is important in identifying a trend of deteriorating cash as well as how rapidly it is deteriorating.
Ideally, a higher ratio suggests a greater capacity for paying off short‐term obligations.
FY 17‐18
(9 mos)
6.20 FY 18‐19
7.14 FY 19‐20
6.55 FY 20‐21
8.52 FY 21‐22
5.38 5‐Year General Fund Liquidity Ratio ‐
City of Huntington Beach
Fullerton, 2.05
Anaheim, 2.43
Orange, 3.29
Costa Mesa, 4.36
Huntington Beach, 5.38
Newport Beach, 5.77
Santa Ana, 7.56
Irvine, 8.25
Garden Grove, 14.07
FY 21‐22 General Fund Liquidity Ratio ‐ Comparable Cities Financial Performance
Can the City’s Revenues Cover Its Expenses?
27 • FHI # 3 General Government Growth in Net Position Ratio – Change in Net Assets where growth in net position indicates City can pay its expenses with ongoing revenue and establish appropriate reserves for future allocation. • FHI # 4 General Government Operating Margin Ratio – City services are more self‐sufficient through charges, fees, and grants.
• FHI #5 General Government Own Source Revenue Ratio – Reliance on tax dollars versus the City's reliance on federal and state grants.
FHI #3 General Government Growth in Net
Position Ratio
28 Revenues from programs ideally should cover the expenses that are incurred for those programs, otherwise reserves may need to be used to meet the needs. A higher ratio suggests that annual costs are adequately funded, and the financial condition is improving.
FY 17‐18
(9 mos)
5.1%
FY 18‐19
4.6%
FY 19‐20
0.8%
FY 20‐21
0.5%
FY 21‐22
8.3%
5‐Year General Government Growth in Net Position ‐ City of Huntington Beach
Irvine, 0.1%
Newport Beach, 3.1%
Orange, 5.8%
Garden Grove, 8.3%
Huntington Beach, 8.3%
Anaheim, 12.3%
Santa Ana, 12.4%
Fullerton, 13.4%
Costa Mesa, 28.2%
FY 21‐22 General Government Growth in Net Position ‐ Comparable Cities FHI #4 General Government Operating Margin
Ratio
29 A city charges for services and may receive grants and aid from other governments (e.g., Federal and State). For this ratio, a higher ratio suggests basic government services are more self‐sufficient through charges, fees, and grants and less reliant on general tax dollars to fund program expenditures.
FY 17‐18
(9 mos)
41% FY 18‐19
32%
FY 19‐20
31% FY 20‐21
25%
FY 21‐22
38%
5‐Year General Government Operating Margin Ratio ‐
City of Huntington Beach
Costa Mesa, 25.0%
Orange, 30.7%
Huntington Beach, 37.6%
Newport Beach, 40.5%
Garden Grove, 44.4%
Santa Ana, 52.2%
Irvine, 53.1%
Fullerton, 54.1%
Anaheim, 65.3%
FY 21‐22 General Government Operating Margin Ratio ‐ Comparable Cities FHI #5 General Government Own Source
Revenue Ratio
30 Revenues from grants are used to support some City functions. Other functions, such as public safety, are mainly funded by general tax dollars. This ratio illustrates the extent to which government revenues were supported by grants. A lower ratio suggests that the City is not heavily reliant on grants and more reliant on general tax dollars and charges for services.
FY 17‐18
(9 mos)
5%
FY 18‐19
6%
FY 19‐20
9%
FY 20‐21
6%
FY 21‐22
6%
5‐Year General Government Own Source Revenue
Ratio ‐ City of Huntington Beach
Anaheim, 36.6%
Santa Ana, 28.6%
Irvine, 25.8%
Garden Grove, 25.1%
Fullerton, 17.7%
Orange, 13.9%
Costa Mesa, 10.9%
Newport Beach, 8.5%
Huntington Beach, 6.0%
FY 21‐22 General Government Own Source Revenue Ratio ‐ Comparable Cities Long-Term Solvency
Can the City Pay Its Bills in the Future?
31 • FHI # 6 General Government Near‐Term Solvency Ratio – Ability to pay obligations with annual revenues where fewer number of years of annual revenue needed to pay City obligations the stronger its financial condition.
• FHI # 7 General Government Debt, Pension Liability & Other Post‐Employment Benefits (OPEB) Burden per Resident – Amount of liability per resident where lower liability per capita results in smaller debt, pension, and OPEB burden on taxpayers. • FHI # 8 Governmental Funds Coverage Ratio – A larger portion of expenses used for debt means the City is less able to spend money on services and capital improvements.
• FHI # 9 Enterprise Funds Coverage Ratio – Availability of resources for Enterprise Funds to make bond payments.
FHI #6 General Government Near-Term Solvency
Ratio
32 This ratio demonstrates a City’s ability to pay a larger portion of its debts with annual revenues. For this measure, a lower ratio indicates a stronger financial condition.
FY 17‐18
(9 mos)
2.80 FY 18‐19
1.93 FY 19‐20
1.98 FY 20‐21
1.92 FY 21‐22
1.65 5‐Year General Government Near‐Term Solvency Ratio ‐ City of Huntington Beach
Santa Ana, 2.14
Costa Mesa, 2.01
Orange, 1.91
Anaheim, 1.78
Huntington Beach, 1.65
Garden Grove, 1.57
Fullerton, 1.47
Newport Beach, 1.23
Irvine, 0.49
FY 21‐22 General Government Near‐Term Solvency Ratio ‐ Comparable Cities FHI #7 General Government Debt, Pension
Liability, & OPEB Burden per Resident Ratio
33 Lower bonded debts, pension liability, and other post‐employment benefits (OPEB) per capita result in a smaller debt burden on taxpayers. For this measure, a lower ratio indicates a stronger financial condition.
FY 17‐18
(9 mos)
2,305
FY 18‐19
2,227
FY 19‐20
2,275
FY 20‐21
2,328
FY 21‐22
1,439
5‐Year General Government Bonded Debt, Pension Liability & OPEB Burden per Resident ‐ City of Huntington Beach
Newport Beach, 3,466
Anaheim, 3,462
Costa Mesa, 2,932
Fullerton, 2,906
Santa Ana, 1,986
Orange, 1,624
Garden Grove, 1,527
Huntington Beach, 1,439
Irvine, 144
FY 21‐22 General Government Bonded Debt, Pension Liability & OPEB Burden per Resident ‐ Comparable Cities
FHI #8 Governmental Funds Coverage Ratio
34 A City has principal and interest payments on debts. The lower the amount of these payments compared to all the other expenditures it has, the stronger its financial condition. For this measure, a lower ratio indicates a stronger financial condition.
Orange, 11.3%
Huntington Beach, 9.1%
Anaheim, 8.0%
Newport Beach, 4.9%
Santa Ana, 2.5%
Costa Mesa, 2.0%
Garden Grove, 1.0%
Fullerton, 0.2%
Irvine, 0.01%
FY 21‐22 Governmental Funds Coverage Ratio ‐ Comparable Cities FY 17‐18
(9 mos)
0.8% FY 18‐19
2.9%
FY 19‐20
2.7% FY 20‐21
1.8%
FY 21‐22
9.1%
5‐Year Governmental Funds Coverage Ratio ‐
City of Huntington Beach
FHI #9 Enterprise Funds Coverage Ratio
35 Just like a City’s governmental services need to pay their debts (i.e., bonds) in the long‐term, a city’s enterprise funds need to do so as well. The City’s Enterprise Funds include Electric, Water, Sewer, Refuse, and Hazmat Service Funds.
For this measure, a higher ratio indicates a stronger financial condition.
FY 20‐21
509.63
FY 21‐22
128.01
5‐Year Enterprise Funds Coverage Ratio ‐ City
of Huntington Beach
Costa Mesa, 0.00
Irvine, 0.00
Anaheim, 18.17
Garden Grove, 60.74
Orange, 83.38
Santa Ana, 122.38
Huntington Beach, 128.01
Fullerton, 218.92
Newport Beach, 4,631.75
FY 21‐22 Enterprise Funds Coverage Ratio ‐ Comparable Cities Note: No Enterprise Funds in the cities of Costa Mesa and Irvine.
Long-Term Solvency - Continued
Can the City Pay Its Bills in the Future?
36 • FHI # 10 General Government Capital Asset Value Ratio – Change in value of capital assets where if City doesn't replace or renovate its capital assets, value over time decreases.
• FHI # 11 Enterprise Funds Capital Asset Age Ratio – Percentage of Enterprise Funds capital assets that have been depreciated.
• FHI #12 Public Safety Costs Ratio – Compares and determines the funding level of the General Fund public safety costs.
FHI #10 General Government Capital Asset
Value Ratio
37 Capital assets include land, buildings, vehicles, and public infrastructure. Most of the City’s capital assets decrease in value over time due to depreciation. A negative ratio means that the overall value of a city’s assets decreased over the year indicating some assets may need to be renovated or replaced. For this measure, a higher ratio indicates a stronger financial condition.
FY 17‐18
(9 mos)
1%
FY 18‐19
1% FY 19‐20
1%
FY 20‐21
3%
FY 21‐22
1%
5‐Year Governmental Capital Assets Value Ratio ‐ City of Huntington Beach
Irvine, ‐1%
Costa Mesa, ‐1%
Anaheim, 0.4%
Garden Grove, 0.03%
Newport Beach, 0.04%
Huntington Beach, 1%
Santa Ana, 2%
Orange, 3%
Fullerton, 5%
FY 21‐22 Governmental Capital Assets Value Ratio ‐ Comparable Cities FHI #11 Enterprise Funds Capital Asset Value
Ratio
38 Depreciable capital assets include buildings, vehicles, and public infrastructure. Assets are depreciated over their useful life as they age, and their value is reduced. A lower ratio indicates Enterprise Funds capital assets are newer and may not require as much replacement and/or maintenance costs compared to older capital assets.
Note: No Enterprise Funds in the cities of Costa Mesa and Irvine.
FY 17‐18
(9 mos)
46%
FY 18‐19
47%
FY 19‐20
48%
FY 20‐21
50%
FY 21‐22
50%
5‐Year Enterprise Funds Capital Asset Ratio ‐ City of
Huntington Beach
Orange, 63%
Santa Ana, 52%
Huntington Beach, 50%
Garden Grove, 45%
Anaheim, 40%
Newport Beach, 38%
Fullerton, 37%
Costa Mesa, 0%
Irvine, 0%
FY 21‐22 Enterprise Funds Coverage Ratio ‐ Comparable Cities FHI #12 General Fund Public Safety Costs Ratio
39 This ratio compares the total costs of the General Fund public safety, which includes police and fire, to the total General Fund expenditures. A higher ratio indicates more funds are dedicated to public safety.
FY 17‐18
(9 mos)
52%
FY 18‐19
60%
FY 19‐20
63%
FY 20‐21
65%
FY 21‐22
61%
5‐Year General Fund Public Safety Costs Ratio ‐
City of Huntington Beach
Garden Grove, 70%
Fullerton, 70%
Huntington Beach, 61%
Orange, 61%
Costa Mesa, 55%
Santa Ana, 54%
Anaheim, 49%
Newport Beach, 42%
Irvine, 40%
FY 21‐22 General Fund Public Safety Costs Ratio ‐ Comparable Cities
ONGOING CHALLENGES
• Inflationary Costs
• Increased CalPERS Costs
• Increased Workers’ Compensation Costs
• Increased General Liability Costs
• Increasing General Fund Reserves
• Capital and Infrastructure Needs
40 Fiscal Health Summary
• Healthy available General Fund reserves and liquidity maintained at very strong levels during the past several years, including during the COVID‐19 pandemic.
• General Fund fund balance equivalent to 34% of FY 2021/22 revenues • Property tax base provides a stable revenue source with significant amount of untapped assessed valuation
• Diverse sales tax base (no single dominant industry or business) • AAA Fitch rating maintained since first received in 2014 • Credit rating could lower if City’s available General Fund reserves are reduced to weaker levels in the future without a plan to restore balance within two fiscal years.
• Addressing upcoming challenges proactively will determine the future of the City’s continued financial health.
41 Recommended Actions
• Receive and File the FY 2021/22 Annual Comprehensive Financial Report and other auditor issued reports
• Receive and File the Fiscal Health Report
• Approve mid‐year budget adjustments to the FY 2022/23 Revised Budget • Authorize additional Professional Services authority in the Fiscal Year 2022/23 Revised Budget
• Approve and authorize the Mayor and City Clerk to execute “Amendment No. 1 to Agreement between the City of Huntington Beach and CSG Consultants, Inc. for On‐Call Building Division Plan Review Services”
• Approve and authorize the Mayor and City Clerk to execute “Amendment No. 1 to Agreement between the City of Huntington Beach and True North Compliance Services, Inc. for On‐Call Building Division Plan Review Services” • Accept, approve and authorize the City Manager to execute the grant agreement with the State of California Energy Commission in the amount of $80,000 42 Questions?