City of Huntington Beach
Proposed FY 2023/24 Budget Review
City Council Study Session
May 16, 2023
1 Presentation Overview
• FY 2022/23 General Fund Budget Update
• Proposed FY 2023/24 General Fund Budget Review
• Proposed FY 2023/24 Capital Improvement Budget Review • Key Budget Considerations for FY 2023/24
• Next Steps – FY 2023/24 Budget Approval
2 FY 2022/23 General Fund
Budget Update
3 Economic Overview & Local Budgetary Impacts
• Economic trends indicate a continued economic recovery from the financial impacts of COVID‐19, however, the collapse of Silicon Valley Bank and other regional banks are likely to restrict the availability of credit and economists largely expect some form of recession by the end of 2023. U.S. Real GDP increased 3.2% in Q3 2022, 2.6% in Q4 2022 and is expected to slow in Q1 2023 to 1.1% ‐ Consumer spending accelerated but was offset by weakness is housing, a decline in inventories, and a contraction in business equipment spending.
Federal Reserve increased rates for the 10th time in just over one year ‐ Federal Funds Rate currently at 5‐5.25%
‐ Chairman Powell has softened language to potentially allow for a pause in rate hikes ‐ Yield curve remains significantly inverted
• As we emerge from the economic impacts of the pandemic, the City is monitoring recent developments in the economy:
Russia/Ukraine Crisis
Inflation & Prices
Supply Chain Challenges
Rising Interest Rates
Labor Shortages
• City is projected to conclude FY 2022/23 with a $3.8M surplus (subject to change) 4 Proposed FY 2023/24
General Fund Budget Review
5 FY 2023/24 General Fund Proposed Budget Review
• Proposed FY 2023/24 General Fund Budget is structurally balanced, with a projected $3.6M surplus
6 * GF portion of Emerald Cove settlement, of
which 50% is being transferred to the Section
115 Trust and 50% is being transferred to the
General Liabilities Fund
** Includes Debt Service, Capital Expenditures,
and Transfers
• Continued Infrastructure Investments in FY2023/24
General Fund transfer to the Infrastructure Fund increased by 11% to $15.0M CIP budget totals $41.2M (decrease from prior year due to $12.9M of HB Recovery projects and a $6.6M grant for Heil Pump Station in FY 2022/23) General Fund (Fund 100)
(in thousands)
Proposed
FY 23/24
Revenues (recurring) $278,120
Revenues (one‐time) *2 , 2 7 6
Planned Use of Reserves (one‐time) 8,804
Total Sources of Funds 289,200
Personnel Costs 181,585
Operating Costs 55,315
Non‐Operating Costs ** 48,664
Total Expenditures 285,564
Surplus / (Deficit) $3,636
FY 2023/24 General Fund Proposed Revenues - $280.4M
7 Property Tax
37.2%
Sales Tax
19.1%Franchises
4.2%
Transient Occupancy Tax
5.9%
Utility Users Tax
7.6%
License & Permits
3.3%
Fines & Forfeitures
1.8%
Use of Money & Property
7.0%
Revenue from Other Agencies
1.0%
Charges for Current Services
11.6%
Other Revenue
0.6%
Non‐Operating Revenue
1.0%
General Fund recurring revenues anticipated to increase by $4.8 million from FY 2022/23 FY 2023/24 General Fund Proposed Revenues - $280.4M
• Major revenue variances include:
Property Tax: $104.2 million (4.3% or $4.3 million increase) - Higher assessed valuations as of January 1, 2023 versus prior fiscal year Transient Occupancy Tax: $16.6 million (-5% or $0.9 million decrease) - Expected decrease from current year hi gh, still $2.6 million higher than pre-COVID revenues
Use of Money & Property: $19.5 million (11.9% or $2.1 million increase) - Increased parking and lease/concession revenues
Non-Operating Revenue: $2.7 million (-90.9% or $27.3 million decrease) - FY 22/23 includes one-time transfer of $29.6 million American Rescue Plan Act funds
- Partially offset by FY 23/24 one-time revenues of $2.3 million for Emerald Cove settlement
8 FY 2023/24 General Fund Proposed Expenditures - $285.6M * Transfers include Infrastructure, Equipment, General Liability & Section 115 Trust Transfers
** Other includes City Council, City Manager,
City Attorney, City Clerk, and City Treasurer
9 Other **
4.0%
Finance
1.9%
Human Resources
0.9%
Information Services
2.9%
Community
Development
3.9%
Community &
Library Services
5.6%
Public Works
8.5%
Non‐
Departmental
23.0%
Fire
19.8%
Police
29.6%
BY DEPARTMENT
Personnel
63.6%
Operating
19.4%
Debt Service
2.1%
Transfers *
14.9%
BY CATEGORY
FY 2023/24 General Fund Proposed Expenditures - $285.6M • Major expenditure variances include:
Personnel: $181.6 million (6.2% or $10.6 million increase) - Increased Workers’ Compensation costs
- Increase to PERS Normal Cost
- Continuing impacts from FY 21/22 MOU updates
- Addition of 11 FTEs (more details on following slide) Transfers Out: $42.7 million (-22.7% or $12.5 million decrease) - FY 22/23 included transfers of $18.1 million for authorized HB Recovery Projects - Partially offset by FY 23/24 transfer of $2.3 million Emerald Cove settlement and additional Infrastructure and General Liability Fund transfers 10 Recommended FY 2023/24 Authorized Positions
• Staff is proposing 11 new General Fund positions in the FY 2023/24 Budget:
City Attorney’s Office
‒ (1) Deputy Community Prosecutor to support increased caseload ‒ (2) Senior Deputy City Attorneys (Advisory and Litigation) to assist with increased caseload and demand for services
‒ (1) Senior Legal Assistant to provide additional support for the City Attorney’s Office City Clerk Department
‒ (1) Municipal Records Manager to facilitate centralization of record keeping, including oversight of the Records Division within the City Clerk’s Office City Manager Department
‒ (1) Graphic Designer to assist with citywide public information materials in the Office of Communications and the City’s Cable “3” Channel
‒ (1) Multi-Media Officer to oversee operations of the City’s Cable “3” Channel, YouTube Channel, and online digital content
11 Recommended FY 2023/24 Authorized Positions
• Staff is proposing 11 new General Fund positions in the FY 2023/24 Budget:
Community Development Department
‒ (2) Combination Inspectors to mitigate backlog and provide more timely inspections ‒ (1) Plan Check Engineer to meet demand for plan check services and bring part of contracted consulting work in-house – restore eliminated position Human Resources
‒ (1) Human Resources Analyst in the Risk Management Division to support increased workload, mitigate risk and ensure compliance with regulatory requirements 12 854.40
859.50 861.85 859.77
852.05
852.20
792.95
810.70 817.82
832.19
790.00
800.00
810.00
820.00
830.00
840.00
850.00
860.00
870.00
FY 14/15 FY 15/16 FY 16/17 FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24 FY 2023/24 Full Time Equivalent – General Fund
Pre‐COVID
13 General Fund Long-Term Financial Plan
5.5% CalPERS Return FY22/23
14 (in thousands)
Actual
FY21/22
Projected
FY22/23
Proposed
FY23/24
Projected
FY24/25
Projected
FY25/26
Projected
FY26/27
Revenue (Recurring) $256,246 $273,293 $278,120 $283,950 $289,547 $295,399 Revenue (One‐Time) ‐ 29,607 2,276 ‐‐ ‐
Planned Use of Reserves ‐‐ 8,804 ‐‐ ‐
Total Sources of Funds $256,246 $302,900 $289,200 $283,950 $289,547 $295,399 Expenditures less UAL 234,277 251,031 267,288 265,363 269,122 272,018 CalPERS UAL 4,891 4,891 5,000 5,000 8,540 12,990
POB Payment 13,688 13,556 13,276 13,010 12,750 12,537
One‐Time Expenditures ‐ 18,135 ‐‐ ‐ ‐
Total Expenditures 252,856 287,613 285,564 283,373 290,412 297,545 HB Recovery Reserves ‐ (11,472) ‐‐ ‐ ‐
Surplus/(Deficit) $3,390 $3,815 $3,636 $577 ($865) ($2,146) • Requires use of Section 115 Trust reserves starting in FY 2025/26 Pension Update
• CalPERS return in FY 20/21 was 21.3%:
CalPERS Funding level 102.8% vs. 76.7% funded
• CalPERS return in FY 21/22 was ‐7.5%:
Estimated CalPERS Funding level is 87.9%
• As part of our pension plan, the City also adopted an Unfunded Accrued Liability Pension Funding Policy, which mandates that we set‐aside additional funds to payoff any new future pension debt
• A $2.6 million transfer is included in the proposed
FY 2023/24 budget to prefund pension liabilities via our Section 115 Trust
• Projections assume CalPERS earns 5.5% in FY22/23 and 6.8% going forward (CalPERS discount rate)
15 Years
CalPERS
Plan Return
1 Year ‐7.5%
5 Years* 6.7%
10 Years* 7.7%
20 Years* 6.9%
30 Years* 7.7%
* Based on original est. ‐6.1% return
CalPERS UAL Payment Projection
16 CalPERS UAL Payments based on projected CalPERS 5.5% Return in FY22/23 and 6.8% moving forward
Fund Balance Policy
17 • The City desires to maintain a prudent level of reserves based on the revenue impacts described above and the City's desire to maintain strong bond ratings to minimize borrowing costs.
• The Government Finance Officers Association (GFOA) recommends a minimum of two months of operating expenditures be set aside for unforeseen events. • Staff is recommending consolidating certain General Fund Assignments into the Economic Uncertainties Reserve in order to meet the two‐month reserve requirement. • A minimum of 25% of unrestricted one‐time revenues would be transferred to the Section 115 Trust. • Additionally, staff is recommending strengthening the City’s Reserve policy to ensure that funds are set aside systematically and used only when truly necessary and approved by a 6/7th vote of City Council. • If Economic Uncertainties Funds are utilized and the level falls below the two‐month reserve requirement, the Chief Financial Officer will bring forward a proposed plan to City Council to replenish the fund within three fiscal years.
• Cities with robust fiscal reserve policies are more likely to receive improved bond ratings based on higher scores related to financial management policies and improved fund balance reserves.
FY 2023/2024
Capital Improvement
Program (CIP)
FY 2022/23 ACCOMPLISHMENTS
• Drainage and Stormwater 10 projects $15M
• Facilities 20 projects $10M
• Neighborhood 5 projects $10M
• Parks and Beaches 9 projects $6M
• Sewer 7 projects $13M
• Streets and Transportation 32 projects $26M
• Water 4 projects $5M
STARTED OR COMPLETED 87 OF 94 PROJECTS
VALUED AT $85M!
19 DRAINAGE $1.8M
• Fueling Station Canopies $500k (INFR FUND)
• Storm Drain PS Building Improvements $187k (DRAINAGE FUND) • Storm Drain PS Forebay Improvements $187k (DRAINAGE FUND) • Atlanta Storm Drain Trash Removal $884k (INFR FUND and Grant) 20 FACILITIES $4M
• ADA Improvement Program – Citywide $250k (INFR FUND) • Civic Center Hot Water System Replacement (Design) $50k (INFR FUND) • Ocean View Estates Roadways and Driveways $346k (INFR FUND) • Civic Center – City Treasurer’s and City Clerk’s Office Remodel $200k (INFR FUND) • Banning Branch Library Master Plan $335k (DONATIONS)
• Police Women’s Locker Room $1.9M (INFR FUND) • PD Communications Center Remodel $600k (INFR FUND and SLESF) • Central Library Lower Level ADA Restrooms $300k (CDBG) 21 NEIGHBORHOOD $7.4M
• Residential Curb Ramps $700k (Measure M,INFR FUND, and CDBG) • Residential Overlay $6.7M (GAS TAX, INFR FUND, Sewer and Water Fund) 22 PARKS AND BEACHES $2.8M
• Seely Park Playground Improvements $389k (Park DIF, Donations) • Trinidad Park Playground Improvements $197k (Park DIF) • Softball Field Improvements $554k (Quimby) • Surfside-Sunset Beach Nourishment $410k (INFR FUND) • Eader Park Parking Lot Resurfacing $100k (AES) • Edison Park Reconfiguration $1.2M (AES) 23 SEWER IMPROVEMENTS $8.3M
• Sewer Lift Station Improvements $5.1M
• Sewer Lining – Various Locations $1.4M
• Edinger Sewer Murdy Channel to Beach Blvd. $1.8M
24 STREETS & TRANSPORTATION $11.8M
• Arterial Rehabilitation $5.6M (RMRA, MEAS M)
• AES Complete Street Improvements $2.6M (AES Funds) • Oak View Streetscape $1.2M (INFR FUND)
• Goldenwest Median Turf Replacement $125k (INFR FUND)
• Bella Terra PD Substation Fiber Optic $140k (INFR FUND) • Murdy Fire Station Signal $345k (TIF)
• Bridge Preventive Maintenance Program $1M (Prop 42)
• Edinger and Heil Corridors Traffic and Ped Safety Imp. $826K (HSIP, TIF) 25 WATER IMPROVEMENTS $5M
• Utilities Yard Parking Lot Paving $200k
• Water Production Building Rehab $355k
• On Site Gas Generation Wells 5 and 9 $1M
• WOCWB CP Retrofit of OC-9 $300k
• Hartlund Water Main Replacement Project $1.25M • Well 3A Treatment System for Dissolved Manganese $1.9M 26 Key Budget Considerations
for FY 2023/24
27 City Council Direction and Feedback Requested
28 • City Council feedback of the proposed FY 2023/24 Budget is requested, especially as it relates to:
1) Transfer of $4.9 million AES Reserve to Fund 1284 for AES CIP Projects 2) Use of $3.9 million Equipment Replacement Reserve
3) General Fund portion of Emerald Cove Settlement totals $2.3 million - Split 50/50 between Section 115 Trust and General Liabilities Fund 4) Addition of 11 FTEs across various departments
5) Recommended update to the General Fund Fund Balance Policy FY 2023/24 Budget –
Next Steps
29 FY 2023/24 Budget Next Steps
30 • Based on City Council feedback tonight, staff will make requisite adjustments to the proposed FY 2023/24 Budget
• Revised budget will be brought back for formal City Council consideration / adoption on June 6th
Questions?