City of Huntington Beach
FY 2023/24 Budget Adoption
City Council Public Hearing
June 6, 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
• FY 2023/24 Budget Approval and Key Considerations
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 FY 2023/24 General Fund Proposed Expenditures - $285.6M • Major expenditure variances include:
Planned Use of Reserves (one-time): $8.8 million
- Appropriation and transfer of the full balanc e of the AES Reserve ($4.9 million) to the AES Mitigation Fund for various Capital Improvement Projects as outlined in the Memorandum of Understanding between the City and AES Southland Development LLC
- Appropriation and transfer of $3.9 million from the Equipment Replacement Reserve to the Equipment Replacement Fund for the purchase of critical infrastructure and public safety vehicles and equipment 11 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 ($162K) ‒ (2) Senior Deputy City Attorneys (Advisory and Litigation) to assist with increased caseload and demand for services ($408K)
‒ (1) Senior Legal Assistant to provide additional support for the City Attorney’s Office ($117K) 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 ($149K) 12 Recommended FY 2023/24 Authorized Positions
• Staff is proposing 11 new General Fund positions in the FY 2023/24 Budget:
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 ($94K) ‒ (1) Multi-Media Officer to oversee operations of the City’s Cable “3” Channel, YouTube Channel, livestreaming, and all digital content ($175K) ‒ Adding the two positions and bringing a portion of the contracted services in-house results in a cost increase of $43,870, while allowing for a more nimble and responsive Office that is more capable of meeting the City’s goals of keeping our community informed. 13 .
FY 2022/23 FY 2023/24 FY 2023/24
($100K ‐ Expanded SOW
including the Mayor's Initiatives)
Prof Contract Services ‐ PIO $85,000 $101,750 $201,750
Prof Contract Services ‐ HBTV 370,000 128,250 128,250
Personnel Cost ‐ Graphic Designer 93,805 93,805
Personnel Cost ‐ Multi‐Media Officer 175,065 175,065
Total $455,000 $498,870 $598,870
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 ($231K) to mitigate backlog, provide more timely inspections, and bring part of contracted consulting work in-house, resulting in annual savings of $132,978
‒ (1) Plan Check Engineer ($158K) to meet demand for plan check services and bring part of contracted consulting work in-house, resulting in annual savings of $79,424 ‒ Requested positions will minimize reliance on consultants to meet base level demand for services, while saving a total of $212,402 annually
‒ Consultants will still be utilized to meet requests for services above base levels and maintain service levels during cyclical peaks
Human Resources
‒ (1) Human Resources Analyst in the Risk Management Division to support increased workload, mitigate risk and ensure compliance with regulatory requirements ($118K) 14 854.40
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
15 General Fund Long-Term Financial Plan
5.5% CalPERS Return FY22/23
16 (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)
17 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
18 CalPERS UAL Payments based on projected CalPERS 5.5% Return in FY22/23 and 6.8% moving forward
General Fund Reserve Policy
19 • 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.
General Fund Reserve Policy (continued)
20 • Additional adjustments to the General Fund Reserve Policy are listed as follows:
• A minimum of 25% of unrestricted one‐time revenues to 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 2023/24 CIP BUDGET
• CIP Budget Totals $41.2 M ($25M 3 years ago)
• Drainage $1.8M
• Facilities $4.0M
• Neighborhood $7.4M
• Parks and Beaches $2.9M
• Sewer $8.3M
• Streets and Transportation $11.8M
• Water $5.0M
• Residential Paving Cycle (9-year vs. 12-year)
• To achieve a balanced budget staff reviewed the cost/benefit of the two cycles • Staff recommends a 12-year cycle for the following reasons:
• 9-year cycle costs an additional $2.5 million annually, or $22.5M (current pricing) over the 9 years
• Over 7 years the Pavement Classification Index (PCI) would only increase by 1 point (83.4 to 84.4), and both scores are in the “good” condition rating 22 FY 2023/24 Key Budget
Components and Approval
Requested
23 City Council Approval Requested
24 • City Council approval of the Proposed FY 2023/24 Budget is requested • Key budget components include:
1) Structurally balanced spending plan, with a projected $3.6 million surplus
2) Transfer of $4.9 million AES Reserve to Fund 1284 for AES CIP Projects
3) Use of $3.9 million Equipment Replacement Reserve
4) General Fund portion of Emerald Cove Settlement ($2.3 million) split 50/50 between Section 115 Trust and General Liabilities Fund 5) Addition of 11 FTEs across various departments
City Council Approval Requested
25 • City Council approval of the Proposed FY 2023/24 Budget is requested • Key budget components include:
6) Continued investment in infrastructure
- General Fund transfer to the Infrastructure Fund increased by 11% to $15 million
- CIP budget totals $41.2 million
7) Revert back to a 12-year paving cycle to achieve a balanced budget 8) Recommended update to the General Fund Reserve Policy and consolidation of certain General Fund assignments to the Economic Uncertainties Reserve 9) Approve Amendment No. 2 to the professional services contract with Mind OC for the Be Well HB mobile crisis response program
10) Approve the professional services contract with National Council for Community Development (NDC) for technical assistance services Questions?