CITY OF LAGUNA NIGUEL
CITY COUNCIL AGENDA ITEM
To: Honorable Mayor and Council Members
FROM: Trevor Agrelius, Finance Director
DATE: February 20, 2024
SUBJECT: Fiscal Year 2023-2024 Mid-Year Budget Review
RECOMMENDATION
Staff recommends that the City Council:
1. Recognize the Fiscal Year 2022-2023 General Fund surplus of $1,829,101 and allocate the surplus to the La Paz Road Projects.
2. Approve the following Fiscal Year 2023-2024 Budget adjustments:
General Fund
a. Recognize $2,100,000 million in traffic impact fee revenue; b. Recognize additional property tax revenue of $500,000; c. Recognize additional interest income revenue of $500,000; and, d. Appropriate $95,000 for costs associated with Districting process.
Miscellaneous Grants Fund
e. Recognize grant revenues and appropriate $683,000 to the La Paz Road Project; f. Recognize grant revenues and appropriate $200,000 for Local Roadway Pavement Rehabilitation Proiect; and
g. Approve a transfer from the Senior Transportation Fund of $38,705 to the General Fund
3. Allocate $50,000 of project savings from Residential Resurfacing Program Zones 3 and 4 to Zones 5 and 6.
4. Adopt City of Laguna Niguel American Rescue Plan Act (ARPA) Budget Summary Schedule included as Attachment A
BACKGROUND
At the June 20, 2023, City Council meeting, a balanced budget for Fiscal Year 2023-2024 was adopted. At that time, the adopted budget included estimated General Fund revenues of $52.6 million and expenditures of $52.1 million, resulting in a $0.5 million surplus. Now that Fiscal Year 2023-2024 is more than halfway over, it is appropriate to perform a mid-year review of the budget.
ANALYSIS
The Fiscal Year 2023-2024 operating expenditures are tracking as projected, however, there are some adjustments to revenues and capital projects that staff is recommending as part of this review.
FISCAL YEAR 2022-2023 SURPLUS
With the completion of the external audit for Fiscal Year 2022-2023, the General Fund had a year-end surplus of $1,829,101. Staff recommends that the surplus be allocated to the La Paz Road repair project.
• The La Paz Road repair is currently being conducted in two phases. The first phase is for the Long-Term Phase Il plan. Project construction is expected to begin in Spring 2024 and is expected to be completed in Fall 2024. The City issued a Request for Proposals for the Long-Term Phase Il plan for La Paz Road, and the lowest responsive bid proposal for the project was $2,079,810. These costs exceeded the original estimate for the project.
• Concurrently, the City the City is working on the permanent fix of La Paz Road.
The City recently received a Local Transportation Climate Adaptation Program (LTCAP) grant for $15.5 million. The City is required to provide a 20% match of the total project expenditures. A portion of the Fiscal Year 2022-2023 surplus will be used as matching funds for the anticipated LTCAP grant expenditures through June 30, 2024.
GENERAL FUND
• In-Lieu Fee Revenue: In 2022, the City received a $2.1 million Gateway "community benefit" payment from the developer of the recently completed Watermark Laguna Niguel senior living development. The payment was made in compliance with project conditions of approval that required either construction of a southerly pedestrian bridge crossing Oso Creek or payment of a bridge in-lieu fee. The payment is being held as a deposit; however, for accounting purposes the City needs to formally recognize the full $2.1 million as revenue. Concurrently, staff is evaluating opportunities to utilize these funds in support of applicable Gateway Specific Plan action items and priorities.
• Property Tax Revenue: Fiscal Year 2022-2023 actual property taxes of $27.1 million exceeded the Fiscal Year 2023-2024 budgeted total of $26.8 million. In general, property taxes increase at least 2% per year, due to the annual increases assigned by the County Assessor. Following a property tax revenue analysis and information from the County of Orange, staff recommends a conservative increase in property tax revenues of $0.5 million for FY 2023-24. • Investment Income: The City's investment portfolio for Fiscal Year 2023-2024 continues to perform very well. With staff actively pursuing high yielding longer- term investments, the City's investments have outperformed the conservative projections. The City strategically invests checking account funds into money market sweep accounts. This strategy has been successful, with the City receiving $46,000 in the month of January alone for those money market investments. Staff recommends increasing the budget for investment income by $0.5 million, to $1.73 million, or 394% over the Fiscal Year 2022-2023 budget. • CVRA Expenditures: The City elected to transition to a district-based electoral system to comply with the California Voting Rights Act (CVRA). The decision to transition to a district-based electoral system saved the City potentially millions of dollars in potential litigation permissible under the CVRA. However, the City did still incur $95,000 in costs to transition to district-based voting. Staff recommends that the City Council appropriate that amount from the General Fund Reserve for Financial and Economic Uncertainty.
MISCELLANEOUS GRANTS FUND
• Per the requirements of the LTCAP grant agreement, the City is required to draw down/spend $683,000 of the $15.5 million LTCAP grant on the long-term permanent fix of La Paz Road in Fiscal Year 2003-2024. Staff recommends that the City Council recognize $683,000 in grant revenues and authorize the transfer of those revenues to the Capital Improvement Program Fund in anticipation of that activity.
• City staff was also successful in applying for the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (CRRSA) grant and expects to receive $200,000 for the Local Roadway Pavement Rehabilitation Project. Staff recommends that the City Council recognize $200,000 in grant revenues and authorize the transfer of those revenues to the Capital Improvement Program Fund in anticipation of that activity.
REALLOCATION OF PROJECT SAVINGS
A critical component of the City's approved pavement management program is the residential resurfacing program. These projects are constructed biennially, every other summer to take advantage of the warmer summer weather and to reduce conflicts with school traffic. Zones 3 and 4 were completed this Fiscal Year and zones 5 and 6 will be scheduled for construction in June 2025.
The project for Zones 3 and 4 was completed underbudget by approximately $275,000.
Staff recommends allocating $50,000 from Zones 3 and 4 project savings be allocated to the Zones 5 and 6 project to prepare the design packages. The remaining $225,000 savings will be returned to the Measure M2 Fund Balance for future projects.
AMERICAN RESCUE PLAN ACT FUNDS
Staff also recommends that the City Council approve American Rescue Plan Act (ARPA) Budget Summary Schedule (Attachment A). This schedule has been updated to account for completed projects, and in cases where project savings were available, those savings were allocated to other ARPA eligible projects. Note that all funds are currently encumbered, well before the December 31, 2024, Federal deadline. ARPA funds must be spent by December 31, 2026. The City will meet or exceed that timeline.
UPDATE ON CALPERS UNFUNDED ACTUARIAL PENSION LIABILITY
The Annual Comprehensive Financial Report (ACFR) reported a net pension liability of $11.4 million. The City made $4.8 million in additional discretionary payments to CaPERs during Fiscal Year 2022-2023, that have reduced the City's net pension liability, but will not be reported until the 2024 ACFR.
Per CalPERs, the City's pension plan is currently 83.5% funded. This does not include assets held in the Section 115 Trust, which stand at $2. 1 million as of December 31, 2023.
If the additional $2.1 million were included, the City's pension plan would be approximately 88% funded. Each year, as part of the annual budget, the City allocates money toward the unfunded actuarial liability payment. This amount is calculated by CaPERs and is intended to pay off the City's net pension liability over the next twenty years. If the City continues to pay the UAL and normal costs each year, the funded status will increase unless CaPERs investments underperform or assumptions change.
LEGAL REVIEW
No legal review is required for this report.
FISCAL IMPACT
Budget Update
With the adoption of these recommendations, budgeted totals for Fiscal Year 2023-2024 will be as follows:
City-wide Revenues (all Funds) $63,904,792
City-wide Expenditures (all Funds, including CIP) $64,675,798 General Fund Revenues $55,745,885
General Fund Expenditures $52,631,001
Transfers Out $ 3,561,367
Reserve Update
Audited balances as of June 30, 2023, indicated the City's General Fund had a fund balance of $50.3 million, which includes the $1.8 million surpluş from Fiscal Year 2022- 2023. That equates to approximately 97.5% of fund balance compared to Fiscal Year 2022-2023 operating expenditures. The City's reserve policy calls for the City to maintain a minimum of at least 50% of operating costs for emergencies, so the ending fund balance was well above that ratio. With the inclusion of this mid-year budget update, the projected fund balance in the General Fund at June 30, 2024, is $49.9 million. Based on the revised General Fund operating expenditures of $52.6 million, this equates to 94.8% of projected Fiscal Year 2023-2024 operating expenditures. This is a strong ratio and indicates the City has maintained almost one year of operating expenditures in reserves, while simultaneously allocating over $3 million to fix La Paz Road in an expeditious timeframe.
CONCLUSION
The City of Laguna Niguel is in excellent financial condition as the Fiscal Year 2023-2024 budget is on track, and there are some significant revenue increases for this Fiscal Year.
Staff is also monitoring the ARPA funds and have maximized the improvements to the community utilizing those funds, as noted in attachment A. The City's strong financial policies and fiscally responsible leadership continue to serve the City well.
Staff recommends that the City Council:
1. Recognize the Fiscal Year 2022-2023 General Fund surplus of $1,829,101 and allocate the surplus to the La Paz Road Projects.
2. Approve the following Fiscal Year 2023-2024 Budget adjustments:
General Fund
a. Recognize $2,100,000 million in traffic impact fee revenue; b. Recognize additional property tax revenue of $500,000; c. Recognize additional interest income revenue of $500,000; and, d. Appropriate $95,000 for costs associated with Districting process.
Miscellaneous Grants Fund
e. Recognize grant revenues and appropriate $683,000 to the La Paz Road Project; f. Recognize grant revenues and appropriate $200,000 for Local Roadway Pavement Rehabilitation Project; and,
g. Approve a transfer from the Senior Transportation Fund of $38,705 to the General Fund.
3. Allocate $50,000 of project savings from Residential Resurfacing Program Zones 3 and 4 to Zones 5 and 6.
4. Adopt City of Laguna Niguel American Rescue Plan Act (ARPA) Budget Summary Schedule included as Attachment A.
Samari leton man Sen
Tamara S. Letourneau Jacki Scott /
City Manager Publie Works Director
Tr An
Trevor Agrelius
Finance Director
Attachments:
A. American Rescue Plan Act Update
ATTACHMENT A
American Rescue Plan Act Update
City of Laguna Niguel
American Rescue Plan Act 2021 - Budget Summary
In March 2021, the federal government passed the American Rescue Plan Act. The Act provides funding to local governments to combat the negative economic effects of the pandemic. The City received $8,821,454 from the Act.
All funds must be contractually obligated by December 31, 2024 and spent by December 31, 2026. Below is a budget summary identifying the projects that will be funded by the funds received.
Completed Projects
Project Actuals Spent Status
Chapparosa Park Playground Replacement 895,587.26 Completed Crown Valley Park Interim Parking Lot 597,708.58 Completed La Paz Road Evaluation (Phases 1 and 2) 350,000.00 Completed La Plata Park Playground Replacement 161,687.41 Completed Marina Hills Park Playground Replacement 172,754.99 Completed City Council Chamber Improvements (Furniture & Carpet) 292,174.00 Completed Chapparosa Park Soccer Field Synthetic Turf Replacement 699,245.00 Completed Citywide Sports Field Grass Turf Rehabilitation Program 233,390.00 Completed Parks Modernization Project 777,710.22 Completed
Residential Annual Resurfacing Program (Zones 3 and 4) 338,715.76 Completed Crown Valley Park Wi-Fi Project 207,864.00 Completed
Crown Valley Parkway Landscape Improvements Design 63,052.50 Completed Sea Country Senior and Community Center Roof Replacement 68,082.90 Completed Sub-Total 4,857,972.62
Fiscal Year 2021-22
Project Budget Amount Status
City Hall AV Equipment Upgrade Project 922,826.00 Construction Phase Citywide VolP Telephone System Upgrade 271,109.00 Construction Phase Crown Valley Westbound Widening I-5 to Oso Creek 750,000.00 Design Phase Sub-Total ( 1,943,935.00
Fiscal Year 2022-23
Project Budget Amount Status
La Paz Road Evaluation (Phase 3) 258,519.38 Design Phase Marina Hills Park Improvements (Phase 1) 100,000.00 Construction Phase Sub-Total 358,519.38
Fiscal Year 2023-24
Project Budget Amount Status
Marina Hills Park Improvements (Phase 2) 1,071,027.00 Construction Phase Traffic Signal Equipment Upgrades Program 75,000.00 Construction Phase Marina Hills Drive - Niguel Road to Golden Lantern 515,000.00 Construction Phase Sub-Total 1,661,027.00
Total available funds from the Act is $8,821,454 Total 8,821,454.00