Fiscal Outlook and FY 24 Budget Development
Update
City Council Study Session – March 7, 2023
1 Successfully navigated the revenue losses caused by the pandemic- induced sharp recession in spring 2020, while maintaining service levels to the community
Budgetary Accomplishments and Achievements
2 Prioritized the restoration of $21 million of reserves that had been utilized to address FY 20 pandemic-impacted General Fund shortfall with funds made available through the Long Beach Recovery Act
Allocated significant funds for the community ($145.3 million for Healthy Community and $70.2 million for Economic Recovery) through the Long Beach Recovery Act
Prepared for and addressed General Fund liability risks such as the Measure M litigation outcome without budget cuts or service level reductions
3 General Fund FY 24 Trends,
Budget Balancing Strategy,
& FY 25+ Forecast
The General Fund Projection Journey Since the Pandemic
4 FY 20 FY 21 FY 22 FY 23** FY 24
Previous Projection
PROJECTION
AT ADOPTION
Balanced -$8 m
shortfall
-$30 m
shortfall*
-$28.5 m
shortfall**
-$27 m
shortfall***
ACTUAL YEAR-
END RESULT
-$21 m
shortfall
+$2 m surplus -$11.5 m
shortfall
Known in Feb
2024
Pandemic
Hits
Expecting
Improvements
* Structural portion was $27 m with $3 m in one-time uses. Original plan was to use funds made available from the Long Beach Recovery Act ** Structural portion is $19.6 million with $8.9 m in one-times uses. Slated to be funded through a combination of funds made available from Long Beach Recovery Act and reserves to address Measure M litigation *** $26 million is listed in Proposed Budget Book (projections as of June 2022) but is $27 million with updates/corrections post adoption night Structural and One-time Funding Gaps
What Changed in the FY 24 Expense Projection Since Previous Projection? 5 • Major difference between previous projection and current is in the Salary and Benefits Related Costs, which has been updated to factor in Police (POA) and Fire (FFA) negotiated updates
+$18.8 m higher
than previous
projection
• Other expenditure changes
increased and decreased, but
generally offset each other
Healthcare Related Costs
($1.3 m) less than
previous projection
City Fleet Costs
+$1.2 m higher than
previous projection
• Other expenditure projections stayed similar CalPERS Pension Costs ($0.2 m) less than
previous projection
Overall Expenditure Projections increased (higher costs) by $18.9 million* *This is the change from the previous FY 24 projection to current FY 24 projection. The year-over-year expenditure change (from FY 23 to FY 24) was $38.5 m • Recalibrating Revenues to Eliminate Pandemic Impact – FY 21 and FY 22 have not shown significant pandemic impact overall, with revenues continuing to grow more quickly than projected
What Has Changed in the Revenue Projection Since Previous? 6 $ in Millions FY 19
Actuals
FY 20
Actuals
FY 21
Actuals
FY 22
Actuals
Property Tax $125.6 $127.4 $143.0 $145.3
Sales Tax
(Non-Measure A)
$69.8 $64.5 $75.0 $85.2
Transient Occupancy Tax
(Non-Measure B)
$19.4 $13.3 $12.1 $20.6
Cannabis Tax $4.7 $10.0 $12.1 $13.1
Property Tax
Sales Tax
TOT
Cannabis
What Changed in the FY 24 Revenue Projection Since Previous Projection? -Cont. 7 • Almost all revenue have been increased significantly compared to previous projections Property Tax
+$6.8 m higher than
previous projection
Sales Tax
(Non-Measure A)
+$7.6 m higher than
previous projection
TOT
(Non-Measure B)
+$3.5 m higher than
previous projection
Uplands Oil Transfer
+$1.7 m higher than
previous projection
Utility Users Tax
+$5.8 m higher than
previous projection
Interest Pooled Cash
+$5.5. m higher
than previous
projection
Overall Revenue Projections increased by $40.1 million
*This is the change from the previous FY 24 projection to current FY 24 projection. The year-over-year revenue change (from FY 23 to FY 24) was $52.3 m, excluding Measure A
Total Expense & Revenue Impact on the General Fund Bottom Line 8 Incremental Change View $ in Millions
Previous FY 24 Shortfall Projection (June 2022) ($27.0) Projected Additional Expenditure Increase ($18.9)
Projected Additional Revenue Increase $40.1
Projected FY 24 Shortfall ($5.8)
The Projected FY 24 Shortfall is $5.8 million
These two
elements totaling
$46m is what was
previously
referenced as the
potential shortfall
after negotiations
with POA/FFA had
concluded but
before any
revenue updates
General Fund Budget Balancing Approach for FY 24
9 Shortfall to be
Covered with
One-times Made
Available through
the Long Beach
Recovery Act
Revenue
Expense
No FY 24 Reduction
Targets Issued to
General Fund or
Related Funds
Goal is to Keep Any
Budget Changes Net
Neutral to the Overall
Bottom Line to Avoid
Growing the Underlying
Shortfall
Important to Maintain Fiscal Discipline and Strategic Use of One-Times 10 Future Years Still Showing Shortfalls Even After Recalibrating the Revenues to Eliminate Pandemic Impact in FY 24 Using One-times To Cover Structural Shortfalls Has Opportunity Cost – Money Diverted From Investments that can Generate Revenue or Create Efficiencies Important Not to Add to the Structural Shortfall
that will Result in Even More One-time Funds Diversion and Bigger Problem In Future Use This Season to Explore Investments
that can Generate Revenues and Create Efficiencies
The Forecast for FY 25+ and Beyond Has Changed
11 FY 24 FY 25 FY 26 FY 27 Total Cumulative
Structural Impact
Previous Projection
(FY 23 Budget Development)
($27.0)* $2.3 0.2 NA ($23.1)
FY 24 Projected Change
with POA/FFA Contract Approvals –
not a full projection update
($43.0) ($1.4) 0.2 NA ($44.2)
Current Projection ($5.8) ($8.6) ($10.7) ($8.8) ($33.8) * $26 million is listed in Proposed Budget Book (projections as of June 2022) but is $27 million with updates/corrections post adoption night
General Fund Out-Years (FY 25 and Beyond) Reflect Shortfalls 12 FY 24 FY 25 FY 26 FY 27 Total
($5.8) ($8.6) ($10.7) ($8.8) ($33.8)
In a scenario where structural shortfalls are resolved with one-time funds, the previous year’s shortfall continues forward into the next fiscal year FY 24 FY 25 FY 26 FY 27
($5.8) ($14.4) ($25.0) ($33.8)
Cumulative Shortfall
Annual Shortfall
The numbers below only show the annual shortfall (new additional shortfall), which assumes previous years’ shortfalls are resolved on a structural basis each year
5.8 8.6 10.7 8.8
FY 24 FY 25 FY 26 FY 27
5.8 5.8 5.8 5.8
8.6 8.6 8.6
10.7 10.7
8.8 FY 24 FY 25 FY 26 FY 27
$14.4
$25.0
$33.8
Potential Outlook Scenario: Solving FY 24 with One-Times 13 FY 24 FY 25 FY 26 FY 27 Total Structural Impact*
($5.8) ($14.4) ($10.7) ($8.8) ($33.8)
• In this scenario, by FY 27, structural solutions of $33.8 million need to be identified and implemented – starting with solving $14.4 million in FY 25 • In another scenario where FY 25 is also covered with one-times, an additional $14.4 million of one-times would need to be identified for FY 25. Then a structural shortfall of $25.0 million would need to be addressed in FY 26
FY 26 and beyond assumes FY 25
and each year there after is
structurally solvedCarries over
*The FY 25 shortfall is inclusive of FY 24
figure. FY 26 and FY 27 are annual amounts.
The total cumulative structural impact is the
sum of the figures in columns FY 25-FY 27
Key Expenditure Variables in the Future Forecast
14 • Salary and Benefit costs – includes negotiated contracts and for years with no contracts (FY 24+ for Miscellaneous, and FY 26+ for Public Safety) an inflationary assumption is included (Approx. increase of $14 million each year). Actual costs/projections will vary depending on actual outcome of negotiations.
• CalPERS Pension costs – now projecting to be cost increases in the out years. These costs are very sensitive to market returns and can create volatility in projection stability. • Inflation/cost increases – Small buffer included for general cost increases due to inflation but actual experience may change future projection updates $ in Millions FY 24 FY 25 FY 26
Last Year Projection of Change
With 21.3% IR in 6/30/21
($3.2) ($3.5) ($2.8)
Updated Projection of Change
With (6.1%) IR in 6/30/22
($3.4) $5.7 $4.6
Key Revenue Variables in the Future Forecast
15 • Projections also assume no recession
• Oil Related Transfer to General Fund – At the budgeted $55/bbl assumption for structural operating purposes, projections assume a steady decline in revenues due to production decline with SB 1137 starting to impact beginning in FY 26. Declining revenues due to SB 1137 also anticipated for oil production tax revenues.
• Cannabis Business License Tax Revenue – Current projection is assuming $12 million annually in the out-years. This may change depending on any tax rate changes or rebate program approved by City Council.
• Sales and Use Tax Revenue – Future year projections assume normalized growth after significant adjustment in FY 24, factoring in better than anticipated performance across various categories including revenue generated from development in the City. • Interest Pooled Cash Revenue – Much higher interest rates applied to somewhat higher cash balances lead to significantly higher interest earnings 16 Measure A & Other Funds
Measure A Plan
17 • The out-year plan Adopted in the FY 23 Budget included a 5 year Measure A Infrastructure Bond Program
• Measure A revenue trend continues to show improvement across various categories such as restaurants, hotels, and general consumer goods.
• Additional funds that may be available in result of higher projections will be slated for consideration as part of the FY 24 Budget Development process. * Adopted FY 23 was $67m. Figure above represents updated estimates after FY 22 year-end results. In FY 23, the rate drops from 1% to 0.75% from Jan 2023 through Sept 2027 due to County Measure H in order to stay within the tax rate limit
Measure A Revenue ($ in millions)
FY 22
Actuals
FY 23
Projections*
FY 24 FY 25 FY 26 FY 27
$86.0 $72.3 $69.1 $71.2 $73.3 $75.5
Other Funds
18 • Related Funds that impact the General Fund are not getting reduction targets similar to the General Fund. However, looking to keep costs down in these other funds.
• Special Advertising and Promotion Fund –Transient Occupancy Tax is projected to be fully recovered from the pandemic in FY 24 and beyond.
Currently, no one-time funds are anticipated to be needed to keep the budgetary funds available from declining.
• Tidelands Operating Fund– With higher oil prices above the budgeted $55/bbl, FY 22 ended with one-time funds that were reallocated to projects. Additional one-time funds may be available in FY 23 depending on oil prices, which have averaged $82/bbl to date. A significant concern for Tidelands, however, is SB 1137, which may start impacting revenues beginning in FY 26 and would have a major impact on the fund.
19 Next Steps
Community Engagement Efforts and Feedback
20 • For the 2nd year, community engagement was done at the beginning of the budget process with 4 in person meetings and 1 virtual meeting
• Budget Survey also conducted in January/February
• The meetings prioritized Language Access with
interpretation services, American Sign Language, and
translated materials
• Detailed demographic tracking to better inform future outreach with goal to better engage with diverse and
underrepresented members of community
• Feedback results will be transmitted via Memo Spring 2023 • Proposed Budget will also link feedback to relevant
proposals
Path to Proposed Budget and Budget Adoption
21 • Departments will be developing budget proposals and reviewing them with City Manager through May
• Then Budget Book will be built and numbers finalized through June • Proposed Budget book due to Mayor per Charter Deadline by July 3 • Mayor’s recommendations/comments and Proposed Budget released to City Council per Charter Deadline by August 2
• Budget Hearings, Budget Oversight Committee (BOC) Meetings and 2nd Round of Community Engagement in August
• Budget Adoption in September
Thank You
22