STAFF PRESENTATION, MEMO AND
AGENDA CORRESPONDENCE
RECEIVED BY THE CITY COUNCIL FOR
PUBLIC REVIEW PRIOR TO THE
MEETING
AGENDA NO: 3.a
MEETING DATE: May 28, 2024
This Photo by Unknown Author is licensed under CC BY-NC-ND
BUDGET STUDY SESSION
FY 2024-25 PROPOSED
OPERATING & CAPITAL BUDGET
May 28, 2024
High-Level Overview
Budget in Brief
Looking Ahead – Near-term Fiscal Outlook
Looking Back – Trends & Takeaways
Citywide Revenue & Expenditures
Personnel Changes
Major Funds Revenue & Expenditures
CFAC Recommendations for Measure E
Capital Projects Overview
Fiscal Outlook & Action Items
Agenda
Budget in
Brief
TOTAL CITYWIDE BUDGET
$59.6M (NET OF TRANSFERS)
$41.6M OPERATING
$18M CAPITAL
CITYWIDE MINIMUM RESERVES: $16.5M
OPERATING BUDGET
SUMMARY
• General Fund: $19.2M
• Measure E: $3.3M
• Harbor: $2.2M
• Water: $6.3M
• Sewer: $6.8M
• Other: $3.8M
CITYWIDE NEAR TERM
FISCAL OUTLOOK
Major revenues are projected to
flatten.
• Property Taxes up 3%
• Sales & Use Tax down 4%
• TOT up 2%
• Current Services down 3%
Personnel costs are projected to
increase by 6%, with UAL costs
increasing by 10%. Union contract
negotiations are still in progress.
All funds are expected to meet the
reserve policies for FY 2024-25.
Minimum city reserves equate to
40% of operating.
Looking Back – Citywide Budget to Actuals
Actuals Budget
FY 2024-25 Proposed
Citywide Revenues –
All Funds
• Overall, citywide revenues
are projected to decrease
8.5%
• Net of transfers, up 5%
• Lower transfers due to
ARPA, GFER, and CIPs
• Major revenue sources are
mostly flat
• Delay in Fire Mutual Aid
Revenue (Current Services)
FY 2024-25 Proposed
Citywide Expenses –
All Funds
• Overall, citywide expenditures
are projected to decrease
27%; Net of transfers, flat
from FY24
• Decrease in interfund
transfers for CIPs, ARPA, etc.
• Personnel costs up 6% net of
one-time expenses.
• Debt service starting for WRF
project
General
Fund
75%
Econ Dev
Fund
25%
Asst to CM
FY 2024-25 Proposed
Revenues –
General Fund
• General Fund revenues are
projected to decrease 3.8%
• Lower transfers due to end
of ARPA funding
• Major revenue sources are
mostly flat
• Delay in Fire Mutual Aid
Revenue (Current Services)
• Other Revenues includes
lower estimated developer
reimbursement revenue
Sales & Use Tax
History
• Measure E passed 2020
• COVID rebound evident
in 2022 & 2023
• Revenue projections for
FY 2024-25 are based on
FY 2023-24 YTD
(tracking -5%). This is
consistent with HdL
projections (-4%).
FY 2024-25 Proposed
Expenses –
General Fund
• Overall, General Fund
expenditures are projected to
decrease 16%; Net of
transfers, flat from FY24
• Decrease in transfers for
CIPs, ARPA, and GFER.
• Personnel costs down 2.7%
due to decrease in one-time
pension trust funding.
FY 2024-25 Proposed
Revenues –
Measure E Fund
• Revenues are
projected to remain flat
due to a return to
normal spending levels
post-pandemic.
Budgeted and Historical Measure E Revenue
FY 2024-25 Proposed
Expenses –
Measure E Fund
• Expenditures down by
35.5% compared to the
prior year.
• Reduction in CIP costs
• Prior year use of fund
balance
• Services and supplies are
decreasing
• Interfund transfers (CIP
contributions) are
decreasing
Measure E Expenditures by Department
CFAC Recommendations
Regarding Measure E
Harbor Patrol Reserve Program
The Committee recommended removing
the Harbor Patrol Reserve Program from
Measure E.
Impact: ($77,000)
Reduce Project Funding
The Committee recommended removing
the LRSP Implementation and Sidewalk
Improvements & Street Tree Replacements
project funding.
Impact: ($350,000)
Increase Pavement Funding
The Committee recommended repurposing
the above project funding for the Annual
Pavement Management Program.
Impact: $350,000
Decreasing Reserves 54.9% 48.7% 39.2% 31.6% 24.1% 16.1%
Harbor Operating Fund
4% Revenue
Growth
10%
Expenditure
Growth
(Net of
Transfers)
Water Operating Fund
0% Revenue
Growth
27%
Expenditure
Growth
(Net of
Transfers)
Sewer Operating Fund
0% Revenue
Growth
60%
Expenditure
Growth
(Net of
Transfers)
Water and Sewer Funds:
Loan Repayments Begin
FY 2024-25
• Debt service starting for WRF
project low-interest loans
• Environmental Protection
Agency (EPA), Water
Infrastructure Finance and
Innovation Act (WIFIA):
0.83% Interest
• California State Water
Resources Control Board
(SWRCB), State Revolving
Fund (SRF): 0.9% Interest
Debt Service Summary
Water Fund $936,053 WIFIA
Sewer Fund
$645,651 WIFIA
$1,910,081 SRF
Total Debt Service $3,491,785
Capital Projects – New Funding Allocations
Total New Funding Allocation Requested $18,022,077
Measure E Funded Projects
Capital Projects – New Funding Allocations
Measure E (003) Funded Projects Amount
Local Roadway Safety Plan Implementation
Plus $195K projected carry-forward budget
$100,000
Sidewalk Improvements & Street Tree Replacements
Plus $150K projected carry-forward budget
$250,000
Morro Bay Bridge Inspection & Assessment
New project
$80,000
General Fund (001) Funded Projects Amount
Annual Storm Drain Replacement & Major Maint.
Plus $116K projected carry-forward budget
$500,000
Capital Projects – New Funding Allocations
GF Capital Accum. Fund (460) Funded Projects Amount
Veteran's Hall Building Improvements
Plus $335K projected carry-forward budget
$144,579
Road Maint. & Rehab. Fund (260) Funded Projects Amount
Annual Pavement Management Program
Plus $3M projected carry-forward budget
$269,999
Transit Operating Fund (301) Funded Projects Amount
Morro Bay Transit Vehicle Replacement
New project
$160,000
Capital Projects – New Funding Allocations
Water Operating Fund (311) Funded Projects Amount
Morro Basin Wellfield Rehabilitation
Plus $500K projected carry-forward budget
$1,250,000
Nutmeg Tank & Related Pressure Zone Improvement
Plus $1.3M projected carry-forward budget
$1,800,000
Water Operating Fund (311) &
Sewer Operating Fund (321) Funded Projects
Amount
Water Reclamation Facility
Plus $9M projected carry-forward budget
3,804,575
Measure E Funded Projects
Capital Projects – New Funding Allocations
Sewer Operating Fund (321) Funded Projects Amount
Beachcomber Dr. Area Backyard Sewer
Improvements (Design)
Plus $100K projected carry-forward budget
$100,000
Main St & Atascadero Sewer Main Replacements
Plus $4.2M projected carry-forward budget
$4,594,924
Utility Hole (Manhole) Rehabilitation
Plus $225K projected carry-forward budget
$150,000
Wastewater Treatment Plant Decommissioning
Plus $262K projected carry-forward budget
$4,818,000
Capital Projects – Reallocated Funding Request
Harbor Operating Fund (331) Funded Projects Amount
Storm Recovery – Dock Repairs
Plus $100K projected carry-forward budget
For FY 2024-25, the funding source proposed for this project is reappropriated capital fund balance currently allocated to the Beach Street Slips project.
The Beach Street Slips project is not recommended to be pursued at this time, as costs for the project exceed the City's ability to fund. The Harbor Department believes transferring these funds to a viable project would provide a greater return on investment.
$427,627
FY 2024-25 Scenarios – Capital Funding Contributions
General Fund (001) and Measure E (003)
Forecast
FY 2025
Proposed FY 2026 FY 2027 FY 2028 FY 2029
Beginning Available Fund Balance 4,300,123 2,476,485 688,622 (760,190) (2,410,823) General Fund Available Fund Balance 1,774,376 237,359 (1,202,926) (2,841,050) (3,137,046) Measure E Available Fund Balance 702,109 451,262 442,736 430,226 395,172 ENDING FUND BALANCE BEFORE RESERVES 2,476,485 688,622 (760,190) (2,410,823) (2,741,874) General Fund Emergency Reserve Fund Balance 7,160,082 7,160,082 7,160,082 7,160,082 7,160,082 Minimum Reserve Levels
General Fund Emergency Reserve Policy: 33% operating expenses.
Includes Measure E fund operating expenses.
7,401,963 7,680,026 8,066,211 8,385,958 8,755,293
UNRESERVED/ AVAILABLE FUND BALANCE 2,234,603 168,678 (1,666,319) (3,636,699) (4,337,085) General Fund (001) and Measure E (003)
Forecast
FY 2025 ProposedFY 2026 FY 2027 FY 2028 FY 2029
Beginning Available Fund Balance 4,300,123 4,726,485 2,938,622 1,489,810 (160,823) General Fund Available Fund Balance 3,774,376 2,237,359 797,074 (841,050) (2,737,046) Measure E Available Fund Balance 952,109 701,262 692,736 680,226 645,172 ENDING FUND BALANCE BEFORE RESERVES 4,726,485 2,938,622 1,489,810 (160,823) (2,091,874) General Fund Emergency Reserve Fund Balance 7,160,082 7,160,082 7,160,082 7,160,082 7,160,082 Minimum Reserve Levels
General Fund Emergency Reserve Policy: 33% operating expenses.
Includes Measure E fund operating expenses.
7,401,963 7,680,026 8,066,211 8,385,958 8,755,293
UNRESERVED/ AVAILABLE FUND BALANCE 4,484,603 2,418,678 583,681 (1,386,699) (3,687,085)
24.4% 17.0% 15.2%
CITYWIDE LONG TERM
FISCAL OUTLOOK
Revenues
The City faces revenue shortfalls in the
coming fiscal years as costs continue to
escalate and revenues remain flat.
Risk-Based Reserve Strategy
Administrative Services plans to complete a
risk-based reserve analysis and may bring
recommendations to Council regarding the
City’s reserve thresholds.
Capital Projects
Funding sources for future capital projects
remain limited, absent new revenue
streams. Staff capacity to deliver funded
projects also remains constrained.
Action Items for
Consideration Provide direction to staff re:
CFAC recommendations
Provide direction to staff re:
personnel changes
Provide direction to staff re:
other Council priorities
1 Heather Goodwin
From: Yvonne Kimball
Sent: Monday, May 27, 2024 9:15 PM
To: Council
Cc: Emily Conrad; Melissa A. Green
Subject: draft budget in brief
Good evening,
We have published a staff memo ahead of tomorrow’s budget workshop, which includes a summary of the draft budget highlights. During the workshop, staff will make a PowerPoint presentation to visualize highlights of the draft, and clarify suggested decision points.
Additionally, I wish to offer the following summary to aid in the review of the draft budget. The final adoption is scheduled for June 11. I hope this will generate additional interest in the draft budget and facilitate a smooth adoption in June.
Council ultimately approves all budget appropriations. Given the large volume of information contained in the draft budget book, it can be challenging to focus on every detail. I recommend Council focus on:
1. Ensure the FY 24/25 budget falls within the Gann Appropriation limit. The limit does not change much from prior year, and we do not have issue to stay within the limit. But Council will formally review the limit in June. See Page 35 of the budget book.
2. Summaries of major funds, including revenues, expenditures and reserves. For quick accesses to numbers, I direct your attention to: General fund table in P54; Measure E/Q p57; Harbor P59; Sewer P62; Water P 65.
3. Reserve usage. There are a couple of slides on this subject at workshops. The above indexes also provide insights.
4. Capital projects. The above summary tables contain this year’s new requests and last year’s Capital projects. Capital projects are paid for by both the operational revenues and the reserves, and fund transfers. Council is recommended to discuss large capital projects and how they are funded. This is an important part of the budget deliberation.
Capital projects that have been budgeted for, but have not spent the allocations will see carry-over balances from prior years. Although not showing additional allocation in FY 24/25, the unspent dollars will continue to carry over to future years until spent. For example, the Vet Hall equipment update has been budgeted in FY 23/24 and the allocation will carry over without receiving additional allocation in FY 24/25.
Carry-over balances are grouped into the Capital Accumulation Fund, which is detailed in P 111. Past requests are not shown in this budget book. If you have questions on past requests, Finance staff can answer those inquiries.
5. Review and possible approve Position changes. Page 47 of the budget book; I believe there’s a presentation slide at tomorrow’s workshops.
6. Other helpful summary pages/ sections:
Fund balances summary. P 49. This table provides a glimpse into the city’s over 40 funds. Out of them, a few of them are commonly referred to: general fund which fund most of the city operations; measure e/q which funds some safety related expenditures, some capital expenditures; water fund; sewer fund; and Harbor fund. The last 3 are considered enterprise fund which means their revenues should cover their 2 expenditures. The details of these five funds can be located in their corresponding sections in the budget book.
All revenues table. P 70
Revenue by source table. P72
All expenditures table. P74
Expenditure table by departments. P76
Expenditure table by expense type. P. 77, 78. For example, these pages indicate that total personnel makes up 27% of the total budget.
The above tables also include comparison with FY 23/24. As you review the data, you may be interested in any drastic increases or decreases. Staff can answer those questions as they arise.
7. Draft Budget numbers in brief
Lastly, the City Manager is ultimately responsible for the budget development. This task is guided by Council established goals and priorities. Briefly, my involvement in the budget development process is as follows:
Ensure budget is reflective of established council goals. Operation remains status quo without reducing level of services. Ensure financial management policy followed.
Make the best effort to maintain a high % reserves while meeting all needs. Direct all departments to examine discretional expenditures in the categories of consulting, contractual services, travel and training.
Be mindful of rising labor costs in light of this year’s negotiations with all groups. Discussion with depts that requested additional positions. Ensure accuracy of the budget by cross-checking all sections. This step will continue. Gain understanding drastic increases and/or decreases from prior year. Department Heads complete bulk of their budget details except for personnel-related expenditures. Finance Director and Sr. Analyst complied data and developed necessary content utilizing budget software.
3 Support Dept.s’ requests and efforts and recommend Council further review of the draft budget.
Once the budget is adopted, we will continue to review and adjust as necessary. The city manager and dept heads have some authority to adjust within funds as long as the adjustments do not exceed the total approved appropriations by city council. I’m also here to help anyone who would like to dive deeper into the budget book and ensure they can efficiently find the information they need.
Yvonne Kimball
City Manager
City of Morro Bay