Agenda Item
City Council
Item #: 7.3. 2/8/2022 File #: 22-0066
TO: Honorable Mayor and Members of the City Council
THRU: Thomas R. Hatch, Interim City Manager
FROM: Will Kolbow, Assistant City Manager/Admin. Services Director
1. SUBJECT
Status of Fiscal Year 2021-22 budget and preliminary projections for Fiscal Year 2022-23 budget preparation.
2. SUMMARY
This mid-year report provides an update of the Fiscal Year 2021-22 budget and work plans. In addition, this report also presents a brief review of the Fiscal Year 2022-23 budget, which is currently being prepared.
3. RECOMMENDED ACTION
Receive and file report, and approve in one motion the following:
1. Authorize the transfer of $3,500,000 from the unreserved fund balance of the General Fund to the Pension Stabilization Reserve (760).
2. Authorize the transfer of $7,000,000 from the unreserved fund balance of the General Fund to the Capital Projects Fund (500).
3. Authorize the transfer of $4,800,000 from the unreserved fund balance of the General Fund to the Business Investment Fund (115).
4. Authorize the transfer of $54,000 from the General Fund expenditure account number 100.4021.50002.00000 to expenditure account number 100.6032.50002.00000.
5. Authorize the appropriation of $60,000 from the General Fund unreserved fund balance to expenditure account number 100.5013.51670.00000, Other Professional & Consulting Services.
6. Authorize the appropriation of $150,000 from the unreserved fund balance of the Capital Project Fund (500) to expenditure account number 500.5032.56100.16302, Minor Traffic Devices.
7. Authorize the appropriation of $35,000 from the Worker’s Compensation Fund (730) unreserved fund balance to expenditure account number 730.0312.52232.00000, Worker’s Compensation Premium.
8. Authorize the appropriation of $65,000 from the Liability Fund (740) unreserved fund balance to expenditure account 740.0312.52011.00000, Public Liability Premium.
9. Authorize the appropriation of $50,000 from the Liability Fund (740) unreserved fund balance to expenditure account 740.0312.52320.00000, Property Damage.
10. Authorize the appropriation of $400,000 from the Liability Fund (740) unreserved fund balance City of Orange Printed on 2/3/2022Page 1 of 6
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Item #: 7.3. 2/8/2022 File #: 22-0066
10. Authorize the appropriation of $400,000 from the Liability Fund (740) unreserved fund balance to expenditure account 740.0312.52310.00000, Liability Claims Paid.
11.Accept in the City’s revenue budget $268,236 in funds from the American Rescue Plan.
12. Authorize the appropriation of $268,236 into the following expenditure account numbers for salaries and benefits:
$102,500 101.3099.50002.00000
$165,736 101.4099.50002.00000
13. Adopt Resolution No. 11376, A Resolution of the City Council of the City of Orange Amending Resolution No. 11272 between the City of Orange and Orange Management Association to include the salary range for the new classification of Permit Supervisor, effective February 8, 2022.
14. Adopt Resolution No. 11377 amending the citywide salary schedule in accordance with the requirements of California Code of Regulations, Title 2, Section 570.5.
15.Authorize the following changes to the City’s Schedule of Positions:
a. Reclassify the Assistant City Attorney/Risk Manager, Position 094-002, to Senior Assistant Attorney in the City Attorney’s office.
b. Reinstate the Risk Manager position in the City Attorney’s Office. c. Authorize the addition of an Administrative Analyst I position in the Fire Department. d. Transfer Police Code Enforcement Officer, Position 397-001, from the Police Department to the Community Development Department and reclassify to Code Compliance Officer.
e. Reclassify Code Compliance Officer, Position 340-001, to Senior Code Compliance Officer in the Community Development Department.
f. Reclassify Permit Technician to Permit Supervisor in the Public Works Department.
4. FISCAL IMPACT
Sufficient funds are available in the unreserved fund balances of the respective funds to support the requested appropriations. Approval of the recommended actions will result in the following appropriations:
Action Amount From To
1 $3,500,000 General Fund Pension Stabilization Reserve 2 7,000,000 “ “ Capital Projects Fund
3 4,800,000 “ “ Business Investment Fund
5 60,000 “ “ Plan Check Consulting
$15,360,000 TOTAL GENERAL FUND
7 $35,000 Workers Compensation Fund Worker’s Compensation Premium 10 400,000 Liability Fund Liability Claims Paid
8 65,000 “ “ Public Liability Premium
9 50,000 “ “ Property Damage
$550,000 TOTAL OTHER FUNDS
5. STRATEGIC PLAN GOALS
Goal 2: Be a fiscally healthy community
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Item #: 7.3. 2/8/2022 File #: 22-0066
d: Effectively manage and develop City assets.
6. DISCUSSION AND BACKGROUND
FISCAL YEAR 2021-22 (FY 22) UPDATE
Review of General Fund Revenues and Expenditures
As the economy continues to recover from the impact of COVID-19, the City continues to take a conservative approach in budgeting for revenues. Based on current trends and analysis, the total General Fund revenues for FY 22 are estimated to be $126.4 million, $6.4 million above budget.
Property tax, currently our largest source of General Fund revenue, is anticipated to be $50.4 million, $1.2 million over the budget. Annual increases in assessed property values and more property tax increment distributed from the County of Orange for the Successor Agency are projected to contribute higher property tax receipts. In addition, property tax in lieu of motor vehicle license fees are expected to be above budget as this revenue is tied to property tax growth.
Sales tax, our second largest source of General Fund revenue, is anticipated to be about $700,000 under budget of $49.6 million mostly due to the delay in the startup of the Providence Hospital purchasing entity, which is now anticipated to open in early FY 23. Automobile sales are expected to trend upward as the average price of new and used vehicles continues to increase due to inflation and supply constraints. With that, the price of fuel also continues to rise, and we expect to see more sales tax revenue from the fuel sector in the coming months.
Building and construction activity is performing positively, generating more sales receipts.
Restaurants and general consumer goods are recovering as mandates regarding safety restrictions have eased slightly despite the continued health crisis. Moreover, as we have seen in recent years, online shopping allocations from the county tax pool will continue to bring in additional revenue. At mid-year, $38.1 million in General Fund revenues have been collected, reflecting 31.8% of the budget, slightly less than normal due to the timing of revenue receipts. Sales tax receipts provided $13.9 million by the end of the second quarter while property tax provided $5.3 million. Staff expects to receive a larger portion of sales tax and property tax receipts in the second half of the year, due to the timing of allocations.
Transient Occupancy Tax (TOT) is expected to be $4.3 million, about $2.4 million above budget as business and leisure travel continue to increase with more lenient Federal and State travel mandates.
Based on current trends, other revenue sources such as licenses and permits, fines and forfeitures, and fees for services, are expected to continue towards a positive trend. Miscellaneous revenues are anticipated at $3.1 million, $2.5 million more than the budget. The majority of this increase is contributed by reimbursements from the Office of Emergency Services for costs incurred by the City through its assistance in statewide wildland firefighting efforts.
Expenditures in the General Fund are currently within target range, with all departments on pace to meet (but not exceed) their target expenditures for FY 22. Unlike revenue, which fluctuates from external factors, expenditures are consistent and remain relatively steady throughout the fiscal year.
Total estimated expenditures in FY 22 are $124.2 million. Since American Rescue Plan funds (which were utilized to cover pandemic-related revenue loss) of $14.2 million were available to pay for safety salaries, Council adopted a net expenditure budget of $110.0 million. Currently, the combined total adjusted appropriation for FY 22 is $125.8 million, an increase from $124.2 million due to approved budget adjustments. The actual amount expended and encumbered through December 31, 2021 is City of Orange Printed on 2/3/2022Page 3 of 6
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Item #: 7.3. 2/8/2022 File #: 22-0066
$67.3 million, 53.5% of the total expenditure appropriation.
Spending remains constant and Departments continue to do a good job scrutinizing their budgets to provide more with less. As has been the result for the past several years, the General Fund historically ends each fiscal year with savings in expenditures, and we presume through our initial analysis that we will stay slightly below target appropriations.
Attached to this staff report is the Mid-Year Report of the General Fund, which details and illustrates total revenue received, and expenditures by department and category.
Transfer to Internal Service Funds
Transfers provide funding to those areas having either limited resources and/or a specific need in the immediate future, as well as replenishing reserves according to the City’sreserve policy. As detailed at the October 13, 2021 City Council meeting, the surplus of $30.8 million in fund balance, due to the aid provided through the American Rescue Plan funds for police and fire services to offset general fund expenditures, provided an original adopted transfer of $12.7 million to the following funds:
Equipment Replacement Fund $3,200,000
General Fund Contingency Reserve 5,000,000
Computer Replacement Fund 2,350,000
EMT Fund 300,000
Business Investment Fund 1,800,000
The increase in fund balance for FY 21 yields a mid-year budget adjustment of $15.3 million in additional transfers. Specifically, staff recommends unreserved fund transfers to the following:
Pension Stabilization Reserve $3,500,000
Capital Projects Fund 7,000,000
Business Investment Fund 4,800,000
To replenish the funds that were transferred to the General Fund Operating Budget in FY 21 as a balancing measure due to the impacts of the COVID-19 pandemic, staff proposes transfers of $2.1 million to the Pension Stabilization Reserve and $2.0 million to the Capital Projects Fund. An additional $1.4 million to the Pension Stabilization Reserve is needed to address the increase in anticipated unfunded liability payments in FY 23. An additional proposed transfer of $5.0 million to the Capital Projects Fund is consistent with Council’spractice to invest in the City’saging infrastructure, and to maintain at least $8.5 million in that fund balance to meet our policy minimum. Finally, the proposed transfer to the Business Investment Fund anticipates upcoming economic development and business activities in the City during FY22.
Budget Adjustments
Along with the budget approval, carryover appropriations and encumbrances added approximately $2.0 million to the budget. To date, Council has authorized an additional $1.2 million in budget adjustments to the General Fund, which includes grants with corresponding revenue, Strike Team reimbursements, and contractual services.
The following additional budget adjustments to the FY 22 budget are recommended:
· Organizational Structure Changes: Due to modifications in department organizational City of Orange Printed on 2/3/2022Page 4 of 6
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Item #: 7.3. 2/8/2022 File #: 22-0066
· Organizational Structure Changes: Due to modifications in department organizational structures and increases with level of duties with certain employees, salary ranges and classifications are proposed to be updated to be commensurate with the reassignment and level of work for certain departments, including the City Attorney’s office, Community Development, Fire, Police, and Public Works. The cost of the upgraded positions will be funded mostly through cost savings from the General Fund and will generate an additional two full-time equivalent positions within the City.
· Minor Traffic Devices: due to unanticipated increases in the need for minor traffic related devices such as lighting, undergrounding and wiring, staff is requesting an $150,000 of additional funding from the Capital Projects Fund (500). · Liability Claims: Each year, staff appropriates an estimated amount for liability claims, premiums, and administration costs based on history and knowledge of what is to be expected in the coming fiscal year. Due to unusual amounts of unforeseen claims, property damage, as well as receiving the final premium costs late this fiscal year, $515,000 of additional funding is needed to cover expenses and anticipated claims. Staff is requesting an appropriation from the unreserved fund balance of the Liability Fund to address these expenses. · Workers Compensation: Due to the unanticipated increase on worker’s compensation insurance premium based on DE-9 payroll figures that impact the city’spremium obligation for workers compensation, staff is requesting $35,000 of additional funding from the Workers Compensation Fund (730).
· Plan Check Consulting: Due to increased workload, the Building Division is requesting additional support in plan check consulting services, estimated at $60,000 through the end of this fiscal year.
· American Rescue Plan Appropriation: When the FY 22 budget was adopted, the City Council directed staff to utilize the City’sallocation of Fiscal Recovery Funds of the American Rescue Plan ($28,018,188) for revenue loss. The loss calculated for the period ended December 31, 2020, according to the guidance released by the United States Treasury Department, was $27,749,952, which was allocated to public safety salaries and benefits. The calculated loss for the calendar year ended December 31, 2021, is $24,088,105. However, only $268,236 of the City’stotal allocation is remaining. Staff is recommending that the City Council appropriate the remaining balance to public safety salaries and benefits, consistent with the use of funds previously appropriated.
Water Fund Fiscal Update
The City’swater production was 27,893 acre feet (AF) in FY 21. It is projected that water production will remain steady through FY 22. As of Jan 1, 2022, water production is at 14,245 AF, about 51% of the City’starget water production of 28,000 AF. Revenues from July through December 2020 are $17.1 million, about 42.8% of the total projected revenue for FY 22.
For the upcoming FY 23 budget, the City’starget water production is projected to increase slightly to 28,500 AF. This is in line with the projected production in the Water Rate Model. Revenues are expected to increase about 5% compared to FY21 due to higher water rates. Expenditures are also expected to increase due to the additional O&M cost for the Per- and polyfluoroalkyl substances (PFAS) treatment systems and higher cost of water supply. It is anticipated that four PFAS treatment systems will be online by April 2022. The City will have the capacity to pump more groundwater City of Orange Printed on 2/3/2022Page 5 of 6
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Item #: 7.3. 2/8/2022 File #: 22-0066
systems will be online by April 2022. The City will have the capacity to pump more groundwater when all PFAS affected wells are equipped with treatment systems. For FY23, the allowable Basin Pumping Percentage (BPP) is expected to be set at 77% of total water demand. Currently, the City does not have the capacity to pump up to the BPP. As in years past, staff will be returning to City Council with more information at an upcoming Budget Study Session to discuss the impact on the FY 23 budget.
Sanitation Fund Fiscal Update
The Sanitation Fund provides the appropriate funding for necessary maintenance and operational needs on the City’s312 miles of sewer system. The structural changes made to the Sanitation Fund includes new CIP funding for mainline replacement of hydraulic and structurally deficient sewer systems, as well as hot spot repairs. Maintenance projects are located throughout the City, with an emphasis on areas that have aging and structurally deficient sewer pipes.
From July through December 2020, the Sanitation fund received revenues of $3.6 million (about $953,000 generated by the infrastructure fee), which is similar to the same time-period last year.
Expenditures at mid-year are currently within target.
Early Look At Fiscal Year 2022-23 And Beyond
Our initial analysis suggests the General Fund revenue estimate for FY 23 will be approximately $125.8 million, with expenditure estimates at $127.7 million. Sales tax revenue is projected to be $48.7 million, property taxes are anticipated to be $50.3 million, and TOT (Transient Occupancy Tax) is estimated to be $5.0 million. Expenditures are expected to increase slightly, mainly due to contractual salary increases and a continued increase of contractual obligations.
For FY 23, revenues will increase due to the continued growth in the local economy as we continue to turn away from the pandemic crisis, and expenditures are expected to escalate due to inflation factors. However, departments continue to remain vigilant in spending prudently. A more detailed analysis of revenues and expenditures, along with budget balancing strategies, will be discussed at the upcoming Budget Study Session.
7. ATTACHMENTS
· General Fund - Mid Year Report Ending 12/31/21
· Resolution No. 11376
· Resolution No. 11377
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