Agenda Item
City Council
Item #: 3.1. 4/26/2022 File #: 22-0247
TO: Honorable Mayor and Members of the City Council
THRU: Rob Houston, City Manager
FROM: Will Kolbow, Assistant City Manager/Admin. Services Director
1. SUBJECT
Second Study Session for the Proposed Fiscal Year 2022-23 Budget.
2. SUMMARY
This is the second study session in support of the preparation of the FY 2022-23 Budget. This study session is intended to provide a status of the current year budget, and an initial analysis of the projected General Fund revenues and expenditures for FY 2022-23.
3. RECOMMENDED ACTION
Receive and file the report and provide direction to staff.
4. FISCAL IMPACT
Fiscal impact will be determined with final budget adoption.
5. STRATEGIC PLAN GOALS
Goal 2: Be a fiscally healthy community
a: Expend fiscal resources responsibly.
b: Analyze future fiscal needs and potential revenue opportunities. c: Provide appropriate reserves.
Goal 4: Provide outstanding public service
b: Provide facilities and services to meet customer expectations.
6. DISCUSSION AND BACKGROUND
This is the second study session in support of the preparation of the City’sFY 2022-23 (FY 22) Budget. This study session is intended to focus on the following items:
· Providing a status of the current year General Fund budget · Providing an initial analysis of the projected General Fund revenues and expenditures for FY 23 This year’sbudget process has provided an opportunity to review past revenue and expenditure trends as well as build up a new 10-year forecast framework to aid future financial decision making. It is important to lay out revenue and expenditure assumptions into future years to ensure the long-term vitality of the City’sfinances. This new planning model will help the City Council and staff model the long-term impacts of future spending proposals. Additional work was completed to drill down and City of Orange Printed on 4/22/2022Page 1 of 6
powered by Legistar™
Item #: 3.1. 4/26/2022 File #: 22-0247
long-term impacts of future spending proposals. Additional work was completed to drill down and sharpen expenditure trends in order to tighten up budget levels at the department level.
The proposed FY 23 budget outlined below involved a careful review of requests made by City Departments to address service needs. Discussions followed to trim down requests and have resulted in a proposed package of recommendations that will address important needs of the City while ensuring these additional expenditures can be funded by revenues both in the current fiscal year as well as into the future.
Status of Current Year Budget (FY 22)
Review of General Fund Revenues for FY 22
As the end of FY 22 approaches, it is projected that General Fund revenues will net to $141.1 million, which includes $14.0 million in American Rescue Plan Act (ARPA) funds. Sales tax revenues are anticipated to net $48.4 million mostly due to an increase in revenue from restaurants and hotels as more of the community feels comfortable dining out and cost of food and staff wages rise. Most other sales tax industries remain consistent and are trending slightly upward, including the allocations from the countywide use-tax pool, as consumers continue to shop online. Additionally, all categories have been driven up by inflationary trends.
Property taxes are expected to be $48.4 million, $1.2 million over the budget of $47.2 million, due to annual increases in assessed property values and more property tax increment distributed from the County of Orange for the Successor Agency. This includes property tax in lieu of motor vehicle license fees which are expected to be above budget as this revenue is tied to property tax growth.
Transient Occupancy Tax (TOT) is projected to be $4.4 million, an increase of $2.5 million above the FY 22 estimate. Both business and leisure travel have increased with the easing of restrictions related to the COVID-19 pandemic as well as the full restoration of operations at the Disneyland Resort and sports arenas in the Anaheim area. This also includes $200,000 in TOT collected for the Short Term Rental (STR) program which was implemented in September 2021.
Based on current trends, other resources such as Revenue from Other Agencies are expected to have higher than budgeted receipts. Miscellaneous Revenues are anticipated to be $3.6 million, $3.0 million over budget. The majority of this increase is contributed by reimbursements from the Office of Emergency Services for the Fire Department’s assistance with wildfires throughout the state.
Review of General Fund Expenditures and Ending Fund Balance for FY 22 General Fund expenditures continue to track less than the latest budgeted amounts. Despite sustained economic turmoil due to the pandemic, we have been filling certain funded positions when they become vacant. However, with recent and upcoming retirements, departments continue to evaluate operations within various divisions to determine the most effective structure moving forward:
scrutinizing every vacancy, filling positions that are necessary, and identifying reclassifications and movement of resources that will increase service levels and promote succession planning efforts.
Overall, departments have done an excellent job of maintaining targets on expenditures, and being creative in meeting the City’s service delivery goals.
With our projected expenditures of $126.5 million and revenues of $141.1 million, we are currently City of Orange Printed on 4/22/2022Page 2 of 6
powered by Legistar™
Item #: 3.1. 4/26/2022 File #: 22-0247
With our projected expenditures of $126.5 million and revenues of $141.1 million, we are currently projecting a surplus of about $14.5 million. This is due to a combination of the additional ARPA funds, diligent cost management by departments, increased revenue from Sales Tax and Transient Occupancy Tax, reimbursement from Fire strike team efforts, and salary savings from unfilled positions. To date, the estimated ending unreserved fund balance for the General Fund is approximately $23.5 million.
Initial Review of the Proposed Budget for FY 23
Estimated General Fund Revenues for FY 23
The City continues to take a pragmatic yet conservative approach in budgeting for revenues. Based on current trends and analysis, the total General Fund revenues for FY 23 are projected to be $130.5 million, about $10.6 million or 7.5%, under the estimated ending revenue for FY 22. However, when removing one-time revenues, such as ARPA funds and strike team reimbursements, revenues are up $6.3 million, or 5.1%.
Provided below is a summary of the General Fund revenue highlights for FY 23:
· Sales Tax is the second largest source of General Fund revenue. In FY 23, the City anticipates receiving net sales tax in the amount of $50.0 million, $1.6 million (3.2%) above the FY 22 estimate. We anticipate that auto sales will continue to increase slightly, as demand continues to be high despite inventory shortages. The positive performance in building and construction activity seen in previous years is anticipated to remain flat as more consumers spend their money on other sectors and interest rates continue to increase. Restaurants are expected to trend upwards, as there are no anticipated state guidelines for capacity and indoor gathering in the future. Fuel sales revenue is expected to begin to decrease from record highs beginning in the 4th quarter of 2022. Allocations from the county tax pool will continue to bring in more revenue than in previous years as more consumers continue to prefer online shopping, but as a consequence general consumer goods growth is expected to be flat.
· Property Tax is the largest source of General Fund revenue and is expected to be $50.6 million, a $2.2 million, or 4.4% increase from FY 22 estimates. There continues to be minimal impact on property tax collections, despite the potential for non-payments due to economic hardships resulting from the pandemic. 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 is expected to be above budget as this revenue is tied to property tax growth.
· Transient Occupancy Tax is projected to be $5.1 million, an increase of about $690,000 (15.7%) above the FY 22 estimate. Both business and leisure travel continue to ease out of the effects from the pandemic due to fewer restrictions on federal and state mandates and more consumer confidence on traveling. The Disney resort has been fully open with minimal restrictions since last year, and stadiums are open, resulting in an increase in TOT to the various resorts and hotels within its vicinity. Short term rentals also City of Orange Printed on 4/22/2022Page 3 of 6
powered by Legistar™
Item #: 3.1. 4/26/2022 File #: 22-0247
have contributed a portion of the TOT.
· Fees for Service are projected to be $5.4 million, a slight increase above the FY 22 estimate as more in-person participation continues in leisure activities, particularly in sports and recreation class enrollment, as well as continued development activity. · Licenses and Permits are projected to be $5.8 million, an increase of $200,000 or
3.6% from FY 22 estimates. Following the prior year’strend, building-related permits and annual fire permits are anticipated to remain steady in FY 23, with regular fee increases expected as a result of the City’s annual review of fees. · Fines and Forfeitures are projected to be $2.1 million, an increase of about $280,000 (15%) from FY 22 estimates. Previous years’ fines were down significantly as parking enforcement was suspended due to COVID restrictions, and moratoriums were placed on certain fines and penalties. These areas are expected to be back in full force, which leads to an anticipation in returning to pre-pandemic revenue levels. In addition, as described further below, staff is recommending an increase in staffing for parking enforcement as the number of permit parking areas increase, which will also lead to anticipated increases in citations.
Estimated General Fund Expenditures for FY 23
Our initial estimate for FY 23 General Fund expenditures is $130.3 million. This reflects a 7.3% increase in expenditures over the original adopted FY 22 budget. As in previous years, we will continue to refine our estimates throughout the budget process.
The following are the most significant issues impacting the General Fund expenditures for FY 23:
1. Departmental Operating Budgets: Every year during the budget preparation process, City departments are charged with reviewing their existing operations to determine if there are areas of budgetary savings and operational efficiencies. Departments assess if there are budget increases to address rising costs, respond to required mandates, enhance existing service levels, or the need to implement a new program. This is an effort the departments continue to take extremely seriously and with much internal scrutiny. The following are highlights of General Fund Departmental Requests:
· Additional Police Department Personnel Resources: Public safety is consistently listed as a top priority for our residents and businesses. In addition to staff diligently working to fill all Police Officer vacancies for the first time in more than a decade, the FY 23 budget also includes the addition of three new Police Officer positions, two civilian Police Services Officers, and the reclassification of six part-time Parking Control Officers (PCOs) to two full-time PCOs, which will ensure more consistent staffing. The first-year cost of these positions and changes totals $434,000. · Fire Department Ambulance Operator Program: To ensure that our sworn Fire personnel are utilized to their full potential, the Fire Department is proposing an innovative program to staff the City’sambulances with civilian Ambulance Operators (AO). In addition to allowing the Department to redeploy sworn personnel in more effective ways, the AO program will provide a potential training ground for new Firefighters. Further, AO’swill be focused on all the aspects of the ambulance program City of Orange Printed on 4/22/2022Page 4 of 6
powered by Legistar™
Item #: 3.1. 4/26/2022 File #: 22-0247
Firefighters. Further, AO’swill be focused on all the aspects of the ambulance program to ensure that we maximize the revenue potential of the program. The total first-year cost of the program is $585,000, with $268,000 being funded by the General Fund. · Other Personnel Proposals: The FY 23 budget also includes proposals to add staff in the Human Resources (HR) and Community Development (CD) departments. HR is proposing to add a Human Resources Technician position to assist in all aspects of the recruitment and onboarding processes. With the proposed addition of the AO program described above, and with the nationwide difficulty of recruitment, this position provides a vital resource to assist HR in servicing all City departments. CD is proposing the addition of a Planning Aide and conversion of a part-time Code Enforcement Officer to a full-time Code Enforcement Officer. This will be achieved through several restructuring changing, which will result in better service to our customers and an increased focus on Code Enforcement matters, including our STR program. The first- year cost of the HR and CD requests, net of additional anticipated revenue from developer billing, is $154,000.
· One-time Public Safety Purchases: The Police Department is in the midst of renovating some of their work areas. Included in the budget $100,000 for the purchase of furniture for the Investigative Services bureau. The budget also includes $87,472 for the purchase of wildland and urban search and rescue equipment for the Fire Department. Both of these purchases are one-time in nature. · City Attorney Legal Services - Specialized Matters: During the last five years, the City Attorney’soffice has been faced with handling a multitude of specialized matters and cases. As a result, the City Attorney’soffice incurred increased legal costs, and funding of $100,000 is needed to offset these costs.
· City Council General Election: To complete the City’s transition to district based elections, the City Council positions of Mayor, District 1, District 3, District 4, and District 6 will be up for election in November 2022. The expected impact to the General Fund for related election cycle is $150,000.
· General Cost Increases: Inflation has eroded departments’ abilities to absorb cost increases as they have done in the past. In addition, staff has re-evaluated certain services and is proposing some changes. As a result, various requests totaling $465,000 will cover expenditures such as training, increased incentives and initiatives for recruitment, investment advisory services, increased cost of maintenance and special event services in Community Services, and the Police Department’sforensics contract with the County.
2. Internal Service Funds: For FY 23, we project allocating a total of $6.8 million between the Equipment Maintenance, Computer Equipment Maintenance, Accrued Liability, and IT Capital funds. As in FY 22, all operational Internal Service Funds (ISF) are budgeted as part of FY 23 operational costs, as opposed to being funded by unreserved General Fund balance generated through prior year savings. Some capital expenditures in the ISFs will be funded through accumulated reserves as part of a long-term strategy to build capital costs into the City of Orange Printed on 4/22/2022Page 5 of 6
powered by Legistar™
Item #: 3.1. 4/26/2022 File #: 22-0247
budget over time while utilizing reserves that exceed policy targets.
Based on the estimated revenues and expenditures, we are currently projecting a budget surplus of about $150,000. As we continue to refine the revenue and expenditure amounts, it is anticipated City Council will be able to adopt a balanced FY 23 budget.
Preliminary Estimate of the General Fund Balance for FY 23 The June 30, 2022 beginning unreserved fund balance is projected to be $23.5 million. With revenues only slightly exceeding expenditures, ending fund balance at June 30, 2023 is projected at $23.6 million. However, after four proposed transfers from the unreserved fund balance, including $5.75 million to the Equipment Replacement Fund, $7.75 million to the Computer Replacement Fund, $7.0 million to the Capital Projects Fund and $1.0 million to the General Fund Contingency Reserve, the projected unreserved fund balance for the General Fund is $2.1 million. The following table highlights the Estimated Available General Fund Balance for FY 23:
Estimated Available General Fund Balance
Unreserved Fund Balance Available @ 6/30/22 $23,468,556 FY 23 Estimated Revenues $130,457,383 FY 23 Estimated Expenditures (130,302,938) Revenue over Expenditures 154,788
Unreserved Fund Balance Available @ 6/30/23 23,623,344 Transfers Out
Transfer to Vehicle Replacement Fund (5,750,000) Transfer to Computer Replacement Fund (7,750,000) Transfer to Capital Projects Fund (7,000,000) Transfer to General Fund Contingency Reserve (1,023,792) Total Transfers Out (21,523,792)
Estimated Available Fund Balance @ 6/30/23 2,099,552 General Fund Contingency Reserve 21,691,752
Est. Reserved & Unreserved General Fund Balance @ 6/30/23 $23,791,304 Conclusion
We continue to refine the FY 23 revenue and expenditure amounts. In addition, feedback from the City Council received at this study session will help further refine our projections. At this time, staff is anticipating the Public Hearing for adoption to take place on June 14.
7. ATTACHMENTS
· None
City of Orange Printed on 4/22/2022Page 6 of 6
powered by Legistar™