Agenda Item
City Council
Item #: 6.3. 3/25/2025 File #: 25-0124
TO: Honorable Mayor and Members of the City Council
THRU: Tom Kisela, City Manager
FROM: Trang Nguyen, Finance Director
1. SUBJECT
Status of the Fiscal Year 2024-2025 budget.
2. SUMMARY
This report provides a mid-year update and year-end estimates of the Fiscal Year 2024-2025 budget.
3. RECOMMENDED ACTION
1. Receive and file report.
2. Authorize the continuing appropriation of $119,433.27 to the following accounts:
a. 100.3023.51840.20234 Local-Training Santa Ana College $113,468.02 b. 220.5022.53001.20536 Materials and Supplies-Bev FY23 $4,365.25 c. 100.2016.53340.19322 Craft Supplies - Patron Donations $250 d. 100.2016.53340.19986 Craft Supplies - Patron Donations $1,350
3. Authorize the transfer of $176,328 from the unreserved fund balance of the Major Building Improvements Fund (725) to the General Fund (100) unreserved fund balance.
4. FISCAL IMPACT
These are grants/donations received in FY24 and are restricted for a specific purpose. Sufficient funds are available in the unreserved fund balances of the respective funds to support the requested appropriations.
5. STRATEGIC PLAN GOALS
Goal 2: Enhance Economic Development and Achieve Fiscal Sustainability
6. DISCUSSION AND BACKGROUND
General Fund Revenues
The General Fund received $58.5 million, or 39% of budgeted revenues through mid-year FY25, including transfers. Based on current trends and analysis, the total General Fund revenues for FY25 are estimated to be just over $149.2 million, $2.8 million over the revised budget, see table 1 below.
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Item #: 6.3. 3/25/2025 File #: 25-0124
Table 1: FY25 General Fund Revenue
Revenue Source FY24 Actuals
(SPLY)
Revised
Budget
Mid-Year
Actuals
Year-End
Estimates
Variance to
Revised
Budget
Property Tax 54,570,052 55,710,900 15,211,342 56,568,754 857,854 Sales Tax 50,610,366 51,617,688 24,203,702 51,116,470 (501,218) Transient Occupancy Tax 6,092,658 5,858,800 2,220,569 6,211,195 352,395 Franchises 2,981,298 3,220,194 325,212 3,100,203 (119,991) License and Permits 7,206,692 7,110,731 3,294,358 6,805,024 (305,707) Fines and Forfeitures 1,747,538 3,040,600 812,459 1,811,215 (1,229,385) Use of Money and
Property
4,742,556 3,075,251 1,728,505 2,789,348 (285,903)
Rev from Other Agencies 3,580,197 2,328,257 1,063,504 2,653,399 325,142 Fees for Service 6,851,807 6,094,431 3,506,975 6,870,980 776,549 Miscellaneous Revenue 1,958,560 1,254,046 1,061,506 1,238,158 (15,888) Interfund Revenues 3,635,631 7,050,201 3,525,100 7,050,201 - Total Operating
Revenue
143,977,356 146,361,099 56,953,234 146,214,947 (146,152) Transfers In 2,629,049 3,000,000 1,500,000 3,000,000 - TOTAL REVENUES 146,606,405 149,361,099 58,453,234 149,214,947 (146,152) Property Tax, currently the City’slargest source of General Fund revenues, is at $15.2 million mid- year, and anticipated to be just under $56.6 million for FY25, 1.5% over the revised budget and 4.8% over same period last year (SPLY). Despite lower volume of home sales due to low inventory and higher interest rates, the annual increase in assessed property values and more property tax increment distributed from the County of Orange for the Successor Agency are projected to contribute to higher property tax receipts compared to SPLY. In addition, property tax in lieu of motor vehicle license fees are expected to be slightly above budget as this revenue is tied to property tax growth.
Sales Tax, the City’ssecond largest source of General Fund revenue, was at $24.2 million at the mid -year point, and is anticipated to be about $501k or 1% under the budget at $51.1 million. Comparing to SPLY Sales Tax will end the year approximately 1% or $506,000 over prior year’sactuals. Based on information from HDL, our sales tax consultant, the City had an overall decline in actual sales through Q3/24 and our major business group Fuel and Services Stations were down 13.7%. This reduction matched the statewide reduction as fuel and oil pricing dropped during the quarter. The City will be receiving updated Sales and Use Tax information for Q4/2024 by early April. This information will be used to update the year-end projections.
Transient Occupancy Tax (TOT) for the City was approximately $2.2 million at midyear and is estimated to be at $6.2 million at year-end or 6% above the revised budget. However, this category will end the year just slightly over SPLY by $9k or 0.1%. While estimated to exceed the revised budget, which is mostly attributable to the City’s Short Term Rental program, this category is City of Orange Printed on 3/20/2025Page 2 of 6
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Item #: 6.3. 3/25/2025 File #: 25-0124
estimated to end the year at about the same revenue as the prior year actuals.
License and Permits overall are tracking to be about $6.8 million by year end, under the budgeted amount by $305,000 or 4%. This is primarily due to Business License trending slightly lower than anticipated.
Fines and Forfeitures is estimated to end the year $1.2 million under the budgeted amount but will end the year approximately $65,000 less than SPLY. Staff budgeted $1 million in additional parking enforcement revenue, for a total of $2.5 million, in this category based on a full year of anticipated enforcement. Based on current trends, this additional revenue will not be received, and is not included in the year end estimate. Staff will continue to monitor this revenue category, considering the parking enforcement contract and paid parking program in Old Towne.
Fees for Services is currently projected to end the year higher than budget by $775k primarily due to Intergovernmental Transfer Reimbursements for transport fees. These fees are difficult to estimate as they are a reimbursement from another agency. Staff will continue to monitor this line item to year- end for a closer projection for the FY26 budget estimate.
General Fund Expenditures
At mid-year, the total for General Fund expenditure is approximately $71.9 million, or 45% of the budget, including transfers out, see table 2 below.
Table 2: FY24 General Fund Expenditure
Expenditure Category FY24 Actuals
(SPLY)
Revised
Budget
Mid-Year
Actuals
Year-End
Estimates
Variance to
Revised
Budget
Salaries and Benefits 100,385,131 107,731,951 53,152,455 100,072,349 (7,659,602) Contractual Services 15,545,853 16,632,326 6,843,675 15,883,557 (748,769) Materials and Supplies 2,227,988 2,647,920 882,131 1,892,411 (755,509) Miscellaneous Expenses 282,314 684,861 281,159 698,279 13,418 Capital Outlay 135,064 154,207 51,475 117,273 (36,934) Internal Service Costs 23,636,031 29,837,231 9,562,105 28,951,219 (886,012) Debt Service 1,711,460 1,714,700 1,160,800 1,714,700 - Total Operating
Expenditures
143,923,841 159,403,196 71,933,799 149,329,788 (10,073,408) Transfers Out - - - - -
TOTAL EXPENDITURES 143,923,841 159,403,196 71,933,799 149,329,788 (10,073,408) Salaries and benefits account for approximately $53.1 million of mid-year expenditures, about 49% of the revised budget in this category. The year-end estimate is projected to be $100.0 million, about $7.7 million or 7% below the revised budget. This is mainly due to the high vacancy rate experienced by the City and vacancies being held in accordance with budget reductions identified by the City Council Budget Ad Hoc Committee. Expenditures remain relatively flat compared to the SPLY.
Contractual services totals about $6.8 million at the mid-year point and is estimated to be about $15.9 million at year-end, about $750,000 or 4.5% under the revised budget. This is mostly attributed City of Orange Printed on 3/20/2025Page 3 of 6
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Item #: 6.3. 3/25/2025 File #: 25-0124
$15.9 million at year-end, about $750,000 or 4.5% under the revised budget. This is mostly attributed to reduced or eliminated scopes of work for several large city contracts including janitorial services, landscape and tree maintenance, modifications to “Our Orange” publication, sidewalk cleaning and contracts supporting community special events. These reductions are slightly offset by an increase in support services for planning and building inspections. Compared to SPLY, contractual services only increased by $338,000 which is relatively low considering built-in annual contractual increases.
The materials and supplies category has about $880,000 expended at mid-year. The year-end estimate for this category is approximately $1.9 million, $755,000 or 28% lower than the revised budget of about $2.6 million. This reduction is mostly attributed to reduced programming in library services, community special events, reduced youth programs, and in-house graffiti abatement. These reductions are also shown in comparison to the SPLY, with a $335,000 decrease in this category after the cancellation of the City’s special events and reducing the library budget.
Internal service costs are estimated to be $28.9 million for FY25, a decrease of $890,000 from the revised budgeted amount. Payouts have been backed out of the General Fund and appropriately placed in the Employee Accrued Liability Fund (760) which reduces the internal service costs funded through the General Fund. Internal service costs account for a majority of the variance from SPLY, at a difference of $5.4 million. These increases fund the City’sIT operating and replacement program, vehicle replacements, large retiree payouts, and liability claims.
Related to the City’s internal service fund, staff continues the process to update the City’s cost allocation plan (CAP) and will present the CAP at a future City Council meeting prior to budget adoption. This will impact how centralized costs are assigned to different funds.
Budget Adjustments
The following additional FY25 budget adjustments are recommended:
· Grant and Donation Funding:
o Fire Training and Education: Rancho Santiago Community College District partners with the Orange City Fire Department to provide reimbursement for mandatory training hours performed by staff. The Rancho Santiago Community College District received state funds to administer this training and can redirect a portion of the funds to fire departments that enroll personnel as students at the college. These funds are used for Fire department training expenses and other operation needs. In FY24, $115,531 was received through this program, with a remaining balance of $113,468. The $113,468 appropriation will continue to fund this program in FY25. o Beverage Container Recycling Program: The Public Works Department received an allocation of per-capita grant funds from the California Department of Resources Recycling and Recovery to utilize towards activities related to beverage container recycling. In FY25, $34,522 was received through this program, with a remaining balance of $4,365. The $4,365 appropriation will continue to fund this program through FY25.
o Library Donations: The Library department receives several donations from patrons and non-profit organizations throughout the year for the purchase of additional books and program supplies. In FY24, there were several donations that were not fully spent and can contribute to program expenses in FY25. The total amount of donations City of Orange Printed on 3/20/2025Page 4 of 6
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Item #: 6.3. 3/25/2025 File #: 25-0124
and can contribute to program expenses in FY25. The total amount of donations received and not spent was $1,600.
· Transfer from Major Building Improvement Fund: In an effort to improve efficiency, the Finance Department closed out funds that were not necessary and could be consolidated.
Expenditures, mostly consistent of facility capital projects, within this fund were moved to the Capital Projects Fund (500) and the fund has not since been leveraged. The remaining fund balance of $176,328 can now be moved back to the General Fund balance to completely clear out this legacy fund.
The total adjustments affecting the General Fund net $61,260 and have been included in the year- end estimates. The total impact on all other funds is $4,365.
Estimated General Fund Balance for FY25
Based on the mid-year activities through December 31, 2024, and current economic trends, the estimated revenue including transfers for FY25 is just under $149.4 million. This is slightly more than the revised budget by approximately $30,175 or less than 1% difference. However, expenditure is trending lower than budget by about $10.1 million or 6%, from $159.4 million budgeted to an estimated $149.3 million. This results in an estimated operating surplus of $61,487.
Table 3: FY25 General Fund Estimated Fund Balance
FY 2024-25
Revised Budget
FY 2024-25 Year-
End Estimate
Variance to
Revised Budget
Estimated Beginning
Undesignated Fund Balance -
7/1/2024
26,910,980 26,910,980 -
Revenues 146,361,099 146,214,947 (146,152)
Transfers-In 3,000,000 3,176,328 176,328
Total Revenues 149,361,099 149,391,275 30,175
Expenditures (159,403,196) (148,578,594) (10,073,409)
Transfers Out - - -
Total Expenditures (159,403,196) (149,329,788) (10,073,409) Operating Surplus/(Deficit) (10,042,097) 61,487 10,103,584 Estimated Ending Fund Balance
- 6/30/2025
16,868,883 26,972,467 10,103,584
Reserved - Catastrophic 26,460,931 24,788,745 (1,672,186) Estimated Undesignated Fund
Balance - 6/30/2025
(9,592,047) 2,183,722 11,775,770
It is important to note that without the one-time transfers from the Capital Projects Fund and the Major Building Improvement Fund, the year-end estimated fund balance would be ($992,606). Staff will continue to monitor activities in the General Fund and provide an update to the year-end City of Orange Printed on 3/20/2025Page 5 of 6
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Item #: 6.3. 3/25/2025 File #: 25-0124
estimates and fund balance if there are material variances.
7. ATTACHMENTS
· None
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