TO:
VIA:
FROM:
DATE:
CITY COUNCIL
CITY ADMINISTRATOR
DIRECTOR OF FINANCE
MAY 16, 2023
Placentia Cit Council
AGENDA REPORT
SUBJECT: STUDY SESSION: PRESENTATION OF THE PROPOSED FISCAL YEAR 2023- 24 OPERATING BUDGET AND CAPITAL IMPROVEMENT PROGRAM (CIP) FISCAL
IMPACT: FY 2023-24 EXPENDITURES: $ 85,583,391
REVENUE: $ 84,855,133
SUMMARY:
In accordance with City Charter Section 1203, the City Administrator must present the Proposed General Fund Operating Budget to the City Council for consideration at least 35 days prior to the beginning of each fiscal year. This item being presented for the City Council's review and consideration is the Fiscal Year 2023-24 Proposed Operating Budget and Capital Improvement Program (CIP). Under the direction of the Director of Finance, the Finance Department conducts the analysis and makes projections required to complete the budget document after receiving input from all City departments.
RECOMMENDATION:
It is recommended that the City Council take the following actions:
1. Review and discuss the Proposed Fiscal Year 2023-24 Annual Operating Budget Capital Improvement Program (CIP) and provide input and direction for final budget adoption: and
2. Set the date of the public hearing for budget adoption as June 6, 2023, at 7:00 p.m.
DISCUSSION:
FY 2023-24 Proposed Budget
General Fund
The General Fund is the primary operating fund of the City and supports fundamental services including Police, Fire & Life Safety, Development Services, Community Services and general administration. Revenue for this fund comes from general taxes such as property tax, sales tax, Measure U, transient occupancy taxes as well as a variety of user and permit fees and other
3.b.
May 16, 2023
City Council Agenda
May 16, 2023
smaller sources. The Proposed Budget for FY 2023-24 for the General Fund is $52.1 million in operating expenses supported by $49.8 in operating revenue, with the planned use of unassigned fund balance to support the difference. Unassigned fund balance is the term used for funds accumulated through managed savings and/ or higher than anticipated revenues in prior years that are in addition to the City's twenty-five percent (25%) contingency reserve.
The proposed use of unassigned fund balance does not indicate a structural deficit but is recommended to be used for one-time capital needs to address aging facilities and technology and is not intended to support day-to-day operations of the City.
General Fund Revenue Highlights
The Proposed FY 2023-24 General Fund Operating Budget includes revenues of $49.8 million, which reflects a decrease of $6.5 million or 10% from the Amended FY 2022-23 budget. This decrease is primarily due to funds from the American Rescue Plan Act (ARPA) included in the Amended FY 2022-23 budget that are not included in the Proposed FY 2023-24 budget.
Property Tax revenue in FY 2023-24 is projected to be $19,578,023, an increase of $1,185,089 over the FY 2022-23 Adopted budget. Increases in property tax are due to a combination of property turnover and resulting reassessments and the two percent per year inflation factor for property assessments allowable under Proposition 13.
Sales Tax, Measure U, is projected to increase by approximately 2.2% in FY 2023-24 from the Amended FY 2022-23 budget and totals approximately $9.2 million. This increase is attributable to a combination of sales derived from new businesses within the community, inflation and the impact of the South Dakota vs. Wayfair case.
The Wayfair case was decided by the Supreme Court in 2018 and was implemented in California in April 2019. The case, and subsequent state legislation requires online retail sellers to collect and remit sales tax on taxable sales shipped into the state. Revenue from the tax is then allocated to a countywide pool based on the point of delivery of the product purchased. As online shopping has surged in popularity both before and during the pandemic, the City's portion of the countywide pool has increased dramatically and accounted for 16% of the City's total sales tax as of the quarter ending December 2022, down from a high of 21 % for the quarter ending December 2020.
Transient Occupancy Tax (TOT), otherwise known as "the bed tax" is tax paid by visitors staying overnight in one of our local hotels. The Proposed Budget assumes $1,475,000 in revenue, 8% higher than the FY 2022-23 Adopted Budget. This large increase is due to a combination of increased travel as the public becomes comfortable travelling post pandemic shutdowns, higher nightly hotel rates and a slightly higher number of short-term rentals operating within the City.
Fines & Forfeitures are projected to increase 20% from the prior fiscal year due to the projected increase in staffing levels for the Police Department and allowing for motor officers, as well as anticipated increases in administrative citations due to the addition of one full time Code Enforcement Officer.
City Council Agenda
May 16, 2023
Departments
FY 2022/23
Amended
Budget
FY 2022/23
Year End
Estimates
FY 2023/24
Proposed
Variance to
FY22/23
Budget Amended Budget
Property Taxes
Sales & Use Taxes
Other Taxes
Permits/Licenses
Fines & Forfeitures
Intergovernmental
Charges for Services
Miscellaneous
Total Operating Revenues
Transfers In
$18,438,083
8,975,000
7,104,140
2,499,768
377,000
9,456,422
1,504,659
1,963,660
50,318,732
1,547,973
$18,438,083
8,975,000
7,104,140
2,530,907
383,298
9,176,239
1,418,548
2,146,809
50,173,024
868,618
Measure U Transfers In
Employee Retention 2,655,000 2,655,000
Measure U Reserve
OPEB 885,000 885,000
5,087,973 4,408,618
$55,406,705 $54,581,642
Total Transfers In
Total Resources
General Fund Expenditure Highlights
$19,578,023
9,175,000
7,095,500
2,802,000
452,500
312,000
1,514,000
2,454,000
43,383,023
1,047,800
2,760,000
920,000
1,690,595
6,418,395
$49,801,418
6.18%
2.23%
(0.12%)
12.09%
20.03%
(96.70%)
0.62%
24.97%
(13.78%)
(32.31%)
3.95%
91.03%
8.07%
(11.78%)
General Fund expenditures are broken into three distinct types- operating, debt service and capital. Operating expenses are those required to support the day-to-day operations of the City including personnel expenses, professional services, maintenance expenses and training and are supported by revenue generated in the fiscal year the expenses occur. Debt service supports the principal and interest payments on loans and bonds the City has used to finance capital projects and/or pension obligations. Capital expenses are one-time expenditures for large purchases such as vehicles, technology upgrades and other equipment that has a useful life more than five years and are typically funded with one-time funding sources such as reimbursements or development agreements.
The Proposed FY 2023-24 General Fund Budget includes $42.0 Million in department expenses, $6.0 million for debt service and transfers and $4,134,280 in capital expenditures. This represents a decrease of 4% for the General Fund from the current fiscal year's amended budget. As presented, the Proposed Budget is balanced, maintains, or enhances city service levels while fully funding the General Fund contingency reserve at 41 %.
Proposed General Fund budgets for the respective departments are listed below:
City Council Agenda
May 16, 2023
Departments
FY 2022/23 FY 2023/24
Amended Proposed
Budget Budget
Variance to
FY22/23
Amended Budget
Legislative
City Administrator
Administrative Services
Finance
Development Services
Police
Fire & Life Safety
Public Works
Community Services
General Government
Total Department Expenses
Capital Improvement
Program
Transfers Out
GF Debt Service
Total Expenditures
Significant Changes
1,124, 000
633,100
5,870,871
1,222,250
1,835,200
12,872,739
4,337,000
4,758,665
2,728,980
5,224,700
40,607,505
12,615,484
37,500
5,215,750
58,476,239
1,004,000
985,377
6,002,513
1,305,000
1,565,800
13,612,323
4,503,794
4,795,070
2,938,052
5,245,414
41,921,129
4,134,280
0 6,021,200
52,112,823
(10.7%)
55.6%
2.2%
6.8%
(14.7%)
5.7%
3.8%
0.8%
5.0%
(0.3%)
3.1%
(67.2%)
(3.4%)
15.4%
(12.6%)
Administrative Services increases are caused by the transfer and reclassification of one position from the Development Services department as well as funding for a citywide classification and compensation study per the City Council approved Strategic Plan. In addition, the City is proposing bringing Information Technology (IT) services in-house with the addition of two (2) IT staff positions. This change will give the City greater control and security over its information technology system and is expected to save approximately $300,000 annually based on the results of the recent RFP conducted for IT Managed Services.
City Administrator's Office expenses are increasing due to the transfer of two positions from Development Services and the addition of one new position to establish a Communications and Marketing division which will focus on a citywide communications and marketing strategy and economic development.
Development Services is decreasing due to the transfer of one position to Administrative Services, two positions to the City Administrator's office as well as a restructuring of the department's organization chart bringing several positions in-house with a corresponding decrease in contract services.
Debt Service- Debt service expenses are increasing due to the planned issuance of debt to fund the construction of the public safety building.
City Council Agenda
May 16, 2023
Other Post -Employment Benefits (OPEB)- The City established a Section 115 trust to mitigate potential investment losses from CaIPERS and pre -fund OPEB expenses. The City's most recent actuarial study showed an unfunded OPEB liability of approximately $33 million, with 0% funded.
In Fall 2022 City Council directed staff to transfer $2.4 million from bond proceeds to the Section 115 trust and approved a Section 115 Trust funding policy aimed at reducing the OPEB liability.
The Proposed FY 2023-24 budget includes a transfer of $770,000 which had been committed to OPEB within the Measure U fund balance for several years while the Section 115 trust was implemented, and a policy approved.
Once transferred from the Measure U fund, this $770,000 will be sent to the Section 115 trust, reducing our liability on the City's balance sheet and may be used to make payments to retirees for health insurance and/or make payments to CaIPERS. Staff will be presenting OPEB funding strategies to the City Council at a separate meeting in June 2023.
Policy 460 - In October 2022 the City Council modified Policy No. 460 which guides the allocation of funds received from Measure U. Previously, once the City had achieved a reserve level of 25% the allocation of Measure U monies was: 60% to infrastructure, 30% for employee recruitment and retention, and 10% for Other Post -Employment Benefits (OPEB). The update modified the allocation to be: 50% allocated to infrastructure, 30% transferred to the General Fund for employee recruitment and retention, 10% to OPEB and the remaining 10% transferred to the General Fund Contingency Reserve. Transfers in from the Measure U fund total $2,760,000 for employee retention, $1,690,595 (inclusive of the $770,000 discussed above) for OPEB, and $920,000 for reserve funding for FY 2023-24.
While Measure U has enabled the City to make significant investments in infrastructure over the past few years, there are still substantial facilities, roads and other infrastructure needs that are outstanding. The 10% reduction in infrastructure allocation from Measure U funds has resulted in the need for the General Fund to contribute to capital expenses to support much needed projects. The Citizen's Oversight Committee, which oversees spending of Measure U monies met with staff and recommended maintaining the current allocation percentages and using unassigned fund balance generated from historical managed savings to support capital needs that exceed funds available in the Measure U fund. Those projects include citywide wayfinding signage, completion of the Senior/ Community Center design, which is partially funded by revenue from a development agreement, an ADA transition plan, IT Strategic Plan, communications and marketing plan, citywide facilities needs and condition assessment and maintenance master plan as well as smaller projects.
The total amount of capital projects funded by unassigned fund balance in the General Fund is $2,134,280 with an additional $2,000,000 supporting the public safety building and the EIFD.
Position Allocation (Staffing)
The FY 2023-24 Proposed Budget includes 200 authorized full-time equivalent (FTE) positions,
7.0 elected officials as well as authorization for 4.0 FTE unfunded overhires in the Police and
City Council Agenda
May 16, 2023
Public Safety Communication Departments. The Proposed Budget includes any changes to staffing levels that were approved in FY 2022-23.
In addition, the following changes to personnel are recommended in the 2023-24 budget:
1. One (1.0) new Facilities Maintenance Technician ($87,090 annual cost) in the Community Services Department. This position is necessary to address a significant backlog in facility maintenance and manage day-to-day needs of the department to ensure consistent or increased rental of city facilities.
2. One (1.0) new Police Sergeant ($164,000 annual cost) in the Police Department. This position was eliminated several years ago and is needed for appropriate supervision, training staff, and ensuring proper upkeep of department records and policies.
3. One (1.0) new Police Records Specialist in the Police Department ($77,600 annual cost).
This position is needed to assume duties related to body worn camera data currently being handled by an IT sergeant as well as comply with court requirements for reports to be submitted within a 48-hour timeframe. In addition, this position will assist the Department in opening the front counter for additional time periods to serve the public.
4. One (1.0) new Code Enforcement Officer ($92,630 annual cost) in the Development Services department. Currently there are two part-time Code Enforcement Officers serving the City however after reviewing surveys of other like -sized agencies and the increasing needs within the City, Staff is proposing the addition of one full-time Code Enforcement Officer with a corresponding $29,000 decrease in part-time salaries. With two full-time code enforcement officers it is anticipated there will be increased revenue from administrative citations.
5. One (1.0) new Building Permit Technician ($80,400 annual cost) within the Development Services department. This position was previously staffed by an outside contractor and is recommended to be brought in-house to better support the needs of the development community and reduce costs. Bringing this service in-house would save approximately $34,500 annually compared to contracting for similar services and will ensure redundancy and the proper allocation of staffing at the front counter while also improving customer service.
6. One (1.0) new Plans Examiner ($157,660 annual cost) in the Development Services department. This position was previously staffed by an outside contractor and is recommended to be brought in-house to better support the needs of the development community, reduce costs and better streamline the plan check reviewing process. Bringing this service in-house would save approximately $52,000 annually compared to contracting for similar services.
7. One (1.0) new Senior Management Analyst ($133,345 annual cost) in the City Administrator's Office to focus on citywide economic development and affordable housing projects within the City.
City Council Agenda
May 16, 2023
8. Two (2.0) new Firefighters ($213,280 annual cost) in the Fire & Life Safety department.
These positions are part of a pilot program to staff the patrol vehicle and supplement staffing on each shift. The cost of these positions will be partially offset by filling overtime vacancies, potential strike team revenues, if applicable, as well as the potential receipt of FEMA grant funds.
9. Reclassification of one (1.0) Patrol Engineer ($11,370 annual savings) to Firefighter in the Fire & Life Safety department. This position is currently vacant and has historically been difficult to fill given the unique nature of the schedule. After analysis by Staff, it is recommended to reclassify this position to allow greater staffing flexibility, more coverage for all shifts and overtime savings in accordance with the aforementioned pilot program.
10.One (1.0) new Information Technology Specialist ($133,345 annual cost) in the Administrative Services Department. These duties were previously provided by an outside contractor; however, Staff is recommending bringing these services in-house for greater control, improved customer service and cost savings. Estimated costs of contracting out similar services are $650,000. Bringing the service in-house could potentially save $300,000 or more annually.
11.One (1.0) new Information Technology Technician ($90,105 annual cost) in the Administrative Services Department. These duties were previously provided by an outside contractor; however, Staff is recommending bringing these services in-house for greater control, improved customer service and cost savings. Estimated costs of contracting out similar services are $650,000. Bringing the service in-house could potentially save $300,000 or more annually.
12.One (1.0) new Public Works Administrative Services Manager ($146,950 annual cost) in the Public Works Department. This position is needed to manage the corporate yard, coordinate a citywide maintenance and operations plan and facilities condition/needs assessment, develop new maintenance software and train all staff to ensure more proactive maintenance of city facilities, as well as manage citywide maintenance contracts.
13. Reclassification of a Senior Planner to a Planning Manager ($11,500 annual cost) in the Development Services department to better reflect the duties currently being done and the needs of the department and for succession planning.
14. Reclassification of one Senior Code Enforcement Officer ($6,423 annual cost) in the Development Services department to Code Enforcement Supervisor to better reflect duties currently being done and the need for formal supervision within the division.
15. Reclassification of a Management Analyst to a Communications & Marketing Manager ($13,533 annual cost) to create and implement a comprehensive and unified communications and marketing strategic plan, conduct all public information officer related duties, handle government relations, coordinate grant funding with the City's lobbyist and facilitate special projects.
City Council Agenda
May 16, 2023
16. Reclassification of an Account Clerk to an Accounting Technician in the Finance Department ($6,492 annual cost) to better reflect the duties currently being done and the needs of the department.
17. Reclassification of an Assistant to the City Administrator to a Deputy Director of Administrative Services ($11,162 annual cost) to focus on conducting a Class and Comp Study, establishing a medical provider network plan to reduce workers compensation claims, updating the City's Personnel Rules and Administrative Policy Manual and evaluating the City's insurance pool. This position will also provide support and complex assistance in updating multiple policies within Human Resources while also establishing a health and wellness division in Human Resources. This position is being recommended to better reflect the needs of the department while also ensuring succession planning.
Capital Improvement Program
The City's Capital Improvement Program (CIP) identifies major public improvements to the City's infrastructure over the next several years and includes new projects, upgrades to existing facilities as well as rehabilitation of streets and roadways. Funding for projects scheduled for FY 2023-24 are included in the proposed budget, with the majority of the scheduled projects funded by Measure U, the Sewer Fund, Gas Tax, Development Impact Fees (DIFs), grants and other reimbursements. The proposed CIP for FY 2023-24 includes 22 new projects for a combined total of approximately $10.7 million.
Measure U
$4,576,310
Dev
mpact F
$685,000
es
Misc.
Other
es
General
Fund
$2,134,280
Gas Tax
$1,800,000
FV 2023/24 Proposed CIP by Funding Source
Measure
M
$600,000
Major projects scheduled include citywide
wayfinding signage, roadway rehabilitation,
information technology (IT) infrastructure
replacement to address aging servers and
technology, completion of the Senior Center/
Community Center design, and Gomez Park
playground renovation.
In addition to the projects referenced above, the
proposed budget also includes a continued
investment in the City's parks and open spaces
in accordance with the recently adopted Parks
Initiative approved by the City Council on March
18, 2021.
As previously mentioned, Policy 460 was
amended in October 2022 reducing the
allocation of Measure U funds for infrastructure from 60% to 50% effective FY 2023-24. While funding reserves is a prudent use of Measure U funds, the City is facing significant infrastructure needs including street repairs, both arterial and residential, citywide facility repairs and upgrades,
City Council Agenda
May 16, 2023
fleet needs as well as park upgrades. To address the immediate needs, staff is proposing the use of $2.1 million in unassigned fund balance from the General Fund for projects outlined below:
• Wayfinding signage
• Senior/Community Center Design
• Improvements to Administration office
in City Hall
• Communications & Marketing
Strategic Plan
• Outfitting of new Police patrol units
• ADA Transition plan
• IT Strategic Plan & Smart City Master
Plan
• Public Works Maintenance Master Plan
& Condition Assessment
In addition, staff is proposing the use of $2 million in General Fund monies to provide additional funding for the public safety building ($1.0 million) and as a loan to initiate the Enhanced Infrastructure Financing District (EIFD) project. This $2 million is needed as a direct result of significantly increased costs for both projects and is representative of cost increases the City has seen on almost all projects put out to bid in the past year, in some instances double the engineer's estimate. The EIFD is a partnership between the City and the County of Orange created to fund streetscape and other infrastructure improvements within the identified district and is designed to encourage private development in the area with a corresponding increase in property values, jobs, and economic activity. Information regarding the EIFD is available on the City's website.
While cost increases have been discouraging, some positive highlights included in the proposed CIP is the award of $500,000 in grant funds from County Supervisor Chaffee's office as well $600,000 from a new development agreement to fund the completion of the Senior/ Community Center design. The City consistently seeks grant funds to support capital projects whenever possible to address the substantial capital improvement needs that are currently unfunded.
Due to the scale and complexity of capital improvement projects, they often span two or more fiscal years. In addition to the 22 new projects proposed for FY 2023-24, previously approved projects that are in progress and not yet complete will be carried over into FY 2023-24 after the close of the 2022-23 fiscal year by a separate City Council action. Including both new and carryover projects, the City is actively working on 95 CIP projects.
Fund Balance
The estimated beginning fund balance for FY 2023-24 is $21.4 million, of which $10.3 million is designated as Unassigned Fund Balance. As a result of operations in FY 2023-24, including the planned $4.1 million from unassigned fund balance to support extraordinary capital needs, it is anticipated that the fund balance will decrease by $2.3 million for an ending fund balance of $19.1 million. It is forecasted that the reserve will be funded at 41% of General Fund operating expenses, exceeding the established goal of 25% by the end of FY 2023-24.
City Council Agenda
May 16, 2023
Estimated Beginning Fund Balance 7/1/23 $21,425,994
Fund Balance Designations
Non -Spendable
Restricted
Measure U Contingency Reserve
GF Reserve
Unassigned
Estimated Ending Fund Balance 6/30/24
Proposed Budgeted Operating Expenditures
25% Reserve Target Amount
Percent of Target Met
Reviewed and approved:
Jennifer Lampman
Director of Finance
Attachments:
2,128,711
4,001,682
6,478,600
6,505,596
19,114,589
41,921,129
10,480,282
41%
Reviewed and approved:
Damien R.
City Administrator
1. FY 2023-24 Proposed General Fund Budget PowerPoint Presentation
2. FY 2023-24 Proposed Budget