TO:
VIA:
FROM:
DATE:
CITY COUNCIL
CITY ADMINISTRATOR
DIRECTOR OF FINANCE
MAY 21, 2024
Placentia Cit Council
AGENDA REPORT
SUBJECT: PRESENTATION OF THE PROPOSED FISCAL YEAR 2024-25 OPERATING
BUDGET AND CAPITAL IMPROVEMENT PROGRAM (CIP)
FISCAL
IMPACT: FY 2024-25 EXPENDITURES: $ 99,225,368
REVENUE: $ 95,329,478
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 2024-25 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 and specialized consultants.
RECOMMENDATION:
It is recommended that the City Council take the following actions:
1. Review and discuss the Proposed Fiscal Year 2024-25 Annual Operating Budget and 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 4, 2024, at 7:00 p.m.
DISCUSSION:
The proposed budget was developed with a focus on maintaining balance in Tight of continuing economic challenges caused by persistently high inflation and interest rates. Inflation has affected the cost of everything, including supplies, gasoline, utilities, and service contracts as well as impacted consumer behavior leading to decreased sales tax, and has made it significantly more challenging to provide municipal services.
As a result, the City began the budget preparation process with a $3.8 million deficit in the General Fund. To address this deficit, departments were asked to reduce their budgets by up to five percent (5%), and a hiring "frost" has been implemented wherein non-public safety or non -revenue
3.a.
May 21, 2024
City Council Agenda
May 21, 2024
generating positions will be intentionally left vacant as long as possible to generate salary savings.
These actions, combined with other measures discussed in detail later in this report, effectively addressed eighty-seven percent (87%) of the deficit, with the remaining thirteen percent (13%) of the deficit proposed to be addressed using unassigned fund balance.
With a focus on long-term fiscal sustainability, the City continues to prioritize economic development with an emphasis placed on attracting businesses that will increase the City's sales and or transient occupancy taxes, as well as intentional development that will boost the City's overall assessed value. In addition, Staff is aggressively seeking new economic development opportunities as well as new sources of revenue to support continued operations and maintenance of City facilities and infrastructure.
FY 2024-25 Proposed Budget Summary
The Proposed FY 2024-25 citywide operating budget is $99.2 million, an increase of 14.8% over the Adopted FY 2023-24 budget. These expenses are supported by $95.3 million in revenue, an increase of 12.3% from the current fiscal year's Adopted budget, as well as unassigned fund balance in some special revenue funds. The primary reason for the increase in both revenue and expenditures is the Enhanced Infrastructure Financing
District (EIFD) project which is anticipated to begin in FY 2024-25. These total figures reflect revenues and
expenses for all funds citywide including the General Fund, Enterprise Funds, Debt Service Funds and Special
Revenue Funds.
Enterprise Funds are proprietary funds supported by user fees and charges and operate much like a private
business. The rates charged to customers for these
services cover the costs of operation, maintenance and
capital and infrastructure improvements. The City
maintains two Enterprise Funds including Sewer and Solid Waste (Refuse). Expenditures for FY 2024-25 for these
funds are proposed to be $5.6 Million for both operating and capital expenses.
Internal Service Funds, including employee health and
welfare, risk management, and equipment replacement
account for activities provided to one City department by another City department. The Proposed FY 2024-25
budget includes $4.7 million in funding for these funds.
Special Revenue Funds are funds legally restricted to a specific purpose. Examples of Special Revenue Funds include the Gas Tax Fund and the Community Development Block Grant (CDBG). In total, expenses in Special Revenue Funds are proposed at $31.0 million for FY 2024-25 inclusive of Measure U.
Internal
Services -
Funds
Special
Revenue
Funds
General Fund
Fund Type
Debt
Servic::
Expenditures & Transfers
Out Net Incr/(Decr)!
City Council Agenda
May 21, 2024
Proposed revenues and expenses by fund type are outlined below:
Fund Type
Revenues &
Transfers In
General Fund
Special Revenue
Debt Service
Enterprise
Capital Projects Fund
Internal Service
Fiduciary
Agency Fund
Totals
General Fund
$50,430,128
27,579,237
407,750
6,169,640
4,593,969
4,657,704
1,491,050
95,329,478
$50,925,939
31,021,820
407,750
5,646,040
456,000
4,613,969
4,662,800
1,491,050
($495,811)
(3,442,583)
523,600
(456,000)
(20,000)
(5,096)
99,225,368 (3,895,890)
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, transfers from Measure U, transient occupancy taxes as well as a variety of user and permit fees and other smaller sources. The Proposed Budget for FY 2024-25 for the General Fund is $50.9 million in operating expenses, a decrease of $1.4 million or (2.6%) from the Adopted FY 2023-24 budget, supported by $50.4 million in operating revenue, an increase of $628,710 or 1.3% from the Adopted FY 2023-24 budget, with the difference supported by $495,811 from reserves.
Per Policy 460, 10% of funds received from Measure U are dedicated to the Measure U Contingency Reserve. The Proposed budget includes this transfer, $888,600, into the Measure U Contingency Reserve, but proposes to use those funds to support operations in FY 2024-25. Staff met with and discussed this proposal with the Measure U Citizen's Oversight Committee, and they support this recommendation.
City Council Agenda
May 21, 2024
General Fund Revenue Highlights
Property Tax revenue in FY 2024-25 is projected to
be $21,796,023, an increase of $1,381,079, or 6.8%
over the FY 2023-24 Amended budget. Increases in
property tax are due to a combination of property
turnover and resulting reassessments and the two
percent (2%) per year inflation factor for property
assessments allowable under Proposition 13. Other Transient Property tax for FY 2024-25 includes the increase in Utility Revenues Occupancy assessed value of the Herald property following its Users Tax 14% Tax property sale in 2022, and an increase in assessed 5% Fines & 4% Forefeitures ransfers Franchise
value for the Cenza property reflective of construction In Fees activity at January 2023. The City continues to 1% 1% 6% maintain a high number of properties assessed at
their pre -1978 value, with 13.7% of all citywide parcels and 12.5% of single-family residences still assessed well below market value. As these properties turn over and are assessed at market value, the City's property tax should continue to increase at a higher percentage than the 2% maximum CPI allowable under Proposition 13.
Property
Tax
43%
Sales Tax
17%
Sales Tax, excluding Measure U, is projected to decrease by approximately $242,000, or 2.8% in FY 2024-25 from the Amended FY 2023-24 budget and totals approximately $8.4 million. This decrease is not unique to Placentia as sales tax is trending downward statewide for a myriad of reasons including:
• Prolonged higher interest rates which have negatively impacted purchases of new and used automobiles, especially luxury vehicles.
• Lower fuel prices reducing receipts from fuel and services stations. As six (6) of the City's top 25 sales tax producers are fuel stations, this has significantly impacted the City's sales tax receipts.
• Taxable sales for restaurants and general consumer goods are also down as inflation continues to affect consumer behavior with more people choosing to eat out less often, choose fast food restaurants instead of sit-down dining and/or spend disposable income on experiences such as travel, movies, concerts or escape rooms, and not consumer goods.
• Closure of larger chain store locations such as the 99 Cent Store and CVS Pharmacy.
Transient occupancy tax (TOT), otherwise known as the "bed tax" is a 10% tax paid by visitors staying overnight in one of our local hotels and/or short-term rentals operating within the City. The Proposed Budget assumes $1,840,000 in revenue, 7% higher than the FY 2023-24 Amended Budget. This increase is due to a combination of continued growth in the travel industry, higher nightly hotel rates and a slightly higher number of short-term rentals operating within the City.
City Council Agenda
May 21, 2024
Fines & Forfeitures are projected to increase 4.3% to $485,000 from the prior fiscal year due to slight increases in administrative citations in code enforcement and parking citations.
Intergovernmental revenue is revenue from outside government agencies including County, State and/or Federal sources. Revenues for FY 2024-25 are decreasing by $3.4 million, or 91.6% from the FY 2023-24 Amended budget due to the anticipated exhaustion of American Rescue Plan Act (ARPA) funds originating from the federal government during the pandemic. Per the Government Accounting Standards Board (GASB), these funds are recognized in the fiscal year in which they are spent, and the City expects to have spent all ARPA funds by June 30, 2024.
Operating Transfers -In are also decreasing due to the elimination of the transfer from the Sewer Fund to the General Fund. Existing sewer rates are not generating the level of revenue anticipated when the City adopted the current rate structure, largely driven by a consistent reduction in the amount of water usage citywide. As a result, the Sewer fund does not have sufficient revenue to reimburse the General Fund for administrative costs.
Revenue
FY 2023/24
Amended
Budget
FY 2023/24
Year End
Estimates
FY 2024/25 Variance to
Proposed Amended
Budget Budget
Property Taxes
Sales & Use Taxes
Other Taxes
Permits/Licenses
Fines & Forfeitures
Intergovernmental
Charges for Services
Miscellaneous
Total Operating
Revenues
Transfers In
Measure U Transfers -In
Employee Retention
Measure U Reserve
OPEB
Total Transfers In
Total Resources
$20,414,944
8,650,000
7,509,236
2,618,000
465,000
3,712,950
1,684,000
2,454,000
$47,508,130
1,052,750
3,337,946
920,000
1,112,649
6,423,345
53,931,475
$20,269,659
8,130,000
7,707,500
2,573,350
464,953
3,714,350
1,584,122
2,557,402
$47,001,336
1,047,800
3,225,000
860,000
1,075,000
6,207,800
53,209,136
$21,796,023
8,408,000
7,896,040
2,788,900
485,000
312,000
1,716,990
2,129,075
$45,532,028
6.8%
(2.8%)
5.2%
6.5%
4.3%
(91.6%)
2.0%
(13.2%)
(4.2%)
455,100 (56.8%)
2,665,800 (20.1%)
888,600 (3.4%)
888,600 (20.1%)
4,898,100 (23.7%)
50,430,128 (6.5%)
General Fund Expenditure Highlights
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
City Council Agenda
May 21, 2024
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 2024-25 General Fund Budget includes $44.1 Million in department expenses, $6.6 million for debt service and transfers and $180,000 in capital expenditures for a total of $50.9 million. This represents a decrease of 28% for the General Fund from the current fiscal year's amended budget. The primary reason for such a large decrease is the large investment in capital projects including the public safety building in the current fiscal year's budget that will be either completed by June 30th or carried over into the next fiscal year.
Proposed General Fund budgets for the respective departments are listed below:
Departments
FY 2023/24 FY 2024/25
Amended Proposed
Budget Budget
Variance to
FY23/24
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
$1,139,000
1,054,134
6,338,088
1,346,368
1,819,556
13,913,476
4,768,558
4,939,091
3,377,417
5,498,200
44,193, 888
22, 001,152
36,214
5,760,900
71,992,154
1,075,316
1,055,675
6,662,469
1,370,550
1,782,450
14,738,672
5,233,350
3,999,786
3,513,350
4,711,700
44,143, 318
180,000
143,756
6,458,866
50,925,940
(5.6%)
0.1%
5.1%
1.8%
(2.0%)
5.9%
9.7%
(19.0%)
4.0%
(2.4%)
(0.1 %)
(99.2%)
297.0%
12.1%
(29.3%)
Initially, the budget preparation process revealed a deficit of approximately $3.8 million due to decreasing sales tax and increased costs, many of which were outside the City's control including:
• Required addition of an Unfunded Actuarial Liability (UAL) payment of $447,000 to CaIPERS as a result of their rates of return for the past two fiscal years. This UAL payment is in addition to the $4.1 million debt service payment for the 2020A lease revenue bonds that were issued to pay off the City's UAL in 2020.
City Council Agenda
May 21, 2024
• $1.3 million increase in personnel expenses per various memoranda of understandings and anticipated merit increases citywide.
• An increase of $400,000 for general liability and workers' compensation insurance citywide. • An approximate increase of $140,000 for the 800 MHz radio system for public safety. • Increased costs of utilities including gasoline and electricity.
Debt Service- Debt service expenses are increasing due to the full annual payment for the bond issued to fund the public safety building construction, compared to only one payment in the FY 2023-24, as well as slight increases in the debt payment schedule for other obligations.
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 $18.3 million, with the most recent Unfunded Actuarial Liability (UAL) measured at $10.8 million by CaIPERS. In Fall 2022, the 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 City contributed an additional $770,000 to the trust in the FY 2023-24 budget.
By design, Section 115 trusts can only be used for pension and OPEB expenses such as the UAL payments to CaIPERS, and retiree medical expenses. As a part of the actions taken to reduce the budget deficit, the Proposed FY 2024-25 budget includes funding of the $447,000 UAL payment and approximately seventy-five percent (75%) of the annual retiree medical costs, $750,000, from the Section 115 trust. Staff is not proposing funding all retiree medical costs from the trust at this time in order to allow the funds remaining in the trust to continue to accrue interest and grow the trust in accordance with the OPEB funding policy.
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 to change to the following: 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 Measure U Contingency Reserve. Transfers in from the Measure U fund total $4,443,000 with $2,665,800 for employee retention, $888,600 for OPEB, and $888,600 for reserve funding for FY 2024-25.
As previously mentioned, the Proposed budget includes the use of the 10% reserve contribution to support operations in FY 2024-25.
Position Allocation (Staffing)
The FY 2024-25 Proposed Budget includes 200 authorized full-time equivalent (FTE) positions,
7.0 elected officials as well as authorization for 4.0 FTE unfunded overhires within the Police and Public Safety Communication Departments. There are no proposed staffing changes included in the FY 2024-25 budget. As previously mentioned, the City has implemented a hiring "frost" for the
City Council Agenda
May 21, 2024
proposed budget year with the goal of generating salary savings and easing the pressure on the General Fund. Public Safety and positions that generate revenue for the City will be filled as needed, but all other positions will be held vacant as long as possible.
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
and accounts for twenty percent (20%) of the
proposed budget. Funding for projects scheduled
for FY 2024-25 are included in the proposed
General budget, with the majority of the scheduled projects Fund funded by Measure U, Gas Tax, EIFD,
$180,000 Development Impact Fees (DIFs), grants and
other reimbursements. The proposed CIP for FY
2024-25 includes 39 new projects/capital
purchases for a combined total of approximately
$19.6 million.
I Dev. Impact
Fees In FY 2023-24, the City commissioned two
$987,750 important studies, a Facility Needs and Condition Measure inn 1 Misc. Other py
$1,203,000) sources Assessment of all city facilities and an Information Technology Master Plan to assess and prioritize
infrastructure needs. As expected, both studies
revealed a significant backlog of capital needs
FY 2024/25 Proposed CIP by Funding Sourc .with just under $50 million in investment recommended over ten (10) years for facilities,
and $4 million for information technology needs over the next five (5) years. With limited financial resources available, Staff prioritized projects based upon urgency and/or adherence to ongoing City Council priorities such as the Placentia Parks Initiative and street improvements.
Major projects scheduled include roadway rehabilitation, citywide concrete repair, information technology (IT) infrastructure replacement to address aging servers and technology, a new financial ERP system, citywide wayfinding signage, necessary technology upgrades to the City Council chambers and media room, and large vehicle purchases specifically a reserve fire engine and loader.
$1,233,675
In addition to the projects referenced above, the proposed budget also includes a continued investment within the City's parks and open spaces in accordance with the City's Parks Initiative approved by the City Council on March 18, 2021. New park projects proposed include completion of the design of a dog park, Tuffree park sports field lights, window replacement at the Powell building, McFadden Park playground replacement and roof replacement at Tynes gym.
Due to the scale and complexity of capital improvement projects, they often span two or more fiscal years. In addition to the 39 new projects proposed for FY 2024-25, previously approved
City Council Agenda
May 21, 2024
projects that are in progress and not yet complete will be carried over into FY 2024-25 after the close of the 2023-24 fiscal year by a separate City Council action. Including both new and carryover projects, the City is actively working on 92 CIP projects. Despite the large number of new and ongoing projects, several new, one-time capital projects remain unfunded this fiscal year, and future completion depends upon identifying and securing additional funding.
Fund Balance
The estimated beginning fund balance for FY 2024-25 is $14.4 million. As a result of proposed operations in FY 2024-25, it is anticipated that the fund balance will decrease by $495,811 for an ending fund balance of $13.9 million. It is forecasted that the reserve will be funded at 27.43% of General Fund operating expenses, exceeding the established goal of 25% by the end of FY 2024-25.
Estimated Beginning Fund Balance 7/1/24 $14,370,851
Fund Balance Designations
Non -Spendable
Restricted
Measure U Contingency Reserve
GF Reserve
Unassigned
Estimated Ending Fund Balance 6/30/24
Proposed Budgeted Operating Expenditures
Reserve Total (FB less Non -Spendable)
General Fund Operating Reserve %
Reviewed and approved:
z?
Jennifer Lampman
Director of Finance
Attachments:
1,766,691
5,750,282
5,285,547
1,072,520
$13,875,040
44,143, 318
12,108,349
27.43%
Reviewed and approved:
Damien R. Arrula
City Administrator
1. FY 2024-25 Proposed General Fund Budget PowerPoint Presentation
2. FY 2024-25 Proposed Budget