CITY COUNCIL STAFF REPORT
Meeting Date: June 26, 2023
TO: THE HONORABLE MAYOR AND CITY COUNCILMEMBERS
SUBJECT: ADOPT RESOLUTION NO. __-23 APPROVING ADJUSTMENTS TO THE GENERAL FUND BUDGET FOR FISCAL YEAR 2023/2024
SYNOPSIS
At its June 2023 meeting, the Budget Committee considered revisions to the fiscal year 2023/2024 General Fund budget at its meeting of June 14, 2023, and the proposed changes are forwarded with a recommendation from the Committee for adoption by the City Council.
DISCUSSION
Background
The City of Pleasant Hill operates on a biennial budget. Prior to the beginning of the second year of the budget cycle, staff reviews the adopted budget and determines whether any changes to revenues and/or appropriations are needed. The biennial budget for fiscal years 2022/2023 (FY 22/23) and 2023/2024 (FY 23/24) was adopted by the City Council on June 27, 2022. Staff has identified a few amendments for FY 23/24 based on this review. The cost of the additional appropriations requested is projected to be covered by a higher-than-anticipated beginning General Fund balance.
Analysis
Staff is projecting that FY 22/23 will have a General Fund ending balance (not including Measure K) $1.6 million higher than currently budgeted. The budget deficit for FY 22/23 is currently $1.9 million with General Fund balance dropping slightly under $10.0 million. Based on revised estimates, the current deficit is $0.4 million with General Fund balance ending at $11.6 million. Revenues are currently estimated to be $29.8 million, higher than the original budget due to improved licenses and permits revenues and use of money and property.
Expenditures are currently estimated to be $30.2 million and under budget mainly due to staff vacancies. The originally adopted FY 23/24 General Fund ending fund balance was $8.9 million and including the proposed revisions is currently $10.1 million.
Table 1- (in $1,000s)
DESCRIPTION
FY 22/23
BUDGET
FY 22/23
ESTIMATED
FY 22/23
BUDGET
CHANGE
FY 23/24
BUDGET
FY 23/24
BUDGET
REVISION
FY 23/24
BUDGET
CHANGE
GENERAL FUND
BEGINNING FUND BALANCE $11,908 $11,908 $0 $11,556 $11,556 $0 REVENUES $28,970 $29,798 $828 $29,921 $30,235 $314
EXPENDITURES $30,888 $30,150 ($738) $31,189 $31,650 $461 NET CHANGE ($1,918) ($352) $1,566 ($1,268) ($1,415) ($147) GENERAL FUND ENDING BALANCE $9,990 $11,556 $1,566 $10,288 $10,141 ($147) GENERAL FUND REVENUES (not including Measure K)
General Fund revenues for FY 23/24 were budgeted at $29.9 million. Revenues are currently projected to increase slightly to $30.2 million. Summary of changes provided below.
Table 2 - (in $1,000s)
DESCRIPTION
FY 22/23
BUDGET
FY 22/23
ESTIMATED
FY 22/23
BUDGET
CHANGE
FY 23/24
BUDGET
FY 23/24
BUDGET
REVISION
FY 23/24
BUDGET
CHANGE
REVENUE
PROPERTY TAX $8,211 $8,252 $41 $8,613 $8,647 $34
SALES TAX $10,796 $10,900 $104 $11,058 $10,886 ($172)
OTHER-TAXES AND ASSESSMENTS $5,678 $5,744 $67 $5,847 $5,851 $4 FRANCHISE $2,158 $2,260 $102 $2,221 $2,360 $139
LICENSES AND PERMITS $1,024 $1,533 $508 $1,055 $1,055 $0 CHARGES FOR SERVICES $466 $565 $98 $480 $480 $0
INTERGOVERNMENTAL $91 $81 ($10) $93 $93 $0
FINES AND FORFEITURES $30 $15 ($15) $31 $15 ($16)
USE OF MONEY AND PROPERTY $127 $310 $183 $131 $330 $199 OTHER-REVENUE $360 $119 ($241) $362 $362 $0
TRANSFER-IN $30 $20 ($10) $30 $155 $125
REVENUE TOTAL $28,970 $29,798 $828 $29,921 $30,235 $314 Property Tax (Proposed Adjustment: $34,000 increase)
Property tax revenue was originally budgeted to be $8.61 million. Based on current information provided by the City’s property tax consultant, Hdl, it is projected to increase by $34 thousand to $8.65 million for FY 23/24. This projected increase is due to higher assessed valuations on residential properties that have changed ownership.
Sales Tax (Proposed Adjustment: $171,560 decrease)
Sales tax revenue was originally budgeted to be $11.1 million. Based on current analysis by Hdl, sales tax revenues is projected to decline by $0.2 million to $10.9 million. The decrease is due to the closure of Bed Bath & Beyond stores with their recently announced bankruptcy. This also assumes a decrease in County Pool allocations and fuel prices with decreasing sales and oil prices coming off historic highs.
Franchise Fees (Proposed Adjustment: $139,000 increase) State law authorizes cities to grant franchises to utility and other companies for their use of the public right of way (streets, alleys, sidewalks, etc.) to locate utility lines or operate vehicles. The franchise fees are calculated based on a percentage of the franchisee’s gross revenues. The original budgeted amount was $2.22 million. The revised amount is $2.36 million with slightly higher revenues received from Republic Services than originally budgeted.
Use of Money and Property (Proposed Adjustment: $199,251 increase) The use of money and property category includes interest and dividend income on the City’s investment of fund balances, primarily General Fund working capital and reserves. Interest rates have risen significantly over the last year as the Federal Reserve has tried to curb inflation.
Local Agency Investment Funds (LAIF) rates have gone from an average of 0.34% in calendar 2021 to 1.12% in calendar 2022, which is nearly a 229% increase. The original budget amount was $131 thousand and staff is proposing a revision to $330 thousand based on the rise of interest rates.
Transfers In (Proposed Adjustment: $135,000 increase)
The City of Pleasant Hill partners with the City of Martinez and the Contra Costa County Health, Housing and Homeless Services to provide a homeless outreach program. The Coordinated Outreach, Referral, and Engagement (CORE) is an entry point into the coordinated system of services for homeless persons and strives to locate, engage, stabilize, and house homeless individuals and families. The City Council approved using American Rescue Plan Act (ARPA) Funds in the current fiscal year. The Budget Committee is recommending the use of ARPA Revenue Loss funds for a second year for approximately $135 thousand, which qualifies as an eligible use under government services.
GENERAL FUND EXPENDITURES (not including Measure K)
General Fund expenditures for FY 23/24 were budgeted at $31.2 million. Based on updated analysis from all City Departments, expenditures are projected to increase by $0.5 million, to $31.7 million. The main reason for the increase is related to the City’s insurance premiums rising $0.4 million.
Table 3 - (in $1,000s)
EXPENSE
FY 22/23
BUDGET
FY 22/23
ESTIMATED
FY 22/23
NET
CHANGE
FY 23/24
BUDGET
FY 23/24
BUDGET
REVISION
FY 23/24
BUDGET
CHANGE
SALARIES $14,051 $13,258 ($793) $14,412 $14,699 $287
BENEFITS $4,786 $4,797 $11 $4,907 $5,096 $189
CALPERS UNFUNDED LIABILITY PAYMENT $3,970 $3,970 $0 $4,268 $3,872 ($396) NON DEPARTMENTAL $460 $707 $247 $474 $474 $0
PROFESSIONAL AND CONTRACT SERVICES $2,149 $1,852 ($297) $1,735 $1,814 $78 GENERAL EXPENSES $880 $820 ($60) $785 $800 $15
INSURANCE $1,140 $1,064 ($76) $1,193 $1,473 $280
MAINTENANCE AND REPAIR $609 $601 ($8) $611 $611 $0
CONFERENCES AND TRAINING $214 $199 ($15) $232 $232 $0
SUPPLIES AND MATERIALS $400 $398 ($2) $385 $386 $1
UTILITIES $458 $452 ($6) $468 $475 $7
PROMOTIONS AND CONTRIBUTIONS $139 $148 $9 $134 $134 $0
FIXED ASSET $32 $35 $3 $29 $29 $0
TRANSFER-OUT $1,599 $1,849 $250 $1,556 $1,556 $0
EXPENSE TOTAL $30,888 $30,150 ($738) $31,189 $31,650 $461 Salaries and Benefits (Proposed Adjustment: $476,477 increase) Salaries and benefits adopted budget is $19.3 million and is projected to increase, by $0.5 million, to $19.8 million. The increase reflects updated salaries for all current staff and several unfrozen positions due to workload. Two of the unfrozen positions were administrative assistants in the city manager’s office and planning offices. These positions were essential, as temporary staff were deemed insufficient to perform the required workload and hours necessary to prepare for public meetings and daily tasks for each of the departments. The increase in interest income was assumed to offset these costs since these positions combined amount to approximately $200 thousand. Benefits rose $189 thousand due to CalPERS increasing the employer rate as part of its rate mitigation policy for $165 thousand; and Municipal Pooling Authority increased workers compensation premiums $40 thousand. The increase was offset by Kaiser medical premiums staying level for calendar 2023 equating to a savings of $39 thousand.
CalPERS Unfunded Actuarial Liability (Proposed Adjustment: $395,645 decrease) The higher salary and benefits expenditure is offset by the lower CalPERS Unfunded Actuarial Liability (UAL) payment of $396 thousand, which is also due to its risk mitigation policy.
CalPERS risk mitigation policy reduces the discount rate when they have very good years of investment return by increasing employer contribution rates and decreasing the UAL. In FY 20/21, CalPERS had a return of 21.3% and the discount rate was lowered from 7.0% to 6.8%. It is important to note, the City has not received the CalPERS actuarial valuation for FY 21/22, which normally comes out summer/fall of 2023. CalPERS had a negative 6.1% return in FY 21/22, which will affect our FY 24/25 employer rates and UAL payment amounts.
Insurance Costs
The City is a member of the Municipal Pooling Authority (MPA), a joint powers authority that provides self-insurance and insurance coverage against the risk of losses. MPA provides coverage from general liability, employment liability, cyber risk, vehicle, and property loss. The total insurance premiums are increasing from $1.6 million in FY 22/23 to $2.0 million for FY 23/24. Most of the premium increases are outside the control of the City, as issues throughout the State such as natural disasters (wildfires), unlimited damages in legal lawsuits, and public safety liabilities affect costs even though Pleasant Hill may not have any claims. The portion of the increase that was City related was the addition of property insurance for the new library for $59 thousand. For FY 23/24, staff informed the Budget Committee that there is sufficient appropriations in Measure K to absorb the insurance cost for the library.
Other Costs
Professional and Contractual Services (Proposed Adjustment: $78,270 increase) - due to additional assistance needed to fill vacancies throughout the City, increase in County Services for forensic services for the police department, and additional temporary assistance with the new permitting and licensing software.
Other (Proposed Adjustment: $22,341 increase) - rising costs for utilities, supplies and material, and general expenses due to filling vacancies.
MEASRURE K
Measure K has no recommended changes since the Budget Committee and City Council has already approved the major updates over the last few months. This includes using accumulated Measure K Fund Balance for the following projects:
Oak Park Sidewalk Gap Closure - $805 thousand
Street Resurfacing Residential Zone 17 and Pothole Repair - $1.1 million Crosswalk Improvements near Schools - $700 thousand
Sales tax revenue was originally budgeted to be $5.36 million in FY 22/23. Based on current analysis by Hdl, sales tax revenues is projected to increase to $5.50 million an increase of $0.14 million due to higher auto sales and service station revenue earlier in the fiscal year. Similar to the General Fund, Measure K is expected to decline $0.12 million in FY 23/24 from $5.54 million to $5.42 million. Staff is not recommending any changes at this time, since there is minimal net impact between the current and following fiscal year.
FISCAL IMPACT
On net, the proposed adjustments to FY 23/24 revenues and expenditures outlined above will result in expenditures increasing $147,260. Staff is expecting that this amount can be offset by higher-than-anticipated beginning General Fund balance in FY 22/23.
PUBLIC CONTACT
Public Contact was made through posting of the City Council agenda on the City’s official notice bulletin board, at the Pleasant Hill Senior Center, and at the Pleasant Hill Police Department.
The agenda and staff report are posted on the City’s web page.
RECOMMENDED CITY COUNCIL ACTION
Adopt the resolution amending the FY 23/24 adopted budget for proposed adjustments to revenues and expenditures as recommended by the Budget Committee.
ALTERNATIVES TO RECOMMENDED ACTION
Do not adopt the resolution amending the FY 23/24 adopted budget.
ATTACHMENT(S):
Proposed Resolution
Exhibit 1- Adjustments to FY 2023/2024 General Fund Revenues and Expenditures Prepared by: Ross Yangwas, Administrative Analyst II
Erick Cheung, Finance Manager
Approved by: Ethan Bindernagel, Interim City Manager