CITY OF POMONA
COUNCIL REPORT
March 18, 2024
To: Honorable Mayor and Members of the City Council
From: Anita Gutierrez, City Manager
Submitted By: Andrew Mowbray, Finance Director/City Treasurer SUBJECT: Fiscal Year 2023-24 General Fund Mid-Year Budget Review AND APPROVAL OF A MEMORANDUM OF AGREEMENT (MOA) WITH THE CITY OF POMONA, LOS ANGELES COUNTY POLICE ASSOCIATION, and COUNTY OF LOS ANGELES RECOMMENDATION:
It is recommended that the City Council take the following actions:
Review the Fiscal Year (FY) 2023-24 General Fund Mid-Year Budget Report Adopt the following resolution:
RESOLUTION NO. 2024-28 – A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF POMONA, CALIFORNIA, Amending the Fiscal Year 2023-24 Operating Budget AND AMENDING THE FiSCAL YEAR 2023-24 CAPITAL IMPROVEMENT PROGRAM (CIP) BUDGET Approve the Memorandum of Agreement (MOA) between; Los Angeles County Police Chiefs' Association ("LACPCA") (Acting as “HOST Coordinator”); City of Pomona ("City") (Acting as the "Fiscal Agent" for Los Angeles County Police Chiefs’ Association); and County of Los Angeles by and through Los Angeles County Chief Executive Office Homeless Initiative ("CEO-HI") and coordinated with the Los Angeles County Sheriff’s Department ("LASD") utilizing resources allocated by the County of Los Angeles ("County") for law enforcement homeless outreach services.
SB1439/GOVERNMENT CODE §84308 APPLICABILITY:
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EXECUTIVE SUMMARY: This report summarizes the City’s General Fund overall financial position for the current fiscal year through December 2023. The General Fund is the largest operating fund in the City and is used to account for all of the City’s general revenues such as Taxes, Charge for Services, Permit Revenue, Investment Income, and Intergovernmental Revenues, which are mostly revenues from the County and State. General Fund expenditures are related to the rendering of general services, including but not limited to Public Safety, Parks and Recreation services, Public Works, Administration and Legislative services for the City. This report will cover the following areas:
General Fund Overview
General Fund Summary of Revenue
General Fund Expenditure Detail By Category and Detail By Department General Fund Recommended Mid-Year Budget Amendments
General Fund Fiscal Year 2023-24
Updated Projected Fund Balance Based On Budget
FISCAL IMPACT: The adoption of Resolution 2024-28 (Attachment No.1) will increase the FY 2023-24 Operating Budget as reflected in Table 1. The FY 2023-24 Capital Improvement Program (CIP) Budget will have a net increase of $525k from transfers from City Operating Funds.
Table 1 - Fiscal Year 2023-24 Mid-Year Request
PREVIOUS RELATED ACTION: The City Council approved the Budget Preparation Calendar, Guiding Principles, and Process for the FY 2023-24 budget cycle on January 3, 2023. The City Council adopted the FY 2023-24 Operating Budget, Housing Authority Budget, and the Five-Year Capital Improvement Program on June 5, 2023. On June 5, 2023, the City Council approved the FY 2023-24 Annual Action Plan, which included funding for Community Development Block Grant (CDBG) Federal Entitlement Programs. Budget amendments were approved that impacted the General Fund on July 17, 2023, August 21, 2023, October 2, 2023, October 16, 2023, November 6, 2023, December 11, 2023, and February 5, 2024.
DISCUSSION: As adopted on June 5, 2023, the General Fund budgeted revenues were $155.8M, and appropriations were $154.6M, resulting in an estimated surplus of $1.3M. On November 6, 2023, the 1st Quarter report was approved, and appropriations resulted in an overall estimated deficit of $985k. As noted in Table 2 the General Fund has expended nearly $26.6M more than it has collected as of December 31, 2023. This negative cash flow is normal due to the timing of tax receipts and is one of the significant reasons that an Economic Reserve Policy (Fund Balance) which was updated and approved as part of the Consolidated Financial Polices and Administrative Procedures in February 2023 is necessary. Amendments proposed to be included in the current FY 2023-24 Budgets will be discussed herein. 2023-24 General Fund Mid-Year Overview – As adopted on June 5, 2023, the General Fund budgeted revenues were $155.8M and appropriations were $154.6M, resulting in an estimated surplus of $1.3M. The General Fund budget has been amended since adoption; expense appropriations now exceed revenues appropriations by $4.9M. Regarding actuals for the year, with 50% of the year complete, General Fund revenues are at 29% of projections and expenditures are at 45%. With the disparity of revenue collections versus expenditures, the General Fund has expended $26M more than it has collected in the current fiscal year (as of December 31, 2023). This cash flow is normal due to the timing of tax receipts and is one of the primary reasons the 23% Fund Balance is required within the City’s recently updated Consolidated Fiscal Policies and Administrative Procedures (approved by City Council in February 2023) is necessary. The revised revenue estimates and appropriations proposed within this report will lower the current deficit of $4.9M to a deficit of $2.7M. Based on year-end estimates, a deficit in the amount of $1.3M could be realized based on current year-end projections, which would result in a use of General Fund reserves from fund balance.
Table 2 - Fiscal Year 2023-24 Mid- Year Summary
Revenues –
Table 3 - Fiscal Year 2023-24 Mid-Year Revenue Summary
Property Taxes – Typically, property tax revenues are received from November through August. In addition, due to various State actions, the City receives “In Lieu” property tax twice a year in January and June. Property Tax revenues are expected to bring in $2.2M more than last year. FY 2023-24 RPTTF Residual revenue is expected to increase from $3M to $3.2M due to the continued growth of property tax revenue. Other property tax categories have been reduced to reflect the reduction in property transfers and the reduction in values. Value growth for FY 2023-24 was significantly lower than the amount of growth in 2022-23 due to a reduction in the number of homes sold and a reduction in the values added per single-family residential home sold. Based on the information received to date, the overall Property Tax category is only expected to end the fiscal year approximately $89.6k higher than originally budgeted.
Sales and Use Tax – The total revenue budget from Sales Tax is derived from three distinct sources; a 1.0% share of local sales (from the State and County Pools), allocations of Public Safety Augmentation Fund (PSAF) sales tax from the County, and the 3/4 cent Transaction and Use Tax (Measure PG) revenues. These three sources were originally budgeted at $42.5M when adopted in June 2023. Based on information provided by the City’s Sales Tax Consultant and the revenues received through December 31, 2023, the total of these three sales tax revenue sources is anticipated to come in $690k over the current budget. The Sales and Use Tax is projected to come in at $24M, which is $600k over budget. Sales Tax highlights provided from the Consultant state that receipts from July through September were 8.2% below the third quarter sales period in 2022. Building and Construction payments fell 3% as product demand slowed. A large one-time purchase in the third quarter of 2022 contributed to a 10% decrease in 2023 in the Business and Industry category. Higher fuel prices in the third quarter of 2022 affected the 2023 Fuel and Service category with a 14% decrease. A newly opened eatery and higher price menu items due to inflation have boosted the Casual Dining category by 12%. Measure PG revenues are estimated to exceed the FY 2023-24 budget amount by $147k. The ½ Cent Sales Tax revenues are estimated to come in $57k below the FY 2023-24 budget amount.
Utility Users Tax (UUT) – Currently budgeted at $19.5M, utility tax revenue represents 13% of General Fund revenues. For 2024, the California Public Utilities Commission (CPUC) approved a 6.2% increase for Southern California Edison and a 14% rate increase for SoCal Gas. Based on these recent rate increases for electricity and the increased cost of natural gas, this category is estimated to end the fiscal year $2.2M higher than originally budgeted. A request to increase revenue estimates for this category is included herein.
Other Taxes – This category includes Business Licenses, Transient Occupancy Tax, Property Transfer Tax, Cannabis Business Tax, and Franchise Fees, which represent 13% of total General Fund revenues. These sources, collectively, are budgeted at $20.5M. Receipts for Business License and Franchise Fees are coming in strong therefore the Other Taxes category is estimated to end the fiscal year $1.4M higher than originally budgeted. A request to increase revenue estimates for this category is included herein.
Other Sources – All Other Sources include Fees, Licenses, Permits, and Revenue from Use and Property categories and make up 15% of General Fund Revenues. Currently the permits category is estimated to come $800k higher than the FY 2023-24 budget due to an increase in permits being processed through the building and safety division. The fees category is expected to realize a decrease of $800k due to a decrease in plan check fees. Overall, the Other Sources category is expected to receive less than $131k compared to the Amended budget for FY 2023-24 mainly due to various decreases in revenues for fees and permits.
Revenue Summary – In summary, the budgeted revenues from tax related items discussed above represent 85% of the City’s General Fund and is projected to come in $4.3M higher than originally budgeted for FY 2023-24. A request to increase revenue estimates in the amount of $3.2M from some of these major categories is included herein. This mid-year increase is much less than the $10.4M increase that was projected in the FY 2022-23 Mid-Year Review. As stated in previous budget reports and presentations, the City experienced an economic upswing in several revenue categories over the past several years. The growth and increase of those revenue categories is flattening because of recent changes in the economy and inflation. Economic forecasts suggest that the economy is expected to remain stable but cities should see smaller, more consistent growth in revenue going forward.
Expenditures- At the halfway point of the Fiscal Year, as of December 31, 2022 overall General Fund appropriations are 46% expended. Most Departments are within budget at Mid-Year. All categories are within an acceptable range of year-to-date expenditures in relation to the total appropriations for the year. The following provides a breakdown of the FY 2023-24 appropriations, and Mid-Year Expenditures by Category (Table 4) and then by Department (Table 5).
Table 4 - Fiscal Year 2023-24 Mid-Year Expenditure Summary As reflected in Table 4, year-end expenditures are slightly under compared to the FY 2023-24 Mid-Year. All other categories are aligned to budget except for the Personnel category, which is slightly over primarily due to overtime and retirement termination payouts being more than anticipated in various Departments, but also factored in our personnel offsets due to vacancies in several Departments. Overall, the expenses are anticipated to achieve a minimal $870k over budget by year-end. Staff is requesting the City Council to approve additional appropriations in the amount of $1.7M which are covered in detail within the next section, and includes three expense appropriation items that are offset with a corresponding revenue estimate. Two additional items are related to two respective CIP projects, one that needs additional funding, and one requires an un-appropriation of funds.
Table 5 - Fiscal Year 2023-24 Mid-Year Department Summary Table 5 displays that all Departments except Administration have expended 50% or less of their budget at Mid-Year. Under current budgetary allocations, Public Safety represents 74% of all General Fund expenditures. With the Mid-Year Budget Amendments factored in, only the Police Department will be slightly over $250k mainly due to retirement termination payouts related to many long-term employee departures. The General Services Department show a $1M overage, however this relates to the $1.3M vacancy factor that is reflected in each Departments year end salary estimates. Overall Expenditures are projected to come in $812k under the Mid-Year budget.
FY 2023-24 Recommended General Fund Budget Amendments
Appropriations Amendments
City Manager Contract Closeout (Administration)—Funding of $700k will pay for costs related to the former City Manager's separation and increases needed for the recently appointed City Manager's contract. Staff is requesting an appropriation of $740,543 (101-1310-51012/51059-00000) for this action.
Contract –Building & Safety (Development Services - Building & Safety Division) –Staff is requesting an increase in appropriations of $306k due to the contract for Building and Safety services. This contract will need to increase by this amount as result of the building permit and plan check revenues increasing overall in the current fiscal year. The City contract with Interwest results in the company receiving a 59% share of Building and Safety Division revenues collected until March 2024. With a $400k increase in Building permit revenue projected, this $306k appropriation needs to increase to fund the monthly contract (101-2521-52930-0000) with a revised revenue estimate needed in the amount of $400k (101-2521-40090-00000).
Memorandum of Agreement (MOA) (Police/Finance) - The City of Pomona, the LA County Chief Executive Office Homeless Initiative and the County of Los Angeles established a four-year Memorandum of Agreement (MOA) to ensure collaboration and consistency of law enforcement outreach by local police departments for the Homeless Outreach Services Teams (HOST) Program. The purpose of the MOA is to work together toward the mutual goal of conducting homeless outreach, centered on referral to housing, rehabilitative services and support, in lieu of arrest when possible. Transactions for the HOST Program will be accounted for under Fiduciary HOST Fund (Fund 702). Advance payments from the County, reimbursements to participating law enforcement agencies and payments to the HOST Coordinator and HOST Fiscal Agent will be made within and from Fund 702. The City of Pomona will act as a Fiscal Agent for the HOST Program, as such, is entitled to receive 10% administrative fee. For the remainder of the Fiscal Year (FY) 2023-24, it is estimated that $75,000 and $25,000 will be incurred by the Police and Finance Departments respectively, to perform their role as the Fiscal Agent. In addition, it is estimated that $150,000 on overtime will be spent by PD in implementing the HOST program. Therefore, the following actions are requested; $25k for a revised revenue estimate and appropriation in the Finance Department (101-1101-40690/51012-00000) and $225k for a revised revenue estimate and appropriations in the Police Department (101-2018-40916/51046-00000).
CIP Related Amendments
City Hall Complex Remodel and Flooring CIP Project No. 74115 (Public Works) – Related to the office expansion of the new Office of Violence Prevention, this action requests that the City Council amends the FY 2023-24 CIP Budget by appropriating $100,000 of District 1 ARP Funding (191-0201-89987-74115, 428-2590-80881-74115, 428-2590-66196-74115) and $425,000 of General Fund Reserves (101-2590-89987-74115, 428-2590-80701-74115, 428-2590-66196-74115) to “City Hall Complex Remodel and Flooring,” Project No. 428-2590-XXXXX-74115.
Civic Center Plaza CIP Project #71063 (Public Works) – Related to an appropriation that was originally approved in FY 2020-21 with the intent of the project to have an art component that never materialized, therefore a requested an action for the City Council to amend the FY 2023-24 CIP Budget by releasing/un-appropriating $500,000 of Art in Public Places Program Fees Funding from “Civic Center Plaza - New Playground and Amenities,” Project No. 428-2590-XXXXX-71063 (133-0000-27507-00000, 133-0000-27100-00000, 428-2590-66196-71063).
Revenue Amendments
Utility Users Taxes – Utility Users Tax for Electricity and Gas are both trending higher than expected due to the California Public Utilities Commission (CPUC) approved a 6.2% increase for Southern California Edison and a 14% rate increase for SoCal Gas in 2024. With these changes, staff is requesting a revised revenue estimate of $1,550,0000 (101-9999-40106-00000) and $680,000 (101-9999-40107-0000).
Business License and Transient Occupancy Tax – Receipts for Business License and Transient Occupancy Tax (TOT) are coming in strong and therefore staff is requesting a revised revenue estimate of $500,000 for TOT (101-9999-40082-00000) and $500,000 for Business License (101-1160-40060-0000).
Fund Balance Policy
On June 20, 2011, the City Council adopted Resolution 2011-63A approving the City’s Fund Balance Policy. The objectives of the Policy were to comply with the Governmental Accounting Standards Board (GASB) Statement Number 54 – Fund Balance Reporting and Governmental Fund Type Definitions, establish formal reserve policies, build adequate reserves, and guide the City toward meeting its short and long-term obligations. On February 6, 2023, this Policy was replaced and repealed when staff brought forward the City’s Consolidated Financial Polices and Administrative Procedures via analysis by City staff and the City’s financial advisor Urban Futures Inc. (UFI). The revised policy states that at the end of each fiscal year, the City shall have a Committed Fund Balance equal to 22% of operating expenditures and transfers out in the General Fund. The 22% is to be considered the minimum level. The level will increase each year by 1% until the level is 25%. For FY 2023-23 the level is 23%. Based on audited FY 2022-23 figures, the General Fund balance is $62.96M, which is about 40% of operating expenditures. However, based on the adopted budget, with additional General Fund budget amendments since July 1, 2023, and the appropriations/revised revenue estimates proposed within the mid-year report, the FY 2023-24 estimated fund balance is estimated to be $60.2M with the use of reserves. Even with the use of reserves, the General Fund should exceed the Fund Balance Policy ultimate target of 23%. Table 6 shows how the $1.7M increase in budget amendments combined with the anticipated deficit for FY 2023-24, if utilized would still result in a use of reserves. Another key factor to note is that if the FY 2023-24 year end estimate of a $1.3M deficit does occur the fund balance will still be at a level of 37%.
Table 6 – Updated Projected Fund Balance Fiscal Year 2023-24 Non- General Fund Amendments
Asset Forfeiture Fund reorganization (Police) - The City participates in the Federal Asset Forfeiture program. Asset Forfeiture Funds come to the City based on various seizures and cooperative police operations with federal and or state entities. Funds sent to the City by the Department of Treasury, Department of Justice or the State of California have to be recorded separately, reported individually and have specific requirements on what the monies can be spent on. For ease of reporting, the City has created six new sub funds below to track each revenue source individually to ensure accurate reporting of revenues and expenditures and available balances annually. Existing fund balance and appropriations from the old Asset Forfeiture Fund will be moved to their respective new sub-fund where transactions pertaining to the specific sources and uses will be tracked. Listing of new Asset Forfeiture sub-funds are as follows: Fund 258 – Other County, Fund 262 – State Anti-Drug Forfeiture, Fund 265 – City Anti-Drug Forfeiture, Fund 266 – DOJ Anti-Drug Forfeiture, Fund 267 – DOT Anti-Drug Forfeiture and Fund 269 – 15% State Set Aside.
Traffic Offender Fund (Police) – Staff are requesting to amend the FY 2023-24 Operating Budget by increasing appropriations in the amount of $50,000 to the Traffic Offender Fund (219-2090-66189-0000) using fund balance. Funding will be used to purchase a 3D scanner for the Traffic Services Bureau to help the Major Accident Investigation Team (MAIT) with fatal collision reconstruction, accurate mapping of collision scenes, measuring, with the use of computer-aided drafting (CAD) drawings.
Wellness Grant (Police) – Staff are requesting to amend the FY 2023-24 Operating Budget by increasing revenue estimates (215-2090-40873-58776) and appropriations (215-2090-52285-58776) in the amount of $9,285 to the Officer Wellness Grant from the Board of State and Community Corrections. Funding will be used to expand and improve existing officer wellness opportunities, including physical fitness, proper nutrition, and stress mitigation. 2022 State Homeland Security Grant Program (Police) - Amending the FY 2023-24 Special Operating Budget by increasing revenue estimates and appropriations to the 2022 State Homeland Security Grant Program (SHSGP) in the amount of $45,577. Funding will be used to purchase additional police radio equipment to improve preparedness and safety systems. Staff is requesting a revenue estimates (263-2090-40875-58778) and a corresponding appropriation (263-2090-66189-58778) in the amount of $45,577.
Public Art Fee (Development Services) – Staff is requesting to increase appropriations of $50k in total for Public Art (133-1712-59980-51339 ($25k) and Youth Art (133-1712-59980-51340 ($25k) due to the increase of approved preservation projects by The City of Pomona Cultural Arts commission this fiscal year. Public Art Fees are paid by owners of private development projects, valued at $750k or more, fee is one percent of the projects Building and Safety permit valuation. The appropriation is being requested from a portion of the Public Art Fee Fund balance. Overall Public Art Fee revenue is anticipated to increase $25k (133-1712-40119-51339) & $25k (133-1712-40119-51340) in FY 2023-24 due to the increase of private development projects, valued at $750k or more.
Clean-up Budget Amendment - Item 4 CC Agenda January 22, 2024 (Neighborhood Services) - The original award accepted at the January 22, 2024, City Council meeting in the amount of $240,510 was appropriated into Fund 215, the miscellaneous grant accounts. However, the fund account 215 account needs to be reduced to net $0 and funds re-appropriated to the new fund account of 139 to accurately reflect the Measure H funding source. The appropriation will be for the same amount resulting in a net zero impact between the two funds.
Conclusion (Fiscal Year 2023-24) Mid-Year Report
As stated in the Executive Summary, the purpose of this report is to give the City Council a financial update of the FY 2023-24 Budget at the Mid-Year. Based on this information, staff is recommending the City Council adopt the amendments proposed herein which will result in a $2.7M budget deficit, with a year-end estimate of a deficit of $1.3M.
At the 1st Quarter in November 2023 the budget showed a deficit of $1.9M and with amendments that have occurred since then including MOU appropriations with all City bargaining units, the current amended budget deficit is $4.9M. With the items included in the mid-year, the budget deficit will be decreased to a total estimated amount of $2.7M with the various actions requested within this report. Based on year-end estimates a deficit in the amount of $1.3M could be realized if all year end estimates finish as anticipated. If the $1.3M deficit materializes, this would result in use of General Fund reserves, however the General Fund will still exceed the 23% policy requirement even more than the already anticipated 35% amount.
Over the recent six months, two separate resident proposed ballot initiatives have come forth which if passed by the voters in March and November respectively could significantly impact General Fund revenues long term based on and impartial and informational analysis conducted. The first initiative, which could lower the City’s Transaction and Use Tax (TUT), was on the March 5, 2024 Primary Election ballot, along with a City authored competing measure. At the time of this writing, early indicators show the City’s measure (Measure P) is outpacing the resident initiative (Measure X), which would result in the tax rate staying intact, as well as removing the sunset requirement. The passing of Measure X could have created a “fiscal cliff” beginning in 2029. The other initiative, which will be presented to the voters on the November 5, 2024, ballot, would require an annual amount of the General Fund (2% in year one with increases until the level is 10%) to be transferred to a youth programming special fund.
The national economic situation will be closely monitored and underscores of the importance of having adequate General Fund reserves that may need to be relied upon in future years. The increase in interest rates and slowdown of the housing market continues to impact the economy. In addition, fuel costs continue to fluctuate, and inflation continues to be monitored. These factors all bring attention to the fact that an economic downturn is always a concern.
In addition to the economic concerns, the FY 2024-25 budget will be prepared in the coming months with many programs and areas that will require or least the consideration to increase funding. With the adoption of the Updated Consolidated Fiscal Policies in February 2023, the City is set to implement strategic policy direction in contributing towards commitments that support the continued financial strength and stability of the City as reflected in its financial goals. This includes a proposed action to use a portion of the FY 2022-23 unassigned fund balance for one-time expenses which will require City Council approval. These fiscal policies will also be presented to the City Council as part of the Proposed Budget Process and will require approval via Council Resolution.
In closing, the FY 2024-25 budget process is underway, and a Budget study session will be held on March 25, 2024, at 7:00pm with another session held on the afternoon of April 3, 2024 at 3:00pm in an effort to give more City of Pomona residents access to the budget process. Both meetings will be held in the Pomona City Council Chambers. All community members are encouraged to attend and fill out a speaker slip to give their input to the City Council and staff. The FY 2024-25 Proposed Budget will be brought forward for discussion on Monday, May 13, 2024, at the annual Proposed Budget Study Session.
Prepared by:
Andrew Mowbray
Finance Director/City Treasurer
ATTACHMENT(S):
Attachment No. 1 – Resolution No. 2024-28
Attachment No. 2 – Draft Memorandum of Agreement (MOA) between; Los Angeles County Police Chiefs' Association, City of Pomona, and County of Los Angeles Attachment No. 3 – PowerPoint Presentation – FY 2023-24 Mid-Year Review Fiscal Year 2023-24 General Fund Mid-Year Budget Review