Administrative
Report
N.1., File # 22-3636 Meeting Date: 2/15/2022
To: MAYOR AND CITY COUNCIL
From: JENNIFER PAUL, FINANCE DIRECTOR
TITLE
DISCUSSION AND POSSIBLE ACTION REGARDING THE FY 2021-22 MIDYEAR BUDGET REPORT
RECEIVE AND FILE THE FY 2021-22 MIDYEAR BUDGET REPORT AND THE PRESENTATION ON THE STATUS OF THE FY 2021-22 CAPITAL IMPROVEMENT PROGRAM ADOPT BY 4/5 VOTE AND BY TITLE ONLY RESOLUTION NO. 2202-010, A RESOLUTION OF THE
CITY COUNCIL OF THE CITY OF REDONDO BEACH, CALIFORNIA, MODIFYING THE BUDGET FOR FISCAL YEAR 2021-22
EXECUTIVE SUMMARY
In June, the City Council adopted the FY 2021-22 operating budget. The budget as adopted, was balanced, and allocated funding for the provision of core municipal services to the residents, businesses, and visitors of Redondo Beach.
This report reviews the City’s budget and financial condition at the midyear point of FY 2021-22. The details are provided below, but after accounting for all projected revenue and fund transfer adjustments and the recommended decision packages, the FY 2021-22 Fund Balance is estimated to be $13,837,853.
The significant fund balance was largely anticipated and is attributed to four key items: 1) the City received its first America Rescue Plan Act (ARPA) deposit at the start of FY 2021-22 rather than the end of the prior FY, which increased the General Fund Adopted Budget by $2.4M, and is expected to receive a second deposit in June of $3.4M; 2) Residual proceeds from the lease-revenue bond that was issued to refinance the City’s pension debt were sufficient to cover both the CalPERS Supplemental Payment, made in the Fall of 2021, and a large portion of the City’s first Bond payment, and allow for a reduction the City’s budgeted General Fund “Transfers Out” from $13.8M to roughly $5M; 3) the City’s General Tax Revenues are forecasted to come in higher than anticipated at the time of Budget Adoption by roughly $2.8M; and, 4) the Internal Service Fund expenses charged to the General Fund were reduced in FY 2021-22 by almost $600K.
It is recommended that the $13.8M be left unallocated at this time and be made available for consideration as part of the annual adoption process in May/June. The annual process provides a greater opportunity for community feedback and a clearer picture of the City’s ongoing structural
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revenues and expenses.
BACKGROUND
Where are the revised estimated ending fund balance summaries shown with proposed midyear FY 2021-22 revenues and expenditures?
Attachment 1 provides details of the revised estimated ending fund balances as shown on the Proposed Midyear FY 2021-22 Summary that arise in consideration of Decision Packages, adjustments to appropriations, and adjustments to revenue projections.
What was the remaining amount of the General Fund balance at FY 2020-21 year-end after completing the June 30, 2021 Annual Comprehensive Financial Report (ACFR) that becomes the FY 2021-22 beginning fund balance?
The remaining General Fund balance was calculated as follows by excluding fund balance assignments made in November for fiscal year end 2020-21 which are not available to pay for FY 2021-22 expenditures.
$13,173,444 Total General Fund balance before assignments and transfers (June 30, 2021 ending fund balance)
(7,241,252) Committed fund balance for 8.33% General Fund reserve (contingency reserve required by the City Council’s Financial Principles) (18,667) Nonspendable fund balance for notes and loans (loans to employees for computer purchases pursuant to labor agreements)
(756,422) Fund balance assignment for compensated absences (provision for vacation cashouts upon retirement/termination funded at 30% of employee balances as of June 30, 2021)
(12,800) Fund balance assignment for petty cash (small cash funds held by departments for cash register change drawer or reimbursement of expenses in the amount of $50 or less)
$5,144,303 General Fund remaining fund balance
The remaining General Fund balance can also be calculated as follows by including fund balance assignments made in November for fiscal year end 2020-21 which are available to pay for FY 2021- 22 expenditures.
$2,039,523 Unassigned/unallocated fund balance (after all other fund balance assignments
71,104 Nonspendable fund balance (payments made in FY 2020-21 for FY 2021- 22 expenditures)
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$2,039,523 Unassigned/unallocated fund balance (after all other fund balance assignments
71,104 Nonspendable fund balance (payments made in FY 2020-21 for FY 2021- 22 expenditures)
981,809 Fund balance assignment for encumbrances (open purchase orders as of June 30, 2021 for contracted goods or services not yet received) 1,000,000 Transfer to Capital Projects Fund (FY 2021-22 Capital Improvement Program)
289,290 Fund balance assignment for carryovers (unspent FY 2020-21 funds to be used for FY 2021-22 departmental, donation, grant and capital improvement project expenditures)
762,577 Fund balance assignment for future year's appropriations. $5,144,303 General Fund remaining fund balance
The beginning fund balances of the other funds are calculated similarly with capital assets and net pension and OPEB liabilities excluded from those of the Enterprise and Internal Service Funds.
What additional items adjust the beginning fund balances to their estimated ending fund balances?
In addition to the General Fund adopted revenues and transfers in and the adopted appropriations and transfers out, the following items adjust the beginning fund balance to the estimated ending fund balance.
$5,144,303 General Fund beginning fund balance for FY 2021-22 97,530,310 Adopted revenues and transfers in
(100,707,093) Adopted appropriations and transfers out
(981,809) Prior year encumbrances (finalized open purchase orders as of June 30, 2021 for which a fund balance assignment is included in the beginning fund balance)
(1,051,868) Carryover appropriations and transfers out (re-budgeted departmental carryover requests for which a fund balance assignment is included in the beginning fund balance - see above)
- Other Council-approved appropriations and transfers out (budget modifications approved by City Council resolutions with a 4/5 affirmative vote during
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(1,051,868) Carryover appropriations and transfers out (re-budgeted departmental carryover requests for which a fund balance assignment is included in the beginning fund balance - see above)
- Other Council-approved appropriations and transfers out (budget modifications approved by City Council resolutions with a 4/5 affirmative vote during
($66,156) Estimated General Fund ending fund balance for FY 2021-22 The City originally planned for receipt of (American Rescue Plan Act) ARPA funds in FY 2020-21 and FY 2021-22. However, due to delays by the Federal Government, the Adopted Budget included only the first payment of $3,400,540 to the City ($2.4M to the General Fund and $1M to the Uplands Fund) received in August of 2021. At the time of budget adoption it was anticipated that the second ARPA payment to the General Fund of $3,400,540 could be delayed until the FY 2022-23. However, now the Federal Government expects the second deposit to be made by the end of the 2021-22 FY.
These additional funds are included as Decision Package #1.
The estimated ending fund balances of the other funds are calculated similarly.
What midyear revenue adjustments to the estimated fund balances are recommended? At this point in the fiscal year, staff has reviewed revenues received to date and revised the adopted revenue estimates as necessary. The revised revenue estimates are shown in Exhibit B with General Fund revenues anticipated to finish $2.8 million higher than projected at budget adoption.
As projected in the first quarter budget update, revised tax revenue estimates reflect an increase from the adopted budget. The largest increase is from transient occupancy tax, which is recovering from the pandemic. Sales and use tax and property taxes also remain strong.
What midyear adjustments to appropriations are recommended? The adjustments on the Midyear Adjustments to Appropriations schedule (Exhibit C) reflect the annual update to the internal service fund/overhead allocations (described in the Midyear Budget Response Report) as well as anticipated departmental maintenance and operations savings.
Midyear changes to the adopted budget are also considered by the City Council through supplemental requests called Decision Packages. Decision Packages can be related to policy, operational or financial matters. The following Decision Packages are recommended to address issues at midyear.
Decision Package #1. ARPA Funding. During the Budget Adoption process, the Federal Government was unclear as to the timing of the second (American Rescue Plan Act) ARPA payment.
The first payment, originally scheduled for May of 2021 was delayed until August of 2021, so it was anticipated that the second payment would follow a year later and be received in FY 2022-23. The Federal Government now believes the second payment of $3,400,540 will be received by the City by the end of the current FY. It is recommended that the $3,400,540 deposit be added to FY 2021-22 General Fund revenues.
Decision Package #2. Bond Proceeds. Residual proceeds from the lease-revenue bond that was issued to refinance the City’s pension debt were sufficient to cover both the Fall 2021 CalPERS
N.1., File # 22-3636 Meeting Date: 2/15/2022
issued to refinance the City’s pension debt were sufficient to cover both the Fall 2021 CalPERS Supplemental Payment, and a large portion of the City’s first Bond payment. This allows for a reduction of the City’s budgeted General Fund “Transfers Out” from $13.8M to roughly $5M. It is recommended that an adjustment be made to General Fund Transfer Out expenditures to reduce them by $8,725,894.
Decision Package #3. Additional Attorney Fees. An increased appropriation of $95,000 is needed for attorney fees in order to accurately reflect anticipated spending in FY 2021-22. The current budget is insufficient to cover the costs associated with ongoing legal needs. Recommended is a one-time appropriation of $95,000 to the General Fund to cover increased attorney fees through the end of the Fiscal Year.
Decision Package #4. Pallet Shelter Repairs. The Mayor and City Council approved the pallet shelters as an ongoing program in April of 2021. Although a letter of Agreement was approved with the County in June of 2021, no funding was provided for general repairs, the rental of electrical poles and sanitation facilities, or utility costs. Recommended is a one-time appropriation of $21,781 from the General Fund for FY 2021-22 and an ongoing appropriation for annual costs of $43,562.
Decision Package #5. COVID-19 Response. Due to the ongoing COVID-19 pandemic, CA employers are required to provide N-95 or surgical masks for all employees. As these masks are disposable, the City is required to purchase more than one per employee. For the balance of the fiscal year, it is estimated that 5,000 additional masks ($5,000 at $1/ea.) will be needed. Moreover, an additional $3,000 of funding is needed for the provision of on-hand rapid antigen test kits for civilian employees that occasionally need to test prior to worksite entry. Recommended is a one-time appropriation of $8,000 to the General Fund for Human Resources related COVID-19 expenses.
Decision Package #6. Targeted Class & Compensation Review. The City is having difficulties retaining and attracting new employees to the organization. In order to remain competitive in the job market funding is being requested to perform a targeted study to determine Redondo Beach’s compensation standing among comparable municipalities, and provide a roadmap on how to address potential changes in the City’s salary and benefits plan. Recommended is a one-time appropriation of $40,000 to the General Fund to conduct a targeted classification and compensation review of approximately 25 benchmark positions.
Decision Package #7. Banking Fees. The City has an increased amount of banking fees for account analysis and credit card processing. Account analysis fees are partially offset by interest earned on balances held in the City’s bank accounts. The current low interest rate environment has reduced the offset amount and the City’s total credit card processing costs have increased due to increased online transactions during COVID-19. Recommended is an ongoing appropriation of $170,000 to the General Fund.
Decision Package #8. GASB 87 Compliance. In June of 2017, GASB (Government Accounting Standards Board) issued Statement No. 87, a lease accounting and financial reporting standard focused on better meeting the information needs of financial statement users. In particular, it is meant to improve accounting and financial reporting for leases managed by governments, requiring recognition of certain lease assets and liabilities for leases that were previously classified as operating leases. It establishes a single model for lease accounting that will need to be tracked and prepared by an outside financial consultant. Recommended is a one-time appropriation of $50,000
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prepared by an outside financial consultant. Recommended is a one-time appropriation of $50,000 and an ongoing appropriation of $20,000 to the General Fund to cover the newly required consulting service.
Decision Package #9. Payroll Staff Reorganization. In order to continue working towards the Strategic Plan goal of modernizing the City's internal and external operations and communications, it is recommended that the full-time payroll technician position eliminated as part of the FY 2019-20 budget be reinstated. Reinstatement of this position will allow Financial Services to better support operating departments in the processing of timely payroll and in accordance with new audit requirements. It will also help implement and maintain the Employee Self-Service (ESS) module in MUNIS needed to meet new timekeeping obligations associated with the calculation of over-time.
Recommended is a one-time appropriation of $44,327 to the General Fund for FY 2021-22 and an ongoing appropriation of $69,982 for the new Full-Time Payroll Technician. The full ongoing cost of the Technician position ($106,000) will be partly offset by the elimination of $36,018 of existing parttime payroll funds.
Decision Package #10. Police Department Administrative Analyst Reclassification to Sr.
Management Analyst. The Police Department’s Administrative Analyst has been tasked with an increased volume and complexity of work. The administrative functions include RFP and procurement duties, MOU and contract management, and regular parking analysis. Additional responsibilities include, new fiscal duties, state and federal grants administration, inventory management and annual auditing tasks. Reclassification of this position to Senior Management Analyst is requested to better align current job duties with the position classification. Recommended is a one-time appropriation to the General Fund of $1,250 for the remainder of FY 2021-22 and an ongoing appropriation of $5,000.
Decision Package #11. Crossing Guard Program Extension. In FY 2021-22, the City Council approved a decision package to fund a contract to supplement the Police Department crossing guard program. The contract was approved in August of 2021. The program has been successfully running with three (3) supplemental crossing guards at 22 various locations in the City. The COVID pandemic has created difficulty in recruiting and retaining crossing guard personnel. To continue meeting community demand for this service at all of the various locations, staff recommends doubling the current contract appropriation and increase the three (3) on-call positions to six (6) positions to provide a greater depth of coverage. Recommended is a one-time appropriation of $25,000 to the General Fund for Fiscal Year 2021-22.
Decision Package #12. Police Department Background Services. The COVID-19 pandemic has affected many areas of the City, and this includes the Police Department background services for sworn and non-sworn personnel. Through the difficulty, PD has had to assign internal sworn personnel to perform these services. It is critical that PD performs timely and quality investigations, in a consistent volume. Recommended is a one-time appropriation to the General Fund in the amount of $15,000 to utilize an outside service provider to supplement the existing internal background investigations program.
Decision Package #13. Police Department COVID Testing. Additional funding is needed to cover required COVID-19 testing costs for Departmental personnel in FY 2021-22. Recommended is a one -time appropriation of $25,000 to the General Fund.
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Decision Package #14. Traffic Detail Overtime. In response to traffic trends and community demand, the PD Traffic Unit is increasing the level of traffic enforcement conducted in the City through the utilization of sworn personnel on an overtime basis. Recommended is a one-time appropriation of $10,000 to the General Fund to supplement and allow for increased flexibility to respond to trends and City needs as identified.
Decision Package #15. Fire Department COVID Testing Costs. As a result of the LA County of Department of Public Health Order Mandate, Redondo Beach Fire Dept. initiated a mandatory employee COVID-19 testing program. FD employees required to test were placed on a seven-day testing schedule with local COVID-19 testing providers, where costs ranged from $125-$300 per test.
Additionally, RBFD was required to test employees that were ill or potentially exposed to COVID to maintain health and wellness. Recommended is a one-time appropriation of $200,000 to the General Fund to cover the 2021-22 Fiscal Year expenses.
Decision Package #16. Expedited Building Plan Check Services. City Council approved six (6) contracts for outside consulting firms to provide expedited plan check services for the Building and Safety Division. Recommended is an ongoing, annual appropriation to the General Fund of $120,000. The cost is fully offset by additional fees paid by the applicant.
Decision Package #17. SCE ROW Licensing Fee. The City is pursuing a license agreement with SCE for the parcel located at Herondo Street and Catalina Avenue to allow for landscape improvements, which will be designed to meet SCE license requirements, and provide public access to the property. Recommended is a one-time appropriation of $15,104 to the General Fund to cover the license fee for the full 5-year term of the agreement.
Decision Package #18. Increased Energy Cost. The Public Works Department has not adjusted the budget to cover increased energy costs in over 10 years. Southern California Edison implemented rate increases of more than 20% during 2021 that significantly impacted the City’s costs for street lighting and facilities. Recommended is an ongoing appropriation of $185,000 to the General Fund to cover the increased expenses.
Decision Package #19. Maintenance Worker I Reclassification to Park Caretaker in the Park Maintenance Division of the Public Works Department. The Public Works Department’s Parks Maintenance Division is experiencing increased difficulty in attracting qualified applicants for vacant positions. Recommended is an ongoing appropriation of $18,000 to the General Fund to reclassify three (3) entry-level Maintenance Worker I position(s) to Park Caretaker(s) to attract more qualified applicants.
Decision Package #20. Public Works Department Recruitment and Retention Program. The Public Works Department needs new hires, but is unable to attract qualified applicants as the City’s salary ranges have fallen substantially below other competitive cities. To help attract new talent, it is recommended that funds be set aside for recruitment and retention bonuses that would be developed following discussion with the impacted employee associations. Recommended is a one-time appropriation of $300,000 to the General Fund for the recruitment and retention program.
Decision Package #21. Traffic Calming Improvements. Additional funding is needed in the Traffic Calming project account for the purchase/construction of the following: $60,000 - for ten radar
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Calming project account for the purchase/construction of the following: $60,000 - for ten radar feedback signs that will cover five (5) roadway segments approved by the City Council; $75,000 - for bulb-out and intersection modifications at Elena Avenue and Catalina Ave; $131,000 - for traffic calming improvements approved at Dow Avenue and Johnston Avenue; $100,000 - to cover traffic engineering staff augmentation to assist with the implementation of traffic related projects; and $50,000 - for new City Council traffic calming requests, such as the speed table and speed cushions on Julia Avenue. Recommended is a one-time appropriation to the Traffic Calming Project Account from the General Fund in an amount of $416,000.
Decision Package #22. 4th of July Fireworks Expenses. City Council approved the 4th of July Fireworks display, which included the use of a barge. Recommended is a budget modification to appropriate $60,000 from Unallocated Tideland Funds to support the event expenses.
Decision Package #23. Installation of New Light Poles. City Council approved replacement of poles and decorative light fixtures as part of the Pier Lighting Replacement Project. The Public Works Department has already purchased the poles and fixtures but is unable to install them due to staffing issues. Recommended is a one-time appropriation of $100,000 to the Harbor Tidelands Fund to acquire an outside contractor for installation of 148 new light poles at the Pier and Harbor area.
Decision Package #24. Forklift and Customized Rotator. SB 1383 requires all generators to source separate and recycle food waste into specific containers. Redondo Beach Pier tenants have ten twoyard bins designated for food/organic waste. To properly service the bins, the food waste must be dumped into a 25-yard roll-off container located in the Pier delivery area. The forklift, with the customized rotator, will be utilized by Harbor and Pier staff to service the food waste bins.
Recommended is a one-time appropriation of $35,000 to the Tidelands Fund for the purchase of the required equipment.
Decision Package #25. Solid Waste Fund Adjustment. The Solid Waste Fund needs an adjustment to account for the residential and household hazardous waste pass-through payments. Residents are charged for refuse service on their property tax assessment and the City, in turn, pays Athens Services on a monthly basis. Each year the Solid Waste Fund is adjusted in June as part of the annual budget adoption to account for the new approved solid waste rates. However, the count of the number of households is not always known before the budget is adopted. Therefore, in order to account for the increase in residential accounts, an increase to the maintenance agreement is needed. Recommended is a one-time appropriation of $8,276 to the Solid Waste Fund.
Decision Package #26. Additional Vehicle Replacement. As part of the FY 2021-22 Budget, City Council approved the annual vehicles to be replaced as part of the Vehicle and Heavy Equipment Replacement Program. Due to supply chain issues, vehicle costs have increased by ten to twenty percent. In addition, many manufacturers lack certain vehicles for fleet purchase, which has postponed certain replacements and increased total costs. Five (5) of the seven (7) scheduled police vehicles are available for order and require supplemental funding. Recommended is an appropriation of $21,195 to the Vehicle Replacement Fund to cover increased vehicle costs in FY 2021-22.
Decision Package #27. Housing Authority Administrative Support. The Redondo Beach Housing Authority (RBHA) has a reserve account held by the City, where funds can be allocated to offset increased expenses related to the administration of the HCV (Section 8) Program. Recommended is
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increased expenses related to the administration of the HCV (Section 8) Program. Recommended is a one-time appropriation of $30,000 from the Reserve Account to cover outstanding annual charges for the MRI software, including the cost of cloud mitigation.
Decision Package #28. Inclusionary Affordable Housing. The City has experienced increased activity with the Inclusionary Affordable Housing Program during FY 2021-22 that has required increased use of its consultant, Keyser Marston Associates, Inc. Funding for these services is available in the Housing Authority and Moderate-Income Housing Fund. Recommended is a one-time appropriation of $100,000 to cover the increased contract expenses.
Decision Package #29. Purchase and Implementation of Additional Pallet Shelters. The Pallet Shelter Program has been a critical component of the City’s efforts to assist people experiencing homeless in Redondo Beach. Space is available at the City’s Pallet Shelter Program site for three additional shelter units. The cost to purchase the units is roughly $31,500. The staff labor cost to install the units is estimated at $5,500. Recommended is a one-time appropriation to the General Fund of $37,000 to purchase and install three additional pallet shelter units.
What is the resulting impact of revising the revenue estimates and funding the recommended Decision Packages at this time?
The FY 2021-22 General Fund revised estimated ending fund balance after adjusting the revenue estimates and funding the recommended Decision Packages would be as follows:
($66,156) General Fund estimated ending fund balance (excluding $7,241,252 General Fund contingency)
2,883,707 Adjustments to revenue (impact of the revenue revisions as shown in Exhibit B)
570,330 Adjustments to appropriations and transfers out (impact of appropriations and transfers out as shown in Exhibit C) 3,400,540 Decision Package adjustments to revenues and transfers in (impact of recommended appropriation revisions included in Decision Packages #1 through #29)
7,049,432 Decision Package adjustments to appropriations and transfers out (impact of recommended appropriation
revisions included in Decision Packages #1 through #29) $13,837,853 General Fund revised estimated ending fund balance (excluding $7,241,252 General Fund contingency)
What is the status of preparation of the FY 2022-23 Budget?
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Following completion of the midyear review of the current year budget, attention will turn immediately towards preparation of the FY 2022-23 Budget that takes effect July 1, 2022.
COORDINATION
All departments coordinated on this midyear budget review. The Budget and Finance Commission reviewed the midyear budget report on February 15. The resolution has been approved as to form by the City Attorney.
FISCAL IMPACT
The report describes the City’s financial and budgetary situation at the midyear point of FY 2021-22.
APPROVED BY:
Mike Witzansky, City Manager
ATTACHMENTS
Midyear Budget Resolution
Attachment 1 - FY 2021-22 Summary
Exhibit A - Council-Approved Appropriation Modifications Exhibit B - Adjustments to Revenue
Exhibit C - Adjustments to Appropriations
Midyear Budget Response Reports will be Blue Folder Items