Administrative
Report
N.1., File # 25-0115 Meeting Date: 2/18/2025
To: MAYOR AND CITY COUNCIL
From: STEPHANIE MEYER, INTERIM FINANCE DIRECTOR
TITLE
DISCUSSION AND POSSIBLE ACTION REGARDING THE FISCAL YEAR 2024-25 MIDYEAR
BUDGET REVIEW
RECEIVE AND FILE THE FISCAL YEAR 2024-25 MIDYEAR BUDGET REPORT AND ASSOCIATED
BUDGET RESPONSE REPORTS
RECEIVE AND FILE A PRESENTATION ON THE STATUS OF THE CITY’S CAPITAL
IMPROVEMENT PROJECTS
ADOPT BY 4/5THS VOTE AND BY TITLE ONLY RESOLUTION NO. CC-2502-007, A RESOLUTION
OF THE CITY COUNCIL OF THE CITY OF REDONDO BEACH, CALIFORNIA, MODIFYING THE BUDGET FOR FISCAL YEAR 2024-25
EXECUTIVE SUMMARY
In June 2024, the City Council adopted the FY 2024-25 operating budget, which funds core municipal services to the residents, businesses, and visitors in the City of Redondo Beach.
This report reviews the City’s budget and financial condition following the first six months of FY 2024-
25. The report provides a broad view of the City’s revenue and expenditure projections and includes limited Decision Packages, reflecting modest resources to fund changes to the Adopted Budget.
Including revenue, internal service fund adjustments, and recommended Decision Packages, staff anticipates ending the fiscal year with a positive General Fund balance of approximately $2.3 million.
Given projected year-end and FY 2025-26 needs, staff recommends taking no action with the estimated remaining fund balance.
BACKGROUND
This midyear budget report presents revenue and expenditure progress to date, proposes revenue and expenditure adjustments based on review of activity and the completed internal services plan update, proposes limited decision packages, and estimates the General Fund year-end fund balance.
The included attachments provide detail for the City’s revenues and expenditures to date with proposed adjustments. The report walks through the City’s process to analyze General Fund conditions.
Starting Fund Balance Calculation
Staff estimates the FY 2024-25 beginning fund balance using prior fiscal year-end balance, excluding
N.1., File # 25-0115 Meeting Date: 2/18/2025
Staff estimates the FY 2024-25 beginning fund balance using prior fiscal year-end balance, excluding fiscal year end fund balance assignments and funding not available for FY 2024-25 expenditures.
Note that because the CalPERS reserve is in its own fund (Special Revenue Fund 258), this amount is separate from this calculation.
Estimated Ending Fund Balance
The calculation to arrive at the estimated ending fund balance includes adopted revenues and transfers in, adopted appropriations and transfers out, and prior year funds (encumbrances and carryover) which the City expects to spend in the current fiscal year. Before the proposed midyear adjustments, there is an estimated $1.5 million fund balance remaining.
Balance 10,427,030 Beginning Fund Balance
Adopted Budget 118,602,447 Adopted Revenues & Transfers In (119,108,202)Adopted Expenditures & Transfers Out
Prior-year funds (2,138,355)Encumbrances
(6,327,262)Carryover
Modifications Other Modifications Approved by 4/5 Council Vote 1,455,658 Estimated FY 2023-24 ending fund balance
Fund Balance Calculation - to reach estimated FY 2023-24 Ending Fund Balance (adds Council-approved budget changes from Budget Adoption through Midyear Report) The estimate above assumes full spending for the fiscal year, and, as such, is a conservative estimate of the year-end balance, as operating departments across the City are trending to spend less than their total budgets.
Recommended Adjustments
Revenue
Review of revenue is, overall, very positive for the General Fund. Revenue is on track to meet budget in most categories, with additional revenue anticipated. Following analysis, staff recommends a net increase of approximately $3.5 million of General Fund revenue, detailed below. · Property Tax and Property Tax in lieu of VLF
Revenue for both categories is based on the City’s assessed valuation, and changes annually in line with this calculation. Current year assessed valuation grew at a better than anticipated
N.1., File # 25-0115 Meeting Date: 2/18/2025
in line with this calculation. Current year assessed valuation grew at a better than anticipated
5.24%, leading to anticipated revenue in excess of the current budget. Staff proposes increasing revenue projections to slightly below the projected amount, by $1.2 for Property Tax and $1.3 million for Property Tax in lieu of VLF respectively. Total increase: $2.5 million. · Other Major Tax Sources: no change
o Sales and Use Tax
Most recent updates estimate year-end revenue at exactly the City’s current $11 million budget. We expect this revenue to remain flat this fiscal year, with slight potential increases over the next several fiscal years.
o Transient Occupancy Tax
Receipts to date are tracking as anticipated, including the receipt of transient occupancy tax revenue from the Marine Avenue Hotels starting in January 2025. Staff will continue to monitor this source through the close of the fiscal year and beyond. o Utility Users’ Tax
Revenue projections and receipts to date are consistent with meeting the City’s established budget. Staff expects this revenue source to remain fairly flat. o Property Transfer Tax
Consistent with continued high interest rates, staff projects no increases to this revenue source; revenue through midyear is consistent with meeting budget projections. · Fines, Fees, & Charges for Services
User fees and fines fund this revenue category; revenue overall is ahead of budget six months through the fiscal year, with increases to parking meeting and McCormick ambulance receipts offsetting projected decreases in recreation fees related to slightly delayed staff hiring and program expansion. These offset for no net change to General Fund revenue. Staff anticipates that recreation revenue will meet expectations in FY 2025-26 following successful staff recruitment and hiring during the start of the fiscal year. · Overhead: Staff has completed an internal services review, updating all internal costs for FY 2023-24 actual spending. The anticipated additional General Fund revenue from revised
N.1., File # 25-0115 Meeting Date: 2/18/2025
2023-24 actual spending. The anticipated additional General Fund revenue from revised overhead charges, per the City’s well established internal services fund formula, is $0.9 million.
Internal Service Funds
The City’s internal service funds provide critical reserve funding to ensure the organization is prepare to meet future foundational support needs. The annual analysis updates fund contributions to reflect the most recent spending. The calculations to reach these updated allocations smooth the impacts of larger spikes in spending - for example, for one-time large technology or vehicle purchases, or for a large workers’ compensation or liability claim. The most recent update shows an approximately $3.6 million or 10% increase over the prior year, driven by anticipated cost increases in several plans.
The amount we recommend appropriating at this time incorporates further smoothing of increases for the Information Technology and the Emergency Communications Funds. The larger expenditures in these areas reflects one-time spending which, if funded in whole by the General Fund in FY 2024-25, would be burdensome. Smoothing is appropriate given the decreased need anticipated over the next several fiscal years.
Self-Insurance
The 12% increase was expected and is due to increased liability insurance premium costs, and follows a year of reduced contributions. Staff anticipates potential decreases in the next year as this calculation will reflect recent worker’s compensation claims gains.
Building Occupancy
The 18% increase primarily reflects energy costs, which increased by 14% in FY 2023-24.
Information Technology
The 18% increase reflects replacement of almost every City computer and other devices.
Staff anticipates lower need in the following two cycles.
Emergency Communications
The 13% increase reflects a correction to prior year calculations; staff does not anticipate significant additional needs in this fund in the next several years.
Vehicle Maintenance and Repair
The 2% increase reflects very moderate change to maintenance costs and a slight decrease in replacement contributions compared to the prior year. Staff anticipates increases in the following two-five years based on needs and planned replenishment of the fund to meet current vehicle replacement expectations and recent accelerated vehicle purchases in the Fire Department.
Overhead
The 7% increase is consistent with new personnel costs and some additional expenses.
Major Facility Repair
The 24% increase - of a small dollar value - reflects increased energy costs.
City Facility Sewer Fee: This plan remained flat, consistent with sewer rates.
For the General Fund, the Internal Services net impact is approximately $1.6 million; $2.5 million in
N.1., File # 25-0115 Meeting Date: 2/18/2025
For the General Fund, the Internal Services net impact is approximately $1.6 million; $2.5 million in additional spending, offset by $0.9 million of additional revenue related to overhead.
Revised revenue estimates for all funds are shown in Exhibit B. Expenditure adjustments are shown in Exhibit C.
Decision Packages
Staff proposes limited Decision Packages related to policy, operational or financial matters. The recommended decision packages are listed below:
Decision Package #1. Parking Meter Revenue Adjustment. Parking meter revenue is anticipated to exceed the projected amount by the end of June 2025, and the estimate should be increased. This additional revenue, along with more use of credit cards as a payment method at parking meters, has also resulted in increased credit card service fees charged to the City, which will exceed the current expenditure budget. Recommended is a one-time increase to General Fund revenue of $250,000 and a one-time General Fund appropriation of $50,000.
Decision Package #2. Building Technology & Training Expense Account. In Fiscal Year 2024-25, Council approved a Technology & Training Surcharge Fee to support training required to retain staff ICC certifications and to cover annual maintenance costs for the new iWorQ permitting software, the new queue system, and any other necessary technological enhancements. Staff projected receiving $108,000 during the fiscal year, and has received more than 50% of that revenue halfway through the year. Based on revenue receipts, staff recommends an ongoing General Fund appropriation associated with the previously approved surcharge fee revenue of $108,000.
Decision Package #4. Refuse Rates. As part of the FY 2024-25 Budget, the City Council approved Decision Package #23 - Public Works Refuse Rate Adjustment to increase the City’s annual contract expenditures in line with the approved annual Refuse Rate Adjustment. This is a pass-through fee from residents to Athens Services that is included in annual property tax bills. Each year, an adjustment is made to account for the new approved solid waste rates, however, the new count of households is not known prior to Budget adoption and accordingly must be updated at midyear. This year the revised unit count is 16,198, an increase of 207 units. The increased cost of 207 units at $330.60 per annum is $68,434.20. Recommended is an ongoing increased appropriation to the Solid Waste Fund of $68,434.20.
Decision Package #8. Housing Legal Services. The Housing Authority utilizes legal support services from the Richards, Watson & Gershon Law Firm to handle housing-related complaints. These services are an eligible expense from the monies provided by the US Department of Housing and Urban Development for the administration of the City’s Section 8 voucher program. General funds are not used or necessary to fund these legal services, which are needed to assist with the management of Section 8 related claims and participant complaints. Recommended is an ongoing appropriation to the Housing Authority Fund of $25,000.
Estimated Ending Fund Balance with Adjustments & Decision Packages Including all changes described above, the estimated ending General Fund balance is approximately $2.3 million.
N.1., File # 25-0115 Meeting Date: 2/18/2025
As mentioned above, the remaining balance excludes the $8.6 million contingency reserve, which is backed out before calculating available fund balance. It is also important to note that it does not include CalPERS Reserve funds, which are held in a separate account and currently total roughly $8 million.
Staff recommends that the remaining estimated balance remain unspent pending year-end reconciliation and a review of FY 2025-26 needs. In addition to the general economic uncertainties at the Federal, State and regional level, staff is aware of at least two major potential General Fund pressures that will need to be addressed going into FY 2025-26:
· Harbor Tidelands/Harbor Uplands capital and operating expense subsidy: staff anticipates needing roughly $2 million, depending on actual year-end expenditures and revenue, to support the harbor enterprise funds.
· The City’s FY 2025-26 unfunded accrued liability (UAL) payment is approximately $4.3 million.
Preserving the available fund balance to assist in covering this expense would alleviate pressure on the FY 2025-26 Budget.
Fiscal Year 2025-26 Budget Preparation
Staff anticipates initiating budget preparation in March for initial presentation to the City Council in May.
COORDINATION
All Departments participated in the midyear budget review. The Budget and Finance Commission reviewed the midyear budget report on February 13, 2025 and had no formal comments. The Budget Modification Resolution has been approved as to form by the City Attorney’s Office.
FISCAL IMPACT
The report describes the City’s financial and budgetary situation at the midyear point of FY 2024-25.
Adopting the recommended revenue and appropriations changes, including Decision Packages, would result in a revised estimated year-end General Fund balance of $2.3 million.
APPROVED BY:
Mike Witzansky, City Manager
ATTACHMENTS
· Reso- No. CC-2502-007 Midyear Budget Resolution
· Exhibit A - Council-Approved Appropriation Modifications · Exhibit B - Revenue Adjustments
N.1., File # 25-0115 Meeting Date: 2/18/2025
· Exhibit C - Appropriations Adjustments
· Exhibit D - Internal Service Fund Summary
· Exhibit E - FY 2024-25 CIP Midyear Update
· Exhibit F - FY 2024-25 CIP Midyear Projects by Phase
· Exhibit G - FY 2024-25 CIP Midyear Budget Response Reports