Agenda packet, regular meeting, fourth session — San Clemente City Council, February 28, 2023

Agenda
2-28-23 LTFP.PDF
Meeting Materials
2 - FY 2022-23 2ND QUARTER FINANCIAL UPDATE.PDF
3 - FY 2022-23 MID-YEAR BUDGET ADJUSTMENTS.PDF
4 - LONG TERM FINANCIAL PLAN 2023.PDF

1. Documents:

2. Documents:

Page 1 of 4 ends

CITY OF SAN CLEMENTE
Tuesday, February 28, 2023
City Council
Adjourned Regular Meeting Agenda
4:00 p.m. - Long Term Financial Plan
910 Calle Negocio
2nd Floor
San Clemente, California
www.san-clemente.org
Council Chambers
Mayor Duncan
Mayor Pro Tem Knoblock
Councilmember Cabral
Councilmember Enmeier
Councilmember James
Information concerning City Council Meeting protocols and procedures is contained at the end of this agenda.

RULES FOR ADDRESSING COUNCIL
• Members of the public may address the City Council on matters within the jurisdiction of the City of San Clemente.
• If you wish to address Council, please complete one of the blue speaker cards located at the entrance to the Council Chambers and turn it in to the City Clerk or Deputy City Clerk. • Persons wishing to address Council concerning an agendized item will be invited to address Council during the time that Council is considering that particular agenda item .

Persons wishing to address Council concerning a non-agendized issue will be invited to address Council during the “Oral Communications” portion of the meeting. • When invited by the Mayor, please step to the podium, and if you wish, state your name and the City in which you reside, and make your presentation. Please limit your presentation to three minutes.

MISSION STATEMENT
The City of San Clemente, in partnership with the community we serve, will foster a tradition dedicated to:

Maintaining a safe, healthy atmosphere in which to live, work and play; Guiding development to ensure responsible growth while preserving and enhancing our village character, unique environment and natural amenities; Providing for the City’s long-term stability through promotion of economic vitality and diversity…
Resulting in a balanced community committed to protecting what is valued today while meeting tomorrow’s needs.

City Council Adjourned Regular Meeting Agenda February 28, 2023

Page 2 of 4 ends

CALL TO ORDER

PLEDGE OF ALLEGIANCE

1. Oral Communications
Members of the audience who wish to address Council on matters that are within the jurisdiction of the City of San Clemente, but not separately listed on the agenda, may do so during the Oral Communications portion of the meeting. Speakers may address Council once during Oral Communications.

Each speaker is allotted 3 minutes in which to give his or her presentation.

Speaker order is determined by the order in which speaker cards are provided to the City Clerk or Deputy City Clerk at the meeting. When invited by the Mayor, please step to the podium, and if you wish, state your name and the City in which you reside, and make your presentation. Subject to very limited exceptions, Council is not permitted to discuss or take action on items that do not appear on the agenda.

2. FY 2022-23 2ND QUARTER FINANCIAL UPDATE
Report from the Financial Services Officer concerning the FY 2022-23 2nd Quarter Report.

3. FY 2022-23 MID-YEAR BUDGET ADJUSTMENTS
Report from the Financial Services Officer concerning the Mid-year Budget Adjustments.

Staff Recommendation

1. Receive and file the FY 2022-23 2nd Quarter Report (Attachment “A”).

2. Approve and authorize the mid-year budget adjustments listed in “Attachment B”.

4. LONG TERM FINANCIAL PLAN PRESENTATION
Report from the Financial Services Officer concerning the presentation of the 2023 Long Term Financial Plan.

Staff Recommendation
TRENDS
No Recommendations.

FORECAST
No Recommendations.

City Council Adjourned Regular Meeting Agenda February 28, 2023

Page 3 of 4 ends

RESERVE

1. Transfer an amount of $400,000 from the General Fund to the Facilities Maintenance Reserve in FY 2023-24.

2. Transfer an amount of $300,000 from the General Fund to the Park Asset Reserve in FY 2023-24.

3. Transfer a one-time amount of $2,000,000 from the Water Operating Reserve in FY 2023-24 to the Water Depreciation Reserve to fund future capital replacement in the Water Depreciation Reserve.

FISCAL POLICY
Remove the following revenue policy:
“General fund revenue categories (sales tax revenue by example) may not be committed directly to fund a specific expenditure line item or program.” Add the following revenue policy:
“Allocate one-third of total Transient Occupancy Tax dollars toward the unfunded pension liability.”

IT STRATEGIC PLAN UPDATE
Accept the Information Technology Strategic Plan Update and direct staff to bring the recommended Fiscal Year 2023-24 projects and initiatives forward through the budget process.

FLEET - LEASE/PURCHASE
No changes are recommended.

PENSION UPDATE
CalPERS

1. Based on October 2022 Council direction, modify the $1,000,000 Section 115 trust funding and utilize the $1,000,000 to make a one-time Public Safety Pension Plan payment.

CSCERP

1. Continue with the CASA evaluation related to CalPERS pension administration.

2. Update the City of San Clemente Pension Investment Policy (Policy No. 202- 2) and prepare a City Council Agenda Report when Chandler Asset Management cost information is received.

5. Adjournment
The next Regular Council Meeting is scheduled to take place on March 7, 2023.

Closed Session will begin at 5:00 p.m. and the Regular Business Meeting will begin at 6:00 m. The meeting will take place in the Council Chambers, located at 910 Calle Negocio, 2nd Floor, San Clemente.

City Council Adjourned Regular Meeting Agenda February 28, 2023

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CITY COUNCIL MEETING PROCEDURES

PRESENTATION OF WRITTEN MATERIALS TO COUNCIL
In order to ensure that Councilmembers have adequate time to consider written materials concerning agenda items, it is strongly recommended that such materials be submitted to the City Clerk by noon the date preceding the Council meeting.

MEETINGS RECORDED AND TELEVISED
City Council meetings are broadcast live and are replayed periodically on Cox Communications Local Access Channel 854. Meetings are also available for live-stream or post meeting viewing from the City’s website.

Meetings are also recorded via audio CD and/or DVD and retained as a City record in accordance with the City’s records retention schedule.

USE OF ELECTRONIC VISUAL AIDS BY PUBLIC AT MEETINGS
To allow staff adequate time to confirm software compatibility, individuals wishing to utilize electronic visual aids to supplement their oral presentations at the meeting, must submit the electronic files to the City Clerk by no later than 12:00 p.m. on the day of the meeting. Only compatible electronic formats will be permitted to be used on City audio/visual computer equipment. Staff makes no guarantee that such material will be compatible, but will use its best efforts to accommodate the request.

LENGTH OF MEETINGS
At 11:00 p.m., the City Council will determine which of the remaining agenda items can be considered and acted upon at this meeting and will continue all other agenda items to a future meeting.

AMERICANS WITH DISABILITIES ACT
Pursuant to the Americans with Disabilities Act, persons with a disability who require a disability-related modification or accommodation in order to participate in a meeting, including auxiliary aids or services, may request such modification or accommodation from the City Clerk at (949) 361-8200. Notification 48 hours prior to the meeting will enable the City to make reasonable arrangements to assure accessibility to the meeting.

COMMUNICATION DEVICES
To minimize meeting distractions and sound system interference, please be sure all personal communication devices are turned off or on silent mode.

MEETING SCHEDULE
Regular Council Meetings are held on the first and third Tuesdays of each month in the Council Chambers, located at 910 Calle Negocio, 2nd floor, San Clemente. Closed Session are considered at 5:00 p.m. and the Business Meeting begins at 6:00 p.m. Additional meetings of the City Council may be called as needed.

AGENDAS, ADMINISTRATIVE REPORTS AND SUPPLEMENTAL WRITTEN MATERIALS Agendas and Administrative Reports are available for review and/or copying at the City Clerk’s Department as soon as agendas are posted, by accessing the City’s website at www.san-clemente.org. An “Inspection Copy” of agenda materials is also located at the entrance to the Council Chambers during meetings for public review. All written material distributed to a majority of the Council after the original agenda packet was distributed is available for public inspection in the City Clerk’s Department, located at 910 Calle Negocio, San Clemente, during normal business hours.

The City Clerk’s Department offers an agenda packet subscription service free of charge. If you wish to receive email copies of City Council agendas, which include hyperlinks to staff reports and other back-up material, register at http://san-clemente.org/enotification.

October – December 2022

CURRENT FINANCIAL CONDITION
In FY 2022-23, the City’s is adopted General Fund budget included a positive operating position of $422,000. After budget adjustments, the current operating position is
$180,000. At the end of the second quarter, expenditures exceed revenues due to the timing of property and sales tax receipts. Revenues and expenditures are within
budgetary expectations for this time of the year.

GENERAL FUND
General Fund revenues through the second quarter total
$33.5 million, or 43% of the $78.0 million annual budget.

General Fund revenue is $1.4 million higher than last
year’s revenue due to higher property taxes, services
charges, and interfund transfers.

General Fund expenditures total $39.8 million for the
second quarter, or 45% of the $88.8 million annual
budget, as compared to $37.3 million at this time last
year. In total, expenditures ended the quarter $2.5
million higher than the same period mainly due to
pension paydown and General Fund assistance to the
Clean Ocean fund.

Additional information on General Fund revenues and
expenditures are discussed further in this report.

GENERAL FUND REVENUES
Revenues by Category Budget YTD Actual %
Property Taxes 40,993,230 17,635,719 43%
Sales Tax 12,995,000 4,403,953 34%
Transient Occ. Tax 3,005,000 1,454,521 48%
Other Taxes 3,504,000 796,356 23%
Permits & Fees 1,165,530 756,731 65%
Intergovernmental 1,324,830 318,140 24%
Service Charges 6,258,340 3,860,134 62%
Fines 518,300 256,839 50%
Interest, Rents, Other 3,287,990 1,542,986 47%
Interfund Transfers 4,942,990 2,513,044 51%
77,995,210 33,538,423 43%
Property Taxes: Property taxes total $17.6 million,
primarily from secured taxes. The amount is $1.1
million higher than in the prior year due to higher
secured taxes in the current year.
Sales Tax: Sales tax receipts amount to $4.4 million,
which is $115,478 lower than in the prior year. These
are lower due to lower business activity compared to
the prior year.
Transient Occupancy Taxes (TOT): Transient
occupancy taxes total $1.4 million slightly higher than the same time last year.
Other Taxes: Other taxes, consisting mostly of
franchise fees and business licenses, total $796,356,
which is $39,101 higher than prior year. The largest
franchise fees, from SDG&E and Southern California
Gas, are remitted in April of each year.
Permits & Fees: Permits and fees are at $756,731.

This is $18,202 less than in the prior year, due to a
decrease in construction and street encroachment
permits from prior year levels.
Intergovernmental: Intergovernmental, which
derives mainly from grant revenues total $318,140,
which is $699,688 lower due the SC Rides program
revenues being recorded in the Local Transit fund.
Service Charges: Service charges, from general
government, public safety, parking meter and
recreation, amount to $3.9 million, about $298,868
higher than last year. This increase is the result of an increase in building plan check fees, parking service
charges and recreation service charges as activity
levels increased in the current year.
Fines: Revenues from fines total $256,839, which is
$18,199 higher than the prior year due to increases in
parking violations and vehicle code fines.
 Interest, Rents & Other: Interest, rents and other
reimbursements total $1.5 million, similar to the prior year.
 Interfund transfers: Interfund transfers increased
from the prior year by $671,000 due to funding
provided by the American Rescue Plan funds, which are
being used to offset police and fire cost increases.
$78.0
$88.8
43%
$33.5
45%
$39.8
$-
$20.0
$40.0
$60.0
$80.0
$100.0 Dollars (in millions)
Revenues Expenditures
General Fund -
Current Year Actual to Budget
Budget Actual
Quarterly Financial Report
Second Quarter of FY 2022-23
1 1
Agenda Item: 2
Quarterly Financial Report Second Quarter of FY 2022-23

GENERAL FUND EXPENDITURES
Expenditure by Type Budget YTD Actual %
Salaries 13,701,490 5,801,169 42%
Benefits 6,625,080 3,862,839 58%
Supplies 1,252,330 558,677 45%
Contractual Services 46,138,235 20,785,720 45%
Other Charges 1,507,820 769,056 51%
Capital Outlay 7,759,440 841,872 11%
Interdepartmental 5,257,830 2,664,430 51%
Transfers & Debt 6,590,840 4,536,769 69%
Total 88,833,065 39,820,532 45%
Expenditure by Dept Budget YTD Actual %
General Government 5,972,440 2,632,821 44%
City General 8,180,850 3,463,758 42%
Police 21,529,275 11,416,800 53%
Fire 14,125,080 7,600,437 54%
Marine Safety 2,163,410 987,132 46%
Comm. Development 7,819,910 3,047,878 39%
Public Works 22,913,630 8,059,342 35%
Beaches, Parks & Rec 6,128,470 2,612,364 43%
Total 88,833,065 39,820,532 45%
Expenditures at the second quarter of FY 2022-23 are
$39.8 million compared to prior year’s $37.3 million. This is an increase of $2.5 million from the prior year. Salaries increase by $206,604 due to progress on staff vacancies and salary increases. Benefits decrease by $1.2 million partially due mostly to a $1.7 million pension UAL
payment in FY 2022. Contractual services increase $1.1
million, because of higher public safety contract costs, electricity, maintenance, and other contract services
costs. Other charges are similar to prior year. Capital Outlay decreased by $164,310 due to prior year project
completions. Transfers and Debt increase from the prior year by $2.3 million due in part to one-time pension
payments and transfer to support the Clean Ocean Fund.

By Department, police and fire increase total $2.2 million due to public safety contract cost increases and the $2 million UAL pension payment made in August. Other
department changes are as follows: 1) City General
increased by $603,996 due to transfers to the Clean
Ocean Fund in the current year, 2) Public works costs
decreased by $145,360 due to decreases in capital outlay costs, 3) General Government decreased by $180,665
due to lower salary and pension costs, and 4) Beaches,
Parks and Recreation, Community development and
Marine Safety are relatively flat compared to prior year.

In total, costs are currently within anticipated results at this time of the year based on the budget.

ENTERPRISE FUNDS
The following tables summarize the operating revenues,
operating expenses, and changes in operating fund
working capital for enterprise funds including Water,
Sewer, Golf, and Storm Drain funds.

Revenues
Revenue Budget YTD Actual %
Water Fund 25,504,271 12,257,032 48%
Sewer Fund 11,691,877 4,905,457 42%
Golf Fund 2,557,521 1,715,072 67%
Storm Drain Fund 1,774,582 391,482 22%
Water fund revenue increased by $1.2 million over the
prior year due to $1.1 received under the SMWD
agreement. Sewer revenues are lower than the prior year with service charges lower by $216,000 and smaller
depreciation reserve transfers to support Sewer
operations in the current year.

Golf Course and Storm drain revenues are flat compared
to the prior year at this time.

Expenses
Expenses Budget YTD Actual %
Water Fund 26,345,610 11,935,557 45%
Sewer Fund 11,662,110 5,261,147 45%
Golf Fund 2,761,970 1,376,527 50%
Storm Drain Fund 1,696,180 720,611 42%
Water expenses decrease by $248,000 when compared
to the prior year due to depreciation reserve transfers from operating funds in the current year. Sewer
expenses decreased by $255,000 due to a decrease in
personnel costs and vacancies. Golf Course operations
increased by $65,000 due to increases in effluent water and other contractual services. Storm drain operating
expenses were lower by $77,000 compared to the
previous year due partially to salaries.

Working Capital
Working Capital Budget YTD Actual
Water Fund 7,954,142 9,116,956
Sewer Fund 578,112 192,655
Golf Fund 723,201 1,266,195
Storm Drain Fund -130,510 -538,040
Working capital levels are negative in the Storm Drain
fund; however, adjustments will be made to end the year in a positive position. The Sewer fund and Clean Ocean
funds are both undergoing Cost-of-Service studies and
fee reviews.

ADDITIONAL INFORMATION
General Fund comparative information for the prior year is provided in Table 1 (see attachment).
2 2
Table 1
General Fund Revenues - By Category
Month Ending December 31, 2022
FY 2022 FY 2022 % of FY 2023 FY 2023 % of
Budget Actual Budget Budget Actual Budget
Property Tax $ 38,516,220 $ 16,519,702 43% 40,993,230 $ $ 17,635,719 43% Sales Tax $ 11,506,000 $ 4,519,431 39% 12,995,000 $ $ 4,403,953 34% Transient Occ. Tax $ 2,290,000 $ 1,393,387 61% $ 3,005,000 $ 1,454,521 48% Other Taxes $ 3,454,000 $ 757,255 22% $ 3,504,000 $ 796,356 23% Permits and Fees $ 1,342,310 $ 774,933 58% $ 1,165,530 $ 756,731 65% Intergovernmental $ 1,141,840 $ 1,017,828 89% $ 1,324,830 $ 318,140 24% Service Charges $ 5,584,830 $ 3,561,266 64% $ 6,258,340 $ 3,860,134 62% Fines $ 569,750 $ 238,640 42% $ 518,300 $ 256,839 50%
Interest & Rents $ 3,505,990 $ 1,482,845 42% $ 3,287,990 $ 1,542,986 47% Interfund Transfers $ 4,587,570 $ 1,842,620 40% $ 4,942,990 $ 2,513,044 51% Gen. Fund Total $ 72,498,510 $ 32,107,907 44% 77,995,210 $ $ 33,538,423 43% General Fund Expenditures - By Category
FY 2022 FY 2022 % of FY 2023 FY 2023 % of
Budget Actual Budget Budget Actual Budget
Salaries $ 13,134,440 $ 5,594,365 43% 13,701,490 $ $ 5,801,169 42% Benefits $ 7,523,860 $ 5,019,284 67% $ 6,625,080 $ 3,862,839 58% Supplies $ 1,169,220 $ 403,645 35% $ 1,252,330 $ 558,677 45% Contractual Services $ 42,668,095 $ 19,704,566 46% 46,138,235 $ $ 20,785,720 45% Other Charges $ 1,274,010 $ 758,166 60% $ 1,507,820 $ 769,056 51% Capital Outlay $ 5,885,300 $ 1,006,182 17% $ 7,759,440 $ 841,872 11% Inter Dept Charges $ 4,973,190 $ 2,565,095 52% $ 5,257,830 $ 2,664,430 51% Interfund Transfers & Debt 3,275,100 $ $ 2,267,709 69% $ 6,590,840 $ 4,536,769 69% Gen. Fund Total $ 79,903,215 $ 37,319,012 47% 88,833,065 $ $ 39,820,532 45% General Fund Expenditures - By Department
FY 2022 FY 2022 % of FY 2023 FY 2023 % of
Budget Actual Budget Budget Actual Budget
General Government $ 5,817,480 $ 2,813,486 48% $ 5,972,440 $ 2,632,821 44% City General $ 5,834,990 $ 2,859,762 49% $ 8,180,850 $ 3,463,758 42% Police $ 19,927,510 $ 10,121,842 51% 21,529,275 $ $ 11,416,800 53% Fire $ 12,918,680 $ 6,727,522 52% 14,125,080 $ $ 7,600,437 54% Marine Safety $ 1,998,810 $ 958,772 48% $ 2,163,410 $ 987,132 46% Comm. Development $ 7,055,180 $ 2,954,079 42% $ 7,819,910 $ 3,047,878 39% Public Works $ 20,616,955 $ 8,204,702 40% 22,913,630 $ $ 8,059,342 35% Beaches, Pks & Rec $ 5,733,610 $ 2,678,847 47% $ 6,128,470 $ 2,612,364 43% Gen. Fund Total $ 79,903,215 $ 37,319,012 47% 88,833,065 $ $ 39,820,532 45% 3 3

AGENDA REPORT

CITY OF SAN CLEMENTE
City Council Meeting
910 Calle Negocio
2nd Floor
San Clemente, California
www.san-clemente.org
Meeting Date: 2/28/2023 Agenda Item: 3
Department: Finance and Administrative Services
Prepared By Jake Rahn, Financial Services Officer
Subject:

FY 2022-23 MID-YEAR BUDGET ADJUSTMENTS
Fiscal Impact:

Yes. Mid-year budget adjustments are an increase of $0.8 million for revenues and an increase of $0.8 million for expenditures. General Fund revenues increase by $575,800 and expenditures increase $349,050, a net increase of $226,750.

Summary:

A mid-year review is done by staff to identify and adjust for budget differences from the adopted budget. This review includes both revenue and expenditure items and budget adjustments are presented in Attachment B.

Background:

Revenue and expenditure budgetary variances are identified by staff and information is provided to and reviewed by Finance and a listing of proposed adjustments for any changes to the budget is prepared.

Discussion:

The 2nd Quarter financial report for the General Fund is complete and an overview of the City’s financial condition has been prepared (Attachment A). In conjunction with this mid-year report, a review of all revenue and expenditure line items was conducted by all City departments to identify and adjust for budget variances. Adjustments are related to revenue activity to date that allows for the budgets to be adjusted, with increases related to supplemental property taxes, permit activity, grants, and rental revenues. Other expenditure adjustments address one-time impacts, storm related costs, and increased costs associated with unanticipated inflationary impacts, including natural gas and supply costs, and chemical and other supplies.

After the proposed adjustments, the General Fund unassigned fund balance is projected to total approximately $4.6 million at the end of FY 2022-23. The General Fund revenue increases offset cost increases caused by mostly external impacts. The operating position (excluding the effects of onetime revenues and expenditures) is an increase of approximately $0.4 million and summarized as follows:

Adjusted Operating Revenues
Adjusted Operating Expenditures
General Fund Operating Position (Revised)
$ 76.0 million
$ (75.6 million)
$ 0.4 million
CITY OF SAN CLEMENTE Page 1 of 3 Printed on 2/24/2023
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Meeting Date: 2/28/2023 Agenda Item: 3
Detailed revenue adjustments are presented in the attached schedule for the General Fund and for Other Funds. Total revenue increases are $0.8 million, with a General Fund increase of $575,800 and Other City funds revenue increases of $270,680. General Fund revenue increases include tax revenue increases of $135,000 from property tax, $140,000 from a County receipt, $118,000 from rental income and other net revenue increases of $182,800. General Fund revenue adjustments are summarized in the following table:

General Fund Revenue adjustments:

Property taxes $ 135,000
Intergovernmental (County) $ 140,000
Rental revenues $ 118,000
Other revenue changes (net) $ 182,800
Total revenue change - increase (decrease) $ 575,800
Other funds budget revenues increase $270,680 related to a transfer to support extended trolley operations, sales of vehicles, higher golf concession revenues, sewer revenue changes for tracking purposes, and various other revenues.

As with revenues, operating costs are reviewed and adjusted at the mid-point of the fiscal year.

Expenditure adjustments are proposed to increase by approximately $0.8 million, with a General Fund increase of $349,050 and other fund increases of $432,140. Expenditure adjustments relate to a variety of items including supply costs, utilities costs, and one-time expenditure items.

Proposed General Fund expenditure increases total $349,050. This is primarily due to inflation or supply cost increases, one time activities or support to other funds. General Fund expenditure adjustments are summarized in the following table:

General Fund Expenditure adjustments:

Supplies (chemical, maintenance, other) $ 88,550
Natural gas $ 55,000
Transfer to other funds $ 100,000
Other costs (net) $ 105,500
Total expenditure change - increase (decrease) $ 349,050 Expenditure adjustments increase Other Funds costs by $0.4 million. These include supply cost increases (including chemical supplies, maintenance, and fuel) for $247,230, $35,000 for landfill fees, purchase of equipment for $85,000, and $100,000 for sewer related to operating costs.

Detailed information on revenue and expenditure adjustments are in attachment “B”.

Recommended Actions:

Staff Recommendation

1. Receive and file the FY 2022-23 2nd Quarter Report (Attachment “A”) CITY OF SAN CLEMENTE Page 2 of 3 Printed on 2/24/2023
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Meeting Date: 2/28/2023 Agenda Item: 3

2. Approve and authorize the mid-year budget adjustments listed in “Attachment B”.

Attachment:

1. Attachment A - FY 2022-23 2nd Quarter Report

2. Attachment B - Listing of Mid-Year Adjustments
Notification:

None.

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October – December 2022

GENERAL FUND
General Fund revenues through the second quarter total
$33.5 million, or 43% of the $78.0 million annual budget.

General Fund revenue is $1.4 million higher than last
year’s revenue due to higher property taxes, services
charges, and interfund transfers.

Additional information on General Fund revenues and
expenditures are discussed further in this report.

This is $18,202 less than in the prior year, due to a
decrease in construction and street encroachment
permits from prior year levels.
Intergovernmental: Intergovernmental, which
derives mainly from grant revenues total $318,140,
which is $699,688 lower due the SC Rides program
revenues being recorded in the Local Transit fund.
Service Charges: Service charges, from general
government, public safety, parking meter and
recreation, amount to $3.9 million, about $298,868
higher than last year. This increase is the result of an increase in building plan check fees, parking service
charges and recreation service charges as activity
levels increased in the current year.
Fines: Revenues from fines total $256,839, which is
$18,199 higher than the prior year due to increases in
parking violations and vehicle code fines.
 Interest, Rents & Other: Interest, rents and other
reimbursements total $1.5 million, similar to the prior year.
 Interfund transfers: Interfund transfers increased
from the prior year by $671,000 due to funding
provided by the American Rescue Plan funds, which are
being used to offset police and fire cost increases.
$78.0
$88.8
43%
$33.5
45%
$39.8
$-
$20.0
$40.0
$60.0
$80.0
$100.0 Dollars (in millions)
Revenues Expenditures
General Fund -
Current Year Actual to Budget
Budget Actual
Quarterly Financial Report
Second Quarter of FY 2022-23
1 ATTACHMENT A
4 Quarterly Financial Report Second Quarter of FY 2022-23

In total, costs are currently within anticipated results at this time of the year based on the budget.

Golf Course and Storm drain revenues are flat compared
to the prior year at this time.

ADDITIONAL INFORMATION
General Fund comparative information for the prior year is provided in Table 1 (see attachment).
2 5
Table 1
General Fund Revenues - By Category
Month Ending December 31, 2022
FY 2022 FY 2022 % of FY 2023 FY 2023 % of
Budget Actual Budget Budget Actual Budget
Property Tax $ 38,516,220 $ 16,519,702 43% 40,993,230 $ $ 17,635,719 43% Sales Tax $ 11,506,000 $ 4,519,431 39% 12,995,000 $ $ 4,403,953 34% Transient Occ. Tax $ 2,290,000 $ 1,393,387 61% $ 3,005,000 $ 1,454,521 48% Other Taxes $ 3,454,000 $ 757,255 22% $ 3,504,000 $ 796,356 23% Permits and Fees $ 1,342,310 $ 774,933 58% $ 1,165,530 $ 756,731 65% Intergovernmental $ 1,141,840 $ 1,017,828 89% $ 1,324,830 $ 318,140 24% Service Charges $ 5,584,830 $ 3,561,266 64% $ 6,258,340 $ 3,860,134 62% Fines $ 569,750 $ 238,640 42% $ 518,300 $ 256,839 50%
Interest & Rents $ 3,505,990 $ 1,482,845 42% $ 3,287,990 $ 1,542,986 47% Interfund Transfers $ 4,587,570 $ 1,842,620 40% $ 4,942,990 $ 2,513,044 51% Gen. Fund Total $ 72,498,510 $ 32,107,907 44% 77,995,210 $ $ 33,538,423 43% General Fund Expenditures - By Category
FY 2022 FY 2022 % of FY 2023 FY 2023 % of
Budget Actual Budget Budget Actual Budget
Salaries $ 13,134,440 $ 5,594,365 43% 13,701,490 $ $ 5,801,169 42% Benefits $ 7,523,860 $ 5,019,284 67% $ 6,625,080 $ 3,862,839 58% Supplies $ 1,169,220 $ 403,645 35% $ 1,252,330 $ 558,677 45% Contractual Services $ 42,668,095 $ 19,704,566 46% 46,138,235 $ $ 20,785,720 45% Other Charges $ 1,274,010 $ 758,166 60% $ 1,507,820 $ 769,056 51% Capital Outlay $ 5,885,300 $ 1,006,182 17% $ 7,759,440 $ 841,872 11% Inter Dept Charges $ 4,973,190 $ 2,565,095 52% $ 5,257,830 $ 2,664,430 51% Interfund Transfers & Debt 3,275,100 $ $ 2,267,709 69% $ 6,590,840 $ 4,536,769 69% Gen. Fund Total $ 79,903,215 $ 37,319,012 47% 88,833,065 $ $ 39,820,532 45% General Fund Expenditures - By Department
FY 2022 FY 2022 % of FY 2023 FY 2023 % of
Budget Actual Budget Budget Actual Budget
General Government $ 5,817,480 $ 2,813,486 48% $ 5,972,440 $ 2,632,821 44% City General $ 5,834,990 $ 2,859,762 49% $ 8,180,850 $ 3,463,758 42% Police $ 19,927,510 $ 10,121,842 51% 21,529,275 $ $ 11,416,800 53% Fire $ 12,918,680 $ 6,727,522 52% 14,125,080 $ $ 7,600,437 54% Marine Safety $ 1,998,810 $ 958,772 48% $ 2,163,410 $ 987,132 46% Comm. Development $ 7,055,180 $ 2,954,079 42% $ 7,819,910 $ 3,047,878 39% Public Works $ 20,616,955 $ 8,204,702 40% 22,913,630 $ $ 8,059,342 35% Beaches, Pks & Rec $ 5,733,610 $ 2,678,847 47% $ 6,128,470 $ 2,612,364 43% Gen. Fund Total $ 79,903,215 $ 37,319,012 47% 88,833,065 $ $ 39,820,532 45% 3 6
Proposed Mid -Year Budget Adjustments
FY 2022-23REVENUESFund Program Account Account/Project Title OP/OT Adjustment General Fund Other Funds Explanation 001 000 31120 Supp. Roll Property Taxes OP 135,000.00 135,000.00 - Increase in supplemental property taxes based on to date activity001 000 31620 Southern California Gas OP 20,000.00 20,000.00 - Higher energy prices contributing to higher franchise amounts001 000 32220 Electrical Permits OP 20,000.00 20,000.00 - Higher revenues based on activity to date001 000 33790 Other County Grants OT 140,000.00 140,000.00 - Amounts under County Waste Disposal Agreement001 000 34310 Parking Meters OP 25,000.00 25,000.00 - Higher revenues based on usage to date001 000 34712 Swimming Pool Rec Prog Fees OP 23,000.00 23,000.00 - Higher revenues based on activity to date001 000 34728 Beach Class Fees OP 30,000.00 30,000.00 - Higher revenues based on activity to date001 000 35120 Vehicle Code Fines OP 40,000.00 40,000.00 - Increase in code fines001 000 36110 Investment Earnings OP 20,000.00 20,000.00 - Higher interest rates based on portfolio001 000 36235 Rental of City Property OP 100,000.00 100,000.00 - Higher rental revenues based on Downtown revenues001 000 36262 “T” Street Concession OP 18,000.00 18,000.00 - Rent revenue adjustment based on activity001 000 36269 Pier Concession Bait & Tackle OP 4,800.00 4,800.00 - Rent revenue adjustment based on activity012 000 36855 Miscellaneous Reimbursements OP 58,000.00 - 58,000.00 Insurance reimbursement016 000 36110 Investment Earnings OP 37,000.00 - 37,000.00 Higher interest rates based on portfolio021 000 39204 Transfer From General Fund OT 100,000.00 - 100,000.00 Funding transfer for trolley operations031 000 36730 Contribution From Developers OP 84,710.00 - 84,710.00 Reimbursement from developer052 000 33910 MWD Reclaimed Water Credit OP 32,500.00 - 32,500.00 Higher than anticipated revenue 052 000 34180 Late Payment Charges OP (50,000.00) - (50,000.00) Lower than anticipated revenue052 000 34835 Turn on/Reconnection Fee OP (5,000.00) - (5,000.00) Lower than anticipated revenue052 000 34836 Water Posting Fee OP (16,750.00) - (16,750.00) Lower than anticipated revenue052 000 34840 Meter Installation Fees OP 20,000.00 - 20,000.00 Higher than anticipated revenue 054 000 33931 SMWD - Capital Charge OP 175,000.00 - 175,000.00 Change in account for revenue (removed from 054-000-34420)054 000 33935 SMWD - Admin Costs OP 53,190.00 - 53,190.00 Change in account for revenue (removed from 054-000-34420)054 000 33936 SMWD - Collection System OP 73,820.00 - 73,820.00 Change in account for revenue (removed from 054-000-34420)054 000 33937 SMWD - Treatment System OP 499,010.00 - 499,010.00 Change in account for revenue (removed from 054-000-34420)054 000 34420 Sewer Service Charges OP (800,000.00) - (800,000.00) Moved SMWD revenue to the separate accounts for tracking056 000 36272 Golf Pro Shop OP 45,000.00 - 45,000.00 Higher revenues based on activity to date056 000 36274 Golf Restaurant OP 25,000.00 - 25,000.00 Higher revenues based on activity to date057 000 35110 Parking Violations OP (180,000.00) - (180,000.00) Lower than anticipated revenue065 000 39110 Sales Of General Fixed Assets OT 100,000.00 - 100,000.00 Lower than anticipated revenue067 000 36855 Miscellaneous Reimbursements OT 19,200.00 - 19,200.00 Refund of insurance premium Total REVENUE changes 846,480.00 575,800.00 270,680.00
Funds Affected

ATTACHMENT B
7 Proposed Mid -Year Budget Adjustments
FY 2022-23EXPENDITURESFund Program Account Account/Project Title OP/OT Adjustment General Fund Other Funds Explanation 001 111 42010 Office Supplies OP 3,000.00 3,000.00 - Based on activity to date for line item due to increase in supplies cost increases 001 111 43060 Travel And Training OP 5,000.00 5,000.00 - Additional training requirements due to position changes001 111 44420 Special Meetings And Events OP 3,000.00 3,000.00 - Increased costs related to meetings and events001 131 43635 Legal - Contingency OP 5,000.00 5,000.00 - Increased costs related to public records requests001 203 42490 Other Operating Supplies OP 1,850.00 1,850.00 - Community conference room flag purchase001 203 47250 Transfers To Other Funds OP 100,000.00 100,000.00 - Additional transfer to support trolley operations001 219 44420 Special Meetings And Events OP 1,500.00 1,500.00 - Increase in special event spending001 227 43612 Ambulance Program OP 12,000.00 12,000.00 - GEMT Quality Assurance Fee Adjustment 001 451 42010 Office Supplies OP 400.00 400.00 - Staff turnover caused increase in need for additional staff uniforms001 454 42410 Clothing And Uniforms OP 400.00 400.00 - Staff turnover caused increase in need for additional staff uniforms001 611 42590 Other Maintenance Supplies OT 55,900.00 55,900.00 - Audible warning system maintenance supplies 001 611 43890 Other Contractual Services OT 40,000.00 40,000.00 - Traffic signal knockdowns 001 618 42490 Other Operating Supplies OT 7,000.00 7,000.00 - Based on activity to date for line item due to increase in supplies cost increases 001 621 43320 Natural Gas OP 5,000.00 5,000.00 - Increase to Natural Gas prices 001 625 42150 Chemical Supplies OP 20,000.00 20,000.00 - Based on activity to date for line item due to increase in chemical supplies 001 626 43320 Natural Gas OP 50,000.00 50,000.00 - Increase to Natural Gas prices 001 628 43425 Maintenance Of Landscaping OP (11,000.00) (11,000.00) - Based on activity to date for line item001 635 43470 Maint. Of Other Facilities OT 50,000.00 50,000.00 - Extensive vandalism to soccer fields multiple times 052 461 44260 Licenses And Permits OP 6,110.00 - 6,110.00 SWRCB invoice for annual permit to operate Potable Water System came in $6,108.05 over budget. The fees per connection increase was greater than anticipated.
052 462 42170 Laboratory Supplies OP 11,000.00 - 11,000.00 Costs for all chemicals and related items have increased drastically 052 462 43450 Maintenance Of Operating Equip. OP 8,000.00 - 8,000.00 Costs for oil, lubricants, service labor cost, analyzers and parts have significantly increased 052 462 44110 Dues And Subscriptions OP 1,000.00 - 1,000.00 Employees have been obtaining cross training certifications, and have also been upgrading their current certifications to the next higher grade. In addition, employee turnover is high which has increased the need for employee certifications. 052 463 42390 Small Tools And Equipment OP 5,000.00 - 5,000.00 The cost of necessary tools, tape, plastic, concrete tools, etc. has increased significantly 052 463 42490 Other Operating Supplies OP 100,000.00 - 100,000.00 Overall cost increase on all related items such as: oils, lubricants. CL2 Analyzers have increased by $3,000 per unit. Chem key cost, parts and materials costs have also increased. Cooper pipe price has increased by over 58%.
052 463 42590 Other Maintenance Supplies OP 20,000.00 - 20,000.00 Overall cost increase on all related items such as: wiring, tubing, coatings, components regulating valves (Clavalve) instrumentation, etc. (increase of approximately 35-40%)052 463 43060 Travel And Training OP 3,000.00 - 3,000.00 Increase in the amount of employees taking higher level certification tests and training classes. Staff have dual certifications and the cost of training has increased overall. 052 463 43425 Maintenance Of Landscaping OP 6,000.00 - 6,000.00 To maintain reservior sites and pump stations. Maintence costs have increased to higher than average due to fire danger, per OCFA.
052 463 43730 Rental Of Equipment OP 10,000.00 - 10,000.00 Vactor Unit 1134 has been breaking down more often and for longer periods of time, requiring rental of a vactor from an outside company.
052 463 44110 Dues And Subscriptions OP 1,000.00 - 1,000.00 Employees have been obtaining cross training certifications, and have also been upgrading their current certifications to the next higher grade. In addition, employee turnover is high which has increased the need for employee certifications. 052 465 42150 Chemical Supplies OP 8,000.00 - 8,000.00 $8,000 for Supply & Delivery of Polymer Alum C-1005 per joint agreement #C19-59 with SOCWA.054 472 42150 Chemical Supplies OP 70,000.00 - 70,000.00 Supply and fuel costs have increased post pandemic, and overall chemical costs to treat wastewater have also increased as a result, which requires additional funding. 054 472 43330 Electricity OP (83,100.00) - (83,100.00) Lower than anticpated costs for electricity due to activity to date054 472 43370 Landfill Fees OP 35,000.00 - 35,000.00 Transport of Biosolids to Landfill/Composting Facilities per joint agreement # C17-47 with SOCWA and Nursery Products LLC. Due to significant increases in hauling and fuel costs post pandemic, additional funding is needed 054 473 43730 Rental Of Equipment OP 20,000.00 - 20,000.00 Vactor Unit 1134 in near the end of its useful life and as a result has been out of service. This results in increased costs for maintenance and replacement.
054 476 45300 Improvements Other Than Bldgs. OT 100,000.00 - 100,000.00 Additional budget funding for capital project related to Cyprus Shores056 661 42310 Gasoline OP 2,100.00 - 2,100.00 Price Increase for gasoline056 661 42330 Diesel Fuel OP 6,160.00 - 6,160.00 Price Increase for diesel fuel056 661 42510 Building Materials OT 5,970.00 - 5,970.00 Shop roll up gate replacement056 661 42550 Automotive & Equipment Parts OP 7,000.00 - 7,000.00 Old Equipment and higher costs for maintenance056 661 42590 Other Maintenance Supplies OT 6,000.00 - 6,000.00 Storm Damage and replacement of items056 661 43426 Maintenance Of Trees OT 18,000.00 - 18,000.00 Storm clean up from January storms and various tree maintenance costs Funds Affected
8 056 661 45600 Automotive Equipment OT 55,000.00 - 55,000.00 Truckster equipment replacement 062 812 42490 Other Operating Supplies OP 6,000.00 - 6,000.00 Unanticipated increase in paper costs065 619 43064 Required Licensing Certification OP 4,900.00 - 4,900.00 Unanticipated charges related to certification of equipment Total EXPENDITURE changes 781,190.00 349,050.00 432,140.00 9 CITY OF SAN CLEMENTE, CALIFORNIA
Long Term Financial Plan 2023
Prepared By:

Finance and Administrative Services

City of San Clemente
Table of Contents
Title Page 1
Introductory Section
Table of Contents 3
City Manager Transmittal Letter 5
Executive Summary
(includes Overview and Recommendations)
9 Long Term Financial Plan
Financial Trend Analysis 17
Financial Forecast 47
Reserve Analysis 61
Fiscal Policy 81
Strategic Issues
Information Technologies Strategic Plan
Fleet – Lease/Purchase
Pension Update
91 103
107

City of San Clemente
Sean Joyce, Interim City Manager
910 Calle Negocio, San Clemente, CA 92673
Honorable Mayor and Council Members:

I am pleased to present to the City Council the City of San Clemente’s 2023 Long Term Financial Plan (LTFP). The City has been presenting the LTFP on an annual basis since 1993. The City’s commitment to providing responsible financial oversight has allowed the City to maintain our AAA bond rating while providing a high level of municipal services to the community. The City’s financial outlook is positive initially, but in the third year shows a deficit with the following years remaining essentially flat resulting from an anticipated economic downturn projected by Chapman University and Cal State Fullerton economic forecasts. The City has a strong financial base, emergency reserves, and has taken action to improve funded status and lower long-term costs of our pensions.

The City’s LTFP is a long-range planning tool with a goal of providing information as the City Council makes strategic decisions affecting the City’s fiscal sustainability in the short and long term. The LTFP describes the City’s finances, condition, and prepares the City to address strategic issues. The LTFP is the Financial Trend Analysis, Financial Forecast, Reserve Analysis, and Fiscal Policies. It outlines recommendations and provides a positive forecasted position at the onset of the annual budget process. Positive General Fund operating positions are forecast for FY 2024 and FY 2025, with subsequent fiscal years showing small deficit operating positions.

As we prepare for Fiscal Year 2024, the focus on the City’s strategic priorities remains even more critical based on long-term resource availability. As we look out over the next five years, we anticipate positive operating positions decrease to become negative or neutral in the last three years. The need to manage costs to meet citizen priorities is more important as costs grow and resources are impacted. Outside of the General Fund, the City addressing Sewer and Clean Ocean rates becomes key for Enterprise funds to address service and infrastructure funded through service charges.

Overall, past financial indicators improved from pandemic lows, City’s reserves were reviewed with some contributions recommended for next year. While the forecast shows a positive operating position initially, later years reflect an anticipated economic downturn, based on Chapman University and Cal State Fullerton forecasts, which deplete operating position. Other papers identify consideration in connection with the decision making process.

The General Fund is fully funding Emergency Reserves at $15.6 million, which is 20% of the City’s operating expenditures, however the General Fund’s unassigned fund balance changes to a deficit fund balance due to future narrow operating positions and one-time capital costs.

Unassigned fund balance is essentially a savings account available to fund one-time costs and capital activity that is replenished from revenue overages or budget cost savings. City staff annually reviews capital and maintenance projects to ensure the timing is appropriate and make adjustments as circumstances warrant. Working with a stable annual positive operating position provides funds for one-time activities without reliance on revenue overages or budgeted cost savings.

General Fund Operating position (operating revenues less operating expenditures) is projected to be positive for the next two fiscal years, with the remaining forecast years showing a small deficit or positive operating position. This year’s forecasted operating position narrows in second and third year based on major tax revenues growing in the 3-4% range while the largest costs increase 4-5%. This overall decline from last year’s LTFP forecast is due to slower property tax and sales tax revenue growth and costs increasing due to inflation and service level expectations.

The 2023 LTFP issue papers educate and provide analysis. The goal of presenting this analysis is to inform, address issues, and seek direction. These additional papers include the Information Technology Strategic Plan, Pension Update, and Fleet Lease/Purchase comparison.

Our Spanish Village by the Sea continues to see challenges, but the City’s dedicated staff has been resilient and continues to work toward addressing issues to best meet citizens’ expectations.

Sean Joyce
Interim City Manager
City of San Clemente
City Council
Chris Duncan, Mayor
Steve Knoblock, Mayor Pro Tem
Victor Cabral, Council Member
Mark Enmeier, Council Member
Gene James, Council Member
Interim City Manager
Sean Joyce
Financial Plan
Financial Trend Analysis
Sandee Chiswick, Senior Accountant

Financial Forecast
Jake Rahn, Financial Services Officer

Reserve Analysis
Jake Rahn, Financial Services Officer

Fiscal Policy
Jake Rahn, Financial Services Officer
Matthew Schmelzel, Management Analyst

Strategic Issues
Information Technologies Strategic Plan
Brian Brower, Information Technologies
Fleet – Lease/Buy
Jake Rahn, Financial Services Officer
Matthew Schmelzel, Management Analyst
Pension Update
Jake Rahn, Financial Services Officer

Mission Statement

The City of San Clemente, in partnership with the community we serve, will foster a tradition dedicated to:
 Maintaining a safe, healthy atmosphere
in which to live, work and play;
 Guiding development to ensure
responsible growth while preserving and
enhancing our village character,
unique environment and natural amenities;
 Providing for the City’s long-term
stability through promotion of
economic vitality and diversity….
 Resulting in a balanced community
committed to protection of what is valued today
while meeting tomorrow’s needs.

Long Term Financial Plan Review

EXECUTIVE SUMMARY

LONG TERM FINANCIAL PLAN
Financial Trend Analysis
Objective
A number of financial indicators are analyzed utilizing the International City Management Association’s (ICMA) guidelines contained in “Evaluating Financial Condition”. The analysis of these indicators is designed to present information on the fiscal health of the City of San Clemente as part of the Long Term Financial Plan. This annual Financial Trend Analysis focuses on the City's General Fund.

Financial Forecast
Objective
To update the comprehensive five-year financial forecast for the General Fund, incorporating adopted City fiscal policies, expenditure patterns, revenue trends, fund balances and other known financial impacts and capital projects.

Reserve Analysis
Objective
Analyze and recommend appropriate levels of reserves to (a) ensure that reserves are adequate to provide for the needs of each fund’s program, (b) meet program needs without unnecessarily obligating scarce financial resources and (c) ensure compliance with City fiscal policies and legal requirements by State, County or local ordinances.

Fiscal Policy
Objective
Review the City’s adopted Fiscal Policy on an annual basis in order to determine appropriate changes, additions or deletions.

STRATEGIC ISSUES
Information Technology Strategic Plan
Objective
The Information Technology Strategic Plan (ITSP) has been updated to maintain a comprehensive plan to guide Information Technology decision making, budgeting, and implementations across all City functions and operations over the next five years.

Fleet – Lease/Purchase
Objective
Provide an overview of San Clemente’s vehicle fleet program and explore costs related to purchase and a lease acquisition option. A comparison of the lease and purchase program will be used to evaluate cost.

Pension Update
Objective
Review the City’s pension plans, summarizes approved and completed actions based on previous Long Term Financial Plan (LTFP) Pension Updates and make recommendations to ensure the sustainability of the City’s pension plans and control future pension costs.

Long Term Financial Plan
Long Term Financial Plan (LTFP) Process
Governmental Finance Officers Association (GFOA) recommends that all governments regularly engage in long-term financial planning. The City of San Clemente annually provides a Long Term Financial Plan to City Council to assist with the development and financial allocation of resources and activities for the City through the upcoming budget process. The flow chart below graphically describes the steps that should go into a Financial Plan process.

Long Term Financial Plan
A long-term plan should include these steps.
 Mobilization Phase - The mobilization phase prepares the organization for long-term planning by creating consensus, aligning the project team, identifying services priority or policies, and identifying the purpose and scope.

Staff considers City Council input during meetings to be addressed through the annual LTFP process and seeks Council input from other forums. A project team was developed based on these areas and the purpose and scope of the LTFP were communicated to the project team.  Analysis Phase - The analysis phase is designed to produce information that supports planning and strategizing. The analysis phase includes the projections and financial analysis commonly associated with long-term financial planning. The analysis phase involves information gathering, trend projection and analysis to be provided to assist Council in making decisions.

Staff prepares the Trends Section to provide past financial information, the Reserves Section to address amounts/funding levels for significant amounts, Fiscal Policies are summarized and recommended changes are addressed, and a Forecast (based on identified assumptions) is presented to provide a perspective of General Fund resources.  Decision Phase - After the analysis phase is complete, the government must decide how to use the information provided. Key to the decision phase is a highly participative process that involves elected officials, staff and the public. Finally, the decision phase should address the process for executing the plan to ensure tangible results are realized.

Recommendations are presented based on the papers and information and is provided for City Council consideration related to potential actions. Strategic issues also facilitate discussions related to where to focus limited resources in budget development.  Execution Phase - After the plan is officially adopted and input is received, strategies must be put into action (e.g. funding required in achieving goals). The execution phase is where the strategies become operational through the budget, planning, and financial performance measures.

Mobilzation Analysis Decision Execution
Long Term Financial Plan
Staff will take input from the City Council and incorporate actions into the budget. This is accomplished through a Decision Package process or by adding amounts and activities to program budgets. Council will receive the budget plan in a Budget Workshop in May to discuss any further changes or actions that should be taken.

GFOA recommends that certain elements be incorporated into the long-term financial plan. A longterm financial plan should include these elements:

Time Horizon - A plan should look at least five to ten years into the future. The City of San Clemente utilizes a five-year timeframe.

Scope - A plan should consider appropriate funds, but especially funds used to address the main issues. The main operating fund of the City of San Clemente is the General Fund, however other funds will be discussed as they relate to the different Council actions.

Frequency - Governments should update long-term planning activities as needed in order to provide direction to the budget process, though not every element of the long-range plan must be repeated. The City of San Clemente has being doing the Long Term Financial Plan annually as a result of forecasted future operating deficits and to address emerging issues.

Content - A plan should include an analysis of the financial environment, revenue and expenditure forecasts, debt position and affordability analysis, strategies for achieving and maintaining financial balance, and plan monitoring mechanisms, such as scorecard of key indicators of financial health. This is done through the Trends, Reserves, Fiscal Policy and Forecast with recommendations incorporated into the plan.

Visibility - The public and elected officials should be able to easily learn about the long-term prospects of the government and strategies for financial balance. Annually, this is done through a public workshop.

GFOA started addressing a framework to promote financial sustainability for building a sustainable, resilient community. This leadership framework is less focused on finances and more focused on the process and participation of stakeholders. The framework consists of five pillars, which can be used to address and discuss strategic issues that arise. The five pillars include the following: 1) Establishing a Long-Term Vision, 2) Build Trust and Open Communication, 3) Use Collective Decision making, 4) Create Clear Rules, and 5) Treat Everyone Fairly. The City hopes the Long Term Financial Plan and budget addresses these pillars.

Strategic Issues presented in conjunction with the Long Term Financial Plan have been limited to the IT Strategic Plan, Fleet-Lease/Purchase, and Pension Update.

Long Term Financial Plan

OVERVIEW
The Long Term Financial Plan (LTFP) is discussed and LTFP information is summarized in the following pages. Each LTFP paper has more detail and a more comprehensive analysis. The LTFP Overview is in the following format:
 Introduction
 Summary
 List of LTFP Recommendations

INTRODUCTION
The LTFP provides looks at financial issues facing the City of San Clemente and helps outline a plan to meet the needs of the community without sacrificing the City’s financial future. The 2023 Long Term Financial Plan (LTFP) Overview presents a snapshot of the papers and summarizes recommendations generated based on the LTFP sections. The LTFP sections have more detailed information and the information is summarized within the Summary in each paper.

Utilizing the financial tools in place, the LTFP looks at the Financial Trends, Reserve Analysis and Financial Forecast, to diagnose the “fiscal health” of the City of San Clemente in order to chart a sound financial course. The LTFP offers analysis, information, and recommends solutions to current or future issues. The LTFP acts as a guide in developing the annual budget, assists in developing financial policies, and offers recommendations to assist future needs.

The focus continues to be building a solid foundation for the future to weather any economic downturn in the future. During the pandemic, the City had ample reserves but American Rescue Plan funds and other grants allowed Emergency Reserves to not be used. The economy is stable, however expectations are that an economic downturn or recession is likely in the next two years. The General Fund’s main revenue source of property taxes are exceeding initial expectations, however recently there has been a slowdown in property sales and higher property valuations. Sales taxes increase, but at a lower level than previous years. The forecast has more detailed assumptions and shows a positive operating position the first two years with deficits in the following two years. Uncertainties which may impact future operating positions are listed in the following table with actions to manage these uncertainties.

Uncertainty Actions to Manage/Mitigate this uncertainty Inflation  Seek other revenue sources or adjust service fees to offset increases in cost
Future Police Contract cost  Maintain the positive operating position to absorb larger cost increases in the future
Class and Compensation Review  Maintain the positive operating position Economic Downturn  Maintain General Fund Emergency Reserves at 20% Service changes – Trolley, Park
Ranger program, Homelessness
 Seek other revenue sources or adjust service fees or
levels to offset increases
These uncertainties could create annual impacts to the General Fund and its operating position. The Long Term Financial Plan is to be informational and act as a guide to Council, management and the citizens as decisions are made.

The LTFP is a financial plan
and offers analysis and
solutions for current and
future issues
The economy is stable, however
expectations are that an
economic downturn or recession
will occur in the next two years.

Long Term Financial Plan

LTFP SUMMARY
The City of San Clemente prepares a comprehensive Long Term Financial Plan (LTFP) annually. The LTFP serves as a tool for City Council to identify financial trends, shortfalls, reserves and outline policies so actions may be taken to proactively address them. The LTFP papers offer recommendations to ensure reserves are funded, fiscal policies are updated, and to provide Council information on the General Fund’s the past, current, and future financial considerations for the City’s operations to maintain a sustainable operating position.

City Council last year worked with a consultant to determine strategic priorities for the City. These helped develop strategic priorities and tactics. FY 2023 LTFP actions included the following: 1) making additional pension payments to address the pension liability and lower future pension costs, 2) approve contributions to capital reserves and increase the annual facility maintenance project to $300,000 to address capital costs, 3) budget for a Classification and Compensation study, 4) update the City’s permit system (TrakIt), and 5) Council provided direction for the renewal of Clean Ocean funding. The 5 strategic priorities follow:

The LTFP is an opportunity to review the finances of the City and ensure all priorities are considered, so not just one priority is focused on to the detriment of others. A summary of the individual LTFP sections follow with the recommendations.

The Financial Trend section includes the analysis of twenty-two trends. These trends relate to revenue, expenditures, operating positon, debt, and community factors. Multiple trend indicators were impacted by inflation, easing of pandemic restrictions, and a strong housing market along with additional one-time pension payments impacting costs.

Revenue Trends were similar to the previous year, with four as Favorable/Caution. There was an improvement to elastic revenues due to higher sales tax and transient occupancy tax as pandemic guidelines were eased. Property tax revenues, although increasing from a dollar perspective, did not keep pace with inflation so the rating was changed to Favorable/Caution. Higher inflation effectively lower revenues, so a review of fees and charges to ensure cost recovery to match service costs and lessen the impacts of inflation will be important. This cost recovery allows could maintain or bolster service levels and amenities utilized by citizens.

Expenditure Trends indicators had one indicator change. Expenditures per capita was changed to a Favorable/Caution as expenditure increases were realized partially due to inflation and activity increases coming out of the pandemic and a small population decrease places these costs on a smaller STRATEGIC PRIORITIES 5 Strategic Priorities for the City of San Clemente Ensure financial
stability as
demonstrated by
low debt, high
ratings, and new
revenue generation
Grow resident
confidence and
value in City
services and
operations
Update and
maintain
infrastructure that
reflects best
available
technology and
services
Improve and
maintain strong
staff recruitment
and retention
strategy to attract
and keep best and
most qualified staff
Maintain strong
approach to digital
transformation to
become best in
class
Long Term Financial Plan
population base. Population does not take into consideration tourism impacts. Fringe benefits remained at the Favorable/Caution once one-time pension payments were considered.

The Operating Surplus (deficit), Unrestricted Fund Balance, and Pension Unfunded Liability changed from Favorable/Caution to Favorable as all these categories showed improving trends. Population in recent years started to decrease, while property values increased at a pace lower than inflation causing rating of Favorable/Caution.

The Long Range Financial Forecast sets the stage for the upcoming budget process, facilitating the City Council to consider strategic priorities and to allocate resources appropriately. This Long Range Financial Forecast is not intended as a budget, nor as a proposed plan. The forecast is based on current service levels, doesn’t factor in future development, and uses general assumptions that may be different than actual amounts.

The forecast shows the first 2 years with a positive operating position and the later years with either deficit or neutral operating positions. This is a result of an anticipated economic downturn and higher inflation initially as the long-term inflation reverts to the long-term goal of 2-3% over the forecast period. Revenues average an annual increase of 3.1% over the forecast period while operating expenditures are increasing annually by 3.0% a year.

Over time, the growth of revenues and expenditures flatten out over the five-year forecast. Impacts could result as the forecast does not work in service level changes and cost impacts from the police, MOU changes, and continued inflation at higher than anticipated levels. This forecast is slightly worse than the prior year due to inflation impacts and anticipation of an economic downturn. These impacts cause forecasted unassigned fund balance to go into a deficit in FY 2025.

The Reserve section includes the assessment of reserve levels for Operational, Capital/Infrastructure, and Emergency Reserves. Most reserves are funded, however recommendations are made for reserve transfers to address long-term capital funding. Sewer and Storm Drain rates need modification and the Clean Ocean fee needs to be renewed to address capital and operating needs.

The Fiscal Policy section includes a review of financial policies by major category. This is an opportunity for staff to address changes or propose policy related items. Council in November recommended bringing back policy adjustments to allocate a portion of Transient Occupancy Tax revenues to pension paydown. The policy changes based on Council action are listed in the Fiscal Policy and if approved would create a deficit operating position in the first year of the Forecast.

The Information Technology Strategic Plan Update includes information on completed Technology projects, current Technology Projects, and upcoming technology projects.

The Fleet – Lease / Purchase reviewed the costs for leasing a vehicle purchase compared to the costs associated with leasing a similar vehicle to determine if savings could be achieved through leasing.

The Pension Update section reviews the City’s pension plans, summarizes actions based on previous LTFP pension updates, and makes recommendations to ensure the long-term sustainability of the City’s pension plans and control future pension costs. The Pension Update breaks information between the CalPERS and a legacy pension plan, additional payments made and funding levels. The Long Term Financial Plan
“3-2-1 Pension Funding Strategy” payments will be completed in FY 2023 and be reflected in the valuation in two years along with other UAL payments. Recommendations to pursue actions approved by the previous Council and make revisions to the CSCERP plan to improve funding levels.

Recommendations are summarized in the following section for Council to provide direction.

LTFP RECOMMENDATIONS
TRENDS
No recommendations

FORECAST
No recommendations

RESERVE
o Transfer an amount of $400,000 from the General Fund to the Facilities Maintenance Reserve in FY 2023-24.
o Transfer an amount of $300,000 from the General Fund to the Park Asset Reserve in FY 2023-24. o Transfer a one-time amount of $2.0 million from the Water Operating Reserve in FY 2023-24 to the Water Depreciation Reserve to fund future capital replacement in the Water Depreciation Reserve.

FISCAL POLICY
Council Recommendation
Remove the following revenue policy:
“General fund revenue categories (sales tax revenue by example) may not be committed directly to fund a specific expenditure line item or program.”
Add the following revenue policy:
“Allocate one-third of total Transient Occupancy Tax dollars toward the unfunded pension liability.”

IT STRATEGIC PLAN UPDATE
Staff recommends that the City Council accept the Information Technology Strategic Plan Update and direct staff to bring the recommended Fiscal Year 2023-24 projects and initiatives forward through the budget process.

FLEET-LEASE/PURCHASE
No changes are recommended

PENSION UPDATE
CalPERS
o Based on October 2022 Council direction, modify the $1.0 million Section 115 trust funding and utilize the $1 million to make a one-time Public Safety Pension Plan payment.

CSCERP
o Continue with the CASA evaluation related to CalPERS pension administration. o Update the City of San Clemente Pension Investment Policy (Policy #202-2) and prepare a City Council Agenda Report when Chandler Asset Management cost information is received.

Financial Trend Analysis
Objective
A number of financial indicators are analyzed utilizing the International City Management Association’s (ICMA) guidelines contained in “Evaluating Financial Condition”. The analysis of these indicators is designed to present information on the fiscal health of the City of San Clemente as part of the Long Term Financial Plan. This annual Financial Trend Analysis focuses on the City's General Fund.

Background
The City’s financial trends are analyzed annually with many factors considered to understand the financial condition of the City of San Clemente. These factors include:
 The economic condition of the City and the surrounding region;  Types and amounts of revenues and whether they are sufficient, and the right mix, to support the population as it changes;
 Expenditure levels and whether these expenditures are sufficient to provide the desired level of services and as the City changes;
 Fund balances and debt levels and their impact upon City financial resources.

This report examines these issues and others in determining the financial condition of the City of San Clemente. The City’s adopted fiscal policies have been considered in connection with this analysis.

Data used in developing this financial trend report was drawn from the City’s Comprehensive Annual Financial Reports for FY 2017-18 through FY 2021-22. Consequently, all trends are based on data available as of June 30, 2022 and do not incorporate any changes that have occurred since that time.

Executive Summary
The financial trends that follow provide City Council and Administration with insight into the overall financial position of the City by analyzing the City’s General Fund. This analysis makes it possible to identify specific areas where new policies should be implemented or existing ones revised. The 22 trends have been categorized into five basic categories:
1) Revenues
2) Expenditures
3) Operating Position
4) Debt/Unfunded Liability
5) Community Indicators
Financial Trend Analysis
One of the following ratings has been assigned to each of the twenty-two indicators:

Favorable (F): This trend is positive with respect to the City's goals, policies, and national criteria.

Favorable (Caution)
(F/C):

This rating indicates that a trend is in compliance with adopted fiscal policies or anticipated results. This indicator may change from a positive rating in the near future.

Warning (W): This rating indicates that a trend has changed from a positive direction and is going in a direction that may have an adverse effect on the City's financial condition. This rating is also used to indicate that, although a trend may appear to be Favorable, it is not yet in conformance with the City’s adopted fiscal policies.

Unfavorable (U): This trend is negative, and there is an immediate need for the City to take corrective action.

A summary of the indicators analyzed and the rating assigned to each is listed below. The past five trend reports are presented and identify strengths and weaknesses of the City’s financial condition and illustrate any positive or negative changes.

LTFP
INDICATORS FY 2023 FY 2022 FY 2021 FY 2020 FY 2019
REVENUE:

Revenue Per Capita F/C F/C F/C F F
Property Tax Revenues F/C F F F F
Elastic Revenues F F/C F/C F F
Sales Tax Revenues F F F F F
Permits & Business License Revenues F/C F/C F/C F/C F/C Comm. Develop. Charges F/C F/C F/C F/C F/C
Intergovernmental Revenues F F F F F
One-Time Revenues F F F F F
Revenue Overage F F F F F
EXPENDITURE:

Expenditures Per Capita F/C F F F F
Expenditures by Function F F F F F
Employees Per Capita F F F F F
Fringe Benefits F/C F/C F/C F/C F
Capital Outlay F F F F F
OPERATING POSITION:

Operating Surplus (Deficit) F F/C W F/C F/C
Unrestricted Fund Balance F F/C F/C F F
Liquidity Ratio F F F F F
DEBT/UNFUNDED LIABILITY:

Debt Service F F F F F
Accumulated Comp Absences F F F F F
Pension Unfunded Liability F F/C W U N/A
COMMUNITY:

Population F/C F F F F
Property Values F/C F F F F
Financial Trend Analysis
Overview of the City’s Financial Condition
The 2023 Long Term Financial Plan includes the analysis of twenty-two trends. Of these 22 trends, 9 are revenue trends, 5 are expenditure trends, 3 relate to operating position, 3 relate to debt service/unfunded liability and 2 relate to the community’s needs and resources. Results are the same as the previous year, as four indicators change from Favorable to Favorable/Caution and four indicators change from Favorable/Caution to Favorable. These changes are due to the large increase in the Consumer Price Index (CPI) or inflation rates and impacts to population over the last five years. This year eight indicators received a Favorable/Caution rating, and fourteen received a Favorable rating. Information by Category is discussed in the following section.

Rating discussion by Trend Indicator Category
Revenue Category:

Nine trend indicators address revenues. Five of the trends are Favorable, and four are Favorable/Caution. Changes in revenue indicators reflect the City seeing large increases in property and sales tax. Property Tax revenues changed from Favorable to Favorable/Caution and Elastic revenues changed from Favorable/Caution to Favorable.

Property tax revenue indicator moved from Favorable to Favorable/Caution because although it increased by a large amount in actual dollars, revenues decreased in constant dollars as the CPI increased significantly from the prior year. Property taxes are a stable revenue source, but as the largest revenue source for the City, property taxes should be monitored to ensure changes keep pace with inflation.

Elastic revenues moved from Favorable/Caution to Favorable as there has been a two-year increase over the five-year period and the FY 2021-22 percentage exceeds the FY 2017-18 base year percentage.

Revenues Per Capita, Permits/Business License Revenues, and Community Development Charges remain at Favorable/Caution, as these revenues remain essentially flat over the last five years.

Expenditure Indicators:

Five trend indicators address expenditures. Three of the trends are Favorable, and two trends are Favorable/Caution, with Expenditures per capita downgrading from Favorable.

Expenditures Per Capita moved from Favorable to Favorable/Caution reflecting the decline in population while costs increased from both service level and inflationary changes.

Fringe Benefits remain a Favorable/Caution rating as fringe benefits, as a percentage of salaries, increase due to the additional payments made toward the unfunded pension liability. Under the “3-2-1 Pension Funding Strategy”, this trend will be monitored in future years as the impacts of the strategy are realized.

Operating Position Indicators:

Three Trend Indicators address operating position. All three trends are Favorable, with two trends changing from Favorable/Caution to a Favorable rating.

Financial Trend Analysis
The Operating Surplus (Deficit) moves from a Favorable/Caution to a Favorable rating as surpluses grew in the last two years even after the impacts felt by the pandemic. During the last year, revenues in sales and property taxes increased considerably, while expenditure savings were realized in personnel, contractual services and capital outlay.

Although the City used a portion of the operating surplus to pay down the unfunded pension liability; Unrestricted Fund Balance improved and is getting to levels experienced pre-pandemic.

This indicator moves from Favorable/Caution to a Favorable rating.

Debt/Unfunded Liability Indicators:

Three trend indicators address debt/liabilities. All three of the trends are Favorable, with Pension Unfunded Liability moving from a Favorable/Caution to a Favorable rating.

Pension Unfunded Liability changes from a Favorable/Caution to a Favorable rating as the City is starting to see the results of past efforts to pay down the unfunded pension liability and strong 2021 market returns. Additional payments are being made to improve the funded status based on a “3-2-1 Pension Funding Strategy”. An additional contribution of $3.9 million was made to the CalPERS and CSCERP plans in FY 2021-22.

Community Indicators:

Two Trend Indicators address community factors. Both change from Favorable to Favorable/Caution ratings.

Population moves from Favorable to Favorable/Caution due to decreases over the last two years.

A decrease in population can effect revenues over time and increase the cost burden over a smaller population base. However, some of the decreases are the result of the 2020 census, which reset the City population base.

Property Values change from Favorable to Favorable Caution as the economy sees a large inflationary period, and during the last year, the values did not exceed inflation.

Conclusion of Trend Analysis
The City saw the majority of increases in property and sales tax revenue, which was due in part to a strong housing market and a large increase to economic growth in the FY 2022. A factor that affected trends, this year in particular, was the high Consumer Price Index, which impact costs and revenues. The City continues to review the budget monthly at the department level and presents quarterly updated financial information to City Council.

Analysis and discussion of the future outlook is in the upcoming Financial Forecast section.

Financial Trend Analysis
Revenue Trend Analysis
Overview of Revenues by Source:

The following is an overview of City revenue by source for FY 2017-18 and FY 2021-22. The following pages provide an analysis of the actual nine revenue trend indicators in detail.

Comparison of Revenues by Source
FY 2017-18 vs. FY 2021-22
(in millions)
The above pie charts compare the current revenue sources amounts to those five years ago.

Analysis of these changes are presented below:
 Property taxes during the five-year period increased due to assessed valuation growth and the build-out of Talega and the Sea Summit developments.  Sales taxes increased due in part to the addition of the Outlets at San Clemente and the Wayfair decision in FY 2017-18, and inflation increases over the time period.  Other taxes increased from $6.4 million to $7.0 million. Although business license tax receipts and franchise fees increased slightly by $2,779 and $21,867 respectively; transient occupancy tax receipts increased by $686,110 in FY 2021-22 due to the lowering of COVID-19 pandemic travel restrictions during the first half of fiscal year 2020-21.  Service Charges increased from $6.2 million in FY 2017-18 to $7.1 million in FY 2021-22, due to increased ambulance service charges and parking meter permits and fees.  Other revenue increase was mainly due to miscellaneous revenue of $1.7 million from Beach Parking In-lieu refund escheatment revenue. Other increases were seen in grant revenue ($0.7 million) due to County Grant revenues of $0.4 million and $0.3 million from Waste Disposal Agreement (WDA) revenues in FY 2021-22; and an increase in vehicle code fines and administrative citations of $0.1 million in FY 2021-22.  Interfund charges decreased from FY 2017-18 to FY 2021-22. The general fund overhead allocation plan increased, however transfers decreased by a greater amount over the fiveyear period due to a reduction of the Clean Ocean transfer.  Decrease in Interest and Rentals from $3.1 million in FY 2017-18 to $1.5 million in FY 2021- 22 is due to an unrealized loss on investments of $1.3 million in FY 2021-22 and lower rents and commissions due to restrictions from the COVID-19 pandemic in FY 2020-21.

Property
Tax, $32.8,
50%
Sales Tax,
$9.7, 15%
Other
Taxes, $6.4,
10%
Service
Charges,
$6.2, 9%
Interfund
Charges ,
$4.4, 7%
Interest and
Rentals,
$3.1, 4%
Other
Revenue,
$3.5, 5%
Revenue by Source - FY 2017-18
Property
Tax, $39.6,
51% Sales Tax,
$13.4, 17%
Other
Taxes, $7.0,
9%
Service
Charges,
Interfund Charges
, $3.7, 5%
Interest and
Rentals,
$1.5, 2%
Other Revenue,
$5.4, 7%
Revenue by Source - FY 2021-22
Financial Trend Analysis
Revenue Trend Analysis
Indicator: Revenues Per Capita
Comments:

The first chart (which includes one-time revenues) shows an increase from $1,100 to $1,248 in actual dollars and an increase from $1,010 to $1,055 in constant dollars. Total revenues for Fiscal Year 2021-22 increased by $8.6 million from the prior year. Property, sales and other taxes, license and permits, intergovernmental charges, fines and forfeitures, service charges, and other revenues saw an increase over the prior year, while interfund charges and interest and rentals decreased. Revenue categories with the most significant increases include sales tax (11%), property tax (4%), other taxes (21%), intergovernmental (66%), service charges (25%), and other revenue (985%). Decreases include interest and rentals (-22%) and Interfund charges (-6%).

The second chart (which excludes one-time revenues) shows an increase in actual dollars from $1,079 to $1,141; however, constant dollars decrease from $991 to $965. The approach of excluding one-time revenues is a realistic approach since the City only uses one-time revenues for one-time expenditures in accordance with the City’s Fiscal Policy.

Status: FAVORABLE/CAUTION
Although increases are seen in actual revenues over the prior period, this trend remains a Favorable/Caution rating, as constant dollars did not increase by the same amount and decreased when excluding one-time revenues due to a high Consumer Price Index (CPI) based on inflation. $1,100 $1,248
$1,010 $1,055
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
2017-18 2018-19 2019-20 2020-21 2021-22

REVENUES PER CAPITA
Operating Revenues Including One-Time Revenues
Actual and 2017-18 Constant Dollars
General Fund
Actual Constant
$1,079 $1,141
$991 $965
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
2017-18 2018-19 2019-20 2020-21 2021-22

REVENUES PER CAPITA
Operating Revenues Excluding One-Time Revenues
Actual and 2017-18 Constant Dollars
General Fund
Actual Constant
Financial Trend Analysis
Revenue Trend Analysis
Indicator: Property Tax Revenues
Comments:

The chart below shows property tax revenues increasing from $38.1 million to $39.64 or 4% in actual dollars; however, property tax revenues decreased from $34.94 million to $33.51 million or -4% in constant dollars due to a significant increase to the CPI for FY 2021-22 based on a high inflationary period.

Property taxes have increased over the past year due mainly to the continued growth in assessed values as a result of development and a strong housing market. Property taxes show continued stable growth in actual dollars over the five-year trend period; however, when taking inflation into consideration property tax revenues decreased during the last year.

Status: FAVORABLE/CAUTION
This indicator changes from Favorable to Favorable/Caution, because although the actual property tax revenues increased, when taking inflationary costs into consideration (constant dollars) property tax revenue declined over the prior year. As property tax is the City’s main source of revenue, the City will need to monitor this indicator more closely to determine if property taxes can keep pace with future inflation.
$39.64
$33.51
$24.00
$26.00
$28.00
$30.00
$32.00
$34.00
$36.00
$38.00
$40.00
2017-18 2018-19 2019-20 2020-21 2021-22

PROPERTY TAX REVENUES
Including ERAF Amounts
Actual and 2017-18 Constant Dollars
General Fund
Actual Constant In Millions
Financial Trend Analysis
Revenue Trend Analysis
Indicator: Elastic Revenues (Sales Tax, Transient Occupancy Tax, Permits and Business License Taxes, and Community Development Service Charges) Comments:

Elastic revenues are revenues that are highly responsive to changes in the economy and inflation.

The City has classified Sales Tax, Transient Occupancy Tax, Permits and Business License Tax, and Community Development Service Charges as Elastic revenue, because these revenues are the most sensitive to economic factors.

Elastic revenues increased by 14.8% from the prior year, and net operating revenues increased by 4.6%; causing Elastic revenues, as a percentage of total revenues, to increase from 26.38% in FY 2020-21 to 28.94% in FY 2021-22. Certain individual revenue indicators, which comprise the elastic revenues category, are examined further on the following pages.

Status: FAVORABLE
This indicator changes from Favorable/Caution to a Favorable rating. There has been a two-year increase over the five-year period, and the FY 2021-22 percentage exceeds the FY 2017-18 base percentage.

26.43% 28.95%

10.00%

20.00%

30.00%

40.00%
2017-18 2018-19 2019-20 2020-21 2021-22

ELASTIC REVENUES
As a Percentage of Operating Revenues
General Fund
Financial Trend Analysis
Revenue Trend Analysis
Indicator: Sales Tax Revenues
Comments:

As summarized in the chart below, sales tax revenues show an increase of $1.3 million, or 11% in actual dollars over the prior fiscal year. In constant dollars, there was an increase of $196,420, or 1.8% for FY 2021-22.

Sales tax receipts amount to $13.4 million, compared to $12.1 million in the prior year. This increase is partially due to the Wayfair decision, and the City accommodates restaurants and other business activity coming out of the pandemic. The sales tax increase is also a result of higher activity levels, fuel prices, and the rise in inflation over the prior year.

The City receives 1% of the State Sales Tax charged in San Clemente.

Status: FAVORABLE
This indicator remains Favorable. A large increase in actual dollars was seen over the prior year, and a small increase was seen in constant dollars. Since constant dollars takes into account inflation, this indicates that sales tax growth outpaced inflation. Since Sales tax is one of the primary revenues for the City, this indictor needs to be monitored closely due to it being an elastic revenue.
1 $13.37
$11.31
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
$11.00
$12.00
$13.00
$14.00
2017-18 2018-19 2019-20 2020-21 2021-22

SALES TAX REVENUES
Actual and 2017-18 Constant Dollars
General Fund
Actual Constant In Millions
Financial Trend Analysis
Revenue Trend Analysis
Indicator: Permits & Business License Revenues
Comments:

Permits and Business License Tax revenues increase in actual dollars in the amount of $326,035 or 12.7% from the prior fiscal year. The constant dollar increase was $89,721, or 3.8% from FY 2020-21.

Construction permit revenue increased $331,403, or 2.7% over the past year, which coincides with the increase in construction activity. Business license tax revenue remained the same at $1.13 million in FY 2021-22. Nonbusiness licenses and permits decreased by $5,617 or 2.6%, mainly due to decreases in STLU permit fees and street encroachment permits. 13B
Status: FAVORABLE/CAUTION
Permits and Business License Tax maintains a Favorable/Caution rating, due to the first year of increases after three years of decreased revenue. The decreases from prior year could be impacts of the pandemic, so these revenues will need to continue to be monitored. $2.89
$2.44
$-
$1.00
$2.00
$3.00
$4.00
$5.00
2017-18 2018-19 2019-20 2020-21 2021-22

PERMITS & BUSINESS LICENSE TAX REVENUES
Actual and 2017-18 Constant Dollars
General Fund
Actual Constant In Millions
Financial Trend Analysis
Revenue Trend Analysis
Indicator: Community Development Service Charges Revenues Comments:

Total community development service charges decreased by 6.3%, or $79,958 from the prior year. Although total general government service charges decreased by $101,706 due to a decrease in plan check fees, while construction inspection fees increased by $20,560.

Status: FAVORABLE/CAUTION
This trend remains a Favorable/Caution rating due to the decrease over the prior year. Over the five-year period, these changes have remained relatively flat. The City continues to monitor these revenue sources, mainly consisting of business and permit fees, as they are highly responsive to changes in the economy and inflation.
$1.19
$1.00
$0.00
$1.00
$2.00
$3.00
2017-18 2018-19 2019-20 2020-21 2021-22

COMMUNITY DEVELOPMENT SERVICE CHARGES
Actual and 2017-18 Constant Dollars
General Fund
Actual Constant In Millions
Financial Trend Analysis
Revenue Trend Analysis
Indicator: Intergovernmental Revenues
Comments:

General Fund Intergovernmental revenues, as a percentage of operating revenues increased to

1.56% in FY 2021-22. Intergovernmental revenues increased from $0.7 million in FY 2020-21 to $1.2 million in FY 2021-22. Although State Grant revenues decreased, County Grants and other governmental grants increased due to the following: OCTA Project V Transit Grant in the amount of $362,149, Regional Waste Disposal Agreement (WDA) Cost Sharing revenues in the amount of $291,997, and an increase to the Motor Vehicle Tax of $26,645. By analyzing intergovernmental revenues as a percentage of operating revenues, the City can determine the extent of its dependence upon resources from other governments. Excessive dependence on this type of revenue can be detrimental to the financial health of the City, as the factors controlling their distribution may be beyond the City’s control.

Status: FAVORABLE
This trend remains Favorable since the City receives a low percentage of revenues from other governmental agencies. When considering in-lieu property taxes totaling $7.9 million, the intergovernmental percentage would be 11.5% in FY 2021-22, which still supports the Favorable rating. The City has also placed COVID relief amounts in a separate fund to limit ongoing impacts or costs being charged to the General Fund.

1.17% 1.56%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%
2017-18 2018-19 2019-20 2020-21 2021-22

INTERGOVERNMENTAL REVENUES
As a Percentage of Operating Revenues
General Fund
Financial Trend Analysis
Revenue Trend Analysis
Indicator: One-Time Revenues
Comments:

One-time revenues, as a percentage of total General Fund revenues, equaled 3.38% in FY 2021- 22, an increase over the prior year.

One-time revenues increased by $1.5 million, or 140% from the prior fiscal year. FY 2021-22 onetime revenues of $2,530,840 include, $735,935 of grant funds, $98,802 from miscellaneous reimbursements, $1.7 million from escheatment of Beach Parking In-lieu fee (BPIF) reimbursement, a transfer of $8,574 from Miscellaneous Grants Fund to reimburse capital related costs, and $29,195 for principal from advance. In accordance with the City’s Fiscal Policy, one-time revenues are not utilized to fund ongoing operating expenditures.

Status: FAVORABLE
This indicator continues with a Favorable rating, due to the City not utilizing one-time revenues to fund ongoing operating expenditures. The City is not dependent on one-time revenues to fund operating costs.

1.89%

3.38%

0.00%

4.00%

8.00%

12.00%

16.00%
2017-18 2018-19 2019-20 2020-21 2021-22

ONE-TIME REVENUES
As a Percentage of Operating Revenues
General Fund
Financial Trend Analysis
Revenue Trend Analysis
Indicator: Revenues over Budget
Comments:

Actual revenues were higher than the adjusted budget by $3.6 million for FY 2021-22 and ends with a positive revenue position of 4.85%. The City experienced revenue overages in taxes of $3.4 million, licenses and permits of $389,035, fines and forfeitures of $106,720, charges for services of $1.2 million, and other revenues of $1.7 million. The City has also experienced reductions in intergovernmental ($0.4 million), Investment and rentals ($1.9 million), and transfers in ($0.9 million).

This trend began the five-year analysis with a negative revenue position of 1.64% and ended FY 2021-22 at a positive of 4.85% To accurately forecast revenues, the City monitors revenues through the annual budget and long term financial planning processes. The City continues to budget and receive revenues within the expected 5% range.

Status: FAVORABLE
The City ended this five-year trend in a positive revenue position, within the 5% expected range; therefore, this trend remains a Favorable rating.
-1.64%

4.85%
-5.00%

0.00%

5.00%

10.00%

15.00%
2017-18 2018-19 2019-20 2020-21 2021-22

REVENUES OVER BUDGET
As a Percentage of Operating Revenues
General Fund
Financial Trend Analysis
Expenditures Trend Analysis
Overview of Expenditures by Function and Category:

The following is an overview of the expenditures by function and category for fiscal years 2017- 18 and 2021-22. Following this overview are the actual five trend expenditure indicators.

The table below compares the FY 2017-18 General Fund expenditures by function to FY 2021-22.

Increases are seen in Public Safety, Community Development, Public Works, and Beaches, Parks, and Recreation, with a decrease in General Government.

Comparison of Expenditures by Function
FY 2017-18 vs FY 2021-22
Expenditure Function FY 2017-18 FY 2021-22 Difference % Change General Government $ 15,216,036 $ 11,603,640 $ (3,612,396) -24% Public Safety 25,718,889 35,483,021 9,764,132 38%
Community Dev. 4,996,730 5,807,396 810,666 16%
Public Works 15,756,138 16,407,521 651,383 4%
Beaches, Parks & Rec 4,897,444 5,390,405 492,960 10%
Total Expenditures $ 66,585,237 $ 74,691,984 $ 8,106,747 12% The largest dollar increases were in Public Safety and Community Development. The following bullet points discuss these categories in more detail:
 General Government decreased by $3.6 million or -24%. General Government decreased over the five-year period due to a one-time transfer of $2.9 million from the General fund to Facilities Maintenance fund and one-time unfunded liability payment of $1.0 million in FY 2017-18.
 Public Safety increased by $9.8 million or 38% due to increases in the contract costs for both police and fire services over the five-year period. This change also includes the increase of the 4th firefighter/paramedic, higher ambulance service levels, payments to the CalPERS liability and increases in Marine Safety services.  Community Development increased by $0.8 million, or 16% due to increases in salaries and benefits costs over the five-year period and the addition of Park Rangers to the Code Enforcement department in FY 2020-21.
 Public Works increased by $0.7 million or 4%. Although capital project costs decreased over the five-year period due to the completion of street improvement projects, contractual services increased due to maintenance contracts, cost of utilities, and personnel costs.
 Beaches, Parks, and Recreation increased by $0.5 million or 10% over the five-year period due to an increase in contract class instructor costs.

Financial Trend Analysis
The following table compares expenditures by category and shows increases in personnel, contractual services, and other charges, and decreases in supplies, capital outlay, and interfund payment expenditure categories between FY 2017-18 and FY 2021-22.

Comparison of Expenditures by Category
FY 2017-18 vs FY 2021-22
Expenditure Category FY 2017-18 FY 2021-22 Difference % Change Personnel $ 16,568,525 $ 18,299,577 1,731,052 10%
Supplies 1,081,564 1,076,428 (5,136) 0%
Contractual Services 33,767,589 41,734,393 7,966,805 24% Other Charges 2,279,107 4,600,562 2,321,455 102%
Capital Outlay 4,336,361 1,986,300 (2,350,061) -54%
Interfund Payments 8,552,091 6,994,722 (1,557,368) -18% Total Expenditures $ 66,585,237 $ 74,691,984 $ 8,106,747 12% The largest dollar increases were in contractual services and other charges. Information on the changes follow:
 Contractual Services increased by 24% or $8.0 million from FY 2017-18 to FY 2021-22 reflecting increases in contractual services for Police ($3.7 million), Fire ($2.2 million), ambulance services ($348,429), maintenance services ($0.6 million), other professional services ($283,383), and legal services ($148,249) from FY 2017-18 to FY 2021-22.  Other Charges increased by 102% or $2.3 million due to higher payments on the unfunded police and fire public safety pension liability payment ($2.1 million) in FY 2021-22.  Personnel (salary and benefits) increased 10% over the five-year period. The 10% increase (or 2% annually) is mainly a result of retirement costs in FY 2021-22, including a one-time paydown of the pension liability. Personnel and benefit costs were mitigated by controlling position growth (FTE’s) and position reassessments due to vacancies.

Other changes reflect the following:
 Capital decreased 54% ($2.4 million) from FY 2017-18 to FY 2021-22, reflecting the decrease in improvements other than buildings during the five-year period.

Improvements other than buildings decreased over the five-year period as capital activity was reduced due to the pandemic. In FY 2017-18 projects included sidewalk projects, 800 MHZ Radio project, Concordia Elementary and Shorecliffs Safe Route to Schools, 910 Calle Negocio Remodel, and the Pier Structural Construction projects.  Interfund payments decreased by 18% or $1.6 million due to a one-time transfer to Facilities Maintenance fund in FY 2017-18 from the sustainability reserve that was approved by the FY 2015-16 LTFP.

Financial Trend Analysis
Expenditures Trend Analysis
Indicator: Expenditures Per Capita
Comments:

The first chart, which includes one-time expenditures, shows an increase from $1,065 to $1,178 in per capita actual dollars and an increase from $978 to $996 in per capita constant dollars.

Actual dollars increased by $6.5 million and constant dollars increased by $0.5 million when compared to FY 2020-21. The increase in actual dollars was mainly in Public Safety ($4.5 million), and Beaches, Parks and Recreation ($1.2 million), General Government ($0.4 million), and Public Works ($0.4 million), while Community Development decreased by $66,028. The increase in Public Safety is due to Police and Fire contracts along with an additional one-time pension UAL payment of $1.8 million, and ambulance and marine safety services in FY 2021-22. Beaches, Parks and Recreation increases are mostly based on contract class instructors’ payments.

The second chart (which excludes one-time expenditures) shows an increase in actual dollars from $1,027 to $1,122 and an increase in constant dollars from $943 to $948. One-time expenditures include one-time transfers to Facilities Maintenance reserve ($0.4 million), Clean Ocean ($58,390), Park Asset Maintenance ($600,000), and Accrued Leave ($115,000). Other onetime funds of $2.4 million include funds for 910 Calle Negocio Remodel, Pier Structural Construction, Marine Safety Relocation Study, End of Pier Restroom rehabilitation, Trafalgar Canyon Bridge rehabilitation, Park Monument Sign Replacements, Max Berg Park Light Poles and fixtures replacement, Valencio, Cristobal and Esplanade Median, and West Avenida Pico and West Avenida Hermosa Landscape Median projects along with a one-time pension payment of $2.0 million.

Status: FAVORABLE/CAUTION
Expenditures per capita (including one-time expenditures) reflect increases when analyzing actual and constant dollars over the prior fiscal year. This trend changes from a Favorable to a Favorable/Caution rating as population has declined while costs have been impacted from both service level and inflationary changes.
$1,065 $1,178
$978 $996
$700
$900
$1,100
$1,300
$1,500
2017-18 2018-19 2019-20 2020-21 2021-22

EXPENDITURES PER CAPITA
Operating Expenditures Including One-time Expenditures
Actual and 2017-18 Contant Dollars
General Fund
Actual Constant
$1,027 $1,122
$943 $948
$700
$900
$1,100
$1,300
$1,500
2017-18 2018-19 2019-20 2020-21 2021-22

EXPENDITURES PER CAPITA
Operating Expenditures Excluding One-time Expenditures
Actual and 2017-18 Contant Dollars
General Fund
Actual Constant
Financial Trend Analysis
Expenditures Trend Analysis
Indicator: Expenditures by Function
Comments:

Expenditures by function, as a percentage of the total General Fund expenditures (excluding debt service, interfund transfers, and capital outlay) shows that while all of the functional expenditures have increased, the percentage of total General fund expenditures have remained fairly stable over the five-year period. The chart below indicates that the largest percent fluctuations are in General Government (-3%), Public Safety (3%).

When looking at the table, General Government decreased from 17% in FY 2017-18 to 14% in FY 2021-22. In actual dollars, General Government decreased by $104,008. Public Safety increased from 45% in FY 2017-18 to 48% of total operating expenditures in FY 2021-22. In actual dollars, Public Safety increased by $6.6 million, or 26%. Community Development and Public Works remained at 9% and 21% of total operating expenditures in both years respectively, with actual increases of $0.8 million, or 16% in Community Development and $0.7 million, or 4% in Public Works over the five-year period. The Beaches, Parks, and Recreation category remained at 8% of total operating expenditures in both years, with actual dollar increase of $504,972, or 10%.

Comparison of Expenditures by Function
(Excluding debt service, interfund transfers, and capital outlay) FY 2017-18 vs. FY 2021-22
Expenditure Function FY 2017-18
% of Total
2017-18 FY 2021-22
% of Total
2021-22
Total
Change
General Government $ 9,812,051 17% $ 9,708,043 14% -3%
Public Safety 25,718,889 45% 32,364,594 48% 3%
Public Works 12,125,282 21% 14,453,561 21% 0%
Community Dev. 4,996,730 9% 5,807,396 9% 0%
Beaches, Parks & Rec 4,885,433 8% 5,390,405 8% 0%
Total Expenditures $ 57,538,384 100% $ 67,723,998 100%
Based on this analysis, no single department is requesting significantly more resources, which would cause it to be unsustainable from a functional perspective.

Status: FAVORABLE
This trend remains a Favorable rating because when comparing the percentage of total expenditures change from FY 2017-18 to FY 2021-22. Although there has been a small shifting to Public Safety, there is no single department using significantly more resources from a functional perspective.

Financial Trend Analysis
Expenditures Trend Analysis
Indicator: Employees per Capita
Comments:

Employees per capita have remained relatively stable over the last five years. This trend provides a perspective of how the City’s workforce is in relation to population changes. This trend only includes general operations staff, which does not include the City’s utilities staff or contracted police, fire, animal control and fleet employees. On a per capita basis general operations staff have remained essentially flat over the five-year period.

Status: FAVORABLE
This indicator is awarded a favorable rating as growth in Full Time Equivalents (FTE’s) have remained consistent with population. This trend will be closely monitored to insure the City’s ability to support current and future service levels.

0.00202 0.00204

0.0010

0.0020

0.0030
2017-18 2018-19 2019-20 2020-21 2021-22

EMPLOYEES PER CAPITA
General Fund
Financial Trend Analysis
Expenditures Trend Analysis
Indicator: Fringe Benefits
Comments:

Fringe benefits (including social security benefits), as a percentage of General Fund salaries and wages, increased from 49.0% to 62.3%. Fringe benefits (excluding social security benefits) show a corresponding increase when compared to FY 2020-21. The actual amounts of General Fund benefits increased from $5.9 million in FY 2020-21 to $7.0 million in FY 2021-22, a 19.5% increase from the prior year. General Fund salary and wages were $12.0 million in FY 2020-21 and $11.3 million in FY 2021-22, which is a decrease of 6%.

Increases to Fringe benefits is due mainly to an increase in pension unfunded liability payments, based on the 3-2-1 plan as discussed in the Pension review paper.

Employees are now contributing the full 7% employee contribution rate to the CalPERS plan.

Status: FAVORABLE/CAUTION
This trend remains a Favorable/Caution rating as the City continues to make additional payments toward the unfunded pension liability. This trend continues to be monitored for a lowering fringe benefit percentage as the pension liability lowers in future years after the impacts of the “3-2-1 Pension Funding Strategy” are realized.

62.30%

36.74%

56.79%

41.76%

44.60%

30.00%

35.00%

40.00%

45.00%

50.00%

55.00%

60.00%

65.00%
2017-18 2018-19 2019-20 2020-21 2021-22
Fringe Benefits
As a Percentage of Salaries and Wages
General Fund
Total Fringe Benefit Percentage
Fringe Benefit Percentage, excluding Social Security Benefit Fringe Benefit Percentage, Excluding one- time paydown of pension fund
Financial Trend Analysis
Expenditures Trend Analysis
Indicator: Capital Outlay
Comments:

The Capital Equipment Replacement Reserve was established in FY 1994-95. This reserve fund ensures that obsolete and worn equipment is replaced in accordance with the City’s preventive maintenance program.

Capital outlay expenditures decreased by $455,350, or 18.6%, from FY 2020-21. Capital outlay expenditures totaled $2.0 million.

Spending on capital outlay decreased mainly due to the finalization of the City Hall second floor renovation.

Status: FAVORABLE
This trend remains a Favorable rating due to the decreases over the last five fiscal years and the trend percentage flattening.

6.51%

2.66%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%
2017-18 2018-19 2019-20 2020-21 2021-22

CAPITAL OUTLAY
As a Percentage of Operating Expenditures
General Fund
Financial Trend Analysis
Operating Position Trend Analysis
Indicator: Operating Surplus (Deficit)
Comments:

Fiscal year 2021-22 ended with a positive operating position (surplus). An operating surplus occurs when revenues exceed expenditures. Conversely when expenditures exceed revenues there is an operating deficit.

Revenues used to calculate the operating position do not include one-time transfers and revenues of $2.5 million, which includes $735,935 of grant revenue, $98,801 in miscellaneous one-time revenues, $8,574 in transfers, and escheatment of BPIF of $1.7 million. Expenditures used to calculate this surplus do not include one-time funds of $0.5 million in capital costs, onetime transfers from the General Fund to the Facilities Maintenance, Clean Ocean, Accrued Leave, and Park Asset Maintenance, of $380,000, $58,390, $115,000, and $600,000 respectively, and additional one-time pension payments of $2.0 million. This calculation of operating expenditures does not exclude $3.0 million of capital costs for yearly maintenance and improvements. The total operating position was positive $4.1 million in FY 2021-22, compared to a positive $3.3 in FY 2020-21.

Status: FAVORABLE
This trend changes from a Favorable/Caution to a Favorable rating. This trend shows improvement over the last two years after the impacts felt by the pandemic. $64.8 $69.1
$75.2
$59.9 $65.8
$71.1
$50.0
$60.0
$70.0
$80.0
$90.0
2017-18 2018-19 2019-20 2020-21 2021-22

OPERATING POSITION
Revenues vs Expenditures
General Fund
Revenues Expenditures In Millions

7.6%

5.7%
-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%
2017-18 2018-19 2019-20 2020-21 2021-22

OPERATING SURPLUS (DEFICIT)
As a Percentage of Operating Revenues
General Fund
Financial Trend Analysis
Operating Position Trend Analysis
Indicator: Unrestricted Fund Balance
Comments:

Unrestricted fund balance refers to those dollars available for use in the event of a financial emergency, short-term revenue fluctuations or an economic downturn. The City budgets each year at a surplus to ensure the maintenance of adequate reserve levels.

Unrestricted fund balance excluding long-term receivable reserves increased by 14.3% in FY 2021-22 from $26.5 million to $30.4 million. Even though unrestricted fund balance increased in FY 2021-22, it is not at levels prior to the pandemic. The total FY 2021-22 unrestricted fund balances of $30.4 million is comprised of $14.1 million for emergency reserves, committed amounts for encumbrances of $6.8 million, $4.5 million allocated for FY 2023 one-time costs and $4.9 million that is unassigned.

The LTFP Reserve Analysis discusses the 20% Emergency Reserve in more detail. The Reserve Analysis also discusses General Fund amounts estimated to be $9.7 million at June 30, 2023 for capital equipment, facilities, park asset, and accrued leave in a separate fund that are not included in the $30.3 million shown above.

Status: FAVORABLE
This trend changes from a Favorable/Caution to a Favorable rating, as unrestricted fund balance has increased over the last two years and the normal build-up of fund balance is moving towards levels experienced pre-pandemic as a percentage of operating revenues.

41.94%

40.47%

30.00%

40.00%

50.00%
2017-18 2018-19 2019-20 2020-21 2021-22

UNRESTRICTED FUND BALANCE
As a Percentage of Operating Revenues
General Fund
Emergency
Reserve, $14.1 Budget
Carryover,
$6.8
Future Budget,
$4.6
Unassigned,
$4.9
General Fund Balance at 6/30/2022
Emergency Reserve
Budget Carryover
Future Budget
Unassigned
Financial Trend Analysis
Operating Position Trend Analysis
Indicator: Liquidity Ratio
Comments:

In FY 2021-22, the City’s liquidity ratio remains positive at 4.6:1. Credit rating firms consider a ratio of 1:1 Favorable. The City’s 4.6:1 current asset to current liability ratio is considered excellent.

Liquidity measures the City’s ability to meet short-term obligations. Liquidity is measured by comparing current assets to current liabilities. Current assets include cash, short-term investments, accounts receivable and other assets that can be readily converted to cash. Current liabilities include accounts payable, accrued wages, accrued expenses and all obligations that can be immediately demanded for payment.

Status: FAVORABLE
This trend is favorable due to a ratio of over 1:1 throughout the past five-year period analyzed above.

4.3 4.7 4.4 4.4 4.6

0.0 1.0

2.0 3.0

4.0 5.0

6.0 7.0
2017-18 2018-19 2019-20 2020-21 2021-22

LIQUIDITY RATIO
Current Assets to Current Liabilities
General Fund
Financial Trend Analysis
Debt Service/Unfunded Liability Trend Analysis
Indicator: Debt Service
Comments:

The City does not include debt service payments in the General fund. Debt service for the City’s capital equipment leases are accounted for in separate funds and are not part of this analysis.

Status: FAVORABLE
General Fund debt service receives a Favorable rating, as it has remained immaterial (less than 1%) in comparison to total revenues over the last eighteen years. Credit rating firms generally view debt service as Unfavorable if debt service payments exceed 20% of net operating revenues.

0.00%

0.10%

0.20%

0.30%
2017-18 2018-19 2019-20 2020-21 2021-22

DEBT SERVICE
As a Percentage of Operating Revenues
General Fund

0.0%
Financial Trend Analysis
Debt Service/Unfunded Liability Trend Analysis
Indicator: Accumulated Compensated Absences
Comments:

At June 30, 2022, the compensated absences liability was $1.63 million consisting of $1.1 million for vacation, $0.4 million for sick leave, and $48,533 for compensatory time for all funds. This is a decrease of $298,803, or 15.5% from the prior year’s liability of $1.93 million.

The Accrued Leave Reserve was established to pay accrued employee benefits for General Fund employees who terminate during the year. As of June 30, 2022, the Accrued Leave Reserve balance was $0.9 million.

Status: FAVORABLE
This indicator receives a Favorable rating, consistent with the prior year and a general decrease with Reserves set aside for the liability.
$1.90 $1.63
$1.38
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
2017-18 2018-19 2019-20 2020-21 2021-22

ACCUMULATED COMPENSATED ABSENCES
Actual and 2017-18 Constant Dollars
General Fund
Actual Constant In Millions
Financial Trend Analysis
Debt Service/Unfunded Liability Trend Analysis
Indicator: Pension Unfunded Liability
Comments:

The City has four pension plans that cover different employee groups and are funded at various levels. California Public Employees’ Retirement System (CalPERS) plan includes safety-lifeguards, safety-inactive and miscellaneous employees since the transition to CalPERS. The CSCERP plan includes past city retirees and inactives and Coastal Animal Service Authority (CASA) employees.

This trend shows past funding levels and the changes over the last five years. The City started making additional contributions in FY 2019-20, and in FY 2021-22 made additional contributions of $3,908,763 toward the CalPERS plans and $60,000 toward the CSCERP plan. The increase in funding status is the result of continued additional payments toward the unfunded liability.

The chart below shows the Funded Status for five-years ending June 30, 2022 (with information based on the prior year actuarial valuation). The lowest funded plan is CSCERP at 54% and the highest funded is safety-lifeguards at 98%. The fiscal policy target is 90%. A detailed Pension Update is included in this year’s LTFP.

Status: FAVORABLE
This indicator changes from a Favorable/Caution rating to Favorable as we start to see fund status improvement over the past two years. This funding increase does not include any “3-2-1 Pension Funding Strategy” payments. The Pension Update paper contains more information. 70% 70% 68%
71%
76%
50%
60%
70%
80%
90%
100%
2017-18 2018-19 2019-20 2020-21 2021-22
Funded Status (%) Pension Liabilities
FY 2017-18 to FY 2021-22
Financial Trend Analysis
Community Trend Analysis
Indicator: Population
Comments:

The City’s population has decreased by 1.07% over the prior fiscal year. The exact relationship between population change and other economic and demographic factors is uncertain.

However, a sudden increase in population can create immediate pressures for new capital expenditures and higher levels of service. Increased population generates increased expenditures over time such as public safety (i.e. additional fire stations, increased police, etc.).

Conversely, a rapid decline in population allows for a smaller tax base for spreading City costs that cannot be immediately reduced.

A Census is completed every ten years. A census was completed during calendar year 2020. The data used by the City between Census updates are based on numbers from the California Department of Finance and estimates of growth from the Planning department. As the City nears build-out, the fiscal years 2017-18 through 2021-22 show a stabilization in the population rate.

Status: FAVORABLE/CAUTION
This indicator changes from a Favorable to a Favorable/Caution rating due to a decrease over the last two years. A decrease in population can effect revenues over time and increase cost burden over a smaller population base.
65,304
63,380
60,000
65,000
70,000
2017-18 2018-19 2019-20 2020-21 2021-22

POPULATION
City of San Clemente
Financial Trend Analysis
Community Trend Analysis
Indicator: Property Values
Comments:

The growth rate in property values as a percentage from the previous year in actual dollars was 4%, or $771 million. This is a decrease of 4%, or $696 million in constant dollars, as inflation grew at a greater pace than property values over the last year.

Property values exhibited a positive-growth rate in FY 2021-22. Personal property in California is subject to a basic levy equal to one percent of the assessed value. The property tax share can fluctuate between cities within a county. The City of San Clemente receives $0.154 of each property tax dollar collected within the City.

Please see attachment ”A” graph that shows the distribution of the total property tax levy for each property tax dollar paid for the City and the ten year assessed value history. 9B
Status: FAVORABLE/CAUTION
This indicator changes from a Favorable to Favorable/Caution rating. Although there is a stable increase in actual dollars over the last five years, when considering the effects of inflation on property values, there is decline in value from the prior year. $19.33
$16.34
$10.00
$12.00
$14.00
$16.00
$18.00
$20.00
2017-18 2018-19 2019-20 2020-21 2021-22

PROPERTY VALUES
Actual and 2017-18 Constant Dollars
Actual Constant In Billions
Financial Trend Analysis
Attachment “A”
The chart above shows the portion each respective government agency receives of the typical Orange County property tax dollar.

Executive Summary
To strategically address future needs and to ensure the City maintains a positive operating position in the long-term, the City’s five-year forecast focuses on two critical elements, operating position and fund balances, to determine the fiscal health of the City.

City of San Clemente Financial Condition
The five-year financial forecast was last updated with the adoption of the FY 2022-23 budget; it showed small operating surplus in all five years of the forecast. Projected operating surplus/(deficits) as part of that budget forecast were:
2023 Budget Forecast (In millions) 2022-23 2023-24 2024-25 2025-26 2026-27 Projected surplus/(deficit) $ 0.4 $ 0.7 $ 0.8 $ 0.9 $ 0.9 When preparing a balanced FY 2023 budget to City Council, positions were added back to increase service levels. With pandemic restrictions removed, higher revenues were received and cost impacts recognized. Some of these cost increases were offset utilizing American Rescue Plan funds to fund service levels by a one-time transfer to the General Fund.

The 2023 LTFP five-year financial forecast takes into consideration these changes and continues to fund these positions to address higher service levels. The forecast reflects strong property taxes that provide growth along with moderate growth in other revenue categories. Revenue growth is comparable to cost increases forecast for public safety and contract services. These are most impacted by inflation and have the largest increases.

The General Fund forecast operating position is improved from the FY 2023 Budget forecast initially, but narrows in future years due to lower forecasted revenues. Assumptions used in the forecast are discussed later in this report.

The forecast reflects a positive operating position in the first two years of the forecast while the operating position remains flat in the final three years. The following table and chart reflect the forecast results, based on the assumptions identified later in the paper. $1.0
$0.2 -$0.1 -$0.1 $0.0
-$2.0
$0.0
$2.0
2023-24 2024-25 2025-26 2026-27 2027-28
Projected General Fund Operating Position
In Millions
Financial Forecast
2023 LTFP Forecast (In millions) 2023-24 2024-25 2025-26 2026-27 2027-28 Operating receipts $ 78.8 $ 81.1 $ 83.6 $ 86.5 $ 89.5
Operating disbursements 77.8 80.9 83.7 86.6 89.5
Projected surplus/deficit $ 1.0 $ 0.2 ($ 0.1) ($ 0.1) $ 0.0 Operating positions are subject to change based on actions taken in the normal course of business and actions by City Council. These differences can occur in a variety of ways. For instance, higher receipts or lower disbursements can occur from the projection differences, position changes, pension liability paydowns, and various other actions.

Operating position
Operating Position is the excess of operating revenues over operating expenditures. Operating revenues and expenditures exclude one-time revenue and expenditures. Based on revenue and expenditure trends, the financial forecast indicates a positive operating position the next two fiscal years. These positive operating positions increase unassigned fund balance and are used to fund one-time costs, including capital projects, reserve transfers, and other one-time activities.

Revenues are averaging an annual increase of 3.1% over the forecast period while operating expenditures are increasing annually by 3.0% a year.

Operating revenue is forecasted to increase 2.5% in the first year. Property taxes, which represent 54% of all General Fund revenues, is forecast to increase 4.7% benefiting from a positive real estate environment and development. Sales tax is projected to increase 2.2% due to activity in consumer goods, dining, and service stations. General Fund revenues other than property and sales taxes are forecast to increase up to 4.9% depending on the revenue type.

Operating expenditures are forecast to increase 3.5% in the first year, excluding the one-time FY 2023 pension payment. The largest percentage increase in operating costs are from the Police contract. The OCSD police service costs are anticipated to increase 5% from FY 2023 budget. FY 2023 is the final year of the multiyear MOUs with deputies reflecting COLA increases ranging from

2.5% to 3.5%. There is no MOU in place after June 30, 2023. The 5% increase factors in cost increases based on negotiations and other costs passed on from information technology and other body camera related items. Meanwhile, OCFA fire contract costs are projected to increase 2.8% based on prior year estimates, however these costs could be higher but are limited to a contract cap of 4.5%. The phase-in of the 4th firefighter/paramedic position phase is complete in FY 2025.

The next largest percentage increases are in other contract services and salary and benefits.

Contract costs are forecasted to increase 4.9% initially based on higher energy costs and impacts from contractors addressing inflation pressures. Salary and benefits increase the first year by 3.6% based on the MOU, merit increases, and position changes to address City operations and meet citizen needs. Pension costs stabilize due to the paydown of the City Unfunded Accrued Liability (UAL), but discount rate changes and assumption changes will impact future amounts increasing employee and employer initially, however these costs will level out over time. Pension costs are discussed in the 2023 Pension Update and in the trends section of the LTFP.

Financial Forecast
Fund Balance
Fund balance is the excess of assets over liabilities. The 2023 LTFP Forecast operating position shows future deficit operating positions; these operating deficits have an impact on available General Fund resources (fund balance).

The City’s committed portion of fund balance, approved by City Council action, includes the Emergency Reserve funded at 20% of operating expenditures. Annual contributions to maintain the Emergency Reserves (20% of operating expenditures) are included in the forecast. Unassigned fund balance is available for appropriation by the City Council, without any restrictions. A positive unassigned fund balance represents a financial resource available to finance one-time expenditures in future fiscal years.

Committed Fund Balance - One financial goal of the City, as defined in the City’s Fiscal Policy, is to ensure that adequate resources will be available to fund the General Fund’s emergency reserve.

The emergency reserve level is at the required level of 20% of operating expenditures, based on fiscal policies. The Emergency Reserve based on the 2022-23 Budget is $15.0 million. A summary of the Emergency Reserves by year is summarized below:

General Fund – Committed Reserves (in millions)
2023-24 2024-25 2025-26 2026-27 2027-28
Emergency Reserve
(20% of Oper. Expenditures) $15.6 $16.2 $16.7 $17.3 $17.9 Unassigned Fund Balance - The General Fund’s unassigned fund balance is projected to be $4.5 million at the end FY 2022-23. Based on the 2023 LTFP forecast the following chart below illustrates the projected unassigned fund balance in the General Fund for the next several years.

The above unassigned fund balance chart reflects annual Emergency Reserve contributions, $1,250,000 each year for recurring maintenance (major street maintenance, slurry seal, sidewalk repair programs, and facility maintenance), but does not assume any spending for one-time capital projects (including infrastructure and I.T. projects) and one-time transfers to reserves identified in the Reserve paper.
$4.5
$5.0
$4.6
$3.9
$3.3
$2.7
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
2022-23 2023-24 2024-25 2025-26 2026-27 2027-28
Projected General Fund - Unassigned Fund Balances without CIP In Millions
Financial Forecast
The following table shows project costs for General Fund capital improvement projects over the next five years based on the CIP section of the FY 2022-23 budget, excluding project costs funded by other sources:

Proposed Capital Projects
(In millions)
2023-24 2024-25 2025-26 2026-27 2027-28
Capital Improvement Projects
(non-ongoing) $ 3.9 $ 0.7 $ 4.0 $ 0.2 $ 2.2
Transfers (one-time) 0.7 0.4 0.4 0.4 0.4
Totals $ 4.6 $ 1.1 $ 4.4 $ 0.6 $ 2.6
General Fund unassigned fund balance decreases over time as one-time CIP (capital and maintenance projects) amounts and one-time transfers are included in the 2023 base forecast.

Due to these one-time items, the City’s unassigned fund balance would decrease substantially from $4.5 million to ($9.7) million. The City typically experiences both a revenue overage and an expenditure underage to finance these one-time items, utilizing a 1% factor for operating amounts unassigned fund balance is forecast to decrease over time from $4.5 million to ($0.7) million.

The chart shows General Fund unassigned fund balance based on the Forecast with and without the 1% assumption:

This projection is based on the CIP program presented in the FY 2022-23 budget. Large projects include Corto Lane Beach Access, Steed Park Pickle Ball, and T-Street Overpass. Capital project funding is determined annually during the budget process and is dependent upon available funds.

This forecast uses the FY 2022-23 CIP, however a revised CIP program for the next five years will be presented to the City Council as part of the FY 2023-24 budget.

In summary, the revenue overages and cost savings are sufficient to fund ongoing one-time costs through FY 2025, however FY 2026 and FY 2028 would have negative unassigned fund balance available. An economic downturn or emergency situation effecting revenues and/or expenditures savings would cause the City to rely on reserves or seek other alternatives to fund one-time items. $4.5
$0.5 -$0.8
-$5.7 -$6.7
-$9.7
$4.5 $2.7 $3.0
-$0.3 $0.4 -$0.7
-$15.0
-$10.0
-$5.0
$0.0
$5.0
$10.0
2022-23 2023-24 2024-25 2025-26 2026-27 2027-28
General Fund - Unassigned Fund Balances with CIP and transfers Forecast - Base Forecast - with 1% factors In Millions
Financial Forecast
Summary:

The operating position shows surpluses in all years, however there are various uncertainties that could affect the operating position either individually or in aggregate. The goal of this LTFP is to inform and assist City Council and management. The forecast and other information is based on existing service levels and existing expectations. The operation position forecast in future years nears levels prior to the pandemic and the last property market recession that started around 2008.

The City Council is encouraged to utilize the forecast as part of its decision making. Uncertainties facing the City in the upcoming years relate to both external and internal items and some actions may be outstanding and some items may have had actions implemented. A summary of outstanding items include the following:
 Class and Compensation Review – The approved MOU with the employees association stipulates a Class and Compensation assessment in FY 2023. This assessment is underway and will review salary and classifications. Once completed the results will be presented to the City Council.
 Police Contract costs – The County of Orange is operating under terms of a MOU that expires June 2023. The new MOUs could lead to higher costs for OCSD that will be passed on to San Clemente.
 Service changes or impacts – Service needs of the City have increased recently and certain programs or activities changed to address citizens’ quality of life. This includes crossing guards, trolley operations, park rangers, homelessness, and pool operations. These activities, when changed modify or increase future costs. Items not currently in the budget are not included in the forecast.
 Economic factors – Inflation is at high levels with expectations inflation will decrease back to the 2-3% range. If inflation remains high over the five-year forecast this would decrease purchasing power impacting operating position and fund balance. This could necessitate decreases to one-time capital activities or reserve transfers.  Loss of funding – The Clean Ocean fee, which provides funding to operate and maintain Clean Ocean assets constructed within the Storm Drain system has expired, if not reinstated, the loss of this funding impacts both General Fund and Storm Drain resources.

Actions to address these concerns take multiple forms. Options include increasing revenues - including a higher level of cost recovery for fee supported activities or through revenue measures or actions. Another option is to address service costs or utilize one-time revenues. Strategic deployment of resources to reduce costs or control on-going outlays may be considered. These would be done with the goal of improving future operating positions or to improve service delivery.

Revenue:

City staff seeks input from City Council to review or increase revenues. The City could revisit increases to the Transient Occupancy Tax rate or explore possible opportunities in sales tax, parcel taxes or other taxes. In accordance with the City’s Fiscal Policy staff will be reviewing service charges in the near future.

Service Cost:

The City allocated funds to address service levels in a variety of areas including police, fire, ambulance, code enforcement, and facility maintenance. Also, certain projects have been funded Financial Forecast
to reduce operating costs. These include Steed Park lighting and changing traffic signals to LED lights to lower energy costs. Properly maintaining assets can also provide savings on replacement life cycles. Opportunities to save operating costs through capital project activities can be considered with the Capital Improvement Program.

City Council could review amounts spent on existing programs and recommend activities where service levels exceed expectations so changes can be made to existing programs.

Use of one-time revenues:

If one-time revenues are received these amounts could increase the General Fund Emergency Reserve level to offset the greater dependency on property tax revenues and sales tax revenues within the General Fund, or to fund Capital Reserves to offset the cost of capital. Staff will seek direction from City Council in these instances.

Past LTFP Actions:

As part of past LTFPs, the City initiated some actions to address pension and capital maintenance.

The following actions were included in the FY 2023 Budget:
 Pension costs –The City completed the last paydowns under the 3-2-1 Strategy to paydown unfunded liabilities lowering future pension costs.
 Unanticipated capital costs – The City committed to capital maintenance by increasing the annual allocation for routine facility maintenance from $250,000 to $300,000 to minimize the need for one-time large capital outlays.

COUNCIL RECOMMENDATION
On November 1, 2022 City Council took an action to address modifying Fiscal Policy by earmarking 1/3 of Transient Occupancy Tax for pension UAL. Based on the FY 2024 Forecast, this would amount to $1.1 million. If an additional paydown of $1.1 million is allocated, as yet, unspecified services would be reduced by a corresponding amount and a deficit would be created in all forecasted years and the unassigned fund balance in the first year would change from a positive $0.5 million to a deficit $0.6 million, once capital activity is incorporated. The City could delay capital projects and instead allocate those funds towards the pension UAL payment. Required policy changes are listed in the Fiscal Policy section of the LTFP.

The City of San Clemente has a forecasted UAL payment of $3.7 million under the Pension UAL amortization schedule, with $2.8 million forecast within the General Fund.

Financial Forecast
Forecast Background and Discussion
Annually, the City prepares a five-year financial forecast with the Long Term Financial Plan. The forecast identifies the City’s projected financial condition to determine the forecasted operating position based on existing level of services. This forecast provides information to City Council related to available resources, fund balance and anticipated results in future years. The financial forecast and the Financial Trend Analysis provides the foundation of the Long Term Financial Plan process and provides information on past history and anticipated results.

The forecast is developed based upon guidelines provided by the Government Finance Officer’s Association (GFOA). The financial forecast allows the City to determine how spending plans will impact future budgets. This forecast is not the budget. The Budget is presented to City Council at a later time. This forecast is used to provide preliminary information to Council to assist in its prioritization process.

The base forecast is developed using the City’s present level of services. Inflation or historical growth rates are used to predict expenditure patterns. Revenues are projected by inflation, trends, or by specific circumstances that are deemed reasonably likely to occur during the forecast period.

Information regarding economic indicators and the performance of the economy as a whole over the forecast period was taken from the Chapman University Economic and Business Review (December 2022). Forecast information from HdL, Chapman, Cal State Fullerton and other sources are utilized to assist staff with the assumption determinations.

During the Chapman and Cal State Fullerton forecast period, inflation is expected to moderate from the higher levels as the Fed moves to curb the growth of inflation, government fiscal stimulus works through the system, and supply chain issues improve. However, inflation tends to decrease slowly and the decrease is projected to occur over multiple years. A higher rate of inflation of 5% is anticipated to ease over the years back to more of a Federal Reserve target of 2%-3% by the end of the forecast period.

Payroll and employment experienced zero growth over the last five years within Orange County.

There continues to be a mismatch of labor demand and labor supply with a need for high-valueadded employees and unemployment rates remaining low. Unemployment rates are anticipated to increase over the forecast. For employees housing affordability continues to be an issue but median home prices flattened as mortgage rates have risen. This has lead to weakness in home sales activity and is expected to cause lower home prices with residential investment and building permit decreases. Consumer spending is anticipated to slow leading to an economic downturn towards the end of 2023. Population is expected to remain flat over the forecast period.

The Gross Domestic Product (GDP) is anticipated to increase in 2023 and beyond, but at a lower rate than previously experienced. Overall, the economy is anticipated to continue to grow with the CPI decreasing over the forecast period. The longer term goal of the Federal Reserve is to achieve the normalized range of 2-3%.

Financial Forecast

FORECAST INFORMATION
The forecast is based on the General Fund only. The forecast does not include service level changes and impacts on the General Fund to pay for costs funded in other funds. Examples of cost factors which could effect future results:
 Revenues from future development, land sales or other enhancement actions (Property tax, sales tax, and transient occupancy tax, and land proceeds) are not included in this forecast.  No new or enhanced programs or positions have been included in these forecast amounts.

Costs funded through other funds, such as Clean Ocean costs, costs related to the Trolley program funded by external grants and other resources, and costs related to homeless activities funded through the Low and Moderate Income Housing Fund are not included.  New or enhanced programs have been excluded, including any new positions or restructuring of positions.
 No provision has been included for one-time legal costs for new special projects or initiatives.

Other items or actions may improve or diminish the General Fund operating position. The financial forecast is based on known service levels.

The Assumptions section of this report is broken into two sections: Revenues and Expenditures.

These sections, which are included in the last section of this Forecast paper, provide background on the assumptions used in the General Fund forecast. Information is summarized and presented by the City’s major revenue and expenditure line items.

Forecast Results
Based on the economic data and considerations discussed in the Assumptions section of the paper the following forecast outlines the anticipated receipts and disbursements over the next five years for the General Fund. Over the five-year forecast period, the City’s operating revenues are anticipated to grow by an annual average increase of 3.1%, or $2.5 million, a year, while operating expenditures are projected to increase at an average rate of 3.0%, or $2.5 million. This annual disparity creates a small annual increase in the General Fund’s operating position.

The financial forecast indicates an initial positive operating position of just over $1.0 million in FY 2023-24, based on forecasted revenues and expenditures. This is due to decreases in the Unfunded Accrual Liability (UAL) payments, forecasted revenue growth in property taxes and sales taxes increasing beyond the growth rates in expenditures. As the revenue growth in property tax slows costs driven by police services and inflation exceed revenues. These are projections only.

Revenue changes from anticipated development and service level changes are not incorporated into this forecast. The following table forecasts only existing development and approved service levels. The presentation does not include any spending for one-time capital projects or one-time major maintenance projects or anticipated budgetary savings or revenue overages. The receipts and disbursements are presented by major category. The five-year forecast follows:

Financial Forecast
GENERAL FUND – FORECAST
(in thousands)
FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28

BEGINNING UNASSIGNED FUND BALANCE $ 4,460 $ 4,987 $ 4,613 $ 3,927 $ 3,275

RECEIPTS
Property Tax 42,931 44,213 45,621 47,657 49,783
Sales Tax 13,299 13,583 14,091 14,443 14,804
Other Taxes 6,935 7,157 7,338 7,490 7,604
Service Charges 6,575 6,772 6,959 7,133 7,311
Other Revenue 9,092 9,342 9,569 9,775 9,986
TOTAL OPERATING RECEIPTS 78,832 81,067 83,578 86,497 89,488

COSTS
Salaries & Benefits 21,062 21,981 22,869 23,620 24,388
Police Contract Services 19,497 20,472 21,496 22,463 23,474 Fire Contract Services 10,970 11,267 11,486 12,003 12,543 Other Contractual Services 14,990 15,552 16,018 16,419 16,747 Other Charges/Supplies 3,816 3,922 4,009 4,085 4,147
Ongoing Maintenance 1,250 1,250 1,250 1,250 1,250
Other Expenditures 6,196 6,387 6,564 6,733 6,905
TOTAL OPERATING COSTS 77,783 80,831 83,692 86,573 89,454

OTHER FUND BALANCE CHANGES
Funding 20% Emergency Reserve (522) (610) (572) (576) (576)

ENDING UNASSIGNED FUND BALANCE $ 4,987 $ 4,613 $ 3,927 $ 3,275 $ 2,733 *displayed in thousands
Operating revenues are categorized by Property Tax, Sales Tax, Other Taxes, Service Charges and Other Revenue. Operating revenues are forecasted to increase 2.7% in the first year. In total, operating revenues are forecast to increase to $89.5 million over the five-year forecast period.

Information on the revenues assumptions are discussed in the Assumptions section of this paper.

Operating costs are categorized by salaries and benefits, police contract, fire contract, other contractual, other charges/supplies, ongoing maintenance and other expenditures. Operating costs (expenditures) are forecast to increase 3.5% in the first year, excluding one-time pension paydown amounts, with total operating expenditures increasing to $89.4 million over the forecast period. The largest percentage increase is the police contract. However, the fire contact, contract services, and salaries and benefits are also showing increases but at a slightly lower level over the five years. Information on the expenditure assumptions are discussed in the Assumptions section of this paper.

Financial Forecast

FORECAST ASSUMPTIONS - REVENUES
The following table summarizes the changes from year to year based on assumptions. Each revenue is comprised of multiple revenue line items. Further information on each assumption is discussed in the following paragraphs by major revenue category:

Revenue FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Property Tax 4.73% 2.99% 3.18% 4.46% 4.46%
Sales Tax 2.22% 2.14% 3.74% 2.50% 2.50%
Other Taxes 4.87% 3.19% 2.54% 2.07% 1.51%
Service Charges 3.90% 3.00% 2.75% 2.50% 2.50%
Other Revenues -8.46% 2.74% 2.43% 2.15% 2.16%
Property Tax
Property Tax is the City’s single largest revenue source representing approximately 55% of General Fund operating revenues. Property tax projections are based on information provided by HdL Coren and Cone, the City’s property tax advisors. Property taxes are comprised of property taxes (secured and unsecured), supplemental assessments, the vehicle license fee swap, property transfer taxes and penalties and interest. Property tax revenues are projected to increase by an average of 4.0% over the five-year forecast period with a large increase in FY 2023-24 with a smaller increase the following two years and then increases above 4% later in the five-year timeframe.

Four major factors contribute to year over year assessed valuation changes. First, Proposition 13 allows the County Assessor to increase property valuation by the net change in CPI growth, with a cap of 2% growth per year – FY 2023-24’s CPI growth factor is the maximum 2%. Second, property valuation is increased or decreased annually by transfer of ownership transactions and property values. When compared to 2021 the number of single family home transactions decreased by 40%, with the average price remaining flat at $1.7 million at the end of the calendar year. A flattening of values is anticipated due to higher interest rates on mortgages temporarily slowing the housing market. Third, when property values decline, Proposition 8 allows properties to be temporarily reassessed at a lower value by the County Assessor through individual appeals, or through mass appeals if warranted by market conditions. Once property values rise again, the County Assessor “recaptures” the value through valuation increases of more than 2% per year, until reaching the Proposition 13 cap. Finally, assessed valuation grows when new development is completed.

According to HdL, property tax growth will average between 3.5% - 5.5% annually over the fiveyear forecast based on growth factors, ownership transfers, Prop 8 recapture, and median home prices. Property transfer taxes and penalties and interest are anticipated to grow at a lower rate than the secured and unsecured property taxes.

Sales Tax
Sales tax included in the forecast is projected to grow based on the total taxable sales growth averaging 2.6% over the five-year forecast. The Chapman analysis forecasts 1.5% and HdL forecasting just under 1% next year. The FY 2024 increase of 2.2% in the forecast incorporates the Financial Forecast
higher than expected receipts. Sales taxes are projected to increase over the forecast period by an average of 2.6% over the forecast period as the CPI lowers and growth stabilizes.

Ongoing sales tax revenues for the City are forecast to increase 2.2% the first year, slightly increase and then lower to 2.5% annually over the remaining timeframe. The 2.2% rate is based on the various forecasts and the FY 2024 sales tax total is in line with the most recent HdL analysis. This revenue includes impacts of the Wayfair decision, gas price changes, and the City’s recent developments. Online sales activity is allocated through the County pool. This amount will be revised in the proposed budget based on further projections provided by the City’s sales tax advisors, HdL.

Other Taxes
Other taxes in the forecast include Transient Occupancy Tax (TOT), Franchises, and Business License revenues. These taxes are expected to grow in the 1.5% to 4.9% range based on growth within the City, lower pandemic impacts, franchise fees, energy prices, and existing development.

Franchise revenues are taxes paid primarily through utility providers based on revenues and will likely increase, but fluctuate with commodity prices, for example energy or natural gas. Recently, energy prices, including gas, increased which increases these revenues. However, the future years are uncertain. Transient occupancy tax revenues is forecast to increase based on last years activity as pandemic restrictions were lowered. The longer-term expectation is for slower increases as the activity stabilizes and returns to stable increases over the five-year timeframe. No amount is included based on future anticipated development, but hotels/rooms development would increase these revenues. Business license revenues are forecast to increase 2.5%-3% based on activity, GDP, and other impacts.

Service Charges
Charges for service include, public safety service charges, parking, public works, recreation and community development service charges. These are estimated to increase generally with CPI/GDP as costs rise, but factors such as population changes, number of transports, number of participants, services provided, and other factors can impact these revenue sources. These revenues are forecast to increase 2.5%-3.9% annually, with a 2.9% average over the five years.

Other Revenues
Interest, fines, Interfund charges and transfers comprise the other revenue category. Interest revenue increases slightly over the timeframe as the low interest rate environment improves. Fines are anticipated to remain flat. Interfund costs are anticipated to increase between 2.5%-3% over the five-years. These are costs charged to other funds to recover General Fund overhead related items. The amount related to General Fund cost recovery for support of other funds is forecast at $3.0 million. Transfers are anticipated to have minor growth over the five years after a decrease from the base year due to the one-time transfer in of American Rescue Plan funds of $800,000.

Financial Forecast
FORECAST ASSUMPTIONS – EXPENDITURES
The following table summarizes changes from year to year based on assumptions. Each expenditure is comprised of multiple line items. Further information on each assumption is discussed in the following paragraphs by major disbursement category:

Disbursement FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Salaries & Benefits 3.58% 4.35% 4.04% 3.28% 3.25%
Police Contract Services 5.00% 5.00% 5.00% 4.50% 4.50%
Fire Contract Services 2.80% 2.71% 1.94% 4.50% 4.50%
Other Contract Services 4.90% 3.75% 3.00% 2.50% 2.00%
Other Charges/Supplies -36.51% 2.78% 2.24% 1.88% 1.51%
Ongoing Maintenance 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenditures 2.47% 2.15% 2.01% 1.80% 1.79%
Salaries & Benefits
The forecast assumes anticipated growth in salaries and benefits. In total, salaries and benefits are forecasted to increase 3.6% from the prior year and are projected to increase between 3.3% and

4.3% over the five years, considering the existing MOU, then adjusting for wage growth, merit increases, medical cost changes, retirement and other benefit amounts. In total, salaries and benefits include some increases initially based on wage growth. Salary and benefits are projected to increase 3.7% over the five-year period. No vacancy factor is assumed for staffing costs.

The City has focused on personnel-related costs to achieve savings to lower past structural deficits.

A Memorandum of Understanding (MOU) is in place through June 30, 2024. This MOU provided non-pensionable payments to employees, annual pay increases up to 1%, and the commitment to complete a Class and Compensation study currently underway to review pay and responsibilities for employees.

Depending on the benefit, benefits increase 0% - 5%, with the largest increases occurring in medical and retirement costs. The medical increase offsets the increased costs of medical coverage based on the MOU and anticipated annual adjustments. The retirement percentage is increasing based on a lowering of the discount rate which impacts both employee and employer contributions.

However, due to payments on the Unfunded Accrued Liability (UAL), the annual UAL payment is forecast to decrease initially and then increase at 2% annually due to UAL paydowns. Other benefit expenditures include Social Security, Workers Compensation, disability and various other benefits.

Police Contract
Orange County Sheriff’s Department (OCSD) is a high-performing police organization, and the County Sheriff’s contract is a less expensive option compared to creating and operating a fullservice, city police organization. Like most agencies in California, pension costs have contributed to a substantial rise in expenditures for police activities.

The County of Orange Sheriff’s contract costs are anticipated to increase 5% from the previous year’s adopted budget as the previous year multiyear MOU approved by the County unions concludes June 30, 2023 which implemented 2.5% to 3.5% annual Cost of Living Adjustments.

Financial Forecast
The forecasted growth rate is 5% based on historical context and anticipated cost impacts. Future years’ anticipated growth is estimated at 4.5% to 5.0% annually to maintain the existing levels of service. With the lack of a MOU, a 5% increase was used based on past historical increases and incorporating other benefit impacts that include retirement, medical and benefit costs. Other cost increases including services and supplies, transportation, department overhead, and training will be realized. This category only shows the OCSD contract amount. The annual average increase for the police contract services is 4.8% over the forecast period.

Police positions remain at the existing level for the term of the forecast. Any personnel increases will result in costs above what the forecast assumes. Body cameras are included, however future costs based on implementation may occur and are not incorporated.

Direct City paid costs outside of the contract are not included in the contract amount, but are forecast in other categories. These costs include fleet charges, crossing guards, legal services for prosecution, and past police pension costs. The Police Contract Services category only shows the OCSD contract amount. Total FY 2024 police related costs are forecasted at $21.1 million, including the Flock agreement annual fees.

Fire Contract Services
Fire Services costs are projected in the forecast to increase by 2.8% over the prior year, with subsequent years between 1.9%-4.5%. OCFA’s fire contract costs are projected to go up as a result of the City paying for a 4th firefighter position, which is phased in through 2024 and lower annual contract percentages of 2% - 3% than the contract cap (4.5%) are anticipated through FY 2026.

This contract includes a maximum cap of 4.5% each year, the highest increase allowed by the City’s contract with the Orange County Fire Authority (OCFA), excluding the additional paramedic/firefighter cost. The 20 year fire services contract with OCFA allows for a cap of 4.5% per year to the base service charge, as well as annual contributions to station maintenance and fleet replacement reserves. OCFA’s actual contract increase for FY 2024 will be determined over the next several months through the budget process, but is expected to be in the 2-3% range. The annual average increase for the fire contract services is 3.3% over the forecast period.

The 4th firefighter/paramedic on full rotation for the City of San Clemente started in FY 2017-18.

The last portion of the full cost is paid by the City in FY 2025, with OCFA’s last contribution occurring in FY 2024. The City’s phased-in share of these costs are included in the forecast, based on projections by OCFA. These may vary over the five-year timeframe based on actual costs.

The Fire Contract Services category only shows the OCFA contract amount. Costs paid by the City outside of the contract are not included in this contract amount. These other costs, which include the ambulance contract, are forecast in other categories. Fire and ambulance related costs are forecasted at $13.5 million.

Other Contract Services
Contract services are substantial, as this category consists of a wide variety of contracts and services. This category includes maintenance costs, legal services, professional services, animal Financial Forecast
control, ambulance, utilities, printing, binding, and other various contract services. These are combined and anticipated to increase by inflation levels and other changes. The first year of 4.9% is a higher percentage recognizing CPI levels based on the forecast and contract considerations.

One of the larger individual contracts is for the ambulance transport services provider that is under contract through June 30, 2027 for two full-time ambulances. Projections for the five-year forecast the two full-time ambulance model in place, with increases of between 2.5% to 4.7% annually.

Other Charges/Supplies
Other charges/supplies includes the CalPERS public safety payment, contract class instructors, street signs, materials, chemicals, special events, postage, tools, dues and subscriptions, and other general operating supplies. This has a decrease the first year due to the one time payment of $2 million for the public safety UAL pension payment. The decrease excluding that one time item is

4.8% as the annual public safety CalPERS payment becomes lower. The percentage then adjusts to annual increases between 2-3% . Some costs may increase more and some less, but generally the amounts should increase around anticipated inflation levels.

On-going Maintenance
The City annually budgets for routine capital maintenance for streets, sidewalks and other facility maintenance improvements. These amounts do not include separately identified one-time projects which are more non-routine in nature and are called out as part of the Capital Improvement Program through the budget process. These budgets do not increase annually and smaller routine maintenance projects are identified that fit within the scope of the budget.

This allocation includes funds for street work, slurry seal, sidewalk maintenance and facility maintenance. There is no change to these amounts over the forecast period. A summary of the annual budget allocation by Fiscal Year included in the forecast follows:

Other Expenditures
The City’s other expenses category is made up of transfers and interdepartmental charges.

Transfers include the annual transfer of $500,000 to provide annual funding for the Street improvement Program, $265,000 to provide annual transit funding (Trolley and SC Rides), and a $15,000 transfer to assist with Senior Mobility. Interdepartmental charges consist of charges to recover costs for specific activities. These include insurance charges, postage, duplicating, EDMS, information technology, communications, fleet, facilities and capital replacement. These costs are anticipated to increase from 2%-3%.

Description FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Street maintenance $ 550,000 $ 550,000 $ 550,000 $ 550,000 $ 550,000 Slurry seal 250,000 250,000 250,000 250,000 250,000
Facilities maintenance 300,000 300,000 300,000 300,000 300,000 Sidewalk maintenance 150,000 150,000 150,000 150,000 150,000 Total $1,250,000 $1,250,000 $1,250,000 $1,250,000 $1,250,000 Reserve Analysis
Objective
Analyze and recommend appropriate levels of reserves to (a) ensure that reserves are adequate to provide for the needs of each fund’s program, (b) meet program needs without unnecessarily obligating scarce financial resources and (c) ensure compliance with City fiscal policies and legal requirements by State, County or local ordinances.

Background
Sound accounting and budgeting practices require each fund maintain a positive fund balance with appropriate reserve levels. City reserves are dictated by the City’s fiscal policy and the annual Long Term Financial Plan (LTFP) review. The City’s Fiscal Policy defines the types and criteria for funding levels for each of the City’s reserves based on industry practice, Government Finance Officers Association (GFOA) best practices, and other external consideration.

The General Fund, the primary governmental fund of the City, maintains the Emergency Reserve and a Sustainability Reserve to protect essential services during periods of economic downturn.

An Accrued Leave Reserve exists for the payment of vested leave. The Park Asset, Capital Equipment Replacement, and Facilities Maintenance Capital Asset Reserves comprise amounts for asset maintenance in the Reserve Capital Projects Fund. These reserves are supported by charges and transfers from the General Fund. The General Liability Self-Insurance Fund, Workers’ Compensation Fund, and Fleet Fund are classified as Internal Service Funds. These funds charge other City departments for services they provide and are designed to fully recover the costs of providing the services. These internal service funds should not have excessive fund balances beyond the reserves required and to pay for operating costs.

The Water, Sewer, Golf, Storm Drain, and Solid Waste Funds maintain an emergency reserve per Fiscal Policy similar to the General Fund to protect essential services during periods of economic downturn. In addition, the Water, Sewer, Storm Drain and Golf funds maintain Depreciation Reserves for the maintenance and replacement of assets.

Executive Summary
This year staff has analyzed the reserves and categorized the reserves into three basic categories.

The three basic categories are:
 Operational Reserves
 Insurance Reserves
 Miscellaneous Reserves
 Capital/Infrastructure Reserves
 Depreciation and Replacement Reserves
 Emergency Reserves
The emergency reserves are the foundation of City finances and ensure operations and other capital projects are not diminished by unforeseen events. Capital/Infrastructure reserves ensure that facilities are properly maintained to provide the best service delivery and facilities to citizens. Operational reserves allow for the smoothing of costs so city operations are not effected by a significant cost or loss.

Reserve Analysis
The City, as part of its annual assessment, reviews reserve amounts, future reserve needs, establishes fiscal policy, best practices (including GFOA), and other financial factors. The reserves presentation includes the following aspects for each reserve:
 Purpose – provides information on the general use and purpose of the reserve  Funding – discussion on whether the fund receives amounts through charges, contributions, or transfers
 Fiscal Policy – this is the City Council adopted fiscal policy in place  Discussion/Analysis and Assessment – provides a general discussion on funds required amounts available, and a history of the reserve and related funding  Recommendation – this is staff’s recommendation based on an analysis of the reserve, its funding, and future requirements.

As part of this year’s assessment, staff’s recommendations strengthen City reserves providing a strong financial foundation for the future. Summary of the review/analysis of the reserves is below by area: Emergency Reserves, Capital/Infrastructure Reserves, and Operational Reserves.

Emergency Reserves for the FY 2022-23 General Fund reflect the General Fund Emergency Reserve funding level at 20% of operating expenditures with no changes recommended to the funding percentage in FY 2023-24. Enterprise Emergency Reserves have no recommendations to the reserve level. However, a prior year recommendation to review rates in the Sewer Fund, which were last adjusted in 2016, will be completed this year. Additionally, the Storm Drain funding from the Clean Ocean fee for Clean Ocean funded assets is suspended impacting Storm Drain Emergency reserves. These funding transfers will be reconsidered with the Clean Ocean assessment. The Golf Course adjusted rates last year and the Emergency Reserve is now funded facilitating repayments on the internal borrowing from Golf Depreciation and Improvement Reserves that was used to temporarily fund Golf operations and Golf Clubhouse construction.

Capital/Infrastructure Reserves provide funds for replacement of capital assets, including infrastructure. Multiple capital reserves properly funded, however several have deficient funding. Short-term capital assets, such as equipment and vehicles, are properly funded, as seen from the Fleet and Capital Equipment Reserves. The City is working to fund the replacement of long-term capital assets, such as water, sewer, and storm drain capital assets. These long-term capital assets are substantially greater in cost. Capital/Infrastructure reserves mitigate the direct impact of funding requirements in any one year, setting aside funds over a longer period of time.

Capital reserve full funding will not be accomplished in one year, but will take deliberate actions over time.

Water capital asset funding is improving, with transfers recommended to address capital needs.

Sewer and Storm Drain capital reserves are being depleted. A Sewer cost of service study to allocate costs and recover those costs should improve long-term funding for capital asset replacements due to the aging of the Sewer facility and other infrastructure. The Storm Drain fund has significant capital assets, which will need replacement in the future. The original fee adopted in 1993 has not kept pace with inflation and staff continues to review alternative funding options, such as grant funding, cooperative agreements, and Clean Ocean assistance.

Reserve Analysis
Operational Reserves are improving. These reserves include Accrued Leave, Debt and Liability Reserves which help reduce short term cost impacts on City operations. The Accrued Leave Reserve is fully funded, however lower interest earnings impact reserve levels. The State Revolving Loan Reserve is funded in accordance with fiscal policy and the State loan agreement.

Liability reserves are stable and can assist with uncovered claims or issues that arise in the future.

This analysis aims to improve Emergency Reserves, address capital assets, and strengthen the financial resilience of the City. Further information as to the balances and the funding status is addressed on each individual Reserve analysis sheet.

Reserve Analysis Summary:

Reserves by category, funding source, and June 30 estimated balances are in the following table.

These balances will be used to fund the July 1, 2023 reserve requirements:

Reserves Fund
Estimated
Reserve
Balances at
June 30, 2023 FY 2023 Status
Emergency Reserves:

General Fund Emergency Reserve General Fund $ 15,557,000 Properly Funded Water Operating Water Fund $ 1,478,000 Properly Funded
Sewer Operating Sewer Fund $ 570,000 Not Funded 1
Golf Course Operating Golf Course Fund $ 330,000 Properly Funded Storm Drain Operating Storm Drain Fund $ 57,000 Not Funded 1 Solid Waste Solid Waste Fund $ 35,000 Properly Funded
Capital/Infrastructure Reserves:

Fleet Replacement All Funds $ 5,018,000 Properly Funded Capital Equipment Replacement General Fund $ 1,654,000 Properly Funded Facilities Maintenance General Fund $ 5,122,000 Properly Funded 2 Park Asset Replacement General Fund $ 2,229,000 Properly Funded 2 Water Fund Depreciation Water Fund $ 12,803,000 Partially Funded 3 Sewer Fund Depreciation Sewer Fund $ 3,141,000 Partially Funded 3 Storm Drain Fund Depreciation Storm Drain Fund $ 1,497,000 Partially Funded 3 Golf Course Fund Depreciation Golf Course Fund $ 2,167,000 Properly Funded Golf Capital Improvement Reserve Golf Course Fund $ 1,262,000 Properly Funded Operational Reserves:

Accrued Leave General Fund $ 728,000 Properly Funded
State Revolving Loan Reserve Water Fund $ 900,600 Properly Funded General Liability Self-Insurance All Funds $ 5,484,000 Properly Funded Workers’ Compensation Insurance All Funds $ 1,263,000 Properly Funded 1 These reserves are not properly funded. Rate reviews are recommended to obtain emergency reserve levels. 2 These reserves meet the funding required at June 30, 2023, however based on anticipated future activity onetime transfers are recommended to fund future reserve levels. 3 These reserves are below the funding required at June 30, 2023. Actions, such as funding increases or transfers, to narrow the funding gap are recommended to improve the funding level to achieve future compliance.

Reserve Analysis
Staff will monitor legislative developments to modify Storm Drain fees to meet cost demands placed on the City’s public storm drain system and finalize the Sewer Cost of Service Study to revise Sewer rates. Staff will bring further action to Council to address the Emergency Reserves and longer term capital funding needs as appropriate.

A summary of the recommendations based on the analysis by reserve category follows:

Emergency Reserves – No changes are recommended in the funding levels (percentages).

Capital/Infrastructure Reserves
o Transfer an amount of $400,000 from the General Fund to the Facilities Maintenance Reserve in FY 2023-24.
o Transfer an amount of $300,000 from the General Fund to the Park Asset Reserve in FY 2023-

24. o Transfer a one-time amount of $2.0 million from the Water Operating Reserve in FY 2023- 24 to the Water Depreciation Reserve to fund future capital replacement in the Water Depreciation Reserve.

Operational Reserves – No recommendations.

General Fund Emergency Reserve Emergency Reserve Category Purpose: The City emergency reserves are to fund unanticipated costs from unforeseen disasters (fire, flood, earthquake, landslides or other disasters), to provide stability during a significant economic downturn where operating revenues decrease more than 10% and expenditure reductions cannot be achieved, or to offset a one-time loss of a state subvention.

Funding: The General Fund Emergency Reserve is funded through one-time transfers of unassigned fund balance. When this reserve is used, the Finance division will develop a plan as part of the Long Term Financial Plan to replenish the emergency reserve. This replenishment will be done through budgetary action and allocations of one-time resources.

Fiscal Policy: Maintain an emergency reserve equal to 20% of operating expenditures of the General Fund. The primary purpose of this reserve is to provide stability during a significant economic downturn, or to offset a significant one-time loss of revenue. The reserve exists in order to provide short-term funds to protect the City’s essential service programs and funding requirements or to provide unanticipated or emergency expenditures that could not be reasonably foreseen during the preparation of the budget.

Discussion/Analysis and Assessment: The Emergency Reserve provides resources to allow the City to continue operations in the occurrence of any serious conditions. In FY 2016-17, the Emergency Reserve and Sustainability Reserve were combined and the Emergency Reserve funding level was modified from 9% to 20%. The General Fund emergency reserve is a minimum of 20% of operating expenditures. This funding level is based on GFOA best practices which recommends emergency reserves equivalent to at least two month’s operating expenditures, or 17%. Funding the reserve at 20% provides for cash flow fluctuations during a particular month and conservatively exceeds the GFOA minimum recommendation (17%). This additional 3% above the GFOA minimum recommendation can provide economic stabilization in times of an economic downturn. In FY 2023-24, the reserve will increase to $15.6 million based on the forecast.

Recommendation: No changes recommended.
$-
$5.0
$10.0
$15.0
$20.0
2019 2020 2021 2022 Projected 2023 Millions
General Fund Emergency Reserve
5 Year History of Reserve
Contibutions Emergency Reserve
Enterprise Emergency Reserve Emergency Reserve Category Purpose: The City’s enterprise fund emergency reserves are to fund unanticipated costs from unforeseen disasters and to provide a financial buffer to prevent a need to dramatically increase rates based on these unforeseen disasters.

Funding: The Enterprise Emergency Reserves are funded by one-time transfers of unassigned equity. If Emergency Reserves are utilized in an emergency, staff will develop a plan and present the plan in the next Long Term Financial Plan to replenish emergency reserves through rate changes or cost savings over a set timeframe.

Fiscal Policy: The City’s Enterprise Funds will maintain a minimum reserve level at least equal to 12% of operating expenses. The primary purpose of these reserves is to set aside funds to provide for emergency expenses that are unanticipated during the preparation of the budget.

Discussion/Analysis and Assessment: Enterprise operating fund emergency reserves are funded at 12% of operating costs based on GFOA’s best practices. Operating costs exclude capital, transfers, debt, and purchased water. Water, Golf, and Solid Waste Funds 12% emergency reserves are fully funded. The Golf Emergency Reserve is fully funded and based on previous LTFP’s inftrafund loan repayments to Golf capital reserves have been initiated.

Sewer Emergency Reserves are not funded and Depreciation reserves provided funds to maintain a positive working capital balance the last two years. A Sewer rate study is in process and will be presented to Council this year. Storm Drain Emergency Reserves are not funded and reserves are being depleted. Clean Ocean transfers to support assets contributed to the storm drain system have been reduced due the expiration of the fee, with a future fee election planned.

The chart above summarizes reserve requirements for each Enterprise Fund emergency reserve to maintain the 12% of operating costs. Emergency reserve level’s are as follows:

Requirement at
June 30, 2022
Requirement at
July 1, 2023
Funding available
at June 30, 2023
Water Fund $ 1,375,000 $ 1,478,000 $1,478,000
Sewer Fund 1,350,000 1,440,000 $570,000 (Not funded)
Golf Course Fund 292,000 330,000 $330,000
Storm Drain Fund 198,000 200,000 $57,000 (Not funded)
Solid Waste Fund 33,000 35,000 $35,000
Recommendation: No changes recommended.
$0.0
$0.5
$1.0
$1.5
$2.0
2019 2020 2021 2022 Projected 2023 Millions
Enterprise Emergency Reserves
5 Year History of Reserve
Sewer Water Solid Waste Storm Drain Golf
Fleet Replacement Reserve Capital/Infrastructure Reserve Category Purpose: Maintain a reserve for costs associated with the replacement of vehicles and other rolling stock (such as trailers, compressors or other equipment on wheels) as they become unserviceable, obsolete or reach a predetermined service life. The reserve will be maintained at a level at least equal to the projected five-year fleet replacement costs.

Funding: The Fleet Replacement Reserve is funded through annual replacement charges to funds that have fleet vehicles and equipment.

Fiscal Policy: Maintain a reserve for costs associated with the replacement of vehicles and other rolling stock (such as trailers, compressors or other equipment on wheels) as they become unserviceable, obsolete or reach a predetermined service life. The reserve will be maintained at a level at least equal to the projected five-year fleet replacement costs.

Discussion/Analysis and Assessment: The reserve is reviewed annually to verify funding is adequate to cover projected replacement costs for the next five years. The City’s fleet replacement value is $7.9 million. The schedule for replacements include $4.5 million during the next five years and $3.4 million for replacement after six years. This reserve is fully funded with a projected balance of $5.0 million at June 30, 2023.

Recommendation: No changes recommended.
$0.0
$2.0
$4.0
$6.0
$8.0
2019 2020 2021 2022 Projected 2023 Millions
Fleet Replacement Reserve
5 Year History of Reserve
Charges Fleet Replacement Reserve
Capital Equipment Replacement Reserve Capital/Infrastructure Reserve Category Purpose: The City sets aside funds for the replacement of existing General Fund fixed assets as equipment or machinery becomes unserviceable or obsolete.

Funding: The Capital Equipment Replacement Reserve is funded by capital replacement charges to the City General Fund. These replacement costs are charged over the estimated service life of the asset to the General Fund program that benefits. Funds are also transferred on a one-time contribution basis based on the estimated future activity identified.

Fiscal Policy: Maintain a Capital Equipment Replacement Reserve for the accumulation of funds for the replacement of worn and obsolete equipment other than vehicles. These reserves will be maintained at a level at least equal to the projected five-year capital asset replacement costs.

Discussion/Analysis and Assessment: As General Fund capital equipment is replaced, the capital costs are paid from this reserve. The replacement costs for these assets are charged to the benefiting General Fund program and transferred back to the Capital Equipment Replacement Reserve, thus accumulating funds to pay for future replacement of these assets. The projected fund balance at June 30, 2023 is $1.7 million and the anticipated five-year costs are fully funded.

Recommendation: No changes recommended.
$-
$0.50
$1.00
$1.50
$2.00
$2.50
2019 2020 2021 2022 Projected 2023 Millions
Capital Equipment Reserve
5 Year History of Reserve
Contributions Charges Capital Equipment Reserve
Park Asset Reserve Capital/Infrastructure Reserve Category Purpose: The Park Asset Reserve is used for replacement of park capital assets valued over $50,000 within city parks. This reserve is funding playground equipment replacements and setting aside funds for artificial turf replacement at the Vista Hermosa Sports Park.

Funding: In FY 2009-10, the City started funding this reserve through one-time transfers and reached the $1.2 million minimum reserve level in FY 2011-12. The City funds the reserve through General Fund charges and additional contributions based on annual reviews as part of the LTFP.

Fiscal Policy: The City will establish a Park Asset Replacement Reserve with a target balance of $1.2 million for the replacement of park assets. The reserve balance will be reviewed annually and funded through one-time revenues, or unassigned General Fund balance transfers, when available.

Discussion/Analysis and Assessment: The City pays for most park asset replacements on a “pay as you go” basis. Park assets total more than $70 million. Significant annual contributions would be required to set aside funds for all park system assets. The City has focused this reserve on maintaining high use park assets and identified artificial turf replacement and playground equipment for funding.

The projected balance at June 30, 2023 is $2.2 million. The City is utilizing the reserve to fund playground equipment based on replacement schedule that includes upgraded playground equipment from the existing equipment. As replacement projects are completed, replacement charges to the benefiting program replenish the Park Asset Reserve based on an estimated asset life. FY 2023-24 charges are anticipated at $210,000 and a one-time $300,000 transfer is recommended funding for artificial turf replacement that is in the 5 year horizon to supplement the current reserve. Staff is reviewing Lucity’s data and will identify additional assets (such as lights, restrooms, fields, courts, etc.) for inclusion if reserve levels exceed required funding levels in the Park Asset Reserve over time.

Recommendation: Transfer a one-time amount of $300,000 from the General Fund to the Park Asset Reserve in FY 2023-24.
$-
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
2019 2020 2021 2022 Projected 2023 Millions
Park Asset Reserve
5 Year History of Reserve
Contibutions Charges Park Asset Reserve
Water Fund Depreciation Reserve Capital/Infrastructure Reserve Category Purpose: The Water Depreciation reserve sets aside replacement funds for water capital assets and equipment that reach the end of their useful life and for major repairs to the water system infrastructure. This reserve includes Other Agency infrastructure assets that are owned, operated and maintained by Joint Regional Water Supply System and Santa Margarita Water District.

Funding: The Water Depreciation Reserve is funded by depreciation charges based on the useful life of the assets, and additional transfers from the operating fund based on an Asset Model amount. Additional one-time contributions are considered from available operating equity.

Fiscal Policy: The City will establish a Water, Sewer, Storm Drain and Golf Depreciation Reserve for costs associated with the major maintenance and capital improvement costs included in the Enterprise Fund budgets. The minimum reserve level shall be at a level equal to the projected three-year costs.

Discussion/Analysis and Assessment: Water infrastructure reserves have been underfunded for a long period of time. Council’s past actions increased contributions based on an Asset Model to close the funding gap. The projected ending reserve balance at June 30, 2023 is $12.8 million if all projects are completed. The three-year capital costs total $15.8 million. Therefore, the Depreciation Reserves are underfunded by $3.0 million, as compared to last years $6.0 million underfunding. The City is progressing toward funding three years of capital project activity based on the fiscal policy.

The Water Operating Fund contributed depreciation amounts of $1.9 million based on the useful life of water capital assets. Asset model contributions of $2.5 million address past underfunding, major maintenance costs, and joint agency assets. The underfunding of this reserve has fluctuated but recently is remaining stable. Contributions funding the reserve are increasing and slowly improving the underfunding levels, however a one-time transfer from the Water Operating Fund is proposed to improve funding levels. Staff will consider future additional reserve contributions based on funding levels.

Recommendation: Transfer a one-time amount of $2.0 million from the Water Operating Reserve in FY 2023-24 to the Water Depreciation Reserve to fund water asset replacement. $-
$5.0
$10.0
$15.0
$20.0
$25.0
2019 2020 2021 2022 Projected 2023 Millions
Water Depreciation Reserve
5 Year History of Reserve
Asset Model Contib. Charges Water Depreciation Reserve
FY 2023 includes
$13.7 million of
project costs
Sewer Depreciation Reserve Capital/Infrastructure Reserve Category Purpose: The Sewer Depreciation reserve set aside replacement funds for sewer capital assets and equipment that reach the end of their useful life and for major repairs to the sewer system infrastructure. This reserve includes Other Agency infrastructure assets that are owned, operated and maintained by the South Orange County Wastewater Authority.

Funding: The Sewer Depreciation Reserve is funded through depreciation charges based on the useful life of the assets and additional transfers from the operating fund based on an Asset Model amount. Additional one-time contributions are considered from available operating equity.

Discussion/Analysis and Assessment: Sewer infrastructure reserves have been underfunded for a long period of time. Council has taken action to increase contributions based on an Asset Model to narrow this funding gap. The projected ending depreciation reserve balance at June 30, 2023 is $3.1 million if all projects are completed. The three-year capital costs total $11.7 million.

Therefore, the Depreciation Reserve is $8.6 million underfunded. The City is in the process of reviewing the sewer rates and with the anticipated rate changes this funding level should be improved in the future.

The Sewer Operating Fund contributes $3.2 million based on depreciation and $0.2 million to set aside additional reserve funds. The depreciation funding amount is based on the estimated useful life of the capital assets. The reserves underfunding level remains, with the Sewer Treatment Plant continuing to age and new environmental regulations added, which will continue to add to the underfunding levels. Funding of the contributions should be maintained and if significant one-time resources are received staff will consider additional contributions to the depreciation reserves.

Recommendation: No changes recommended.
$-
$5.0
$10.0
$15.0
$20.0
2019 2020 2021 2022 Projected 2023 Millions
Sewer Depreciation Reserve
5 Year History of Reserve
Asset Model Contrib. Charges Sewer Depreciation Reserve FY 2023 includes
$10.3 million of
project costs
Storm Drain Depreciation Reserve Capital/Infrastructure Reserve Category Purpose: The Storm Drain Depreciation reserves set aside replacement funds for storm drain capital assets and equipment that reach the end of their useful life and for major repairs to the storm drain system infrastructure.

Funding: The Storm Drain Depreciation Reserve is funded through depreciation charges based on the useful life of the assets and additional transfers from the operating fund. Additional onetime contributions are considered from available operating equity.

Discussion/Analysis and Assessment: The projected ending balance at June 30, 2023 is $1.5 million and the three-year capital costs total $6.4 million. Therefore, the Depreciation Reserve is underfunded by $4.9 million. The Storm Drain charge was adopted in 1993 (Ord. 1120) and has not kept pace with inflationary increases. The Storm Drain Master Plan identifies and determines the needs of the Storm Drain system. Funding options include increases to the Storm Drain fee, assistance through any Clean Ocean renewal, grants, or actions based on recent or future legislative actions or interpretation. Recent legislation passed may allow increases to Storm Drain fees through a process similar to water and sewer rates if certain criteria and conditions are met, however the process is not validated through court opinions.

The Storm Drain Depreciation Fund contributes $800,000 based on depreciation funding and an additional reserve contribution of $90,000 for a total contribution of $890,000 in FY 2023-24. The depreciation funding amount is based on the estimated useful life of the capital assets. The additional contribution is estimated to fund past costs of the reserve.

Staff is monitoring legislative developments to modify Storm Drain fees to meet the cost demands placed on the City’s public storm drain system.

Recommendation: No changes recommended.
$-
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
2019 2020 2021 2022 Projected 2023 Millions
Storm Drain Depreciation Reserve
5 Year History of Reserve
Contributions Charges Sewer Depreciation Reserve
FY 2023 includes
$0.6 million of
projects
Golf Depreciation Reserve Capital/Infrastructure Reserve Category Purpose: The Golf Depreciation reserve sets aside replacement funds for equipment, machinery, and buildings that reach the end of their useful lives. The Golf Depreciation Reserve assets (buildings, machinery, and equipment replacements) can have useful lives between 5-50 years.

Funding: The Golf Depreciation Reserve is funded through depreciation charges based on the useful life of the assets and from contributions made under the lease arrangement with Wedgewood, the restaurant concessionaire.

Discussion/Analysis and Assessment: The available ending balance projected at June 30, 2023 is $2.2 million. This amount does not include the receivable from an internal loan ($1,250,000) to Golf Operating, which is not considered available. Projected capital expenses for the next three years total $217,500. Therefore, the Depreciation Reserve is funded. Annual amounts placed into this reserve are based on the depreciation of the assets in service.

Recommendation: No changes recommended.
$-
$0.5
$1.0
$1.5
$2.0
$2.5
2019 2020 2021 2022 Projected 2023 Millions
Golf Depreciation Reserve
5 Year History of Reserve
Charges Golf Depreciation Reserve
Golf Improvement Reserve Capital/Infrastructure Reserve Category Purpose: The Golf Capital Improvement Reserve was established to set aside funds for capital improvements in the Golf Course Fund. The Improvement Reserve is to provide funds for green and tee reconstruction, fencing and other miscellaneous golf improvements based on depreciation of these improvement assets.

Funding: The Golf Improvement Reserve is funded through depreciation charges based on the useful life of the assets.

Fiscal Policy: The City will maintain a Golf Capital Improvement Reserve for costs associated with capital improvements budgeted in the Golf Course Fund. The reserve will be maintained at a level at least equal to the projected three-year costs.

Discussion/Analysis and Assessment: The Golf Capital Improvement Reserve at June 30, 2023 is projected to have an ending balance of $1.3 million. This amount does not include the receivable from an internal loan ($300,000) to Golf Operating, which is not considered available. Projected expenses for the next three years total $387,000. Therefore, the Improvement Reserve is funded.

Annual amounts placed into this reserve are based on the golf improvement depreciation amounts.

Recommendation: No changes recommended.
$-
$0.5
$1.0
$1.5
2019 2020 2021 2022 Projected 2023 Millions
Golf Improvement Reserve
5 Year History of Reserve
Charges Golf Improvement Reserve
Accrued Leave Reserve Miscellaneous Reserve Category
Purpose: The City reserves amounts for the payment of vacation and sick leave payoffs for General Fund eligible employees. Amounts are set aside in a separate reserve for this purpose.

An annual amount is budgeted from this reserve to payoff General Fund employee’s vacation and sick leave balances for employees eligible to retire based on the personnel policies of the City.

These payments are due upon separating from the City.

Funding: The Accrued Leave Reserve is funded through transfers of unassigned General Fund balance. The reserve contribution is determined annually based on the reserve balance, funding requirements, and leave balances.

Fiscal Policy: Maintain an account to accumulate funds for the payment of accrued employee benefits to terminated employees. This reserve will be maintained at a level at least equal to projected costs for employees who are eligible for retirement.

Discussion/Analysis and Assessment: When a General Fund employee leaves employment, their accrued leave is paid from this reserve. The reserve requirement (accrued leave dollar value) fluctuates annually based upon the eligible employees, length of service, pay rates and hours accrued. At June 30, 2022, the total General Fund accrued leave liability was $1.1 million, with $391,000 available for retirement eligible employees. MOU salary increases and employee changes effect the status of this reserve. The projected ending balance for the Accrued Leave Reserve as of June 30, 2023 is $728,000 and the projected ending liability is $658,000.

The Accrued Leave Reserve is funded with no additional contribution required to address future salary/pay increases as investment earnings offsetting future increases.

Recommendation: No changes recommended.
$-
$0.25
$0.50
$0.75
$1.00
$1.25
2019 2020 2021 2022 Projected 2023 Millions
Accrued Leave Reserve
5 Year History of Reserve
Contributions Accrued Leave Reserve
State Revolving Loan Reserve Miscellaneous Reserve Category Purpose: The City of San Clemente entered into a loan agreement with the California State Water Resources Control Board under the Clean Water State Revolving Fund (CWSRF) loan program for financing construction of the Recycled Water System Expansion Project. As required under the State Revolving Loan, one year’s annual debt service payment is to be maintained in a reserve.

Funding: The reserve was funded through a one-time contribution from the Operating Fund in the amount of $900,600. This is equal to one year’s debt service.

Fiscal Policy: The City will establish a restricted reserve in the Water Operating Fund equal to one year’s debt service on the State Revolving Loan. The purpose of this reserve will be to provide a debt reserve as required under the State Revolving Loan financing agreement.

Discussion/Analysis and Assessment: The City loan amount outstanding as of June 30, 2022 is projected to be $10.1 million. This loan is being amortized over a period of 20 years and the loan is anticipated to be paid in full in FY 2034-35. The reserve was first funded in FY 2015.

The repayment of this loan is secured by the net revenues of the Water Fund with a revenue coverage level of 110% of the annual debt service. There is no change in the reserve level.

Recommendation: No changes recommended.
$-
$0.25
$0.50
$0.75
$1.00
2018 2019 2020 2021 Projected 2022 Millions
State Revolving Loan Reserve
5 Year History of Reserve
Contibutions State Revolving Loan Reserve
General Liability Reserve Miscellaneous Reserve Category Purpose: The City is a member of California Joint Powers Insurance Authority (CJPIA). CJPIA administers programs for the pooling of self-insured losses, and the purchase of excess insurance or reinsurance. Losses excluded from the CJPIA coverage include 1) breach of contract, 2) land use entitlement, 3) eminent domain, 4) hazardous materials release, and 5) punitive damages.

This reserve fund provides stabilization of the other fund charges and for losses not covered.

Funding: The General Liability Reserve is funded through charges to other funds. Charges are based on two key factors: 1) Five-year average of historical claims for risk by fund which accounts for 25% of the basis for the charge (limited to the claims coverage level). 2) A fund’s budgeted expenditures as a percentage of total budgeted expenditures which accounts for 75% of the basis for the charge.

Fiscal Policy: Maintain a reserve in the City’s self-insurance fund which, together with purchased insurance policies, adequately protects the City. The City will maintain a reserve of one times its annual insurance authority premium. In addition, the City will perform an annual analysis to document claims which are not covered by the insurance pool to which the City belongs, and reserve an additional appropriate amount to pay for such uncovered claims.

Discussion/Analysis and Assessment: The reserve requirement is at least one times the annual risk financing premium (contribution) to absorb contribution fluctuations based on claims activity. The City’s CJPIA premium for FY 2022-23 is estimated at $2.2 million, which would be the reserve requirement. The projected General Liability balance at June 30, 2023 is $5.5 million.

The City has $3.0 million retained that exceeds the reserve requirement in the General Liability Fund to pay significant one-time costs and fund claims not covered through CJPIA coverage. The City is party to multiple lawsuits regarding non-covered items and other claims which may be outside of CJPIA coverage.

Recommendations: No changes recommended.
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
2019 2020 2021 2022 Projected
2023 Millions
General Liability Reserve
5 Year History of Reserve
Charges General Liability Reserve
Reserve Analysis
ATTACHMENT A – Insurance Charges
General Liability charges
The following table shows the calculations for charges to other funds for FY 2023-24:
% of Past
Claims
(25%)
% of Budgeted
Expenditures
(75%)
Total % of
General
Liability
Charges
(weighted
average)
Total Charge
for General
Liability
FY 2023-24
Total Charge
for General
Liability
FY 2022-23
General Fund 76.9% 66.7% 69.3% $ 1,870,050 $ 1,894,860
Water Fund 16.2% 17.5% 17.2% 463,920 462,960
Sewer Fund 5.4% 7.5% 7.0% 188,580 155,280
Solid Waste Fund 0.7% 0.2% 0.3% 9,060 6,720
Storm Drain Fund 0.4% 0.7% 0.6% 17,400 18,090
Golf Course Fund 0.0% 2.4% 1.8% 48,810 41,790
Clean Ocean Fund 0.4% 1.4% 1.1% 30,540 35,520
Central Services Fund 0.0% 0.5% 0.4% 9,360 10,320
Information Services Fund 0.0% 1.9% 1.4% 38,280 40,380
Fleet Maintenance Fund 0.0% 1.2% 0.9% 24,000 22,080
Total 100.0% 100.0% 100.0% $2,700,000 $2,688,000
Workers Compensation Reserve Miscellaneous Reserve Category Purpose: The City is self-insured for Workers’ Compensation coverage and purchases. The Public Risk Innovation, Solutions, and Management (PRISM) Insurance Authority provides coverage for Workers’ Compensation claims in excess of $300,000, which is the City’s Self-Insurance Retention (SIR) amount.

Funding: The Workers Compensation Reserve is funded through internal service charges to all City funds based on payroll costs. These charges are based on employee classifications and the type of work performed (e.g. manual labor, non-manual and clerical, etc.). These internal charges are placed into the Workers’ Compensation Fund to pay workers compensation claims and administrative costs.

Fiscal Policy: Maintain a reserve at a level which, together with purchased insurance policies, adequately protects the City. The City will maintain a reserve of three times its self insurance retention for those claims covered by the insurance pool. In addition, the City will perform an annual analysis of past claims not covered by the insurance pool and reserve an appropriate amount to pay for uncovered claims.

Discussion/Analysis and Assessment: The City’s fiscal policy requires a reserve equal to $900,000 (three times the SIR). Staff modified the reporting of the reserve so claims reduce the asset amount to arrive at the reserve balance. At June 30, 2023, projected assets of $1.9 million reduced by claims payable of $0.6 million leaving a projected reserve balance at $1.3 million. The City exceeds the reserve level of $900,000 set through fiscal policy.

Based on cash amounts available, current claims and anticipated recoveries, staff is recommending no changes to the reserve policy of three times the SIR amount ($900,000 level).

The rates have been adjusted downward and are anticipated to provide adequate funds to maintain the reserve level and fund claims activity. Rate increases would occur in future years if claims activity or the premium increases substantially lowering the reserve funds available.

Recommendation: No changes recommended.
$-
$0.50
$1.00
$1.50
$2.00
2019 2020 2021 2022 Projected 2023 Millions
Workers' Compensation Reserve
5 Year History of Reserve
Charges Workers' Compensation Reserve

Fiscal Policy
Objective
Review the City’s adopted Fiscal Policy on an annual basis to determine appropriate changes, additions or deletions.

Background
A review of the City Council Fiscal Policy is conducted on an annual basis in conjunction with the preparation of the Long Term Financial Plan. This review is performed to document proposed policies identified through the preparation of the Long Term Financial Plan. Additionally, there are occasions to modify existing fiscal policies to address changing circumstances change.

The Fiscal Policy statements are presented by major categories, which include:
 Core Values of Financial Sustainability
 Operating Budget
 Revenue
 Expenditure
 Utility Rates and Fees
 Capital Improvements
 Short Term Debt
 Long Term Debt
 Fund Balance and Reserves
 Investment Policies
 Accounting, Auditing, and Financial
Reporting
 Long Term Financial
 Risk Financing
 Pension
A Status for each Policy Statement is presented with a √ for “in compliance” or ˉˉ if the policy is “not in compliance” with the Policy statement.

Comments are provided next to many of the policy statements to provide additional relevant information. Unless otherwise noted, reserve balances provided in the comment section are based on projected numbers as of June 30, 2023, presented within the Reserve Analysis Paper in this year’s Long Term Financial Plan.

On November 1, 2022 City Council took an action to address modifying Fiscal Policy to earmark certain revenues for pension paydown. The Fiscal Policy modifications required based on this Council recommendation are presented below:

Council Recommendation
Remove the following revenue policy:
“General fund revenue categories (sales tax revenue by example) may not be committed directly to fund a specific expenditure line item or program.”
Add the following revenue policy:
“Allocate one-third of total Transient Occupancy Tax dollars toward the unfunded pension liability.”
Fiscal Policy
1BCore Values of Financial Sustainability
Financial stability – The City will create financial stability to provide the community with a consistent and adequate level of public services. The City will take a long-term approach to its finances by developing and maintaining long-term plans, carefully weighing the cost and benefits of development opportunities and adhering to sound debt, reserve and investment policies.

Quality of life and local economic vitality – The City will provide effective and efficient services to ensure a safe and healthy atmosphere for its residents, businesses and visitors, while preserving and enhancing its unique cultural and environmental attributes.

Accountability and Financial Planning – The City will institute financial planning that ensures City services are provided at the best value, and that the services are in alignment with the needs and wants of the community.

Environmental and economic sustainability – The City’s financial strategy will support continued investment in the renovation and maintenance of physical infrastructure/facilities and in policies and programs that support a clean and healthy natural environment.

Transparency and engagement – The City will be accountable for producing value for the community by producing planning and report mechanisms that make it clear how the City plans to use its resources to achieve the community vision. The City is committed to engaging the public as a partner in formulating plans and delivering services. 2BFiscal Policy Statement 3BStatus 4BComments
5Operating Budget Policies
1 The City will adopt a balanced budget by June 30 of each year. A balanced budget is defined as one in which total expenditures equal total revenue. An entity has a budget surplus if expenditures are less than revenues. It has a budget deficit if expenditures are greater than revenues. √
2 An annual base operating budget will be developed by
verifying or conservatively projecting revenues and
expenditures for the current and forthcoming fiscal year. √
3 Current revenues will be sufficient to support current operating expenditures and a budgeted positive
operating position will be maintained.
√

Fiscal Policy
2BFiscal Policy Statement 3BStatus 4BComments
4 The City will annually review the General Fund operating position to determine if funds are available to operate and maintain future capital facilities. If funding is not available for operations and maintenance costs, the City will delay construction of the new facilities.
√
Revenue Policies
5 The City will try to maintain a diversified and stable revenue system to shelter it from short-term fluctuations in any one revenue source.
√
6 The City will estimate its annual revenues by an objective, analytical process utilizing trend, judgmental, and
statistical analysis, as appropriate.
√
7 All City Council-established General Fund User fees will be reviewed and adjusted annually as part of the budget process by each City department and the analysis with
recommended changes will be provided to the City
Council. The basis for adjustment will be the cost of
providing services, inflationary impacts, or other
budgetary factors as appropriate. User fees will be
established to recover the full cost of services provided, except when the City Council determines that a subsidy
from the General Fund is in the public interest.
√ Annual review is
presented in the Fee
Schedule section of the
Operating Budget.
8 One-time operating, capital, and reserve revenues will be used for one-time expenditures. Exceptions must be
formally adopted by Council Action and may only offset
operating expenditures for a limited time period of less than five fiscal years.
√
9 The City will annually identify developer fees and permit charges received from “non-recurring” services
performed in the processing of new development and
use those funds to meet peak workload requirements.
√
10 General fund revenue categories (sales tax revenue by example) may not be committed directly to fund a
specific expenditure line item or program.
√
Fiscal Policy
2BFiscal Policy Statement 3BStatus 4BComments
Expenditure Policies
11 The purchase of new or replacement capital equipment with a value of $5,000 or more and with a minimum
useful life of two years will require budget approval.
√
12 The City will annually project its equipment replacement and maintenance needs for the next five years and will
update this projection each year. A maintenance and replacement schedule will be developed and followed. √
Utility Rates and Fees Policies
13 The City will set fees and user charges for each utility fund at a level that fully supports the total direct and indirect cost of the activity. Indirect costs include the cost of annual depreciation of capital assets and overhead charges. √ A Cost of Service study is
in progress for Sewer
rates.
14 Utility rates will be established for each of the next five years and this rate projection will be updated annually. √
Capital Improvement Budget Policies
15 The City will make all capital improvements in accordance with an adopted capital improvement program and will include an annual six-year plan for capital
improvements (CIP design, development,
implementation, and operating and maintenance costs).

The first year of the six-year plan must be fully funded in the adopted budget. Projects that are not fully funded
must be removed or delayed until adequate funding
exists for design, construction, operating and
maintenance.
√
16 Capital improvement projects must project operating
and maintenance costs for the five-year forecast period to ensure that future year budgets maintain a positive
operating position.
√
17 The Park Acquisition & Development Fund and other
special development impact funds may only be used to
fund facilities included in the Master Plan for City
Facilities.
√
Fiscal Policy
2BFiscal Policy Statement 3BStatus 4BComments
Short-Term Debt Policies
18 The City may use short-term debt to cover temporary
or emergency cash flow shortages. All short-term
borrowing will be subject to Council approval by
ordinance or resolution.
√
19 The City may issue interfund loans to meet short-term cash flow needs. Short-term is defined as a period of
one year or less. Interfund loans will be permitted only if a specific source of repayment is identified within the “borrowing” fund. Excess funds must be available and
the use of these funds will not impact the “lending”
fund’s current operations. The prevailing interest rate, as established by the City Treasurer, will be paid to the lending fund. Short-term interfund loans require
Council approval.
√
7BLong-Term Debt Policies
20 The City will confine long-term borrowing to capital improvements that cannot be funded from current revenues. √
21 The City may issue long-term interfund loans to fund capital improvements. Interfund loans will be
permitted only if a specific source of repayment is
identified within the “borrowing” fund. Excess funds
must be available and the use of these funds will not
impact the “lending” fund’s long-term operations.

Long-term interfund loans will be fully amortized
(principal and interest included in payment). The
prevailing interest rate and duration of the loan will be established by the City Treasurer. Principal and interest will be paid to the lending fund. Long-term interfund
loans require Council approval. Long-term interfund
loans will be disclosed in the City’s annual Operating
Budget.
√
Fiscal Policy
2BFiscal Policy Statement 3BStatus 4BComments
22 The City will establish and maintain a Debt Policy.
23 The City will establish a restricted reserve in the Water Operating Fund equal to one year’s debt service on the
State Revolving Loan. The purpose of this reserve will
be to provide a debt reserve as required under the State Revolving Fund loan financing agreement.
√
√ State Revolving Loan
Reserve = $900,600
Fund Balance and Reserve Policies
24 The City will maintain emergency reserves equal to 20% of operating expenditures of the General Fund. The
primary purpose of this reserve is to provide stability during a significant economic downturn, or to offset a
significant one-time loss of revenue. The reserve exists to provide short-term funding to protect the City’s
essential service programs and funding requirements or
to provide for unanticipated or emergency
expenditures that could not be reasonably foreseen
during preparation of the budget.
√ Emergency Reserve =
$15.6 million, or 20%, of
General Fund operating
expenditures forecasted
at $77.8 million
25 The City will maintain emergency reserves equal to 12% of the operating expenses for Enterprise Funds. The
primary purpose of these reserves is to protect the
Funds during periods of economic downturn, other
unanticipated expenses, or emergency expenses that
could not be reasonably foreseen during preparation of
the budget.
ˉˉ Emergency Reserves for:

Water = $1,478,000;
Sewer = not funded;
Storm Drain = not
funded;
Solid Waste = $35,000;
and Golf = $330,000
26 The City will establish an account to accumulate funds to be used for payment of accrued employee benefits
for terminated employees. The level of this reserve will be maintained at a level at least equal to projected costs for employees who are eligible for retirement.
√ Accrued Leave Reserve =
$728,000
Fiscal Policy
2BFiscal Policy Statement 3BStatus 4BComments
27 The City will establish a Capital Equipment Replacement Reserve and a Facilities Maintenance Capital Asset
Reserve for the accumulation of funds for the
replacement of worn and obsolete equipment other
than vehicles and for costs associated with the
maintenance of all City facilities. These reserves will be maintained at a level at least equal to the projected
five-year capital asset replacement and maintenance
costs.
√ Capital Equipment
Reserve = $1.7 million
Facilities Maintenance
Reserve = $5.1 million
28 The City will establish Water, Sewer, Storm Drain and Golf depreciation reserves for costs associated with the major maintenance and capital improvement costs
included in the Enterprise Funds. The minimum reserve
level shall be at a level equal to the projected three-year capital and major maintenance costs.
ˉˉ Water Depreciation
Reserve = $12.8 million;
Sewer Depreciation
Reserve = $3.4 million;
Golf Depreciation
Reserve = $2.2 million;
and Storm Drain
Depreciation Reserve =
$1.5 million
29 The City will establish a Golf Course Improvement
reserve for costs associated with capital improvements
budgeted in the Golf Course Fund. The reserve will be
maintained at a level at least equal to the projected
three year costs.
√ Golf Course
Improvement Reserve =
$1.3 million
30 The City will establish a Park Asset Replacement
Reserve with a target of $1.2 million for the
replacement of park assets in the future. The reserve
balance will be reviewed annually and funded through
one-time revenues or undesignated General Fund
balance transfers, when available.
√ Park Asset Replacement
Reserve = $2.2 million
31 The General Liability self-insurance reserve will be maintained at a level which, together with purchased
insurance policies, adequately protects the City. The
City will maintain a reserve of one times its annual
insurance authority premium. In addition, the City will perform an annual analysis to document those claims
which are not covered by the insurance pool to which
the City belongs, and reserve an additional appropriate amount to pay for such uncovered claims.
√ General Liability Reserve
= $5.5 million
Fiscal Policy
2BFiscal Policy Statement 3BStatus 4BComments
32 The Workers’ compensation self-insurance reserve will be maintained at a level which, together with
purchased insurance policies, adequately protects the
City. The City will maintain a reserve of three times its self insurance retention for those claims covered by
the insurance pool (of which the City is a member). In
addition, the City will perform an annual analysis of
past claims not covered by the insurance pool, and
reserve an appropriate amount to pay for uncovered
claims.
√ Workers Compensation
Reserve = $1.3 million
33 The City will establish a Fleet Replacement Reserve for costs associated with the replacement of vehicles and
other rolling stock (such as trailers, compressors or
other equipment on wheels) as they become
unserviceable, obsolete or reach a predetermined
service life. The reserve will be maintained at a level at least equal to the projected five-year fleet
replacement costs.
√ Fleet Replacement
Reserve = $5.0 million
9BInvestment Policies
34 The City Treasurer will annually submit an investment policy to the City Council for review and adoption.
√
10B
Accounting, Auditing & Financial Reporting Policies
35 The City’s accounting and financial reporting systems will be maintained in conformance with generally accepted accounting principles and standards of the Government Accounting Standards Board.
√
36 An annual audit will be performed by an independent
public accounting firm with the subsequent issue of an
official Comprehensive Annual Financial Report,
including an audit opinion.
√
37 A fixed asset system will be maintained to identify all City assets, their condition, historical cost, replacement value, and useful life. √ A Fixed Asset inventory
is maintained as part of
GASB34
Fiscal Policy
2BFiscal Policy Statement 3BStatus 4BComments
38 Quarterly financial, capital improvement program and investment reports will be submitted to the City Council and will be made available to the public. √
39 An annual revenue manual will be prepared after the
close of the fiscal year. The manual will provide
information on the revenue source, legal
authorization, timing of receipts and historical
collection over the last five year period. Fee schedules or calculations will also be provided.
√
40 Full and continuing disclosure will be provided in the general financial statements and bond
representations.
√
41 A good credit rating in the financial community will be maintained.
√ Standard &
Poor's = AAA
42 Establish and maintain a formal compensation plan for all employee salary or wage ranges and maintain a
formal salary schedule for every approved position
title showing the current pay rate for each identified
position. The salary schedule will be approved and
adopted by the City Council and will be made publicly
available
√
43 Establish a position control system to ensure that
staffing levels are maintained at the levels approved by City Council.
√
Long Term Financial Policies
44 Annually prepare a five year forecast that maintains the current level of services, including known changes
that will occur during the forecast period. If the
forecast does not depict a positive operating position
in all five-years of the forecast, the City will strive to balance the operating budget for all years included in
the five-year financial forecast.
√
Fiscal Policy
2BFiscal Policy Statement 3BStatus 4BComments
45 Annually evaluate trends from a budget-to-actual
perspective and from a historical year-to-year
perspective to identify areas where resources have
been over allocated. This would improve the accuracy
of revenue and expenditure forecast by eliminating
the impact of recurring historical variances.
√ Reviewed during the
budget process
Risk Financing Policies
46 The City will maintain adequate insurance coverage,
pooled coverage, or self-insurance for general liability, property, errors and omissions, subsidence,
automobile liability, workers’ compensation, and
other identified loss exposures.
√
47 The City will maintain a risk financing strategy, which shall include an annual review of insurance policy
limits, types of coverage, reserve requirements, and
self-insurance limits, if applicable.

Pension Policies
48 The required actuarial contributions shall be made to cover the current service cost and unfunded liabilities based on the actuarially determined contribution rate.
49 Annually, review the City Pension plans funding levels of and identify areas where funding may be utilized to
target a funding ratio of 90% or higher for each of the City’s individual pension plans.
√
√
√
Legend:
√ Budget Complies with Fiscal Policy Standard
-- Fiscal Policy Standard is not met in Budget
Note: Reserve balances are the estimated amounts as of June 30, 2023.

Information Technology Strategic Plan Update
Objective
The Information Technology Strategic Plan (ITSP) has been updated to maintain a comprehensive plan to guide Information Technology decision making, budgeting, and implementations across all City functions and operations over the next five years.

Background
Originally adopted as part of the 2015 Long Term Financial Plan, the ITSP has been developed to serve as a roadmap for strategic technology projects that are anticipated over the upcoming five year period, similar to the City’s Capital Improvement Program (CIP). The plan is updated annually to reflect new technology initiatives and technological advancements, while adapting to changing business needs and financial conditions. As recommended in the Information Technology Assessment prepared by Nexlevel Information Technology, Inc. and presented to City Council on May 6, 2014, the ITSP and the Long Term Financial Plan are developed in concert,such that the ITSP is aligned with the City’s business priorities. Details of the plan are developed by the Information Technology Division with input from each of the City’s departments through the IT Steering Committee. The ITSP outlines how the IT Division will align with City Departments to help achieve organizational goals and deliver services to the community.

Executive Summary
The annual Information Technology Strategic Plan Update includes an updated listing ofstrategic projects, generated through a collaborative process that involved both the IT Division and IT Steering Committee, which includes Department representatives and subject‐matter experts.

The ITSP aims to satisfy current and future technology‐related needs for all Departments/Divisions of the City, with the ultimate goal of improving delivery of City services.

The plan charts a course for future City technology investments that are appropriately aligned with Departmental goals and priorities. The plan includes a series of achievable projects and initiatives recommended for implementation over the next one to five year time span. Similar to the City’s annual Capital Improvement Program, estimated expendituresfor strategic technology projects have been scheduled over the 5 year period.

The ITSP Update includes a status report for IT projects that are scheduled and underway in the current fiscal year, as well as cost and scheduling refinements for projects that are planned for the future. In addition to a listing of projects and initiatives that are planned in the coming fiscal year, ‘Attachment A’ provides greater detail about these items.

Adjustments to the ITSP for this 2023 Update can be categorized into 3 areas:
 General Scheduling and Cost Estimate Adjustments
 New Technology Initiatives
 Refinement of Departmental Priorities and Workloads
The ITSP Update concludes with a comprehensive 5 Year Budget Summary of current and future strategic technology projects.

Information Technology Strategic Plan Update
Current Information Technology Environment
Technology plays an essential role in the delivery of City services, as nearly every City employee utilizes information technology systems to perform their duties. This plan represents an ongoing process to utilize technology to improve City operations and overall service delivery, streamline operations to achieve cost efficiencies and increase productivity, and govern in an open and transparent manner.

The City’s technology environment consists of a broad array of computing hardware, network equipment and infrastructure, software/applications and data repositories. The Information Technology Division is responsible for all of the organization’s network and communications infrastructure, technology hardware (networking, servers, PCs, laptops, telephones, and audio/video), software deployment and maintenance, user training and support, cybersecurity, technology planning activities and project management. The City maintains a secure and reliable “state‐of‐the‐art” enterprise data center, as well as a secondary data center at an alternate location. In addition to end user support and the ongoing maintenance of existing equipment, systems, and infrastructure, IT staff are responsible for managing technology projects and acting as technical consultants to City Departments. The IT Division consists of six full time positions that support and manage all aspects of City technology systems, including the following:
 250+ Workstations / 300+ Computer Users
 Distributed network servicesthroughout 9 City facility locations, including both wired and wireless connectivity.
 SCADA (Supervisory Control and Data Acquisition) Network for Water and Wastewater Utilities
 Traffic Signal Synchronization and Control Network
 25 Physical Servers and Storage Appliances, 52 Virtual Servers  Network Switches, Routers and Firewalls
 Cabling and Network Infrastructure
 Telephony and Communications
 Telephones, Tablets and Smartphones
 Printers, Copiers and Scanners
 Council Chambers and Meeting Room Audio/Visual Equipment  Observation Cameras and Video Management System
 Weather Station
 City Website and related online services
 Implementation, maintenance, administration, and support of 40+ software applications  Security Information and Event Management
 Geographic Information Systems (GIS)
 User Training, Helpdesk, and Support – 2,533 service tickets completed in 2022.

Information Technology Strategic Plan Update
Strategic Technology Project Status Update
Since the ITSP was first adopted in 2015, a number of projects have been successfully planned, budgeted, and completed. The following table outlines these projects as of February, 2023:

Completed Strategic Technology Projects   Dept/Div Status EOC Laptop Replacements IT Completed FY 2015‐16
Secondary Malware Prevention System   IT Completed FY 2015‐16 Unalterable Electronic Data Storage Appliance   IT Completed FY 2015‐16 Enhanced GIS Workstations   CD Completed FY 2015‐16
Replace Tele‐Works IVR for Building Inspection Requests CD Completed FY 2015‐16 Mobile Device Management Solution IT Completed FY 2016‐17 Network Monitoring Software   IT Completed FY 2016‐17
Server Replacements / VMWare Upgrade IT Completed FY 2016‐17 Technology Training Initiative – Cyber Security Training IT Completed FY 2016‐17 Electronic Submittal/Tracking/Delivery of PRA requests.    Clerk Completed FY 2016‐17 Vendor and Bid Management Software Clerk Completed FY 2016‐17 Expansion of ESRI Enterprise License Agreement   CD Completed FY 2016‐17 Replace/Upgrade Customer Queuing System   CD Completed FY 2016‐17 Upgrade from TRAKiT.net to TRAKiT 9 (Assessment in FY 2016‐17) CD Completed FY 2016‐17 OHBC Staffing/Re‐opening IT Needs Recreation Completed FY 2016‐17 Recreation Management Software Upgrade/Replacement Recreation Completed FY 2017‐18 DataCenter Improvements (CIP) FY 2016‐17 IT Completed FY 2017‐18 Citywide Structured Cabling Upgrade IT Completed FY 2017‐18 GIS Web Enhancement Development – ArcGIS Online IT Completed FY 2017‐18 Budget for GIS Data Development and Engineer Services IT Completed FY 2017‐18 Payment Processing System and Utility Billing IVR FAS Completed FY 2018‐19 Upgrade of Data Storage Infrastructure (SAN) IT Completed FY 2018‐19 Network Infrastructure / Equipment Upgrade   IT Completed FY 2018‐19 City Hall Relocation to 910 Calle Negocio IT Completed FY 2018‐19 Building Inspector Field Tablets IT Completed FY 2018‐19 Technology Training Initiative – Equipment for Negocio Conference Rm A
IT Completed FY 2018‐19
Telephone System Replacement   IT Completed FY 2019‐20
Video System and Camera Enhancements IT Completed FY 2019‐20 Mobile Animal Services / Code Compliance / Water Quality Officers AS/Util/CD Completed FY 2019‐20 Windows 10 Upgrade IT Completed FY 2019‐20
Firewall Replacement/Upgrade IT Completed FY 2019‐20
Negocio Building Renovation Technology Elements – Phase I IT Completed FY 2019‐20 Integration of GIS with TrakIT Permitting IT/CD/PW Completed FY 2020‐21 Website ADA compliance software procurement and
implementation
IT Completed FY 2020‐21
Information Technology Strategic Plan Update
Negocio Building Renovation Technology Elements – Phase II & III IT Completed FY 2020‐21 Security Information and Event Management Service
Implementation
IT Completed FY 2020‐21
Cyber Security Vulnerability Assessment / Penetration Test IT Completed FY 2020‐21 Trakit Online Payment Gateway Migration IT Completed FY 2020‐21 Park Ranger Technology Improvements IT Completed FY 2020‐21 Special Event Permit Software (processing software for special event permits (SEP) and commercial film permits)
Recreation Completed FY 2020‐21
File Transfer Service (send and receive large data files between City staff, contractors and the public)
IT Completed FY 2020‐21
Online Appointment Scheduling for Community Development Counter
IT Completed FY 2020‐21
Online Business License Renewal Expansion (Contractor License Types)
IT / FAS Completed FY 2020‐21
GIS – (5) Upgraded workstations for Public Works/Engineering staff. IT Completed FY 2020‐21 GIS ‐ Aerial Imagery Update / Remote Sensing – OCDAP Cycle 1 IT Completed FY 2020‐21 Recreation Facility Digital Displays IT /
Recreation
Completed FY 2021‐22
Negocio Building Renovation Technology Elements – OCSD
Substation on Second Floor
IT Completed FY 2021‐22
Additional cameras at 910 Calle Negocio IT Completed FY 2021‐22 Microsoft Exchange Online Advanced Threat Protection IT Completed FY 2021‐22 SCADA Data Storage Upgrade IT Completed FY 2021‐22
Agenda / Legislative Management System – Phase I – Internal Agenda, Report, and Minute Production.

IT/City
Clerk
Completed FY 2022‐23
Information Technology Policy and Procedure Updates IT Completed FY 2022‐23 Multi‐factor Authentication for O365 IT Completed FY 2022‐23 There are many Information Technology projects budgeted and in varying stages of planning and completion in the current fiscal year. The table below identifies projects that are budgeted and scheduled, along with the status of each project as of February, 2023. The majority of these projects were identified in the 2015 ITSP and the subsequent ITSP Updates, while some of the items have been approved directly through the annual budget process:

Current Strategic Technology Projects Dept/Div Status
Council Chambers Technology Elements /
Cable TV Equipment Replacement
IT/Public
Works
Preliminary system implemented in
September 2022. Additional features
scheduled for deployment in Summer 2023.

Upgrade from TRAKiT.net to Community
Development (Comprehensive update of
the City’s Permitting and Licensing
System)
IT/CD/PW SB2 grant funding to offset project cost.

Software migration completed in December
2022. Online building permit applications
being deployed in Winter 2023.

Agenda / Legislative Management System
– Phase II
IT/City Clerk Online Agenda Distribution / Broadcast Portal anticipated to launch in Spring 2023.

Backup System Upgrade IT Procurement underway. Implementation planned in Spring 2023.

Information Technology Strategic Plan Update
Electronic Document Management System
Assessment / Replacement
IT/Clerk Replacement options currently being
evaluated.

GIS ‐ Aerial Imagery Update / Remote
Sensing – OCDAP Cycle 2
IT Delivery anticipated in Spring 2023.

Electronic Plan Review IT/CD/PW Phase 1 complete. Additional staff training scheduled in Spring/Summer 2023.

IT Division On‐call Staffing (One IT Analyst
position throughout the year)
IT Implementation scheduled for Summer 2023.

Contract and Insurance/Securities
Certificate Management
IT/Clerk On hold; dependent upon capabilities of
Electronic Document Management System
upgrade.

SCADA Server Platform Upgrade IT/Utilities Project completion scheduled for March 2023.

FY 2023‐24 Strategic Projects
A number of Information Technology‐related projects listed in the previous table are anticipated to extend into the next fiscal year. In addition, several new and ongoing initiatives are proposed for FY 2023‐24. The table below summarizesthe items being recommended for the coming year.

Funding for these items will be requested through the annual budget process. Additional details regarding each project and initiative listed below are provided in Attachment A.

Strategic Initiatives for FY 2023‐24 Dept/Div Summary Eden Financial Software Replacement
(Study/ RFP/Implementation)
IT/Finance Develop and execute a strategy for the
replacement of the City’s ERP system.

Data Storage Upgrade IT Replace critical data storage equipment.

Traffic Signal Synchronization Server
Upgrade (Public Works Dept)
IT/Public
Works
Replace server and upgrade software.

Cashiering System IT/Finance Replace cashiering software for revenue intake and processing.

Transient Occupancy Tax Management
System
IT/Finance Identify and procure a system to manage TOT
sources and revenue collection.

SolarApp+ IT State mandated software to fully automate issuance of residential solar permits.

Security Audit IT Independent Cyber‐security Audit.

Video System and Camera Improvements ‐
Ongoing
IT New cameras, replacements, and
preventative maintenance.

GIS Initiative ‐ Ongoing IT Fully integrate data from Cycle II of Orange County Data Acquisition Partnership.

Employee Computer/ Technology Training
‐ Ongoing
IT Ongoing Staff Training Initiative ‐ Bluebeam
Electronic Plan Review.

Web Application Enhancements ‐
Ongoing
IT/ City
Manager
Citywide Customer Relationship Management
(CRM) System.

Information Technology Strategic Plan Update
Focus Areas for FY 2023‐24
This strategic plan update includes a broad spectrum of projects. The most significant areas that will be the focus of IT Division resources in the upcoming year are summarized below:
o Software Systems
o Electronic Document Management System (EDMS) Replacement o Eden Financial Software Replacement (Study/ RFP/ Implementation) o Cashiering System
o Transient Occupancy Tax Management System
o Infrastructure
o Replacement of Data Storage Equipment
o Traffic Synchronization Server Replacement
o Video Camera System Improvements
o Security and Business Continuity
o Backup System Upgrade
o Cyber‐security Audit
o IT Division On‐call Staffing
Recommendation
Staff recommendsthat the City Council accept the Information Technology Strategic Plan Update and direct staff to bring the recommended Fiscal Year 2023‐24 projects and initiatives forward through the budget process.

Information Technology Strategic Plan – Attachment A
FY 2023‐24 New Projects and Ongoing Initiatives – Detail EDEN System Replacement
Description Replacement of the City’s existing Enterprise Resource Planning (ERP) System
Benefit / Justification The City utilizes the Tyler Eden ERP System to manage processes within Accounting, Utility Billing, Budgeting, and Human Resources.

The Eden system has been in service for over 20 years. The vendor hasrecently communicated an end‐of‐support date of March 1, 2027.

Replacement of thissystem will be a highly complex project,spanning multiple years, and requiring a great deal ofstaff effort. Preliminarily, an analysis must be conducted to map a path forward that meets the City’s needs.

Estimated Cost $50,000 will be requested in FY 2023‐24 for professional services to perform a needs analysis. An additional $50,000 is planned in FY 2024‐25 to assist with the procurement process.

Funding Shared between General Fund and Utilities Enterprise Funds Estimate Timeframe Multi‐year project to be completed in FY 2026‐27.

Staffing Impact Significant
Priority High
Service Level Impact Maintain
Department/Division All
City‐wide Cashiering
Description Implement a new city‐wide cashiering system to replace the existing platform.

Benefit / Justification Maintenance and support for the currentsystem will be discontinued by the vendor in the near future.

Estimated Cost $25,000
Funding Shared between General Fund and Utilities Enterprise Funds Estimate Timeframe FY 2023‐24
Staffing Impact Significant impact on Finance staff during implementation.

Priority High
Service Level Impact Increase
Department/Division Finance and Administrative Services / Business Services Information Technology Strategic Plan Update - Attachment A Transient Occupancy Tax (TOT) Management System
Description Implement a software system to manage Transient Occupancy Tax (TOT)
Benefit / Justification A TOT management system would improve the administration of TOT from traditional hotels and short‐term rentals.

Estimated Cost $25,000
Funding General Fund
Estimate Timeframe FY 2023‐24
Staffing Impact Moderate impact on Finance staff during implementation.

Priority Medium
Service Level Impact Increase
Department/Division Finance and Administrative Services / Business Services Security Audit
Description Funding for an independent outside firm to conduct a security audit on City IT systems.

Benefit / Justification To ensure that appropriate and effective cybersecurity measures are in place.

Estimated Cost $25,000
Funding Shared
Estimate Timeframe FY 2023‐24
Staffing Impact Moderate impact to IT staff
Priority High
Service Level Impact Maintain
Department/Division Finance and Administrative Services / IT Data Storage Upgrade
Description Replacement of the primary data storage system for City servers.

Benefit / Justification The current equipment is five years old and the vendor has announced an end‐of‐support date of December 31, 2023. This system is critical to the reliable operation of City servers and applications.

Estimated Cost $100,000
Funding Shared
Estimate Timeframe FY 2023‐34
Staffing Impact Moderate impact to IT staff
Priority High
Service Level Impact Maintain
Department/Division IT
Information Technology Strategic Plan – Attachment A
Traffic Signal Synchronization and Control Server Upgrade Description Replacement of the Traffic Signal Synchronization server and software
Benefit / Justification This system has been in production for nearly eight years and must be replaced to ensure secure and reliable operation of the traffic signal synchronization and control program.

Estimated Cost $25,000
Funding Gas Tax Fund
Estimate Timeframe FY 2023‐24
Staffing Impact Minimal
Priority High
Service Level Impact Maintain
Department/Division IT / Public Works
SolarApp+
Description Implement SolarApp+ to fully automate the application, processing, approval, and issuance of permits for residential solar system installations.

Benefit / Justification California Senate Bill 379 mandates the implementation of an online, automated permitting platform that verifies code compliance and issues permits in real time for residential solar system installations by September 30, 2023. Grant funding is available through the California Automated Permit Processing (CalAPP) Program to assist cities with implementation of such systems.

Estimated Cost $0. Project cost to be offset by grant funding Funding General Fund
Estimate Timeframe FY 2023‐34
Staffing Impact Minimal
Priority High
Service Level Impact Increase
Department/Division IT / Building
Information Technology Strategic Plan Update - Attachment A Video System and Camera Enhancements (Ongoing)
Description Installation of new cameras, in addition to preventative maintenance and replacement of existing cameras.

Benefit / Justification This ongoing initiative includes installation of new cameras at advantageous locations as well as preventative maintenance and replacement of existing cameras. The City currently utilizes approximately 50 cameras for observation and monitoring of various City facilities. Some of these cameras have deteriorated due to exposure to harsh weather in a marine environment, reducing their reliability and/or picture quality. New cameras will improve the coverage area and effectiveness of the system, while preventative maintenance will increase the anticipated lifespan of the remaining equipment.

Estimated Cost $10,000
Funding Shared (Information Technology Fund)
Estimate Timeframe Began in FY 2018‐19 > Ongoing
Staffing Impact Moderate
Priority Medium
Service Level Impact Increase
Department/Division FAS / Information Technology
Technology Training Initiative (Ongoing)
Description Citywide training initiative to equip City staff to better utilize the many software applications that are available to them. This initiative includes the offering of specialized instructor‐led courses and/or online video training, which can be geared for both new and current employees. Funding may be allocated for the hiring of instructors, development of training videos, training software, and the assembly of a number of computers in a dedicated “training center”.

Benefit / Justification Increased productivity and efficiency Estimated Cost $10,000 per year
Funding Shared
Estimate Timeframe Began in FY 2015‐16 > Ongoing
Staffing Impact Minimal
Priority Moderate
Service Level Impact Increase
Department/Division FAS / Information Technology
Information Technology Strategic Plan – Attachment A
GIS Initiative ‐ GIS Data Development, Maintenance and Support (Ongoing) Description The GIS initiative has involved implementation of a Citywide ESRI Enterprise GIS platform, integration of GIS (ArcGIS) with critical City business systems such as TRAKiT (Permitting) and Lucity (CMMS), improved PC hardware and licensing for GIS work, and development of improved data and applications.

Proposed for upcoming year:
 Integrate imagery from OC GIS Data Acquisition Partnership into City systems
 Upgrade GIS Workstations in Planning / Public Works
Benefit / Justification With the ESRI platform in place and major business system integrations complete, in the coming years it will be important to maintain and improve existing data sets, as well as develop new GIS data resources. This will enable the best and most efficient access and use of City Building, Code Enforcement, Land Use, Utility and Maintenance data. Enhancements may also improve inter‐agency data sharing and coordination.

Estimated Cost $5,000
Funding Shared
Estimate Timeframe Ongoing
Staffing Impact Minimal
Priority Moderate
Service Level Impact Increase
Department/Division FAS / Information Technology
Web Application Enhancements (Ongoing)
Description Funding for commercial, off‐the‐shelf, web‐based applications.

Benefit / Justification Ongoing funding for web‐based applications that improve internal efficiency and enhance service to the public. To include improvements and new features on the existing website, and new applications that provide a particular service. Past examples include Online Public Records Request portal, Online Vendor & Bid Management system, and File Transfer service.

Estimated Cost $10,000 per year
Funding Shared
Estimate Timeframe Began in FY 2015‐16 > Ongoing
Staffing Impact Moderate
Priority Moderate
Service Level Impact Increase
Department/Division FAS / Information Technology
Information Technology Strategic Plan Update ‐ Attachment B Current Year
Title Fund 6 Yr. Total FY 22‐23 FY 23‐24 FY 24‐25 FY 25‐26 FY 26‐27 FY 27‐28 Ongoing Finance and Administrative Services
City‐wide Cashiering Shared $45,000 25,000 5,000 5,000 5,000 5,000 5,000 Eden Financial Software Replacement (Study/RFP/Implementation) Shared $1,300,000 50,000 50,000 1,000,000 100,000 100,000 100,000 Online Business License Application / Renewal Upgrade GF $30,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 Transient Occupancy Tax Management System GF $45,000 25,000 5,000 5,000 5,000 5,000 5,000 Financial Portal ‐ Web Interface to Financials GF $21,000 10,500 10,500 10,500 1,441,000 5,000 105,000 65,000 1,015,000 125,500 125,500 125,500 Information Technology
Citywide CRM / Notification (Integration with Trakit and CMMS) Shared 60,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 IT Division On‐call Staffing Shared 101,100 16,850 16,850 16,850 16,850 16,850 16,850 16,850 Exchange Online Advanced Threat Protection Shared 60,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 Security Audit Shared 75,000 25,000 25,000 25,000 25,000 Web Application Enhancements Shared 60,000 10,000 10,000 10,000 10,000 10,000 10,000 60,000 Video System / Camera Enhancements Shared 60,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 Backup and Recovery System Upgrade Shared 75,000 50,000 5,000 5,000 5,000 5,000 5,000 5,000 Data Storage Upgrade Shared 100,000 100,000
SCADA Server/Storage Platform Upgrade (Utilities Dept) Ent 100,000 75,000 5,000 5,000 5,000 5,000 5,000 5,000 Traffic Signal Synchronization Server Upgrade (Public Works Dept) Gas Tax 35,000 25,000 2,500 2,500 2,500 2,500 2,500 726,100 181,850 216,850 69,350 94,350 69,350 94,350 144,350 City Manager/City Clerk/Council
Electronic Agenda Packet Distribution for Councilmembers ‐ (CCSP) GF 17,500 5,000 2,500 2,500 2,500 2,500 2,500 2,500 Electronic Document Management System Replacement ‐ (CCSP) GF 145,000 45,000 20,000 20,000 20,000 20,000 20,000 20,000 Electronic Filing of FPPC Campaign Statements ‐ (CCSP) GF 20,000 5,000 5,000 5,000 5,000 5,000 182,500 50,000 22,500 27,500 27,500 27,500 27,500 27,500 Community Development
Electronic Agenda Packet Distribution for Planning Commission GF 17,500 7,000 3,500 3,500 3,500 3,500 Electronic Plan Review GF 30,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 Trakit Upgrade / “On‐Line” Building Permit Applications GF 650,500 275,500 75,000 75,000 75,000 75,000 75,000 75,000 SolarApp+ (Cost offset by grant funding) Grant 0 0 0 0 0 0 0 0 Lobby Kiosk for Applications GF 7,500 2,500 2,500 2,500 705,500 280,500 82,500 87,000 86,000 83,500 86,000 83,500 Beaches, Parks and Recreation
Recreation Facility Digital Displays GF 12,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Special Events Permit Software GF 30,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 42,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000
Marine Safety GF
Lifeguard Tower Communications System Upgrade GF 180,000 45,000 45,000 45,000 45,000 45,000 Marine Safety ‐ Electronic Patient Care Reporting GF 40,000 10,000 10,000 10,000 10,000 10,000 220,000 0 0 55,000 55,000 55,000 55,000 55,000
Citywide Initiative ‐ Mobility
Building Inspector iPads / Mobile Office GF 10,500 3,000 1,500 1,500 1,500 1,500 1,500 1,500 Code Enforcement Officer Field Tablets / Mobile Office GF 17,500 5,000 2,500 2,500 2,500 2,500 2,500 2,500 Park Ranger Field Tablets GF 7,000 2,000 1,000 1,000 1,000 1,000 1,000 1,000 Animal Services Remote Field Access to Chameleon GF 6,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 WiFi tablets for Marine Safety Health Care Reporting GF 5,000 2,000 1,000 1,000 1,000 1,000 46,000 11,000 6,000 8,000 7,000 7,000 7,000 7,000
Citywide Initiative ‐ GIS
Budget for GIS equipment, data development and maintenance GF 15,000 2,500 2,500 2,500 2,500 2,500 2,500 2,500 15,000 2,500 2,500 2,500 2,500 2,500 2,500 2,500
Citywide Initiative ‐ Training
Budget for computer training new and current employees GF 60,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 Total $3,438,100 $547,850 $452,350 $331,350 $1,304,350 $387,350 $414,850 $462,350 Information Technology Strategic Plan ‐ 5 Year Budget Summary Fleet – Lease/Purchase
Objective
Provide an overview of San Clemente’s vehicle fleet program and explore costs related to purchase and a lease acquisition option. A comparison of the lease and purchase program will be used to evaluate cost.

Background
The City’s 160 units addressed through the fleet replacement reserve includes trucks, cars, trolleys, motorcycles, trailers, lifts, and other related equipment. Vehicle inventory (primarily trucks, cars) consist of 112 units with the largest portion being almost 70 trucks. Vehicles purchased are assigned useful lives generally between 7 and 15 years based on industry standards and historical information. A summary of vehicles by Department follows:
*Other includes Golf, Marine Safety, CASA, and other programs At the October 18, 2022 meeting, City Council requested that a lease model be reviewed to determine if vehicle leasing would be less costly versus the City’s practice of buying vehicles. The purchase methodology utilized by the City to acquire vehicles charges a replacement amount based on the purchase price of the vehicle, expected useful life, and an inflation factor. Fleet assesses mileage, age, and overall mechanical condition of vehicle inventory to determine replacement. If a replacement determination is made, the new vehicle acquisition is budgeted with reserves accumulated in the Fleet Replacement Reserve Fund. At June 30, 2023 the Replacement Reserve has a projected reserve balance of $5.0 million. The reserve is reviewed annually to ensure adequate funding is available for 5 years of vehicle replacement costs.

Executive Summary
The City’s fleet is maintained through a purchase method. The purpose of this report is to present a purchase versus lease comparison for the vehicle fleet program. City Council requested a review of the fleet vehicle program to determine if a lease method would achieve cost savings. Fleet replacement through a purchase or lease model have differences identified later in this paper.

Based on an example Ford F-150 vehicle, since trucks are a large portion of the vehicle inventory, the purchase method was compared to lease costs over a vehicle lease period. Based on the criteria, the purchase method is less expensive than the lease model. This is partially driven by the interest component. The City is earning interest on held reserve funds keeping costs down, providing flexibility in the ability to stabilize costs to funds, and if the vehicle is properly maintained the vehicle may be in service for a longer period of time. The lease option incurs interest costs, but has the ability to have new assets in service, while also requiring a specific date for turnover of the vehicle.

Water
17%
Sewer
13%
Public Works
30%
Comm Dev
11%
Police
6%
Other*
23%
Vehicles by Department
Fleet – Lease/Purchase
Under a purchase model, the initial funding of a reserve is the hardest component to fund, however the City of San Clemente already has the funding available. Based on a comparison in this report for a Ford F-150 and other considerations the purchase methodology appears to be the most effective way of funding fleet replacement for the City.

Discussion
The following table provides differences between the lease and purchase methods.

Differences Between Purchasing and Leasing
Lease Purchase
No Significant Capital Outlay Requires Significant Capital Outlay Pay Interest cost No Financing Charges
Continual Debt Obligation Accrued Interest on Reserves
Flexibility to Scale Fleet Possible Under-Utilization of Fleet Cost-Effective to Upgrade to Newer Models Equity and Ownership in Fleet Lessor Takes Care of Vehicle Disposal Staff Determines Service Life and Arranges Vehicle Disposal
Vehicle Selection and Fleet Standardization at
lease inception
Ability to Fully Customize Vehicles to Meet
Service Requirements
Based on the factors below, staff prepared a cost comparison for a lease versus purchase scenario for a F-150. The method compared replacement reserve contributions to vehicle leasing costs.

The “Fleet Life Replacement Guidelines” reference document was used to determine the useful life of a vehicle, staff selected a 2022 Ford F-150 XL with a predetermined service life of 7 years for comparison.

F-150 Purchase F-150 Lease
MSRP $ 36,056 MSRP $ 36,056
Useful Life 7 Residual Percentage 50%
Sales Tax Rate 7.75% Money Factor 0.125%
Total Asset Cost $ 38,850 Residual Value $ 18,028
Tax $ 2,794 Monthly Tax $ 44
Annual Asset Cost $ 5,550 Annual Asset Cost $ 7,349
Monthly Asset Cost $ 463 Monthly Asset Cost $ 612
Assumptions: Average vehicle residual value after 3 years is 50% of original MSRP, A money factor rate is .00125% or 3% APR, and a lease payment based on a standard 3 year lease term Fleet – Lease/Purchase
As illustrated in the above graph, purchasing a vehicle outright saves on lease value loss and financing charges. The monthly difference is about $150/month. The variance for a single vehicle is not significant, but when applied to the entire fleet cost would be higher for leasing versus buying. Although discounted pricing may be achieved through competitive bidding on the lease, leases are burdened with a financing component. A comprehensive comparison of vendor pricing would need be done if City Council would like to further consider pursuing this option. This would include items like utilizing a third party lease provider or trying to proceed with a direct lease with an auto manufacturer to help minimize costs.

Other City fleet replacement considerations, based on discussions with other cities, include other cost components. Under a lease, some costs are built into the monthly lease payment while other costs may be recognized at the lease conclusion. The cost built into the lease would include financing costs, such as interest costs upon borrowing under the lease. However, variable costs at the conclusion may be realized based on the lease conditions including damage, usage, mileage, or other costs determined through the vehicle lease.

Under a purchase, there is an initial large capital outlay required within a separate Fleet reserve.

The City has a fleet reserve established that is earning interest and receiving sales proceeds. Over the last several years there has been inventory shortages, rising costs, and increased demand for new vehicles. The Fleet Reserve balance allowed the City to stabilize costs charged to funds minimizing short-term impacts.

Based on the previous chart, the lease costs would be slightly higher than the current purchase method. If the City were to transition from a reserve vehicle acquisition program to a lease acquisition program one-time amounts would be available from fleet replacement reserve funds.

A significant portion of reserve funds could be transferred for one-time strategic objectives, but the ability to absorb short-term fluctuations could be impacted.

A change would result in process changes and require the implementation of new policies and $-
$2,000
$4,000
$6,000
$8,000
FY 2023-24 FY 2024-25
FY 2025-26
FY 2026-27
FY 2027-27
FY 2028-28
FY 2029-29
Lease vs. Buy
Purchase Lease
Fleet – Lease/Purchase
criteria. These would include revisions to the following:
 City Policies and Procedures regarding purchasing and implementing vehicle lease policies (lease terms, periods, competitive bidding, etc.)
 Staffing impacts
 Lease accounting and financial reporting following Government Accounting Standard Board (GASB)
If City Council wants to pursue vehicle leasing the following options should be considered:

1. Authorize a pilot lease acquisition program on select vehicles to evaluate budgetary impacts compared to current operations.

2. Authorize the implementation of lease program for the City’s entire vehicle fleet and direct staff to amend purchasing policy and develop other policies to assist with implementation of a lease program.

In future years, as vehicle pricing stabilizes staff could review the replacement reserves to determine if any excess funds should be refunded back to contributing funds. Due to fleet inventory volatility, this review would be best in a year or two when vehicle prices stabilize, inventories increase, and future vehicle replacement costs are identifiable.

Recommendation
No changes are recommended.

Executive Summary
Pension reporting, disclosure, availability of information, and funding options have changed dramatically over the last 15 years to ensure service costs are recognized in the period earned (generational equity) and assets and liabilities are properly reflected in the financial statements to ensure adequate funding levels (financially sustainable).

In recent years, the funded status of pensions has been a key focus of governmental agencies, thus staff has provided pension updates to City Council with the LTFP and presented other actions to improve transparency and make additional payments to improve the long-term sustainability of our pension plans without significantly impacting service levels. Based on Council direction, the City implemented the following actions:
 Formalized a Fiscal Policy and added summary information to LTFP and Budget  Made contributions to CalPERS and shortened payment amortization schedules  Submitted a formal application to transfer active Coastal Animal Services Authority (CASA) participants to CalPERS
Information on the pension plans identifying the different employee groups and administrator are below:

* City of San Clemente Employees’ Retirement Pension Plan Plan Administrator/Trustee Participants Benefit
Lifeguard Safety CalPERS Lifeguards (Full Time) 3%@55 (Classic)

2.7%@57 (PEPRA)
Safety (inactive) CalPERS Former police and fire employees 2%@50 (Classic)

2.7%@57 (PEPRA)
Miscellaneous CalPERS General employees (non-safety) 2%@55 (Classic) 2%@62 (PEPRA)
City of San Clemente
Employee Retirement
Plan (CSCERP)
Milliman & Empower Former city employees and Coastal
Animal Services employees
2%@55 (Classic)
2%@62 (PEPRA)
Pension Update
Background
The City improved our pension funding by contributing additional pension payments since FY 2010. The City continues to work towards the Fiscal Policy funding target of 90% that was implemented as part of the 2019 LTFP. However, the value of assets and the pension liability are dynamic and change as investment returns fluctuate, actuarial assumptions change, and actual results differ from expectations.

Fiscal Policy and Summary information added to the LTFP and Budget In 2019, fiscal policies were approved by Council through the LTFP and the Budget. Fiscal Policy addresses contribution levels and sets a target funding level. In addition to the Fiscal Policies, information was added to the Annual Budget and LTFP “Trends” section to provide the status of pension funding levels. The City’s Fiscal Policy includes the following statements concerning contributions and funding targets:
 Contributions –
The required actuarial contributions shall be made to cover the current service cost and unfunded liabilities based on the actuarially determined contribution rate.  Funding Target –
Annually, review the City Pension plans funding levels and identify areas funding may be utilized to achieve a target funding ratio of 90% or higher for each of the City’s individual pension plans.

Pension contributions
The City of San Clemente funds the actuarial-required contributions based on the annual CalPERS actuarial statements, which are available on the CalPERS website. As opportunities present themselves, additional payments are made to attempt to reduce the unfunded liability.

As per the above policy, the City made additional discretionary payments in the past and will continue to make additional payments from budget savings while minimizing service level impacts. During the last four years, over $6.0 million of additional payments were made to reduce the pension liability and improve the funded status. The following table summarizes the payments by year:

Pension Plans FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 Miscellaneous $ 40,000 $ 29,157 $ 185,000 $ 2,080,000
Safety - Police and Fire 127,000 135,000 525,000 1,800,000 Safety - Lifeguard 4,206 435,293 79,179 28,763
CSCERP - - 550,000 60,000
Total Additional Payments $ 171,206 $ 599,450 $1,339,179 $ 3,968,763* *FY 2021-22 includes $3 million of payments under the “3-2-1 Pension Funding Strategy”.

These additional payments are based on past LTFP papers, Budget, and Council Agenda Reports.

The amounts in FY 2021-22 include payments under the CalPERS 3-2-1 Pension Funding Strategy approved by City Council in October 2021.

Pension Update
Funding Levels
This Pension Update provides information on the CalPERS plans and the CSCERP plan separately due to the difference in measurement periods and the strategies to address funding levels.

Information on the plans and funding follow:

CalPERS Pension Plan Status
This table lists the CalPERS Pension Plans, the City funds responsible for the pension payment, market value of the assets, total liability (funded and unfunded), unfunded amounts, the funded percentage by pension plan, and the Unfunded Accrued Liability (UAL) payment for FY 2023-24.

CalPERS plans valuation data is as of June 30, 2021, and amounts are based on July 2022 valuation.

Pension Plan
Respective
Fund(s)
Market value
of assets Liability
(Over)
Unfunded
amount
Funding
Percent
FY 2023-24 UAL
Estimated Cost
Lifeguard Safety
6/30/2021 valuation
General
Fund
$ 7,386,771 $ 7,564,187 $ 177,416 98% $ 24,000
Lifeguard Safety
PEPRA
6/30/2021 valuation
General
Fund
$ 28,342 $ 25,370 ($ 2,972) 112% $ -0-
Safety (inactive)
6/30/2021 valuation
General
Fund
$ 32,066,615 $ 42,937,979 $ 10,871,364 75% $1.1 million Miscellaneous
6/30/2021 valuation
All City
Funds
$ 68,013,066 $ 79,370,868 $ 11,357,802 86% $1.2 million Totals $ 107,494,794 $ 129,898,404 $ 22,403,610 83%* $2.3 million * No payments under the “3-2-1 Pension Funding Strategy” are included at 6/30/2021. These will be reflected in future Actuarial valuations completed in 2023 and 2024.

CalPERS funding status for all plans is 83%. In October 2021, City Council authorized staff to pursue $6 million in payments as part of the “3-2-1 Pension Funding Strategy” to achieve 90% funding in the CalPERS plans. These payments occurred after the 6/30/2021 CalPERS valuation (July 2022 report). The pension payments of $6 million under the strategy ($3 million in FY 2022 and $3 million in FY 2023) are from revenues exceeding expectations, budget savings and onetime revenues. The status of the Pension Funding Strategy is summarized below:

Action Status
$3 million Safety Plan payment FY 2022 $1 million and in FY 2023 $2 million payment completed
$2 million Miscellaneous Plan payment FY 2022 $2 million payment completed $1 million set aside in a Section 115 Plan In October 2022, Council authorized to use these funds to make an additional paydown in
one of the Pension Plans and to formalize this
recommendation with the LTFP. This
additional funding will be made to the Safety
Plan.

FY 2021 strong returns and the “3-2-1 Pension Funding Strategy” funding would meet the 90% target level in 2024 actuarial report based on actuarial assumptions. The “3-2” portion of the Pension Update
Pension Funding Strategy is completed. These payments, along with the annual UAL amortization payments, will work toward achieving the 90% funding target as future valuations are completed.

In October 2022, Council directed for $1 million to be paid directly on a UAL paydown. This amount is recommended to be directed to the Public Safety Pension.

Lifeguard Safety Pension Plans
Plan Summary – This is the smallest plan in terms of market value and liability, with Classic employees, is funded at 98%, up from last year’s 86%. The new Public Employee Pension Reform Act (PEPRA) employee plan is reported separately this year and overfunded at 112%. Full-time marine safety employees’ pension benefits are funded by this plan and City contributions are funded based on the annual CalPERS actuarial reports. These payments are made from the General Fund.

Public Safety Pension Plan
Plan Summary – This plan is an inactive plan with no employees making contributions to the plan.

This plan is funded at 75%, up from last years 66%. This plan covers former public safety employees prior to the City contracting out police and fire services to county agencies (OCSD and OCFA). This plan has a closed amortization period, with the last payment anticipated in 2032.

These payments are made from the General Fund.

Additional payments in FY 2022 and FY 2023 targeted the 90% Fiscal Policy target funding level using current funding levels and actuarial assumptions. Additional vacancy savings (if available) and an early payment discount provide budget savings to make additional payments. The $1 million authorized for funding a Section 115 trust was redirected, based on Council direction in October 2022, to be used for a direct UAL pension paydown. This plan will receive the $1 million since it is the lowest funded plan at the June 30, 2021 valuation date and the payment is only from the General Fund.

Miscellaneous Employee Pension Plan
Plan Summary – This is the City’s largest active plan and covers all City employees except for Lifeguards and excluded positions. This plan is funded at 86%, up from last years 76%. This plan includes active employees at the date of conversion to CalPERS and any new hires since that time.

These payments are paid by any fund with salaries (examples are General, Water, Sewer and Golf Funds).

Additional payments made in FY 2022 targeted the 90% Fiscal Policy target funding level using current funding levels and actuarial assumptions. Staff continues to utilize salary savings and early payment discounts to make additional payments. Staff will also work to shorten the amortization bases to lower future costs.

City of San Clemente Employee Retirement Pension (CSCERP) Plan Status The CSCERP pension plan is administered by the City utilizing outside contract providers; the plan is reflected in City financial statements. CSCERP participants are CASA employees and former employees that were no longer active with the City prior to CalPERS transition. The plan trustee, Empower, maintains the custody or safekeeping function of the pension assets. The City then contracts with Milliman and Millenium for pension administration services, which includes Pension Update
participant communications, benefit calculations, database maintenance and retiree payment services.

The following table lists the City funds responsible for the pension payment, market value of the assets, total liability (funded and unfunded), unfunded amounts, the funded percentage, and the Unfunded Accrued Liability (UAL) payment for FY 2023-24.

Based on the June 30, 2022 GASB 67/68 Report, the funding level decreased to 54% from 63% based on FY 2022 negative investment returns. The City portion is funded at 53% and CASA is funded at 73%. Contributions are made by City funds and CASA funds. This plan has the lowest funding percentage partially due to the lower investment return and discount rate (5.5%) used in its actuarial valuations. This percentage was reduced from 5.75% during the last year. The amortization period is shorter than CalPERS and the liability is being paid through higher annual contributions to the pension plan. This plan’s lower initial funding level should improve as a result of higher annual UAL contribution levels.

The following step is also under review to improve the longer term funding of CSCERP plan:

Since 2015, CASA (and the City) has been exploring shifting pension administration to CalPERS. CalPERS offers lower administrative costs and higher potential returns, which could lower future costs to CASA. An actuarial valuation is needed to identify these considerations.

Once the actuarial valuation is received a determination to proceed will need to be made by the CASA Board of Directors. If the Board decides to move forward, actions to change would include final CalPERS acceptance, approval of CASA Board, and an affirmative vote of CASA employees.

If CASA employees are transferred to CalPERS, this CSCERP plan would be a “sunsetting” plan with no new participants being added as participants. Current pension benefit payments total $2.3 million annually to existing retirees. Annual UAL contributions to the plan total $1.7 million annually. Based on the amortization payment, the funded status should increase by approximately 2.5% annually if other actuarial assumptions are met.

A Pension Investment Policy review was directed by City Council in the 2022 LTFP. Staff will seek cost information from Chandler Asset Management (an external investment advisor) to update the Pension Plan’s investment policy, objectives, and investment vehicles in the near future.

Investments can be modified to achieve a higher expected return, improving plan funding levels.

Staff Recommendations:

CalPERS
- Based on October 2022 Council direction, modify the $1.0 million Section 115 trust funding and utilize the $1 million to make a one-time Public Safety Pension Plan payment.

Plan
Respective
Fund(s)
Market value
of assets Liability
Unfunded
amount
Funding
Percent
FY 2023-24 UAL
Estimated Cost
CSCERP
7/1/2022 GASB 67/68 Report
All Funds $ 22,994,000 $ 42,649,000 $ 19,655,000 54% $1.7 million Pension Update
CSCERP
- Continue with the CASA evaluation related to CalPERS pension administration. - Update the City of San Clemente Pension Investment Policy (Policy #202-2) and prepare a City Council Agenda Report when Chandler Asset Management cost information is received.

San Clemente City CouncilFebruary 28, 2023

San Clemente City Council
February 28, 2023