Attachment A – Major Operating Funds Fiscal Forecasts
GENERAL FUND AND MEASURE U FINANCIAL OVERVIEW
GENERAL FUND SIX-YEAR FINANCIAL PLAN
A six-year financial plan projects the fiscal health of the City’s General Fund and allows policy makers and management to understand the fiscal gaps that may exist between revenue forecasts and projected expenditure requirements. The six-year General Fund financial plan provides a guide f or establishing City department budget targets; these targets are used by departments to develop budget proposals that are constrained by the resources anticipated to be available in the upcoming fiscal year.
REVENUE ASSUMPTIONS
Revenue estimates for the General Fund six-year plan are prepared through an objective, analytical process based on year-to-date trends, prior years’ data, and anticipated one -time adjustments. In all instances, the City provides reasonable revenue projections to prevent undue or u nbalanced reliance on certain revenues and to ensure the ability to provide ongoing services. Data used to compile General Fund revenue assumptions includes, but is not limited to, communication with the business community (e.g., shopping centers, malls, and auto centers); economic data; historical revenue analysis; sales tax and economic consultants; City departments; and the County of Santa Barbara.
The following is a brief description of the City’s top four General Fund revenue sources and the general assumptions used in preparing the revenue projections for the 202 4-26 Budget. These four revenue sources account for approximately 7 8 percent of total General Fund revenues (including the local Measure U sales tax add -on). The remaining 22 percent of General Fund revenues are comprised of departmental services and program revenues, franchise fees, permits and licenses, property transfer taxes, fines and penalties, interest earnings, grants, revenues from other agencies, and other miscellaneous revenue sources.
Sales Tax
Sales tax is by far the General Fund's
largest revenue source (about 49.3
percent including the local Measure U
sales tax add -on), therefore, vitally
important to the City’s future. This source
is volatile, as demonstrated by the COVID-
19 outbreak. The City receives 1 percent
(also known as Bradley Burns portion) of
the 8.75 percent sales tax collected from
retail sales occurring within the City limits.
The State collects and remits the sales tax
to the following benefiting agencies: 5.75 percent to the State for the General Fund and various programs, 2 percent to the City's General Fund (1 percent General Fund and 1 percent Measure U), 0.5 percent to the Local Public Safety Fund, and 0.5 percent for local and regional transportation purposes (Measure A), for a total sales tax rate of 8.75 percent.
Sales tax revenues are projected to increase to $3 1.9 million in 2024-25, down from $32.2 million in 2023-24. The 2025-26 projection is $32.8 million.
Influences on sales tax in 202 4 and 202 5 include high inflation passed along in the cost of goods and expected interest rate increases by the Federal Reserve, according to HdL. Foodservice, hospitality, and retail trade industries struggle to find and retain employees. Impacted by the Ukraine- Russia crisis, fuel prices remain volatile.
According to HdL, the City’s sales tax consultant, calendar year 2023 saw sales in various retail sectors, including family apparel, electronics, and appliances declined as consumer spending shifted toward travel and entertainment.
Attachment A – Major Operating Funds Fiscal Forecasts
The downturn extended into business -industrial returns, paralleling the contraction of the US Purchasing Manufacturing Index from November 2022 through November 2023. Indicating a nationwide decrease in industrial activities.
Sales tax revenue is one of the most sensitive revenue components. Economic factors can contribute to wide swings in receipts.
PROPERTY TAX
Property tax represents approximately
22.4 percent of General Fund revenues.
For 2024-25 the City is projected at $2 6.5
million, and $2 7.0 million for 202 5-26.
Proposition 3, approved by voters
Statewide in June 1978, limits general -
purpose property taxes to 1 percent of
market value and limite d the growth of
property tax assessments to 2 percent
growth per year. Assessments are
increased to reflect current market value
when property ownership changes or
improvements are made to the property;
otherwise, assessed values are limited to an annual 2 percent increase.
Property tax assessment, collection, and apportionment are performed by the County. The County Assessor and Auditor-Controller is projecting an increase of 3.2 percent in property tax revenues in 2024-25.
TRANSIENT OCCUPANCY TAX
Transient Occupancy Tax (TOT) revenues
account for 3.6 percent of General Fund
revenues. TOT is levied on individuals
occupying a hotel or motel for 30 days or
less. The TOT rate is assessed at 12 percent
of the room rental rate (10 percent for the
City, a nd 2 percent for the Santa Maria
Valley Tourism Marketing District).
Although TOT is collected for the City by
the hotel/motel operators, it is a tax on
the occupant, not the hotel/motel. Also, in
February 2016, the Chamber of Commerce
created a Tourism Im provement District
with a 5-year term, and this was extended and is now known as Santa Maria Valley Tourism Marketing District. The added revenue generated from the 2 percent can only be used to facilitate increased tourism. There are currently 30 hotels/motels in town generating TOT revenue. TOT revenue is highly dependent on tourism and therefore was most impacted by the pandemic and the stay-at-home mandates that were implemented statewide. In 2018-19, TOT revenues were $3.4 million, dropped to $2.9 mill ion in 2019-20, and declined to $3.2 million in 2020 -21. However, TOT revenues have since rebounded to pre -pandemic levels, as the public’s pent -up demand to travel has surged.
This revenue stream is anticipated to remain flat through 2024 -26 as broader travel options have opened up post - pandemic.
Attachment A – Major Operating Funds Fiscal Forecasts
CONSTRUCTION PERMITS
Construction permits are required for all
new structures built within the City, as
well as for additions or upgrades to
existing buildings. Residential and
commercial development activity in the
past two years was moderate, following
the construction of the retail component
of the large Enos Ranch development in
2017 and 2018.
In 202 4, there is significant construction
activity. Many apartments have been
built. There were 331 Accessory Dwelling Units (ADUs) permitted in the first three quarters of FY 2023-24.
After peaking at an aberrant $5.6 million in 2017, anticipated construction permits revenue in 2024-25 is $3.0 million, or 2.5 percent, of General Fund revenue.
EXPENDITURE ASSUMPTIONS
When developing expenditure assumptions for the General Fund, both known factors, such as the impact of employee Memorandums of Understanding (MOUs); debt service requirements; contractual obligations; and economic uncertainties, such as the rising cost of goods and services are considered. During the development of the budget, City departments perform a comprehensive analysis of financial requirements to maintain service levels and quality, maintain critical infrastructure, and provide programs. For non-personnel costs estimates, fixed costs for multi-year contracts, assumptions based upon historical spending trends within individual expenditure categories, and a conservative Consumer Price Index (CPI) factor are applied to expenditure projections thr oughout the five - year plan.
Personnel costs are the largest and most impactful expenditure category in the General Fund Budget, exceeding 70 percent of the total General Fund Budget, excluding the California Public Employees Retirement System Unfunded Accrued Liability (CalPERS UAL). Some currently active MOUs are scheduled to expire in FY 202 4-25. Increases have been incorporated into the budget in alignment with those already authorized for 2024-26.
The budget and six-year plan must take into consideration long-term strategies to address the City’s long-term fiscal health.
FISCAL CHALLENGES, RISKS, AND STRATEGIES
SALARIES AND BENEFITS
As of April 2024, new agreements were reached with certain bargaining units. There is a base salary increase of 5. 0 percent over two calendar years (202 3-2024) for members of SEIU Local 620, for management and confidential employees, and for sworn Police and Fire Managers; and, 9.0 percent over three calendar years (2022 -2024) for Police employees and Police middle managers. The increase in compensation drives up CalPERS costs.
As in prior years, personnel costs remain the largest component of the City’s operating expenditures budget for 2024-26, accounting for $ 201.9 million, or 72.2 percent, associated with salaries and benefits. The breakdown by year is $98.3 million in 2024-25 and $103.6 million in 2025-26.
UNFUNDED PENSION LIABILITY
The City has undertaken pension reform to address its CalPERS obligations. The City has three tiers of employees based on hire date: Tier I is before July 1, 2011; Tier II hires after July 1, 2011, and public employment before January 1, 2013; and, Tier III hires (PEPRA) with California public employment begun after January 1, 2013. Back in early 2011,
Attachment A – Major Operating Funds Fiscal Forecasts
the City engaged in pension reform measures with its employee groups requiring all new employees (Tier II) to pay the employees’ share of pension expenses, which represents either seven percent for miscellaneous members or nine percent for safety members, of their salary. Tier III (PEPRA) employees pay a higher percentage of their pension expenses.
FUND RESERVES
The City’s General Fund endeavor s to maintain a minimum unassigned fund balance of at least 25 percent of operating appropriations to insulate the General Fund programs and current service levels from large and unanticipated one -time expenditure requirements, a revenue reduction due to a change in State or Federal Legislation, and other unforeseen circumstances.
The Local Economic Augmentation Fund is a reserve fund established in 2000-01, made up of one-time discretionary resources, distinct from the General Fund that is designed to help balance the General Fund’s operating budget during times of economic and/or financial crisis. The City Council set aside General Fund proceeds into this account.
The intent of this fund is to be used as a “gap financing” mechanism during downturns in the local economy.
In 2010 -11, the City adopted a General Fund Economic Stabilization (Prudent Reserve) under GASB Stat ement Number 54. The prudent reserve amount is $19.8 million. Appropriations from the reserve can only be made by formal City Council action and are limited to emergency situations. Examples of such emergencies include but are not limited to: covering expenses arising from a natural disaster, to replacing revenue taken over by another entity, or to a drop in actual/projected revenue of more than five percent of the General Fund adopted revenue budget.
Should the prudent reserve commitment be used, and its level falls below the minimum amount as described herein, the goal is to replenish the fund within three fiscal years.
The proposed Fiscal Year 2024-26 Biennial Budget shows a significant structural imbalance. The ongoing expenditures in the General Fund and Measure U combined exceed the ongoing revenues by $17.4 million in FY 24 - 25 and $19.9 million in FY 25 -26. Moreover, the City Manager’s propos ed Fiscal Year 2024 -26 Biennial Budget will include a recommendation to fund one -time items with projected one -time savings. The proposed Budget also establishes necessary reserves in the self -insurance funds due to changes in insurance markets. The total draw on General fund and Measure U fund balances in the first fiscal year is $20.8 million and in the second fiscal year is $19.9 million.
The chart below shows General Fund and Measure U fiscal forecast.
Attachment A – Major Operating Funds Fiscal Forecasts
Attachment A – Major Operating Funds Fiscal Forecasts
MEASURE U FUND SIX-YEAR FINANCIAL PLAN
OVERVIEW
Measure U, a one-cent local Transaction and Use Tax, is collected as part of the 8.75 percent total sales tax rate. City voters initially approved Measure U in the June 2012 election (63.95 percent support), enacting a one-quarter-cent tax. More recently, voters in the November 2018 election (with a 74.18 percent majority) extended and enhanced Measure U at the one -cent rate. The Measure U fund accounts for local transactions and use tax within the City of Santa Maria is combined with the General Fund for financial reporting purposes. The City Council authorized that 90 percent majority of the aforementioned tax proceeds be spent on public safety -related services, then five percent on youth services, and five percent on programs for quality of life . The Measure U Citizens’ Oversight Committee reviews the annual independent financial audit, and any other City financial reports necessary to advise the City Council of its findings on an annual basis.
REVENUE ASSUMPTIONS
MEASURE U TRANSACTION & USE TAX
Measure U revenues are affected by changes in the economy just like sales tax. Measure U projections are $2 6.5 million in 2024-25, and $26.7 million in 2025-26.
EXPENDITURE ASSUMPTIONS
The City Council set goals and objectives regarding the use of Measure U proceeds. The goals are to first maintain services, and second, to make service enhancements. To meet these goals and objectives, the Council authorized Measure U proceeds to be allot ted at 90 percent for public safety, 5 percent for youth services, and 5 percent for quality of life. The expenditure projections for Measure U assume a continuation of spending items that were approved without a defined termination date. Measure U provide s funding for 147.00 full-time equivalent ( FTE) positions Citywide. That is 20 percent of the workforce or about one in every five FTE.
MEASURE U BY CATEGORY
Public Safety Youth Services Quality of Life
Total
Proposed
2024-25
DEPARTMENT
Police $ 12,971,430 $ - $ - $ 12,971,430
Fire 11,691,833 - - 11,691,833
Recreation & Parks 1,966,541 1,096,825 514,115 3,577,481 Library 192,695 785,702 179,408 1,157,805
Community Development - - 871,360 871,360
City Manager 38,841 - 1,396,349 1,435,190
Finance 2,757 - - 2,757
Total Expenditures $ 26,864,097 $ 1,882,527 $ 2,961,232 $ 31,707,856 85% 6% 9% 100%
The Police Department is supported 23.8 percent by Measure U. The vast majority of these monies support a variety of sworn and non-sworn personnel. Many of these positions were formerly charged to the General Fund until it no longer had ongoing, sustainable revenue to support and maintain them. Without Measure U, the City would have to reduce staffing and programs. The Fire Department is supported 46.5 percent by Measure U. Through the support of Measure U, the Fire Department supports sworn and unsworn personnel. The Recreation and Parks Department is supported 22.1 percent by Measure U revenue to support personnel and equipment for youth services and quality of life programs. Measure U funds are focused on support of the Mayor’s Task Force on Youth Safety. The Library is
Attachment A – Major Operating Funds Fiscal Forecasts
supported 21.5 percent by Measure U revenue. The City Manager’s Of fice receives a small amount of Measure U revenues to cover expenses for the City’s Mass Notification System. The Finance Department receives a small amount of Measure U revenues to cover expenses for the annual Measure U audit.
FUND RESERVES
The City Coun cil has indicated a desire to create a Measure U reserve, to help assure these vital services can be sustained during a temporary or cyclical reduction of revenue. The City Council set a goal of a 20 percent reserve.
The chart below shows the Measure U forecast based on Measure U continuing to fund the same level of services.
The forecast is unbalanced due to expenditures outpacing revenue growth , which means that Measure U sales tax revenue will be able to fund lower levels of service than in the current fiscal year.
WATER ENTERPRISE FUND FINANCIAL OVERVIEW
The Water Enterprise Fund is a restricted fund that is self-supported by funding all operating and capital expen ses through charges (rates) collected for the service. Approved rates reflect both fixed and variable costs incurred by the City for the supply, treatment, and distribution of drinking water to City customers. The City monitors the health of the Water Enterprise Fund with a comprehensive rate model. The rate m odel considers revenue requirements as well as the cost of service to ensure adequate funding for operating and capital infrastructure costs necessary to provide safe and reliable water service to the community.
In FY 2023-24, the City worked with a third -party consultant to conduct an independent rate study and analysis of the Water Enterprise F und. The findings of the study helped establish cost -based and equitable rates for City customers in compliance with the Proposition 218 rate setting process. Rates were approved by the City Council on October 17, 2023, and the first of four approved water rate increases were implemented on January 1, 2024.
NOTABLE FUND IMPACTS
The following requirements of the Water Fund have historically had the most significant impact on the Water Fund:
Attachment A – Major Operating Funds Fiscal Forecasts
STATE WATER
The City receives State Water from the Central Coast Water Authority (CCWA). The costs to receive State Water from CCWA include expenses for the infrastructure to deliver the water as well as the costs for water treatment and delivery. The CCWA provides estimated costs for inclusion in the City’s Budget. The City issued bonds to pay for portions of State Water infrastructure, in addition to local improvements for the delivery of State Water. The bond costs are also considered a portion of State Water Costs. The debt service for the bonds continues through Fiscal Year 2035-36.
CAPITAL IMPROVEMENT PROGRAM (CIP)
The CIP is a listing of long-term capital projects intended to address deficiencies and improvements needed for the City’s water system.
The rate model includes 5 percent annual increases in project costs for projects in the CIP Program. The City is in the process of conducting a comprehensive General Plan update, creating the master plan for Santa Maria’s growth over the next 25 -30 years. The General Plan will inform future infrastructure needs related to providing water service to a growing community. The Water Enterprise Fund has a strong reserve balance, which will be used for pay-as-you-go financing of critical capital infrastructure projects in the coming years.
OPERATIONS AND MAINTENANCE (O&M)
O&M is the cost of personnel, materials, and equipment required for the division to effectively function and operate.
The rate model includes 4.4 percent annual increases for O&M expenses such as materials, supplies, equipment, and professional services, and 3 percent annual increases for existing staff’s salary and benefits, as well as estimated costs for projected additional staffing. Unfunded pension liability projections provided by the California Public Employees’ Retirement System (CalPERS) are incorporated in the rate model.
FUND OUTLOOK
Attachment A – Major Operating Funds Fiscal Forecasts
The chart above illustrates forecasted expenses increasing starting in FY 2023 -24. This is primarily due to increased spending on capital projects.
REVENUE ASSUMPTIONS AND VARIANCES
Forecasts include approved rate increases and a customer growth assumption of 0.5 percent per year. Anticipated r evenues in Fiscal Year 2023 -24 are projected to exceed budget estimates and be more consistent with revenues from the three previous fiscal years. The City has a court-ordered agreement with Nipomo Community Services District (NCSD) to provide supplemental water to serve Nipomo customers . The City ’s minimum quantity of supplemental water to deliver to NCSD will increase from 1,000 to 2,500 acre-feet/year, resulting in increased revenues to the City in Fiscal Year 2025-26.
EXPENSE ASSUMPTIONS AND VARIANCES
Budgeted expenses are higher than previous actual expenses due to significant capital projects, such as Stowell/Black Waterline, McClelland Waterline, Reservoir 4 Roof Replacement, Well #6 Intertie, Well #15, Well Site Generator Enclosures, Corporation Yard Consolidation, Well Controls, and funding for the Citywide Enterprise Resource Planning (ERP) project. These are in addition to increases in O&M expenses related to chemicals, electricity, litigation, salary and benefits, and unfunded pension liability. Anticipated future capital projects include Groundwater Wells #16 & #17, and other capital projects that will be informed by the General Plan Update.
WASTEWATER ENTERPRISE FUND FINANCIAL OVERVIEW
The Wastewater Enterprise Fund is a restricted fund that is self -supported by funding all operating and capital expenses through charges (rates) collected for the service. Approved rates reflect costs incurred by the City to collect and treat domestic and industrial wastewater. This is accomplished by operating and maintaining a Grade 4 Wastewater Treatment Plant (WWTP) and ensuring treatable influent through the City’s pretreatment program. The City mo nitors the health of the Wastewater Enterprise Fund with a comprehensive rate model. The rate model considers revenue requirements as well as the cost of service to ensure adequate funding for operating and capital infrastructure costs necessary to provide wastewater service.
In FY 2023-24, the City worked with a third -party consultant to conduct an independent rate study and analysis of the Wastewater Enterprise Fund. The findings of the study helped establish cost -based and equitable rates for City customers in compliance with the Proposition 218 rate setting process. Rates were approved by the City Council on October 17, 2023, and the first of four approved water rate increases was implemented on January 1, 2024.
NOTABLE FUND IMPACTS
The following requir ements of the Wastewater Fund have historically had the most significant impact on the Wastewater Fund:
CAPITAL IMPROVEMENT PROGRAM (CIP)
The CIP is a listing of long-term capital projects intended to address deficiencies and improvements needed for the City’s wastewater system.
The rate model includes 5 percent annual increases in project costs for projects in the CIP Program. The City is in the process of conducting a comprehensive General Plan update, creating the master plan for Santa Maria’s growth over the next 25 -30 years. The General Plan will inform future infrastructure needs related to providing wastewater service to a growing community. In February 2022, the City’s WWTP enrolled under the Regional Water Quality Control Board’s General Permit (General Permit). The City’s WWTP today cannot meet all the requirements of the General Permit.
Compliance with the General Permit will cause significant financial ramifications for the City and its Attachment A – Major Operating Funds Fiscal Forecasts
ratepayers. The City is working with a technical firm to m anage this significant program and its various components as well as to develop cash flow and funding scenarios. Compliance with the General Permit also necessitates the development of a new Wastewater Master Plan to include evaluation of treatment alternatives and feasibility studies. The Wastewater Master Plan will then inform designs to modify the WWTP to treat wastewater to the standards required in the General Permit. The full scope of the modifications to the WWTP is not known currently. While it is not possible to accurately estimate the costs to achieve compliance, a program of this magnitude may have costs exceeding $300,000,000. As the new Wastewater Master Plan is developed and the necessary improvements for compliance are identified, a better understanding of overall costs will be achieved, as well as strategies for funding those costs. Costs associated with this undertaking will be borne by the Wastewater Enterprise Fund. The rate model forecasts bond issuance for the WWTP upgrades beginning in Fiscal Year 2027-28.
OPERATIONS AND MAINTENANCE (O&M)
O&M is the cost of personnel, materials, and equipment required for the division to effectively function and operate.
The rate model includes 4.4 percent annual increases for O&M expenses such as materia ls, supplies, equipment, and professional services, and 3 percent annual increases for existing staff’s salary and benefits, as well as estimated costs for projected additional staffing. Unfunded pension liability projections provided by the California Pu blic Employees’ Retirement System (CalPERS) are incorporated in the rate model.
FUND OUTLOOK
The chart above illustrates forecasted expenses increasing starting in FY 2023 -24. This is primarily due to increased spending on capital projects.
REVENUE ASSUMPTIONS AND VARIANCES
Forecasts include approved rate increases and a customer growth assumption of 0.5 percent per year.
Attachment A – Major Operating Funds Fiscal Forecasts
EXPENSE ASSUMPTIONS AND VARIANCES
Budgeted expenses are higher than previous actual expenses due to significant capital projects, such as the WWTP upgrade to meet General Permit requirements, sewer trunk line capacity upgrades, trash capture devices, site security, Corporation Yard Consolidation, and funding for the Citywide Enterprise Resource Planning (ERP) project. These are in addition to increases in O&M expenses related to chemicals, electricity, salary and benefits, and unfunded pension liability.
Anticipated future capital projects include sewer pipeline capacity projects identified in the Utilities Capacity Study as A-1, B-1, C-1, C-7, D-1, D-2, D-4, D-8, D-12, D-14, and D-17 and other capital projects that will be informed by the General Plan Update.
SOLID WASTE COLLECTIONS ENTERPRISE FUND FINANCIAL OVERVIEW The Solid Waste Collections Enterprise Fund is a restricted fund that is self -supported by funding all operating and capital expenses through charges (rates) collected for the service. Approved rates reflect costs incurred by the City to provide refuse, recyclable, and organic waste collection services to Santa Maria residents and businesses. The City monitors the health of the Solid Waste Collections Enterprise Fund with a comprehensive rate model. The rate model considers revenue requirements as well as the cost of service to ensure adequate funding for operating and capital infrastructure costs necessary to provide Solid Waste Collections service.
In FY 2021-22, the City worked with a third -party consultant to conduct an independent rate study and analysi s of the Solid Waste Collections Enterprise Fund. The findings of the study helped establish cost -based and equitable rates for City customers in compliance with the Proposition 218 rate setting process. Rates were approved by the City Council on October 19, 2021, authorizing rate increases through July 1, 2025.
NOTABLE FUND IMPACTS
The following requirements of the Solid Waste Collections Fund have historically had the most significant impact on the Solid Waste Collections Fund:
CAPITAL IMPROVEMENT PROGRAM (CIP)
The CIP is a listing of long-term capital fleet purchases needed for the City’s Solid Waste Collections system.
Residential trash collection utilizes fully automated side -loading vehicles to provide weekly collection of containers for residential customer accounts. Commercial trash collection utilizes front -loading vehicles to provide weekly collection of dumpsters for nearly 1,800 commercial customer accounts, which includes commercial, business, and multi-family properties. On the heaviest days of the week, up to 20 refuse trucks are on the road providing collections service to the community. The rate model includes 2.5 percent annual increases in capital fleet purchases in the CIP Program. The City is in the process of conducting a comprehensive General Plan update, creating the master plan for Santa Maria’s growth over the next 25 -30 years. The General Plan will inform future infrastructure needs related to providing Solid Waste Collections service to a growing community.
OPERATIONS AND MAINTENANCE (O&M)
O&M is the cost of personnel, materials, and equipment required for the division to effectively function and operate.
The rate model includes 3 percent annual increases for O& M expenses such as materials, supplies, equipment, and professional services, and 5 percent annual increases for existing staff’s salary and benefits, as well as estimated costs for projected additional staffing. Unfunded pension liability projections pro vided by the California Public Employees’ Retirement System (CalPERS) are incorporated in the rate model.
Attachment A – Major Operating Funds Fiscal Forecasts
Regulatory impacts from the State of California impacting solid waste collections, including Assembly Bill 341 Mandatory Commercial Recycling, Assembly Bill 1826 Mandatory Commercial Organics Recycling, and Senate Bill 1383 Short-Lived Climate Pollutant Reduction. Regulatory impacts from the State of California related to street sweeping in compliance with the City’s MS4 stormwater permit requirement.
FUND OUTLOOK
The chart above illustrates forecasted expenses increasing starting in FY 2023 -24. This is primarily due to increased spending on capital fleet purchases.
REVENUE ASSUMPTIONS AND VARIANCES
Forecasts include approved rate increases and a customer growth assumption of 1 percent per year.
EXPENSE ASSUMPTIONS AND VARIANCES
Budgeted expenses are higher than previous actual expenses due to significant capital fleet purchases, including two automated side-loading vehicles, one front-loading vehicle, one electric side-loading vehicle, and funding for the Citywide Enterprise Resource Planning (ERP) project. These are in addition to increases in O&M expenses related to regulatory requirements, salary and benefits, and unfunded pension liability.
SOLID WASTE DISPOSAL ENTERPRISE FUND FINANCIAL OVERVIEW The Solid Waste Disposal Enterprise Fund is a restricted fund that is self-supported by funding operating and capital expenses through revenues generated at the Santa Maria Regional Landfill (SMRL), whi ch are also referred to as tipping fees. The SMRL is a Class III disposal facility with a current permitted disposal footprint of approximately 247 acres, and a remaining disposal capacity of ten years as of December 31, 2023.
In FY 2023-24, the City work ed with a third -party consultant to conduct an independent rate study and analysis of the Solid Waste Disposal Enterprise Fund. The findings of the study helped establish a multi-year financial model and tipping fee recommendations to continue to operate t he SMRL in a financially responsible manner to: cover operating, maintenance, and capital costs; reflect transfers to restricted reserves to meet regulatory requirements; and maintain a prudent operating reserve balance to ensure adequate cash is available for day-to-day operations
Attachment A – Major Operating Funds Fiscal Forecasts
and unexpected operating and capital cost increases. Rates were approved by the City Council on December 5, 2023, authorizing rate increases effective January 1, 2024, and January 1, 2025.
NOTABLE FUND IMPACTS
The following requirements of the Solid Waste Disposal Fund have historically had the most significant impact on the Solid Waste Disposal Fund:
CAPITAL IMPROVEMENT PROGRAM (CIP)
The CIP is a listing of long -term capital projects intended to address regulatory requiremen ts, deficiencies and improvements needed to operate the SMRL.
The rate model includes 2.5 percent annual increases in project costs in the CIP Program. The City intends to construct and operate the Integrated Waste Management Facility (IWMF) at Los Flores.
The IWMF, a Class III Landfill, will receive waste from urban and the rural areas of northern Santa Barbara County, with the capacity to receive waste from southern Santa Barbara County as necessary. The IWMF is anticipated to be ready to accept solid was te by 2032 and will include support facilities and utilities. Costs associated with this undertaking will be borne by the Solid Waste Disposal Enterprise Fund. The rate model forecasts bond issuance beginning in FY 2026-27.
OPERATIONS AND MAINTENANCE (O&M)
O&M is the cost of personnel, materials, and equipment required for the division to effectively function and operate.
The rate model includes 3 percent annual increases for O&M expenses such as materials, supplies, equipment, and professional services, and 5 percent annual increases for existing staff’s salary and benefits, as well as estimated costs for projected additional staffing. Unfunded pension liability projections provided by the California Public Employees’ Retirement System (CalPERS) are incorporated in the rate model.
FUND OUTLOOK
The chart above illustrates forecasted expenses increasing starting in FY 2022 -23. This is primarily due to increased spending on capital projects.
Attachment A – Major Operating Funds Fiscal Forecasts
REVENUE ASSUMPTIONS AND VARIANCES
Forecasts include approved rate increases and a customer growth assumption of 1 percent per year.
EXPENSE ASSUMPTIONS AND VARIANCES
Budgeted expenses increase starting in 2022-23 due to significant capital projects including the Cell I Phase II Liner Extension, Scale House Software, Site Security System, Flare Replacement, construction of the IWMF at Los Flores, and funding for the Citywide Enterprise Resource Planning (ERP) project. These are in addition to increases in O&M expenses related to regulatory requirements, salary and benefit s, and unfunded pension liability.