CITY OF SIGNAL HILL
STAFF REPORT
2175 Cherry Avenue • Signal
Hill, California 90755-3799
6/27/2023
AGENDA ITEM
TO: HONORABLE MAYOR
AND MEMBERS OF THE CITY COUNCIL
FROM: CARLO TOMAINO
CITY MANAGER
BY: SHARON DEL ROSARIO
ADMINISTRATIVE SERVICES OFFICER/FINANCE DIRECTOR
SUBJECT:
RESOLUTION ADOPTING THE ANNUAL OPERATING AND CAPITAL BUDGET FOR FISCAL YEAR 2023-24 (YEAR 2) AND RESOLUTION ESTABLISHING THE ANNUAL APPROPRIATIONS LIMIT FOR FISCAL YEAR 2023-24
Summary:
The City Council will consider adopting the second year of a biennial budget for Fiscal Year (FY) 2023-24. The City Council reviewed the proposed FY 2023-24 (Year 2) Operating and Capital Budget (Operating Budget) at a budget workshop held on May 25, 2023. The Operating Budget, as presented, is structurally balanced per City policy. In addition, the City Council will consider a resolution adopting the annual appropriations limit for Year 2, known as the Gann limit.
Recommendations:
1. Adopt a resolution, entitled:
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA, ADOPTING THE ANNUAL OPERATING AND CAPITAL BUDGET FOR FISCAL YEAR 2023-24 (YEAR 2)
2. Adopt a resolution, entitled:
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA,
APPROVING AND ADOPTING THE ANNUAL APPROPRIATIONS LIMIT FOR FISCAL YEAR 2023-24
Fiscal Impact:
The Operating Budget reflects Year 2 General Fund estimated revenues and transfers-in totaling $35,212,419, comprised of $32,907,359 in operating revenues and $2,305,060 in non-operating CITY OF SIGNAL HILL Page 1 of 18 Printed on 6/23/2023
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$35,212,419, comprised of $32,907,359 in operating revenues and $2,305,060 in non-operating revenues; and total appropriations and transfers-out in the amount of $35,212,419 in operating expenses (Attachment A). The total revenues and proposed expenditures result in a projected balanced General Fund Operating budget.
Staff projects the estimated General Fund unassigned fund balance will complete Year 2 at $22,584,246 and the Economic Uncertainties Fund balance will be $5,173,094, with an estimated total of $27,757,340. This amount represents approximately 84% of the General Fund budgeted expenses for Year 2.
Unused appropriations and/or revenues exceeding expenses at the end of every fiscal year revert back to fund balance. This residual fund balance can then be used for one-time expenses (nonoperating) or put aside as a reserve for future purposes. Staff proposes the City Council consider any unused appropriations for one-time uses or funding of reserves when the final year-end audited financial results are completed for Year 2, which is anticipated to be presented to the City Council in December 2023.
The Operating Budget provides program expenditure budgets for the General Fund in addition to the Water Fund, Vehicle Replacement Fund, and Special Revenue Funds.
Strategic Plan Objectives:
Goal No. 1: Ensure long-term fiscal stability.
Goal No. 6: Promote a transparent and open government.
Background:
A community’s quality of life is rooted in the effective delivery of essential municipal services to residents and businesses. Cities are the frontline in providing leadership and governance; establishing local laws; providing public safety and emergency services; delivering safe, clean, affordable water; providing recreational, social, and learning opportunities; overseeing development activities; building and maintaining public infrastructure; and identifying opportunities for reinvesting in the community. Therefore, how a city is funded, and how well it is funded, is vital to the delivery of these services and ultimately, the quality of life.
Cities are constantly dealing with the challenges associated with balancing limited resources against ongoing costs and demands of delivering essential services. Each year, the City establishes priorities and makes decisions to balance the needs of the community compared to available resources. A city’s budget memorializes and documents those priorities and decisions and serves as a framework to be used throughout the year. The budget is a guide and financial plan developed to implement community priorities and goals, build upon past experience and performance while anticipating new opportunities, and support continuous improvement.
Analysis:
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Beginning in 2014, the City transitioned to utilizing a two-year budget format to reinforce the City’s commitment to long-term fiscal health, providing a broader overview of the City’s capacity to continue to meet the costs and demands of delivering essential services and promoting long-term strategic planning, while retaining the fiscal control provided by annual budgets. Preparation of the two-year budget is an extensive process that involves a collaborative effort beginning with the City’s documented strategic goals and objectives. The budget is then drafted and reviewed in depth at a public budget workshop. The first year is adopted by resolution and the second year is approved.
In the second year, the previously approved budget is reviewed and presented with recommended updates or as operational needs have changed. This process is similar in concept to a mid-year budget review, and affords the opportunity to adjust the second year as needed. Inasmuch as the City Council approves the second year budget in conjunction with the two-year budget, it is not intended to be a complete re-evaluation of the City’s major goals and plans. Staff presented the proposed Year 2 Operating Budget for review and discussion at a duly noticed budget workshop on May 25, 2023, and is now being presented for adoption.
Fiscal Year 2022-23 (Year 1) Review
While the budget reflected tempered optimism with the global and local economies continuing to face new challenges such as higher inflation and rising interest rates, the City maintained a strong fiscal position with its long tradition of fiscal prudence and conservative budgetary management. The City’s Operating Budget focused on the delivery of quality core municipal services while proactively addressing safety and deferred maintenance and operational needs with a skilled and talented workforce. In developing the budget for the major general fund revenues, the City relied on an analysis of historical performance and trends, as well as industry, economist, and news reports.
The City’s passage of Signal Hill Measure R (SHR), the transaction and use (sales) tax add-on, and the City’s specific mix of retail businesses remaining resilient, have placed the City in a strong position heading into FY 2023-24. The City is grateful to the community for passing this significant sales tax measure; recommended updates to the budget for the coming fiscal year represent the City’s desire to utilize this funding wisely to provide high-quality services. In addition, the City was the recipient of several state and federal funding programs that will assist in providing funding for several critical capital improvement projects.
The City’s expenditures were developed as a conservative spending plan addressing City Council and community priorities. The City’s continued operations at full capacity include the expansion of current community programs, increased public engagement through committees and other city events, and plans for future development. The budget also reflects the utilization of government relief program funding, special revenues, and grant programs in the City’s capital plan and operational expenditures.
In FY 2022-23, staff continues delivering many programs, projects, and services that contribute to the high quality of life enjoyed by residents and businesses. Highlights include:
· Infrastructure and amenities
o Completed Well 10 Construction Project
o Resurfaced and replaced playground equipment at Discovery Well Park CITY OF SIGNAL HILL Page 3 of 18 Printed on 6/23/2023
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o Rehabilitated Hillbrook Park Bridge
o Completed construction of Spring Street Bicycle Lane Project o Completed the Orange Avenue Bridge repair
o Repaired 3,400 square feet of sidewalk and filled 105 potholes o Completed over one million square feet of City-Wide Slurry Seal · Access and Engagement
o 2023 Commemorative Flag Schedule
o Conducted the 2022 Signal Hill General Municipal Election o Completed GIS maps for Capital Improvement Program projects, street trees, sidewalk repair, plan lines, and zoning and land use
o Issued 1,874 new library cards and provided over 11,000 Wi-Fi connections · Community Programs and Events
o Partnered with Measure H homeless services liaison and Greater Los Angeles PATH for various support resources for the unhoused population
o Delivered 1,108 boxes of fresh food to seniors and families through the Senior and Family food distribution programs
o Hosted Senior Luncheons, weekly in-person activities and excursions for 585 active adults
o Hosted the first State of the City Event
o Co-sponsored various programs with the Signal Hill Community Foundation and Signal Hill Police Foundation
o Served 419 youth in the After School Recreation Club (ARC), 93 youth in sports programs and 115 youth in Day Camp programs
o Hosted Concerts in the Park, Movies in the Park, Hounds on the Hill event, Spring Fest, and seasonal special events, including the annual Holiday Outreach Program o Expanded Library Services to include 7 new programs ranging from Spanish Story Time to Dancing for Seniors
· Public Safety
o Completed a speed study; updated speed limits at 19 roadway segments o Increased awareness and messaging on multiple media outlets to highlight City events and programs available to residents and business
o Commenced the upgrade of the Police Radio System
o Community policing outreach through expanded social media presence, holiday outreach, Neighborhood Watch, and the Signal Hill Police Foundation · Economic Development and Housing
o Issued Notice of Funding Availability (NOFA) for Workforce Housing Developments o Received certification from the State of the City’s 6th Cycle Housing Element o Initiated the Civic Center Master Planning process
o Initiated the Business Spotlight Program
o Participated in public outreach for Environmental Justice and Environmental Resources General Plan Elements
o Issued permits for the Gateway Center North commercial project · Sustainability
o Maintained 100% compliance of the State’s mandatory organics programs for both businesses and multi-family units
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o Completed a comprehensive Street Tree Master Plan
o Started the replacement of trees throughout the City
o Received the Silver Energy Action award from the Gateway Cities Fiscal Year 2023-24 (Year 2) and Economic Outlook
As we look forward to Year 2, staff is prepared to continue delivering quality core municipal services our residents and business have come to expect and deserve. These services include continued expansion of recreation programs, communications, city-wide economic development, proactively working on public safety and addressing deferred maintenance. The proposed updates also focus on building and maintaining a work environment that is conducive to retaining and promoting a successful workforce. In keeping with the City’s fiscal sustainability strategy, staff again relied on industry forecasts, historical and current data and applied these principles during the budget development process for FY 2023-24. While the economy is still experiencing headwinds that include stubborn inflation and rising interest rates, most economists still believe a recession is unlikely as the labor market remains strong with low unemployment. However much remains to be seen regarding how these factors could affect the long-term overall economy; therefore, a conservative approach remains highly advisable.
As noted earlier, the passage of Measure SHR and the City’s diversified sales tax base has been one of the major contributors to the City’s strong financial position, however, sales tax makes up 75% of total City revenues and economic headwinds may have an effect on overall sales tax revenues.
Based on the City’s sales tax expert, HdL, the predicted overall growth for most of the sales tax business sectors will remain flat with low year-over-year grow rates. Year 2 of the Budget not only anticipates a slowdown in sales tax revenue but anticipates flat growth in most of the General Fund revenues including sales tax, property tax, and other taxes. Staff will continue to provide periodic budget updates to re-evaluate budgetary assumptions and make necessary adjustments.
While the budget continues to reflect tempered optimism, the ongoing economic challenges may lead to reevaluating spending strategies. The City’s future economic health will be dependent on maintaining healthy reserves through fiscally conservative budgets and policies, planning for economic development opportunities, and maintaining its strong financial position through prudent, long-range policy decisions and sound fiscal management.
As noted, the City relies on various funding sources that make up the entirety of its Operating and Capital Budget. The following section provides a summary of revenues, expenditures, reserves, and projects. The City was a recipient of the following available funding and actively seeks additional outside funding sources for many of the future planned programs and capital improvement projects.
Local Funds
Measure (Signal Hill) R (SHR)
On November 3, 2020, residents approved Measure SHR, a new three-quarter cent per dollar general transaction and use (sales) tax. The California Department of Tax and Fee Administration (CDTFA) began collecting the new tax on April 1, 2021. The City has now received more than a full fiscal year of sales tax revenue from Measure SHR and can more reliably predict its ongoing CITY OF SIGNAL HILL Page 5 of 18 Printed on 6/23/2023
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economic impact to the City’s budget. The Year 2 Budget reflects this ongoing tax revenue stream.
American Rescue Plan Act (ARPA)
With the passage of the ARPA on March 11, 2021, the Federal government allocated $350 billion in emergency funding to state, local, territorial and Tribal governments to respond to the COVID-19 public health emergency and its negative economic impacts. The City’s allotment of approximately $2.7 million was received in two equal installments, the first in June 2021, and the second in June 2022. While the use of these funds is included in the proposed budget, the monies are shown in a special revenue fund in recognition of their one-time nature and is obligated to fund the 33rd Street water main replacement project to ensure the delivery of water within the City.
Consolidated Appropriations Act (CAA)
Passed by Congress on March 15, 2022, the CAA provides federal funding to local governments. The City secured $1.8 million through Congressman Alan Lowenthal’s office for the Civic Center Parking Lot Improvement Project.
Assembly Bill 178 (Budget Act of 2022)
The City received $5 million in funding through the efforts of Senator Lena Gonzalez’ office to build a new amphitheater. The City recently initiated the Civic Center Master Plan to solicit community feedback that will allow for the prioritization and future development of public facilities that comprise the Civic Center Campus, including the amphitheater. Staff will work with the California Arts Council to ensure the City meets its obligations and can spend the funds to advance this project.
Long-Term Financial Forecast
Long-term forecasts help to increase transparency, encourage fiscal discipline, identify adverse trends, and promote fiscal sustainability. Financial forecasts help the Council consider the long-term costs of today’s commitments. The Year 2 Operating Budget is part of a greater whole, setting the foundation for future fiscal health. Using the FY 2021-22 actuals, the projections for FY 2022-23 and the Proposed Year 2 as a base, staff developed a high-level five-year forecast to provide a generalized outlook towards future revenues, expenditures, and changes to the General Fund balance. The General Fund forecast (shown in the following chart) includes the following assumptions:
· Averaged historical annual trends, industry expert estimates, and Consumer Price Index (CPI) actuals.
· Consideration of only General Fund revenues and expenditures. · Revenues and expenditures providing services at full-capacity including approved decision packages.
· Consideration of one-time expenditures.
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· Measure SHR revenue.
· Increases to obligated costs.
o CalPERS Unfunded Accrued Liability (UAL)
§ Based on the CalPERS July 2021 valuation reports
o California Joint Powers Insurance Authority (CJPIA) insurance § Based on historical trends
o Retiree medical costs
§ Based on historical trends
· Other financing sources used to pay debt service expenditures including the early payoff of the 2018 Library Revenue Bonds in 2028.
· Reserve transfers for Capital Outlay based on long-range Capital Improvement Program model.
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Although the outlook continues to be positive with the General Fund balance predicted to increase, staff recognizes the future impacts of increasing obligated costs will need to be addressed. Each year, staff will review and refine the forecast, identifying the impact of one-time costs, analyzing economic changes and re-examining fund balance targets to ensure adequate reserves are maintained.
General Fund Overview of Year 2 Operating Budget
The General Fund includes all general tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund. Expenditures include the general operating expenses and capital improvement costs which are not paid through other funds.
The Year 2 Operating Budget is balanced and reflects estimated revenues and transfers-in totaling $35,212,419, comprised of $32,907,359 in operating revenues and $2,305,060 in non-operating revenues; and total appropriations and transfers-out in the amount of $35,212,419 in operating expenses.
General Fund Revenues
Total Year 2 General Fund revenues as shown in the chart below equal $33,505,224 including transfers in from outside funds. This analysis incorporates the economic outlook predicting overall growth for most of the sales tax business sectors will remain flat with low year-over-year grow rates and an overall slowdown in growth for all other revenue categories. These numbers include updated revenue projections for Measure R (SHR).
General Fund Operating & Non-Operating Revenues FY 2023-24 (Year 2) 2020 - 2021
Actuals
2021 - 2022
Actuals
Year 1
2022-2023
Projected
Year 2
2023-2024
Proposed
Revenue Type
Property Tax 2,525,204 2,339,173 2,462,398 2,375,773
Sales Tax 20,267,843 24,786,099 25,092,068 25,085,362
Oil Production Taxes 283,150 342,097 545,898 518,603
Other Taxes (TOT,Franchise) 1,386,828 1,427,398 1,309,420 1,317,504 Licenses and Permits 678,808 763,303 665,697 779,374
Intergovernmental Revenue 35,348 98,225 64,106 40,750
Charges for Services 1,271,899 1,567,724 1,267,146 1,249,464 Fines and Forfeitures 175,416 144,205 155,694 220,000
Use of Money and Property 1,071,072 562,384 1,032,799 961,757 Other Revenue 435,021 511,927 479,992 358,772
Transfers In* 516,472 1,258,477 422,147 597,865
28,647,063 33,801,012 33,497,365 33,505,224
*Transfers In - only include transfers from other funds (not reserves) Funding Sources
Total Revenues
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2020 - 2021
Actuals
2021 - 2022
Actuals
Year 1
2022-2023
Projected
Year 2
2023-2024
Proposed
Revenue Type
Property Tax 2,525,204 2,339,173 2,462,398 2,375,773
Sales Tax 20,267,843 24,786,099 25,092,068 25,085,362
Oil Production Taxes 283,150 342,097 545,898 518,603
Other Taxes (TOT,Franchise) 1,386,828 1,427,398 1,309,420 1,317,504 Licenses and Permits 678,808 763,303 665,697 779,374
Intergovernmental Revenue 35,348 98,225 64,106 40,750
Charges for Services 1,271,899 1,567,724 1,267,146 1,249,464 Fines and Forfeitures 175,416 144,205 155,694 220,000
Use of Money and Property 1,071,072 562,384 1,032,799 961,757 Other Revenue 435,021 511,927 479,992 358,772
Transfers In* 516,472 1,258,477 422,147 597,865
28,647,063 33,801,012 33,497,365 33,505,224
*Transfers In - only include transfers from other funds (not reserves) Funding Sources
Total Revenues
Transfers-In to the General Fund for Year 2 include:
AQMD $4,453
Gas Tax $250,000
Measure R $24,960
Measure W $226,000
Pipeline Removal $92,452
Total $597,865
Sales Tax
For Year 2, sales tax makes up approximately 75% of the City’s General Fund revenues. In preparing the revenue projections, staff relied on an analysis of actual performance and trends as well as industry and economist reports. The following chart highlights Signal Hill sales tax performance projections for the various business segments that contribute to the City’s sales tax revenues, as provided by the City’s sales tax consultant. This is compared to the total Statewide trend. Overall total sales tax is forecasted to remain flat with low year-over-year grow rates going forward. Measure SHR is expected to increase in proportion to the Bradley Burns 1% sales tax reflected below.
SECTORS
YEAR 1
2022-23
Year 2
2023-24 2024-25 2025-26 2026-27 2027-28
Autos and Transportation 13.00% -1.10% 3.00% 3.50% 4.00% 4.00% Building & Construction 4.90% 0.70% 5.00% 5.00% 5.00% 5.00% Business Industry 5.30% 2.20% 1.00% 1.00% 1.00% 1.00%
Food & Drugs 3.70% 2.00% 2.00% 2.00% 2.00% 2.00%
Fuel & Service Stations -13.50% -8.40% 0.00% 2.00% 2.00% 2.00% General Consumer Goods 4.40% -4.60% 1.00% 1.50% 2.00% 2.00% SIGNAL HILL SALES TAX TRENDS (provided by HdL)
as of March 2023
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SECTORS
YEAR 1
2022-23
Year 2
2023-24 2024-25 2025-26 2026-27 2027-28
Autos and Transportation 13.00% -1.10% 3.00% 3.50% 4.00% 4.00% Building & Construction 4.90% 0.70% 5.00% 5.00% 5.00% 5.00% Business Industry 5.30% 2.20% 1.00% 1.00% 1.00% 1.00%
Food & Drugs 3.70% 2.00% 2.00% 2.00% 2.00% 2.00%
Fuel & Service Stations -13.50% -8.40% 0.00% 2.00% 2.00% 2.00% General Consumer Goods 4.40% -4.60% 1.00% 1.50% 2.00% 2.00% Restaurants & Hotels 5.40% 1.20% 3.00% 3.00% 3.00% 3.00% State & County Pools 1.00% 3.00% 4.00% 4.00% 4.00% 4.00% Total 5.50% 0.10% 2.40% 2.70% 2.90% 2.90%
StateWide Trend 3.70% 0.50% 2.70% 3.10% 3.20% 3.20%
SIGNAL HILL SALES TAX TRENDS (provided by HdL)
as of March 2023
At a local level, and in line with the City’s philosophy of fiscal prudence and conservative budgeting practices, the following factors were incorporated into the Year 2 estimates:
· Overall slowdown in the economy due to inflation and higher interest rates. · Measure SHR.
Sales Tax Revenue Trend
18-19 19-20 20-21 21-22
Year 1
22-23
Projected
Year 2
23-24
Proposed
Sales Tax 15,789,343 16,834,464 20,267,843 24,786,099 25,092,068 25,085,362 YOY % 5% 7% 20% 22% 1% 0%
Property Tax
Property taxes make up approximately 7% of the City’s revenues and are projected to remain stable.
The City is considered a no/low property tax city. Property tax revenues are predominately a percentage of secured and unsecured taxable assessed values on the current property tax rolls. A second source of property tax revenue is from Vehicle License in Lieu of Fees (VLF) Adjustment Amount which is based on a percentage of City-wide taxable assessed values. Both increase annually in proportion to the growth in assessed valuation. Signal Hill also receives residual property tax revenues from the Successor Agency (SA) that vary from year to year and are expected to decline as the SA annual loan payments to the General Fund escalate going forward.
Property Tax Trends
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18-19 19-20 20-21 21-22
Year 1
22-23
Projected
Year 2
23-24
Proposed
Property Tax 2,188,880 2,330,347 2,525,204 2,339,073 2,462,398 2,375,773 YOY % -3% 6% 8% -7% 5% -4%
Oil Production Barrel Tax
Oil production taxes make up approximately 2% of the City’s revenues. The rate per barrel is based on the Producers Price Index. In Year 2 projected revenues remain relatively flat as production varies based on supply and demand and the current price of fuel.
Oil Production Barrel Tax Trend
18-19 19-20 20-21 21-22
Year 1
22-23
Projected
Year 2
23-24
Proposed
Oil Prod Tax 510,635 460,255 283,150 342,097 545,898 518,603 YOY % 20% -10% -38% 21% 60% -5%
General Fund Expenditures
Total Year 2 General Fund expenditures (excluding transfers out) as shown in the following chart equal $32,996,419. This represents a return to providing full municipal services while also including funding to address deferred maintenance, staffing, operational and infrastructure needs. Year 2 also includes increasing obligated costs related to contract services, insurance, pension obligations, and unfunded mandates. Based on anticipated revenues, the Year 2 expenditures are proposed to be $794,590 lower than the prior year’s current budgeted expenditures of $33,791,009, largely due to the differences in one-time annual expenditures. Year 2 one-time expenditures are approximately $2.7 million and include capital type outlay for the council audio/visual meeting system, information technology infrastructure, police department equipment/system upgrades, and structural wall improvements, totaling $1,208,000; economic studies and evaluations of $600,000; contract services for various studies, strategic plans, general plan updates, and grant consultants of $630,000; and one-time events and programs of $293,000.
General Fund Expenditures
18-19 19-20 20-21 21-22
Year 1
22-23
Projected
Year 2
23-24
Proposed
Expenditures 21,197,031 22,348,843 22,077,879 24,899,716 29,743,261 32,996,419 YOY % 6% 5% -1% 13% 19% 11%
Excludes transfers out
Budget Uncertainties
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As in any given year, a degree of uncertainty surrounds the actual performance of the economy. The following have been identified for monitoring in Year 2. · Global and local economies continue to face new challenges, including inflation andraising interest rates. Locally, cities continue to be challenged by unfunded mandates and legislative directives.
· While the 2013 Public Employees’ Pension Reform Act (PEPRA) has already had positive impacts for the City’s overall pension costs, CalPERS continues to face challenges to meet demographic and discount rate actuarial assumptions, as well as shortened amortization schedules for reducing unfunded liabilities.
· Local sales tax reporting for in-state fulfillment centers may have a long-term negative impact on the online sales and the distribution of use taxes via the countywide pool allocations affecting the City’s sales tax revenues.
· While SB1 and Gas Transportation taxes are budgeted to remain steady, these taxes may be affected by potential legislation to provide relief at the gas pump for consumers which would adversely affect local governments’ annual tax allocations. · The FY 2023-24 State’s Budget includes an estimated budget deficit of $31.5 billion that includes combination of spending cuts, borrowing plan, special tax increases and reserve utilization that may indirectly shift the burden and impact cities on a local level through the reduction of various programs.
Capital Improvement Program (CIP)
The CIP Fund is used to account for financial resources segregated for the development, construction and improvement of City facilities, streets and roads, parks, and water infrastructure.
The Year 2 CIP includes new and existing projects, or project phases, representing an investment of $13.6 million. The City’s CIP plan maximizes the use of one-time and special revenue funds for each project, as detailed in the CIP Schedule. Below is a summary of funding sources for the proposed capital schedule. In Year 2, grant funding accounts for 17% of total CIP funding.
Grants 2,300,000 17%
Reserve 2,529,663 19%
ARPA 528,412 4%
Water Fund 3,475,000 26%
Garage/Fleet Fund 947,819 7%
Other Sources 3,786,438 28%
Total Capital Projects 13,567,333 100%
Funding Sources
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Water Fund
The Water Fund is an enterprise fund and is used to account for operations that are financed and operated in a manner similar to a private business enterprise. The intent of the City Council is that the costs (expenses, including depreciation) of providing water utility services to the public be financed or recovered primarily through user charges.
The sale of water for Year 2 is estimated at $7.0 million. This projection includes the increases that were adopted by Council in January 2020 following a Prop. 218 Hearing. Year 2 includes annual debt service to repay the Water Replenishment District (WRD) a 10-year, zero percent interest loan in the amount of $1.5 million for the construction of Well No. 10 which reduces the City’s reliance on imported water. Year 2 also includes the construction phase of the 33rd Street water main replacement project estimated to be fully funded using ARPA funds and the Gundry Reservoir capital improvement project and associated General Fund loan proceeds. The Water Fund Budget Summary is as follows:
Water Fund Operating Budget
Water Fund
Year 1
2022-2023
Projected
Year 2
2023-2024
Proposed
Revenues/ARPA transfer funds 10,548,925 7,835,841
Operations/Debt Service 5,625,092 6,722,672
Capital Outlay 3,581,190 4,270,812
Special Revenue Funds
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which are legally restricted and usually required by law or administrative regulation to be accounted for in separate funds. Special Revenue Funds are distinguished from enterprise funds in that the services delivered are financed by a Special Revenue Fund (such as streets) and the user does not pay for the service based on actual use. Special revenues are estimated and included in the annual budget and the City makes every effort to maximize the use of these funds as allowed. These funds are accounted for in Year 2 as a transfer-in to the recipient fund, as detailed in the Transfer and Special Revenue sections and the CIP schedule.
Community Development Block Grant (CDBG) Fund
CDBG, enacted through the Housing and Community Development Act of 1974, receives and disburses CDBG monies for administration, social service programs and capital projects. The Los Angeles Community Development Commission estimates the City will receive approximately $86,190 in Year 2.
Gas Tax
Gas Tax revenues for Year 2 are estimated to be $313,979. Tax Sections 2104-2107 allocations are based on a fixed per gallon rate and are used towards General Fund street maintenance and repair expenditures. The budget has not accounted for any legislative changes to these revenues to ease the burden of rising gas prices, but staff will continue to monitor.
American Rescue Plan Act (ARPA)
With the passage of ARPA on March 11, 2021, the Federal government allocated $350 billion in emergency funding to state, local, territorial and Tribal governments to respond to the COVID-19 public health emergency and its negative economic impacts. The City’s estimated allotment is approximately $2.7 million. Although these funds are included in the proposed budget, the monies are initially shown in a special revenue fund in recognition of their one-time nature.
Internal Service Fund - Vehicle Replacement (Fleet Fund) The Fleet Fund is intended to replace City vehicles and provide for maintenance and repair services.
The following fleet purchases are proposed based on the City’s Vehicle Replacement Policy.
Replacement criteria: Based on annual assessment, vehicles are replaced when these have reached their end of service life or are experiencing mechanical problems requiring costly repairs.
Typical replacement schedule:
· Police: four years or 80,000 miles
· City light duty vehicles: 10 - 12 years of age
· Alternative fuel vehicles will be used for their replacement when available and practical.
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Also included in Year 2 is a CIP program to replace an existing fuel canopy, spill buckets, and car wash enclosure at the City Yard. The fund is structured on a break-even basis where costs are allocated back to each department’s overhead budget. The Fleet Fund’s cash balance is estimated at just under $1.0 million at the end of Year 2.
Changes after the Budget Workshop
The following items were either identified during or since the Budget Workshop and are included in the final Year 2 Operating Budget:
The following decision package items were discussed and approved during the Budget Workshop summarized and detailed in the charts below:
· One-time expenditures of $328,500.
· On-going expenditures (personnel related) of $542,457 (includes utilization of the workforce innovation reserve of $386,941).
· On-going expenditures (non-personnel related) of $44,668.
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· Reserve funding increases of $1,790,223, one-time.
The following additional items were identified after the workshop and included in the Year 2 operating budget, special revenue fund and water fund budgets:
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General Fund:
· Increase in budget due to annual increase for CivicPlus website software - $2,000 · Increase in budget due to projected increase in costs related to custodial contract services - $34,000
· Carryover of appropriations from FY 2022-23 to FY 2023-24 due to delay in project for the police department target range upgrade - $80,000
· Carryover of appropriations from FY 2022-23 to FY 2023-24 due to delay in installation of modular workstations for Library - $15,000
Special Revenue Funds:
· Landscape and Lighting Maintenance District No. 1 updates in response to the June 13, 2023 public hearing.
· Proposition A Transportation Program and contract services agreement updates approved during the June 13, 2023 Council meeting.
Water Fund:
Carryover of appropriations from FY 2022-23 to FY 2023-24 due to delay in engineering work completion - $65,000.
FY 2023-24 (Year 2) Appropriations (Gann) Limit
In November 1979, the voters of the State of California approved Proposition 4, commonly known as the Gann Initiative. The Proposition created Article XIIIB of the State Constitution placing limits on the amount of revenue that can be appropriated each year. Proposition 111 amended Proposition 4 in 1990 by allowing cities to choose their annual adjustment factors for inflation and population growth.
The Appropriations Limit is computed annually by applying the greater of two change factors to the limit from the previous year. The adjustment factor for population is determined by either the change in percentage for the City or the County of Los Angeles. For inflation, the factor consists of the percentage change in California Per Capital Income (supplied by the State Department of Finance), or the percentage change in the local assessment roll due to the addition of local non-residential new construction.
The factors used in this year’s calculation were the change in California Per Capita Personal Income and the County’s change in population. The City reserves the right to adjust the Appropriations Limit later in the year. The impact of applying these factors is to increase the City’s appropriations limit to $93,693,692. The City’s tax proceeds are substantially under the established Gann Limit for Year 2.
Conclusion
Staff prepared the City’s budget in a conservative and prudent manner, accounting for current and future economic conditions and indicators regarding revenue estimates and expenditures. The budget anticipates a balanced General Fund budget at the end of Year 2. The City’s prudent fiscal practices have enabled our City to achieve and maintain a positive, long-term stable financial condition.
Staff approached the creation of the Year 2 budget in conjunction with the discussion surrounding the CITY OF SIGNAL HILL Page 17 of 18 Printed on 6/23/2023
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Staff approached the creation of the Year 2 budget in conjunction with the discussion surrounding the development of the current Strategic Plan. As always, the entire Executive Management Team will continue seeking out opportunities to improve efficiencies, reduce costs, and respond effectively to the external economic forces that impact available resources. Staff will continue to build on the accomplishments that have resulted in the fiscal stability of the City of Signal Hill and continue to deliver those services that provide a high quality of life to residents and the business community.
The City’s long-standing tradition of fiscal prudence and careful stewardship of financial resources has allowed the City to grow and thrive over the years. Signal Hill has maximized opportunities while meeting challenges and continued to deliver quality municipal services and important capital projects.
The City will continue to embrace the ideals of conservative fiscal policy, forward thinking, and strategic planning as we face the future.
Attachments:
A. Draft Budget Book
B. Annual Operating Budget Resolution
C. Appropriations Limit Resolution
D. Exhibit A to Appropriations Limit Resolution
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