FY 2025-26 Community Budget Workshop Presentation
Andrew Murray, City ManagerRekha Nayar, Finance DirectorMarch 22, 2025 1 Agenda•Opening Remarks•Staff Presentation•Small Group Work•Council Discussion and Direction 2 Outline of Staff Presentation•Focus is General Fund•Purpose of March 22, 2025 Community Budget Workshop•Overview of different budgeting approaches•FY 2025-2026 budget development process enhancements•FY 2025-2026 Baseline Budget Development and Description•Staff recommendations for changes to current budgeting practices•Presentation of Community Survey Results3 Purpose of March 22, 2025, Community Budget Workshop
4 Purpose of March 22, 2025, Community Budget Workshop: •Provide a comprehensive overview of the City's budget development process along with assumptions. •Present the FY 2025-2026 baseline budget for review.•Gather valuable public input on the FY 2025-2026 budget priorities.•Present results of community survey. •Receive directions from the City Council regarding areas for analysis and inclusion/deletion to the preliminary baseline budget. 5 Overview of Different Budgeting Approaches
6 Different Budgeting ApproachesZero-Based Budgeting (ZBB):•Requires starting from scratch each budget cycle.•Ensures all expenses are justified but is time-intensive.•Identifies and eliminates unnecessary costs.Program-or Performance-Based Budgeting:•Allocates resources based on desired outcomes and performance.•Involves clear objectives and performance indicators.•Focuses on results but can face challenges in defining measures.Incremental Budgeting:•Uses the current year's budget as a base with adjustments.•Simple, stable, and predictable approach.•Risks perpetuating outdated or inefficient practices. 7 City’s Traditional Budget Development Process•Create a Baseline Budget: Establishing the foundation based on prior year ongoing expenditures and revenues.•Receive Department Requests for Changes: Departments submit requests for funding adjustments. •Publish a Proposed Budget and receive City Council feedback at a workshop. •Present a Revised Proposed Budget: Adjustments are made to the proposed budget based on feedback and direction. (This iterative process continues until Council adopts a budget.) 8 City’s Traditional Budget Development Process (Cont’d)•Budget Policy as per City Carter:•Per Charter Section 701, the City Manager submits a proposed budget to Council 45 days before the fiscal year begins.•General Fund proposed expenditures shall not exceed estimated revenues. Estimates of revenue shall include surplus to be carried over from current year, plus miscellaneous revenues. 9 FY 2025-2026 Budget Development Process Enhancements
10 FY 2025-2026 Budget Development Process Enhancements•Additional and earlier opportunities for community input. A community survey had been distributed online and via social media.•Community Budget Workshops are being conducted on March 22nd and April 12th to gather more Council and community input, earlier in the process.•Earlier Staff Proposals: Staff proposals for elements to include in the budget and Council direction will be presented at the Budget Workshop on April 12th, which is earlier in the process. •New Methodology for Baseline Creation: The FY 2025-26 baseline will be based on the FY 2024-25 amended budget, including midyear ongoing adjustments, and will incorporate an inflationary cost escalation factor for services and supplies. 11 FY 2025-2026 Baseline Budget Development and Description 12 Baseline Budget Process
13 •Finance creates a baseline budget based on current fiscal year budget (including mid-year adjustments).•One-time revenues and expenditures are removed.•Ongoing revenues/expenditures are adjusted for forecasted revenue fluctuations, inflation, labor agreements, and contractual obligations.•Revised process for FY 2025-26–Based on FY 2024-25 budget including mid-year adjustments–Add back 10% one-time service/supply cuts in FY 2024-25–Include an inflation factor (3%) for cost escalation for general services/supplies Revenue Projection Process•Revenue projections are prepared individually for each revenue source; assumptions and source data for the projections vary. •Property Tax, Sales Tax, and Business License projections are provided by our consultant.•Other Taxes such as Utility User’s Tax (UUT), Transient Occupancy Tax (TOT), and Cannabis Tax are based on an average of prior year actual trends, future rate increase and/or contract increase by vendors.•Program Revenues are provided by each department. 14 General Fund Revenue FY2025-26 Baseline Budget
15 Property Tax $ 26.34 $ 26.16 $ 26.54$ 0.38 1.4% Property Tax in-lieu (MVLF) 13.83 13.80 14.37 0.56 4.1% Property Tax (including in-lieu) 40.17 39.97 40.91 0.94 2.4% Sales Tax 19.27 19.06 18.93 (0.14)(0.7%)
Transaction & Use Tax - Measure B 20.61 20.35 20.28 (0.07)(0.3%) Transaction & Use Tax - Measure P 18.10 17.80 17.75 (0.06)(0.3%) Sales Tax 57.98 57.21 56.95 (0.26)(0.5%)
Utility User Tax 14.44 15.38 16.98 1.6010.4%
Cannabis Tax (Measure C) 2.00 2.00 2.00 0.00 0.0%
Business License Tax 1.77 1.99 2.02 0.03 1.7%
Other * 17.64 17.64 19.19 1.55 8.8%
Subtotal, General
Unrestricted Revenues 134.00 134.19 138.05 3.85 2.9% Program Revenues 18.42 17.00 15.54 (1.46)(8.6%)
Total (Excluding Measure P) 134.33 133.38 135.84 2.46 1.8% Total (Including Measure P) $ 152.43 $ 151.19 $ 153.58$ 2.40 1.6% General Fund Revenues
(In Millions) FY 24-25
Revised
FY 25-26
Baseline
Difference
AMT %
FY 24-25
Adopted
General Fund Revenue Trends
16 General Fund Revenue TrendsProperty & Sales Tax (without Measure P) 17 General Fund Revenue Trends
18 10.4%
5.4%
1.7%
8.0%
Expenditure Projection ProcessFinance Tasks:•Creates labor projections including salary costs, step increases, specialty pays, MOUs, and employment contracts.•Estimates pension costs based on June 30, 2023, CalPERS Valuation Reports.•Calculates workers’ compensation costs using five-year claim histories.•Determines health benefits based on insurance plan selections by current staff.Risk & Fleet Contributions:•Risk team provides claim histories, insurance premium adjustments, and service/supply costs.•Fleet team provides maintenance allocations and vehicle replacement schedules.HR & Department Roles:•Departments verify baseline assumptions and submit requests for modifications.19 FY 2025-26 Baseline Budget Challenge
20 •FY 2025-2026 baseline shows a significant shortfall due to:oRevenue increase of <1% compared to FY 24-25 Adopted BudgetoExpenditures growing faster than revenue.o$8M General Fund shortfall General Fund FY 2025-26 Baseline Budget
21 General Fund Salaries & Benefit Baseline Budget Assumptions 22 Salaries:The salaries for employees covered under the following agreements shall be adjusted as follows:•UNREP , IBEW, and CAMP Contracts: Salary increase of five percent (5%)•IAFF Contract: Salary increase of four percent (4%)•VPOA Contract: Salary increase of three percent (3%)Pension: Based on the CalPERS June 30, 2023 annual evaluation reportNormal –Safety: 21.620%Misc.: 11.05%Unfunded -Safety: $20.31M Misc. $11.43MHealth Benefits:•Based on the OPEB June 30, 2022 annual valuation report, the assumed increase in health benefits is 7.90%.Assumption for vacant positions:•Vacant positions are budgeted at Step 3 of the classificationWorkers Comp: Share of each department is based on 5 year claims actuarial report General Fund Salaries & Benefit Baseline Budget Assumptions (cont’d) 23 •Staff added back the 10% cut originally reduced in FY 24-25 of $1.76M•Remove FY 2024-25 one-time expenditures: $825k•Remove FY 2024-25 Election (budgeted every other year): $230k•Add 3/11/25 Midyear approved ongoing expenditure: $1.30M •Add Participatory Budget of $1M•Increase Humane Society Animal Shelter budget: $225k•3% inflationary increase for Services and Supplies: $600k Department Amount Description
Police, PW and IT 273,510$ Utilities increase Fire 85,000 Physical Exam
Citywide 519,721 Humane Society Animal Shelter Public Works 325,000 Security
95,000 Janitorial
Total 1,298,231$
FY 24-25 Midyear Approved Addition
Mechanisms used to close the FY 2024-25 baseline budget shortfall 24 For FY 2024-25 Adopted budget following strategies were adopted to address the deficit:oOne-time 10% cuts to S&S and CIP: $1.76M.oDeferred $500k participatory budget allocation.oReduced leave payout by: $600k.
Food for thought –some options for addressing deficitSome one-time options to reduce deficit for FY 2025-26:•Do not deposit savings from making a lump sum payment of $800k to CalPERS into the pension 115 trust.•Paying retiree health unfunded liability contribution of $1.3M from OPEB trust fund•Potential cut of 10% to service and supplies generating $1.2M.•Reducing leave payout of $600k.•Potential Fiscal Year 2024-25 surplus:
25 Staff Recommendations for Changes to Current Budgeting Practices 26 Staff Recommendations for Budgeting Practice Changes and Council Direction•Create a Separate P&DS Fund: Establish a dedicated fund for the Planning and Development Services department to improve financial tracking and accountability.•The Planning and Development Services Department operates on a user fee model, meaning those who apply for permits and inspections pay for the services. Establishing a new dedicated fund helps in budgeting, financial reporting, and accountability. 27 Staff Recommendations for Budgeting Practice Changes and Council Direction (Cont’d) Reflect All Salary Savings Within Each Department: •Ensure that all salary savings resulting from vacant positions are accurately reflected within the respective department budgets. 28 Vacancy savingsFully Load Cost less UAL & WCCount of Fully Load Cost less UAL & WC2CITY MANAGER 459,745 3 EDD188,026 1 FIRE294,216 2 HR 232,425 1 PDS228,979 2 POLICE 3,654,126 21 PUBLIC WORKS 787,377 6 Grand Total6,002,348 37 Staff Recommendations for Budgeting Practice Changes and Council Direction Cont’d) •Difference Between “Authorized” and Funded Positions 29 Presentation of Community Survey Results
30 Budget Survey
City received 246 responses to an online survey sent out regarding citizen priorities for the annual budget on the following questions:•Pick 3 areas where you’d like to see the City of Vallejo make GREATER investments•Pick 3 areas where you’d like to see the City of Vallejo make LESS investments•What are the greatest opportunities that the city faces•What are the greatest challenges that the city faces 31 Budget SurveyPick 3 areas where you’d like to see the City of Vallejo make GREATER investments:
32 Budget SurveyPick 3 areas where you’d like to see the City of Vallejo make LESS investments:
33 Budget SurveyWhat are the greatest opportunities that the city faces:•Economic Development: The document emphasizes the importance of economic development, particularly focusing on the waterfront, Mare Island, and downtown areas.•Community and Diversity: There is a strong emphasis on the diversity of viewpoints and the importance of community engagement.•Challenges: The document highlights several challenges, including infighting among council and community members, public safety issues, and the need for better schools.•Opportunities: It discusses various opportunities for growth, such as attracting new businesses, improving public image, and leveraging the city's prime location and affordable housing.•Public Safety: The need for improved law enforcement and public safety is a recurring theme.•Infrastructure: The document mentions the importance of infrastructure development, including better roads, bike lanes, and public transportation.34 Budget SurveyWhat are the greatest challenges that the city faces:•Crime and Public Safety•Homelessness and Urban Blight•Economic Development and Business Environment•Infrastructure and Cleanliness•Government and Leadership•Community Engagement and Trust•Education and Youth Services•Housing and Affordability 35 QUESTIONS?
36 SMALL GROUP WORK
37 COUNCIL DISCUSSION AND DIRECTION
38 CONTACT(S)
Rekha Nayar: [email protected]
39