Agenda Item No. 9
CITY OF YUCAIPA
AGENDA REPORT
TO: Honorable Mayor and City Council
FROM: Phil White, Director of Finance
FOR: City Council Meeting of May 22, 2023
SUBJECT: Budget Status Summary
RECOMMENDATION:
That the City Council review the budget status summary and provide direction to City staff as necessary.
BACKGROUND/DISCUSSION:
In preparation of presenting the FY2024 draft budget, City staff is providing a budget status summary. This summary provides historical trends and current financial status.
The role of the Finance Department is to provide clear and transparent financial information so that the City Council can make informed decisions. In the pursuit of clarity and transparency, City staff is updating policies, revisiting financial projections, and providing forecast information.
The budget provides the spending plan for the City over a single year. Projected inflows to the City and projected outflows from the City are captured in accounting funds. The primary operating fund of the City is the General Fund. Other fund types, such as special revenue funds and capital projects funds, are utilized to capture inflows and outflows that don't necessarily fit into the General Fund. Projected inflows and outflows between funds are also captured. The projected flows from each fund will be compiled into the annual budget document and presented to City Council for review at the meeting of June 12, 2023.
Financial Trends
The City has historically financed infrastructure internally, without the use of debt. Public facilities, parks, drainage projects etc., have been constructed in this manner. The accounting for these types of projects (capital) allows the costs to be recorded in funds other than the General Fund. To the extent those other funds do not have sufficient cash to complete the projects, the City has authorized the General Fund to make interfund loans. The idea is that the investment in infrastructure will provide future financial benefit to the General Fund through increased property values and retail sales volume.
Operationally, City Hall has operated lean, guided by a do -more -with -less mentality. The primary benefit from such a philosophy is low operating costs. Running lean also presents challenges, 264
which include providing quality services consistently, maintaining sufficient internal control, and having the bandwidth to be proactive rather than reactive in serving the community. The build - now and operate -lean ideas intersect as infrastructure projects are completed and the City becomes more complex operationally. Over the course of time, one-time capital costs outside the General Fund become less significant, but the additional infrastructure and complexity of the City requires additional staffing to operate and maintain the City's investment. Those operational costs are included in the City's primary operating fund, the General Fund. The costs associated with operating the City are an immediate hit to the General Fund while the benefit associated with the previous investment is recognized through gradual increases in General Fund revenues. To gain a complete picture of the City's spending, all funds (General Fund and other) should be considered.
Operating costs in the General Fund are categorized based on function. e.g. public safety, general government, community development, community services, and public works. As a percentage, public safety costs comprise approximately 50% of the General Fund expenditure budget.
Current Status
In each of the prior ten fiscal years, the General Fund has recognized an increase in recurring revenues. In nine of the prior ten fiscal years, the General Fund has recognized an increase in recurring costs. The FY2024 projections anticipate both trends continuing. Another continuing General Fund trend is that recurring outflows are projected to outpace recurring inflows.
Beginning in FY2021, General Fund recurring outflows exceeded recurring inflows by $3 million, in FY2022 the difference was $5 million, in FY2023 we are projecting a $3 million difference.
Financial Policies Update
The City's commitment to bolster department resources, particularly Finance, has put staff in a position to review and revisit financial policies. While this is an ongoing effort that goes beyond budget preparation, the impact is seen in multiple areas of the FY2024 budget. First the accounting fund structure utilized by the City has been updated to better reflect the City operationally. Next, the fund balance policies are being refined to better match accumulated resources with forecasted activity. In the FY2024 budget we have emphasized the City's policy to first deplete restricted resources prior to spending unrestricted dollars. Staff is evaluating and improving the accounting for long-standing City programs to provide additional transparency for decision makers. Lastly, budget policies are being revised to clearly define budgetary flows and better define cost assumptions.
Budgetary Policies Update
The City's budget preparation process is guided by the budget policy. In an attempt for greater transparency, staff has clarified the City's budgetary basis of accounting. Generally accepted accounting principles (GAAP) based financial statements are provided each year and can be reconciled to the budget. However, there are accounting rule differences in the preparation of financial statements and the preparation of a budget, which are now defined. The budgetary basis of accounting is included in the FY2024 budget book and disclosed in the City's financial statements. Policies have also been updated to better define assumptions used to project costs and revenues as the basis for inclusion in the budget.
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American Rescue Plan Act (ARPA) Update
The City was allocated approximately $8 million in ARPA funding as a backfill for assumed revenue loss. As of June 2022, the City has programmed approximately half of the allocation with an additional $2 million scheduled to be recognized during FY2023. Staff intends to program remaining ARPA in the FY2024 budget.
Other One -Time Inflows
One-time revenues, by definition, are nonrecurring single period transactions. Our objective is to have a structurally balanced budget, i.e. recurring revenues meet or exceed recurring expenditures.
Capital Improvement Program
Capital costs are generally non -recurring. In certain instances, these costs can be funded by restricted resources (Non -General Fund) and in certain cases require discretionary funds (General Fund can be a source of discretionary funding). The City has historically leveraged General Fund resources to fund capital obligations. In preparation for the FY2024 budget, City staff is trying to mitigate the use of General Fund resources as a discretionary capital funding source.
Forecast for the General Fund
While the FY2024 budget is a continuation of the budget challenges from FY2022 and FY2023, we are anticipating new challenges in FY2025. One new challenge will be to level off operating costs in the organization that has continuously run lean as public safety costs continue to increase.
Another challenge is that one-time revenues available in FY2024 will not be available to close the gap. Staff is researching a variety of cost recovery options to meet these challenges and trend toward a structurally balanced budget.
FISCAL IMPACT:
There is no fiscal impact for this item.
Approved by: ��-——�
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