TO:
Honorable Mayor and Members of the City Council
THROUGH:
Bruce Moe, City Manager
FROM:
Erick Lee, Public Works Director
Steve S. Charelian, Finance Director
Katherine Doherty, City Engineer
Libby Bretthauer, Financial Services Manager
Marcelo Serrano, Budget & Financial Analyst
SUBJECT:Title
Presentation of the Proposed 5-Year Capital Improvement Program (Fiscal Years 2023-2024 Through 2027-2028) and Fiscal Year 2023-2024 Proposed Operating Budget (Public Works Director Lee and Finance Director Charelian).
(Estimated Time: 30 Mins.)
DISCUSS AND PROVIDE DIRECTION
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Recommended Action
RECOMMENDATION:
Staff recommends that the City Council receive this report on the Proposed 5-Year Capital Improvement Program (Fiscal Years 2023-2024 through 2027-2028) and Proposed Operating Budget for Fiscal Year (FY) 2023-2024 and provide direction.
FISCAL IMPLICATIONS:
The Proposed Budget for FY 2023-2024 includes revenues and expenditures for all of the City’s Funds. The document includes conservative estimates for ongoing operations as well as planned projects in the Capital Improvements Plan (CIP).
The FY 2023-2024 General Fund Proposed Budget originally had a projected surplus of $485,017. However, with the addition of $10,000 on May 9, 2023, for advertising Older Adults Programs, the revised projected surplus is $475,017.
Revenues $93,300,981
Expenditures $92,825,964
FY 2023-2024 Revised Budget Surplus $ 475,017
The City’s current Financial Policy reserve is 20% of operating expenditures, or about $18.6 million in FY 2023-2024, which is greater than the Government Finance Officers’ Association (GFOA) recommendation of “no less than two months (17%) of regular general fund operating revenues or regular general fund operating expenditures.” In addition, the City Council has set aside $4.0 million as an “Economic Uncertainty” reserve.
After taking into account the projected operating surplus of $475,017 and net transfers out from the General Fund totaling $4.6 million, the General Fund Unreserved Fund Balance is estimated to be $4.0 million at the end of FY 2023-2024. These funds may be drawn upon for one-time projects and initiatives or, if necessary, transfers to other funds.
The FY 2023-2024 Proposed Budget includes the following transfers out from the General Fund unreserved fund balance:
• $2.7 million to the Stormwater Fund to cover ongoing operations and capital expenses. This fund receives revenues from assessments to property owners, which have not increased since 1996. Without a successful Prop 218 vote, the Fund will continue to require subsidies from the General Fund to cover ongoing operations and capital expenses.
The City has significant regional obligations under the “Waste Discharge Requirements and National Pollutant Discharge Elimination System (NPDES) Permit for Municipal Separate Storm Sewer System (“MS4”) Discharges within the Coastal Watersheds of Los Angeles and Ventura Counties.” Under this permit, the City must undertake a myriad of programs to control and prohibit discharges of pollutants into the MS4. These programs include maintenance and operations work performed by employees and multi-million dollar capital projects to prevent pollution in the waters in the Beach Cities Watershed area, which include the Santa Monica Bay and the Dominguez Channel. Due to these growing requirements and rising costs, staff will return to City Council on May 23, 2023, to discuss funding options.
• $293,253 to the Street Lighting and Landscape Fund to cover ongoing operations and capital expenses. This fund receives revenues from assessments to property owners, which have not increased since 1996. Without a successful Prop 218 vote, the fund will continue to require subsidies from the General Fund to cover ongoing operations and capital expenses.
• $1.0 million to the Capital Improvements Program (CIP) Fund to help fund the Senior and Scout Community Center project. To fund this transfer, $1.0 million was reduced from the allocation to the Pension Stabilization Fund.
• $994,920 to the CIP Fund in accordance with the Pension Liability Policy. This transfer is sufficient to pay for debt service on Fire Station No. 2 ($404,375) and help fund capital projects.
• $492,380 to the Pension Stabilization Fund. The City Council has the discretion to use funds accumulated in the Pension Stabilization fund to pay ongoing pension costs directly to CalPERS, which would provide General Fund relief if needed. As of March 2023, the balance in the Fund is $2.8 million.
The Pension Liability Policy was approved by the City Council in 2021 to provide guidance on how to reallocate the budgetary “savings” achieved by the issuance of Pension Obligation Bonds (POBs) in 2021. The budgeted transfers for the “savings” (i.e. the difference between what would have been paid to CalPERS compared to the level-debt service payments of $5.5 million) is currently allocated 80% to the CIP Fund (for debt service and capital projects) and 20% to the Pension Stabilization Fund (for future pension costs).
The General Fund also receives a transfer-in of excess funds annually from the County Parking Lots fund, which is estimated at $395,925 in FY 2023-2024. Due to excess fund balance accumulated in the Information Technology (IT) Fund, a one-time transfer of $500,000 is also scheduled in FY 2023-2024.
After further review, Staff recommends adding $27,000 to the Police Safety Grants Fund for an additional portable live-view Surveillance Trailer to enhance security throughout the City. This would allow for two leased surveillance trailers in FY 2023-2024 budget.
BACKGROUND:
On February 21, 2023, staff presented the FY 2022-2023 Mid-Year Budget report. Year-end estimates for FY 2022-2023 indicated that revenues would exceed expenditures by about $1.25 million. This anticipated surplus is primarily due to revenues exceeding conservative estimates and unanticipated savings from vacant positions.
Subsequently, it was determined that a significant one-time expenditure of $1.0 million for Deferred Parks Maintenance projects was more appropriate to be spent from the CIP Fund instead of the General Fund. To accommodate this, a transfer of $1.0 million from the General Fund to the CIP Fund is included for FY 2022-2023. The Parks Maintenance project appropriation is included in the FY 2023-2024 Budget and Capital Improvement Plan.
With this change, the anticipated year-end surplus (revenues less expenditures) will be $2.25 million.
Revenues $88,509,646
Expenditures 87,255,638
FY 2022-2023 Mid-Year Projection $ 1,254,008
Deferred Parks Maint. Project to CIP Fund (1,000,000)
FY 2022-2023 Projected Surplus $ 2,254,008
Based on the new projected surplus, and total net transfers of $9.7 million, the unreserved (available) General Fund balance on June 30, 2023, is projected to be $9.4 million after accounting for financial policy designations. These funds will be needed to fund capital priorities and relieve future anticipated deficits in the Stormwater Fund and Street Lighting & Landscape Fund.
DISCUSSION:
The FY 2023-2024 Proposed Budget supports the City Council’s steadfast commitment to outstanding services balanced with a fiscally sustainable approach to budgeting with the goal of protecting residents and maintaining essential services.
The City Council’s priorities of public safety and core City services are the foundation of our budget development. Our City’s history of prudent policy decisions allowed us to maintain and enhance essential services even in challenging times.
The FY 2023-2024 Operating Budget was developed as a conservative spending plan that maintains City Council and community priorities. Where appropriate, service level investments were added in response to feedback received from the Community Budget Meeting in February 2023 and online Budget Survey, as well as for City Council Work Plan items.
Proposed Budget
The City’s Proposed Budget Book is comprised of seven key sections as follows:
1) Introduction
2) Budget Overview
3) Fund Summaries
4) Department Operating Budgets
5) Five Year Forecast
6) Capital Budget Summary
7) Appendix
To obtain an overview of the Proposed Budget, staff recommends that readers first review the City Manager’s Budget Message and Budget Overview located in the (1) Introduction section of the attached Proposed Budget document. The Message includes an explanation of the City’s current fiscal outlook as well as proposed staffing changes and service delivery investments. The (2) Budget Overview includes updates on key revenue sources as well as a comprehensive summary of each City fund. Following the Budget Overview is the (3) Fund Summaries section, which presents revenues and expenditures by fund and by category.
The next section provides (4) Department Operating Budgets, which include department overviews with narratives on key objectives, service level trends, staffing tables and financial tables. The (5) Five Year Forecast for fiscal years 2023-2024 through 2027-2028 covers all City funds and includes funding for operations and the projects identified in the Proposed Five Year CIP found in the (6) Capital Budget Summary section.
The final (7) Appendix section of the Proposed Budget includes various schedules and tables to provide further context to the budget as well as the City’s Financial Policies and Budget Policies.
Budget Process and Opportunities for Community Input
The budget@manhattanbeach.gov email address has been useful for gathering input from the community, and it will once again remain active throughout the budget process for the community to communicate budget priorities to staff.
The Beach Reporter recently included an advertisement announcing the upcoming budget discussion schedule, which is as follows:
Tuesday, May 9 City Council Meeting Budget Study Session - 6 PM
Tuesday, May 16 Regular City Council Meeting - 6 PM
Tuesday, May 23 City Council Meeting Budget Study Session - 6 PM - If needed
Tuesday, June 6 Regular City Council Meeting - Public Hearing and Budget/CIP Adoption - 6 PM
All meetings will be held in-person at City Council Chambers and via Zoom.
Attachments
In addition to the Proposed Budget, staff has also included Parks and Recreation Program Profit & Loss Estimates. This attachment is provided annually with the Budget for a different perspective on revenue-generating programs funded by market-driven fees.
These documents and their contents may be discussed with tonight’s presentation or during one of the future meeting dates listed above.
PUBLIC OUTREACH:
Future opportunities for public input are described above.
ENVIRONMENTAL REVIEW:
The City has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no environmental review is necessary.
LEGAL REVIEW:
The City Attorney has reviewed this report and determined that no additional legal analysis is necessary.
ATTACHMENTS:
1. Budget - Links to Attachments
2. CIP - Links to Attachments