TO:
Honorable Mayor and Members of the City Council
THROUGH:
Bruce Moe, City Manager
FROM:
Steve S. Charelian, Finance Director
Erick Lee, Public Works Director
Libby Bretthauer, Financial Services Manager
Katherine Doherty, City Engineer
Marcelo Serrano, Budget & Financial Analyst
SUBJECT:Title
Continued Discussion of the Fiscal Year 2024-2025 Proposed Operating Budget and Proposed 5-Year Capital Improvement Program (Fiscal Years 2024-2025 Through 2028-2029) (Finance Director Charelian and Public Works Director Lee).
(Estimated Time: 30 Mins.)
DISCUSS AND PROVIDE DIRECTION
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Recommended Action
RECOMMENDATION:
Staff recommends that the City Council discuss and provide direction on the Proposed Operating Budget for Fiscal Year (FY) 2024-2025 and Proposed 5-Year Capital Improvement Program (Fiscal Years 2024-2025 through 2028-2029).
FISCAL IMPLICATIONS:
The Proposed Budget for FY 2024-2025 includes revenues and expenditures for all of the City’s Funds. The document includes sufficient funding for ongoing operations as well as scheduled projects in the Capital Improvements Plan (CIP).
The FY 2024-2025 General Fund Proposed Budget has a projected surplus of $508,264.
|
Revenue |
$98,993,155 |
|
Expenditures |
98,484,891 |
|
FY 2024-2025 Proposed Budget Surplus |
$ 508,264 |
The City’s current Financial Policy reserve is 20% of operating expenditures, or about $19.5 million in FY 2024-2025, 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 to use at its discretion.
After taking into account the projected operating surplus of $508,264 and net transfers out from the General Fund totaling nearly $4.1 million, the General Fund Unreserved Fund Balance is estimated to be $5.6 million at the end of FY 2024-2025. These funds may be drawn upon for one-time projects and initiatives or, if necessary, transfers to other funds.
The FY 2024-2025 Proposed Budget includes the following transfers out from the General Fund unreserved fund balance:
• $313,346 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 for one-time parks and facilities projects.
• $1,194,471 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 ($402,500) and help fund capital projects.
• $1,791,707 to the Section 115 Trust Fund in accordance with the Pension Liability Policy. These funds may be used to make pension payments directly to CalPERS. CalPERS’ negative investment return as of June 30, 2022, resulted in an unfunded pension liability payment due in FY 2024-2025. Utilizing the Section 115 Trust Fund for its intended purpose, an expenditure of $1.0 million is budgeted in the Section 115 Trust Fund for the General Fund portion of the payment due. After the transfer in and UAL payment to CalPERS, the balance in the Fund is projected to be $4.2 million as of June 30, 2025.
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 40% to the CIP Fund for debt service and capital projects, and 60% to the Section 115 Trust Fund to prefund future pension payments.
The General Fund also receives a transfer-in of excess funds from the County Parking Lots Fund annually, which is estimated at $220,299 in FY 2024-2025.
BACKGROUND:
On February 20, 2024, staff presented the FY 2023-2024 Mid-Year Budget report. Year-end estimates for FY 2023-2024 indicated that revenues would exceed expenditures by about $1.0 million. This anticipated surplus is primarily due to revenues exceeding conservative estimates and unanticipated savings from vacant positions.
|
Revenues |
$94,875,382 |
|
Expenditures |
93,876,392 |
|
FY 2023-2024 Mid-Year Projected Surplus |
$ 998,990 |
Based on the new projected surplus, and total net transfers of $4.0 million, the unreserved (available) General Fund balance on June 30, 2024, is projected to be $10.2 million after accounting for financial policy designations. These funds will be needed to fund capital priorities and provide subsidies to the Street Lighting & Landscape Fund for ongoing operational costs.
DISCUSSION:
The City Council’s priorities of public safety and outstanding City services are the foundation of our budget development. Our City’s history of prudent policy decisions has allowed us to maintain and enhance essential services even in challenging times.
Capital Improvements Funding
The FY 2024-2025 Proposed Budget includes CIP Fund revenues generated from TOT, Parking Meters and Parking Citations totaling $1.7 million. After debt service for the Policy & Fire facility ($763,462) and Fire Station #2 ($402,500), there is little funding leftover for capital projects, which necessitates General Fund transfers and/or additional debt financing.
The FY 2024-2025 Proposed Budget includes a transfer of $1.0 million from the General Fund to support one-time projects as well as a transfer of $1.2 million from the General Fund in accordance with the City’s Pension Liability Policy.
The City previously committed nearly $6.6 million for the Senior and Scout Community Center Renovation, which included $2.3 million in private donations and $4.3 million transferred from the General Fund. Considering the number of infrastructure priorities that need to be funded, staff recommends issuing Certificates of Participation (COP) bonds for the City’s portion ($4.3 million) of the Senior and Scout Community Center and using those funds for other essential projects (e.g. Security Cameras, Aquatic Center Feasibility/Design, City Facility Renovations, etc.).
Staff regularly monitors market conditions and opportunities for capital financing to accomplish funding goals and ensure long-term fiscal sustainability. Additionally, the allocation of surplus funds, changes to fund balance policies, and/or revenue options may be considered as the City moves toward developing a long-term capital funding plan:
• Allocate year-end General Fund surplus funds;
• Reduce Financial Policy of 20% closer to GFOA recommendation of 17%;
• Consider Sales Tax rate increase ($2.6 million for each 0.25%);
• Add Utility Users Tax revenue enhancement ($1.25 million for each 1.0%).
Proposed Budget
The FY 2024-2025 Proposed Budget was developed as a comprehensive spending plan that supports City Council and community priorities. Where appropriate, service level investments were added in response to feedback received from the Community Budget Meeting in February 2024 and online Budget Survey, as well as for City Council Work Plan items.
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 2024-2025 through 2028-2029 covers all City funds and includes funding for operations as well as 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.
Five Year Capital Improvements Plan
Public Works staff presented the complete list of the proposed 5-Year Capital Improvement Program (CIP) and their recommended funding sources on May 14, 2024. The proposed 5-Year CIP includes 94 individual projects totaling $176,978,801. This includes projects already underway as well as those to be initiated within the next five years. The planned expenditures are for projects approved in prior years, representing approximately $81.2 million, while the remaining $95.8 million represents projects planned for implementation in FY 2025 through FY 2029. Collectively, the proposed 5-Year CIP budget is comprised of:
$24.6 Million Building, Park, Facilities, Air Quality (CIP)
$48.3 Million Streets, Sidewalks and Other Rights-of-Way Projects (ROW)
$6.5 Million Parking Lot Projects
$7.2 Million Grant Funded Projects
$26.2 Million Sewer Projects
$27.3 Million Water Infrastructure Projects
$506,120 State Pier and Lot Projects
$36 Million Storm Drain Projects
$375,000 Street Lighting & Landscape Projects
Upon the City Council’s concurrence of the proposed CIP for FY 2024-2025, the funding appropriation will occur as part of City Council’s adoption of the Operational Budget in June.
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 communication of budget priorities to staff.
The Beach Reporter recently included an advertisement announcing the upcoming budget discussion schedule, which is as follows:
Tuesday, May 14 City Council Meeting Budget Study Session - 6:00 p.m.
Tuesday, May 21 Regular City Council Meeting - 6:00 p.m.
Tuesday, May 28 City Council Meeting Budget Study Session (if needed) - 6:00 p.m.
Tuesday, June 4 Regular City Council Meeting - Public Hearing and Budget/CIP Adoption - 6:00 p.m.
All meetings will be held in-person at City Council Chambers and via Zoom.
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. Fiscal Year 2024-2025 Proposed Budget (Web-Links Provided)
2. Capital Improvement Program (Web-Links Provided)