TO:
Honorable Mayor and Members of the City Council
THROUGH:
Bruce Moe, City Manager
FROM:
Steve S. Charelian, Finance Director
Libby Bretthauer, Financial Services Manager
Julie Bondarchuk, Financial Controller
Marcelo Serrano, Budget & Financial Analyst
SUBJECT:Title
Conduct Public Hearing and Consideration of Resolutions Adopting the Fiscal Year 2024-2025 Operating Budget and the Gann Appropriations Limit (Finance Director Charelian).
(Estimated Time: 15 Mins.)
A) CONDUCT PUBLIC HEARING
B) ADOPT RESOLUTION NOS. 24-0067 AND 24-0068
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_________________________________________________________
Recommended Action
RECOMMENDATION:
Staff recommends that the City Council: (1) Conduct a public hearing; (2) Adopt Resolution No. 24-0067 adopting the Fiscal Year (FY) 2024-2025 Operating Budget; and (3) Adopt Resolution No. 24-0068 establishing the Gann Appropriation Limit for FY 2024-2025.
FISCAL IMPLICATIONS:
With the passage of Resolution No. 24-0067, the FY 2024-2025 Budget will be adopted, as presented on May 7, 2024, and as amended during subsequent meetings, for the fiscal year commencing on July 1, 2024. As proposed and amended, the FY 2024-2025 Budget includes revenues of $169,929,100 and expenditures totaling $184,589,883 across all funds.
The General Fund is structurally balanced with revenues of $98,993,155 and expenditures of $98,484,891, resulting in a projected year-end surplus of $508,264. The FY 2024-2025 Budget projects a General Fund balance of $29.2 million on June 30, 2025, after transfers to and from other funds. Within this total fund balance, the City’s Financial Policy reserve is 20% of operating expenditures, or $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.” Additionally, the City Council has set aside $4.0 million as an “Economic Uncertainty” reserve. The balance of $5.6 million is unreserved.
The FY 2024-2025 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 to help fund various capital 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. 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 as needed. As of April 2024, the balance in the Fund is $3.5 million.
The Pension Liability Policy was approved by the City Council in 2021 to provide guidance on how to allocate the estimated budgetary “savings” achieved by the issuance of Pension Obligation Bonds (POBs). The budgeted transfers for the estimated “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 (for future pension costs).
The FY 2024-2025 Budget also includes a transfer of excess funds totaling $220,299 into the General Fund unreserved fund balance from the County Parking Lots Fund per the City’s agreement with the County.
BACKGROUND:
On February 20, 2024, staff presented the FY 2023-2024 Mid-Year Budget report. Year-end estimates for FY 2023-2024 indicate that revenues will exceed expenditures by about $1.11 million before transfers. This anticipated surplus is primarily due to revenues exceeding conservative estimates and unanticipated savings from vacant positions.
Additionally, some staffing adjustments were approved and a budget amendment was authorized for the approval of expenditures and grant revenues related to SB 1383 compliance.
With these changes, the anticipated year-end surplus (revenues less expenditures) is projected to be $998,990.
|
Revenues |
$94,875,382 |
|
Expenditures |
93,876,392 |
|
FY 2023-2024 Year-End Projection |
$998,990 |
Based on the new projected surplus, and total net transfers of approximately $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 relieve future anticipated deficits in the Street Lighting & Landscape Fund.
The FY 2024-2025 Proposed Budget was presented during the City Council Meeting on May 7, 2024. The budget overview presentation outlined budgeted revenues, expenditures, and changes in the fund balance due to transfer activity. The Five-Year Capital Improvement Plan (CIP) was presented during the Budget Study Session Meeting on May 14, 2024. The CIP presentation included a listing of funded capital projects included in the FY 2024-2025 capital budget as well as future fiscal years 2025-2026 through 2028-2029.
The Budget Study Session on May 14 also included operational budget presentations by each department. A subsequent budget and CIP discussion occurred during the Regular City Council Meeting on May 21.
DISCUSSION:
Proposed Budget Recap
The Proposed Budget is attached and available on the City’s website at www.manhattanbeach.gov/Budget. For highlights, it is recommended to read the City Manager’s Budget Message and Budget Overview within the Budget document. The Proposed 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 2024 and online Budget Survey, as well as for City Council Work Plan items.
The FY 2024-2025 Proposed Budget was presented at the City Council Meeting on May 7, 2024, along with an initial Budget Overview presentation. As part of the Budget Study Session on May 14, 2024, departments presented expenditures by program, performance measures/metrics, key objectives for FY 2024-2025, and investments in service delivery, maintenance and infrastructure. Several service delivery investments are recommended to adapt to changing operational needs and service requests from the community, as well as provide adequate support staffing to address community priorities.
As we have seen over the past few years, the City’s ability to quickly adapt to changing service level demands and dynamic shifts in employee attraction and retention patterns is critical to our success in serving our community. Across all funds, the proposed staffing changes total $493,389. Of this amount, four new full-time positions are incorporated into the budget, with two positions included in the General Fund at an approximate net cost of $133,621; one position is budgeted in the Water Fund ($97,280) and one position is in the Information Technology Fund ($81,773); the remaining funds are for various position reclassifications and part-time staffing. A summary of the position recommendations are listed below by department along with the annual cost associated with each recommendation.
Other service delivery investments include technology enhancements, with some incorporating Artificial Intelligence (AI) opportunities, as well as equipment, vehicles, and consultant services where appropriate. Unless noted otherwise, items are included in the General Fund budget.
Management Services
Management Services is responsible for the general administration and operation of the City. To better survey and engage the community, an online Citywide citizen and staff engagement software system ($50,000 - IT Fund) has been included in the FY 2024-2025 Budget. Additionally, two new Netfile software modules ($11,750 - IT Fund) were added to assist with required AB1234 Ethics Training and help manage the Boards and Commissions application process.
Finance Department
The Finance Department supports all financial functions within the City and serves as the financial stewards to the community. In FY 2024-2025, consultant services are included to audit the City’s land lease agreements and Transient Occupancy Tax (TOT) program, including for all hotels, motels and short-term rental operators ($65,000).
To meet the growing demands of the short-term rental program and “MyWaterAdvisor” digital water meter customer service support, a full-time Account Specialist is budgeted in lieu of part-time hours in the Revenue Services Division. This change results in the addition of one full-time position, and after the offsetting reduction in part-time hours, results in a net impact to the General Fund of $34,811.
Human Resources
The Human Resources Department supports the City’s most valuable resource and strives to create a safe and collaborative working environment in which employees can maximize their potential. To assist with Citywide employee recruitment efforts, two part-time positions for HR Technician ($50,163) and HR Intern ($21,833) were added. Other budget enhancements include workplace/administrative consulting ($100,000), additional employee wellness benefits ($58,000 - Insurance Fund), and contract services to redevelop the Police Sergeant promotional recruitment exam ($12,000).
Parks and Recreation
The Parks and Recreation Department, consisting of 21 full-time and over 100 seasonal and part-time staff, provides a wide variety of innovative, collaborative, and impactful recreational, cultural, and educational programs and services for all ages. To best support the City’s robust programs and classes, a replacement registration system ($100,000) is budgeted in FY 2024-2025. Additionally, the purchase of new banquet chairs ($40,000) for community events is included for the Joslyn Center recreational facility.
Police Department
In light of potential threats to crowded events, the practice for modern law enforcement agencies is to staff a crisis response team at each event comprised of SWAT personnel, an armored rescue vehicle, and medically trained officers with first aid supplies. Currently the MBPD SWAT team has no armored rescue vehicle. The purchase of a Bearcat Rescue Vehicle ($295,650) will allow for it to be deployed at all high profile events and used during emergencies. At high profile events, it will be equipped with medical supplies and staffed with a minimum of four SWAT officers who are trained in tactical emergency medicine. It will also be used for select community outreach events.
In 2016, language was added to the Police Management Association (PMA) MOU providing accommodations for take-home vehicles for Police Lieutenants and Captains so that they can respond directly to emergencies/incidents from home. At the time the language was added to the MOU, four vehicles were purchased. Although the Department managed to share vehicles for the three remaining Lieutenants, this is no longer sustainable. Therefore, three Lieutenant vehicles (totaling $243,930) will be purchased to ensure each of the seven employees in PMA has their own dedicated vehicle.
Lastly, automated license plate reader (ALPR) technology ($32,850) will be installed in all Patrol vehicles to facilitate additional data collection aiding in investigations and increase officer safety by alerting to wanted and stolen vehicles automatically.
Fire Department
The Fire Department oversees all disaster readiness and response programs in an effort for the City to be prepared in the event of natural or man-made crisis situations. These preparedness efforts include, but are not limited to, preparing and implementing Emergency and mitigation plans, disaster and Emergency Operations Center (EOC) updates and training, public preparedness education, and ensuring adequate equipment and supplies. The Department is diligently working to help ensure the City appropriately and responsibly responds to all disasters and emergencies that require situational awareness, EOC support, mitigation plans, and cost recovery programs. Accordingly, a Citywide Emergency Operations Plan ($30,000) is included in the Budget as well as additional emergency preparation supplies ($18,200).
Department readiness is paramount, therefore enhancements to the Employee Wellness Program ($30,500) were also added in FY 2024-2025. Other personnel investments include upgrading one Fire Inspector to Senior Fire Inspector ($11,293) and one Management Analyst to Senior Management Analyst ($16,847). Additionally, a part-time Fire Department Intern ($21,135) is budgeted to assist with administrative functions, including but not limited to administrative policy, research, and emergency preparedness.
Community Development
The Community Development Department supports development activity in the City by coordinating plan review and ensuring all proposed construction complies with applicable regulations in the City. The Department also pursues assigned and required long-term policy initiatives, such as updating regulations and maintenance of the Zoning Ordinance. It has remained a challenge to meet expected turnaround times for building plan review, given the volume of reviews and the increasing complexity of land use regulations. To address this, a full-time Permits Technician was approved in FY 2023-2024 as a temporary over-hire to improve service timelines, process permits, and provide counter assistance. With consistent and increasing workflows expected, a full-time Permits Technician ($98,810) is included as a permanent addition in the FY 2024-2025 Proposed Budget.
The City utilizes the Energov enterprise permitting and licensing system to process all plan checks and permits. On-call support ($25,000) was added for services outside the scope of internal staff expertise, including but not limited to, GIS environmental setup and management, configuration and functionality design, best practices, and demonstration of new functionality.
Public Works
Public Works is responsible for the operation and maintenance of all public infrastructure located in the public right-of-way and City properties. In order to enhance the Department’s capabilities within the Utilities Division, a full-time Water System Operator I/II ($97,280 - Water Fund) is included in the Proposed Budget to help manage the water distribution system maintenance and operation programs, ensuring continuity and resilience of service for customers, and to meet statutes.
The Department’s Administration Division continues to have increased clerical demands such as tracking of service requests and overall customer service. To support these functions, two part-time Office Assistant positions ($29,722 each) are also budgeted.
To meet service level expectations, several contract service enhancements are included in the Proposed Budget, including additional traffic control marking services ($140,000), increased tree planting ($100,000), janitorial services ($100,000 - Multiple Funds), landscaping services ($100,000 - Multiple Funds), park maintenance ($75,000), and additional materials and services for the water flushing program ($85,000 - Water Fund). Due to fluctuating fuel costs, a contingency amount for Bulk Fuel ($127,110) is included in the Fleet Fund Proposed Budget.
Technology-related enhancements include cloud-based irrigation software ($165,000) - Sewer Fund), Projectmates construction management software ($100,000 - Multiple Funds), sewer AI software ($80,000), scanning services for 50+ years of paper City Engineering records ($75,000), and a software subscription for the iWater Utilities Asset Management system ($51,840 - Multiple Funds).
Also included in the Proposed Budget are consultant services ($200,000) to assist with SB 1383 mandates related to CalRecycle’s Short-Lived Climate Pollutant Reduction Strategy, including enhanced contract compliance, enforcement and procurement analysis. Other added consultant services include an outreach consultant ($50,000 - Multiple Funds) for year-round services for outreach management, action plans, support and reporting; annual consulting services ($40,000 - Multiple Funds) to meet regulatory compliance for the Lead and Copper Rule revisions; and contract MS4 Inspections ($39,000 - Sewer Fund) to meet MS4/NPDES requirements.
Upgrades to the Red House at Polliwog Park totaling $75,000 are also included in the Budget for roof replacement, new display cases, and furniture.
Finally, the Public Works Operating Budget includes the following one-time equipment and vehicle purchases: replacement portable generator ($150,000 - Storm Drain Fund), flooding mitigation equipment ($80,000 - Storm Drain Fund), truck for new Water Treatment Operator ($60,000 - Water Fund), emergency response rental equipment ($50,000 - Multiple Funds), backflow parts ($35,000 - Water Fund), parking meter preventative maintenance replacement parts ($30,000 - Parking Fund), tools and minor equipment ($20,000 - Sewer Fund), jetter truck repairs ($15,000 - Sewer Fund), and sewer “smart” covers ($14,000 - Sewer Fund).
Information Technology Department
Information Technology (IT) continues to strive for improved service delivery given the growing reliance on technology throughout the organization. Technology touches every aspect of day-to-day City operations including end-user technology (i.e., desktops, laptops, and mobile devices), field computing/remote access, cybersecurity threats and training, broadcasting/audio-video support, helpdesk, and after-hours support. As the Department has grown in response to the growing demand for technology services, so has the need for administrative and clerical support. To address this, a full-time Office Assistant ($81,773 - IT Fund) is included in the Proposed Budget.
Information technology security, services and innovation continue to be a top priority in Fiscal Year 2024-2025. To this end, $100,000 is included within the IT Fund Proposed Budget for Artificial Intelligence (AI) opportunities to enhance City services. Other budgeted technology enhancements include phase II of the Emergency Operations Center (EOC) technology upgrades project ($100,000 - IT Fund), as well as upgrades to the City’s interactive mapping application ($30,000 - IT Fund) and phone system ($30,000 - IT Fund).
Changes to the Proposed Budget
1) The May 14 Budget Study Session staff report included a revised summary of Personnel Changes and Schedule of Full-Time Positions. In concurrence with the budget adoption, this revised schedule of Full-Time Positions will be incorporated into the final Adopted Budget document, and the associated position tables within each Department’s narratives will be updated to reflect the final version.
2) Add one Maintenance Supervisor and remove one Maintenance Inspector (General Fund - No fiscal impact after offsetting reduction in part-time hours).
3) Add one Lead Water System Operator and remove one Water System Operator III (Water Fund - No fiscal impact after offsetting reduction in part-time hours).
4) Within the Proposed Budget, a new Grants Fund was established to account for revenues and expenditures related to new projects funded by grants and contributions from private parties. Although the Grants Fund will be used to solely account for capital projects, the Fund will be reclassified as a Special Revenue Fund in the City’s Fund structure.
As part of establishing the Grants Fund, the following three projects will have their grant-related revenue and expenditure budgets moved to the Grants Fund during FY 2024-2025 as part of the year-end carryforward process for Capital Improvement Projects:
• MBB Complete Streets Corridor - Feasibility/Design Project from the Measure M Fund
• Annual ADA Improvements Program (CDBG) from the CIP Fund
• Rosecrans Bike Lane Improvements - Phase 1 Project (Grants Portion) from the Measure R Fund.
5) Although included in the Grants Fund within the FY 2024-2025 Proposed Budget, the Sepulveda/Oak Neighborhood Traffic Calming project will stay within the CIP Fund as currently budgeted since this project is anticipated to be completed in the next year. Accordingly, $50,000 will be reduced from both revenues and expenditures in the Grants Fund.
These changes are listed on Exhibit “A” of the attached Budget Adoption Resolution No. 24-0067. One final change to the Budget Adoption Resolution from prior years is the inclusion of Utility Undergrounding Assessment District (UAD) funds with the carry forward language in Section 6. Staff proposes including this language due to challenges in estimating the precise amount of funds that are spent/received by the end of each fiscal year on June 30. This authorization to automatically carryforward unexpended UAD expenditures and corresponding revenues is similar to the way the City treats ongoing capital project and grant budgets. Authorizing this change will increase efficiencies in managing the City’s UAD projects, which have significantly grown in complexity over the past few years.
Staff recommends that these changes be incorporated into the final budget and adopted with Resolution No. 24-0067. Additionally, the resolution contains approval for staff to proceed with allocating and filling the positions approved in the budget.
GANN APPROPRIATIONS LIMIT
In 1980, California voters adopted Article XIIIB of the California State Constitution, commonly referred to as the Gann Initiative or Gann Appropriations Limit, placing limits on the amount of tax proceeds that State and local agencies can appropriate each year. The City’s limit is adjusted each year for inflation, population and other factors.
On June 5, 1990, Proposition 111 was voted into California law. Among other provisions, Proposition 111 provided for changes in the calculation of the Gann Appropriation Limit. The annual adjustments to the spending limit was modified by Proposition 111 to be more closely linked to the rate of economic growth in personal income or the percent increase in the local tax roll due to nonresidential property construction. Additionally, cities can choose to use the rate of change in population either within the City or County, whichever is higher. The City utilized elements of these adjustment factors in calculating this year’s Gann Appropriation Limit. The Gann calculation is reviewed annually by the City’s external audit firm as part of the annual audit process.
Staff has calculated the FY 2024-2025 Gann Limit to be $102,974,503. The City’s tax proceeds subject to the FY 2024-2025 Gann Limit equal $72,774,238. Therefore, the City is under the Gann limitation by $30,200,265 and in compliance with state law. Resolution No. 24-0068 adopting the Gann Appropriations Limit and the Gann limit calculation is attached.
PUBLIC OUTREACH:
A Public Hearing notice was published in The Beach Reporter on May 23, 2024, for the adoption of the Budget and Capital Improvement Plan. Additional outreach was conducted using eNews notifications.
ENVIRONMENTAL REVIEW:
The City has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that there is no possibility that the activity may have a significant effect on the environment; therefore, pursuant to Section 15061(b)(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. Resolution No. 24-0067 (Budget Adoption and Exhibit “A”)
2. Resolution No. 24-0068 (Gann Appropriations Limit and Calculation)
3. Fiscal Year 2024-2025 Proposed Budget (Web-Link Provided)
4. PowerPoint Presentation