To: MAYOR AND CITY COUNCIL
From: JOE HOEFGEN, CITY MANAGER
TITLE
title
PUBLIC HEARING TO CONSIDER FISCAL YEAR 2020-2021 CITY MANAGER’S PROPOSED BUDGET, FISCAL YEAR 2020-2025 CITY MANAGER’S PROPOSED FIVE-YEAR CAPITAL IMPROVEMENT PROGRAM, AND BUDGET RESPONSE REPORTS
PROCEDURES:
a. Open Public Hearing, take testimony; and
b. Continue Public Hearing to June 2, 2020; and
c. Receive and file Budget Response Reports.
end
EXECUTIVE SUMMARY
The Mayor and City Council, on May 19, 2020, received and filed the Proposed Budget for Fiscal Year 2020-2021 and the Proposed Five-Year Capital Improvement Program (CIP) for Fiscal Year 2020-2025 and set May 26, 2020 as the date to conduct a Public Hearing for said documents.
BACKGROUND
The City’s Mission Statement is as follows: “The City of Redondo Beach is committed to providing the finest services to enhance the quality of life for those who live, work, visit and play in our community.”
The Proposed Budget describes how the City carries out its mission within a work program for the coming year and the associated resources required for achieving the City Council’s goals. It is designed to be consistent with the City Council’s Strategic Plan as well as the City’s adopted Financial Principles. The budget emphasizes core services that are basic to the City’s mission.
The City Manager’s budget message describes the projected financial outlook for the upcoming fiscal year, the budget development process, and a summary of the budget’s proposed revenues and expenditures. Decision packages are recommended as additions or reductions to the base budget that are not contractually obligated or the result of annual personnel allocation updates. The departmental sections discuss core service activities, key projects and assignments, and customer service and referral work measures. Financial Summary (mini-financial) reports spotlight important business units. The Capital Improvement Program (CIP) identifies capital investment required to meet our general plan and other policy goals and to ensure good stewardship of our existing infrastructure. The CIP identifies the projects, their estimated costs, and the financing methods needed to implement the City’s capital investment goals and the maintenance of new or existing infrastructure.
In summary:
• The total annual budget including all funds is $163.8 million.
• The total General Fund budget is $96.7 million.
• Recommended is a total of $58.0 million in capital improvements.
• Funding is included for the payroll of 432 full-time employees (before decision packages).
• The General Fund’s contingency reserve is $8.1 million.
• And the General Fund’s unallocated balance is zero (if all decision packages were approved),
• The balance of the Major Facilities Reconstruction Fund would be $918,076 following the $231,924 transfer to the General Fund to bring the operating budget in balance as recommended as part of the decision packages.
• Although the budget is balanced, ongoing expenditures exceed ongoing revenues in this year of transition back to structural balance.
• While the Proposed FY 2020/21 Operating Budget is balanced, it is not structurally balanced as ongoing expenditures exceed ongoing revenues (even with adoption of all decision packages). It is envisioned that FY 2020-21 will be transitional in nature as Redondo Beach works its way back to the structural balance which the City had previously achieved.
General Fund revenues are projected to decrease by $8.1 million, or 8.4%, in Fiscal Year 2020-2021. Property taxes constitute the largest single source of General Fund revenue and show a 0.7% gain. Because the revenue received from this source is based on calendar year 2019 property values, any current downgrades to property values as a result of the COVID-19 public health emergency will not be reflected until FY 2021-2022.
All other large General Fund revenue sources (with the exception of property tax in lieu of VLF which is also based on calendar year 2019 property values) are projected to decrease. The pandemic-related economic conditions have had an immediate and continuing effect on sales tax revenues resulting in an 11.9% decline in FY 2020-2021. Utility users’ tax is projected to decrease by 4.5% as the decreased usage of utilities (primarily water and electric) during the pandemic-related business closures is not offset by the increased residential usage as more individuals work from home. And transient occupancy tax is the City’s General Fund revenue source most impacted by the COVID-19 public health crisis with a 67.2%, or $5.8 million, decline.
Still an ever-present strain on the City’s finances that remains significant and unfortunately continues to grow is pension obligations. This issue is a common recurrence in municipal budgets across California. In Fiscal Year 2020-2021, the City’s pension obligation will total $20.5 million, which represents a $1.9 million increase over the current year pension costs. The investment losses experienced by CalPERS during the COVID-19 public health crisis will only make this strain greater beginning in Fiscal Year 2022-2023.
It is under these conditions that the proposed budget for Fiscal Year 2020-2021 was developed. A total of 46 decision packages and 82 capital improvement projects are recommended.
The following provides details of the components of the estimated ending fund balances as shown in the Fiscal Year 2020-2021 Proposed Budget that are likely to arise during the budget adoption process.
Why is the General Fund’s beginning fund balance estimated to be zero?
Although a $1.6 million FY 2019-2020 ending fund balance was anticipated at midyear, COVID-19 and its “Safer at Home” restrictions and business closures have dramatically decreased revenues and, to a lesser degree, expenditures resulting in a projected $1.0 million deficit at year-end. It is expected that one-time money will be pulled from reserves to cover this deficit, leaving a fund balance of zero.
In the Fiscal Year 2020-2021 Proposed Budget, what items adjust beginning fund balances to their estimated ending fund balances?
In the Proposed Budget are the following items which adjust the General Fund beginning fund balance to the estimated ending fund balance.
|
$ 0) |
General Fund estimated beginning fund balance |
|
88,417,478) |
Fiscal Year 2020-2021 proposed revenues (as detailed in the “Revenues” section of the Proposed Budget document) |
|
(96,711,993) |
Fiscal Year 2020-2021 proposed appropriations (as detailed in the Proposed Budget document both in the “Expenditures” section and in the “Department Details” section) |
|
1,997,281) |
Fiscal Year 2020-2021 proposed transfers in (a transfer from the Harbor Tidelands Fund for the annual property tax in lieu payment, a transfer from the Successor Agency for the reimbursement of administration costs, and a transfer from the Harbor Uplands Fund for the 2019 lease revenue bond debt service payment) |
|
(2,629,076) |
Fiscal Year 2020-2021 proposed transfers out (subsidy of the Street Landscaping and Lighting Assessment District and a transfer to the Community Financing Authority for the 2019 lease revenue bond debt service payment) |
|
|
|
|
$(8,926,310) |
General Fund estimated ending fund balance (before consideration of the Fiscal Year 2020-2021 decision packages) |
The estimated ending fund balances of the other funds are calculated similarly. The adjustments to the beginning fund balances for all funds are detailed in the “Revenues”, “Expenditures”, and “Department Details” sections of the Proposed Budget document.
What is the resulting impact of funding the recommended Decision Packages to the estimated ending fund balances?
Recommended adjustments to the estimated fund balances are to be considered by the City Council through supplemental requests called Decision Packages. Decision Packages can be related to policy, operational or financial matters. Those impacting the General Fund are categorized below.
|
$(8,926,310)General Fund estimated ending fund balance (before consideration of the Fiscal Year 2020-2021 decision packages) |
|
|
(4,374) |
Decision Packages that would be needed to comply with County-State-Federal mandates or fund unavoidable costs to maintain basic services |
|
277,500) |
Decision Packages that would sustain or improve revenue to the City |
|
6,523,962) |
Decision Packages that would reduce departmental expenditures to align with available City funding sources |
|
(247,000) |
Decision Packages that would be needed to protect the health and safety of the public, employees or environment |
|
92,298) |
Decision Packages that would improve organizational efficiency, economy or effectiveness |
|
2,283,924) |
Decision Packages (with one-time requests) that would fill gaps in current services or meet new service needs |
|
|
|
|
$ 0) |
General Fund estimated ending fund balance (after consideration of the Fiscal Year 2020-2021 decision packages) |
As can be seen in the decision packages, significant cuts to departmental expenditures are recommended with a targeted 15% reduction for non-safety departments and a targeted reduction of 5% for safety departments and the Prosecution Division of the City Attorney’s Office. Additionally, transfers from the Capital Projects and Major Facilities Reconstruction Funds are necessary decision packages for balancing the General Fund.
Budget Response Reports, which will be provided throughout the budget adoption process, give detailed information above and beyond what can be described in the budget document. They help “tell the story” of significant budget issues to be addressed in the coming year and beyond.
COORDINATION
All departments participated in the preparation of the Fiscal Year 2020-2021 City Manager’s Proposed Budget and the 2020-2025 City Manager’s Proposed Five-Year Capital Improvement Program.
FISCAL IMPACT
The City Manager’s Fiscal Year 2020-2021 Proposed Budget is balanced and when including capital project funding totals $163.8 million. The City Council’s adopted budget will create the financial plan for all City operations.
APPROVED BY:
Joe Hoefgen, City Manager
ATTACHMENTS
Fiscal Year 2020-2021 City Manager’s Proposed Budget
Fiscal Year 2020-2021 City Manager’s Proposed Five-Year Capital Improvement Program
Fiscal Year 2020-2021 Budget Response Reports (will be provided via blue folder)