TO: Honorable Mayor and Members of the City Council
THRU: Tom Kisela, City Manager
FROM: Trang Nguyen, Finance Director
1. Subject
title
Status of the Fiscal Year 2023-24 budget.
body
2. Summary
This report provides a mid-year update and year-end estimate of the Fiscal year 2023-24 budget, including recommendations to sustain operations for the remainder of the year.
3. Recommended Action
recommendation
Receive and file report, and approve the following:
1. Authorize the following budget transfer:
From: 317.0000.57120.00000 HOME Transfers $129,049.48
To: 100.0000.49010.00000 General Fund Transfers $129,049.48
2. Authorize the appropriation of $64,944 from the fund balance to: 553.5028.56020.20494 Capital Bond Proceeds Fund Administrative Building Improvements
3. Authorize the appropriation of $350,000 from the General Fund, fund balance to:
100.2001.51231.00000 - Electricity $75,000
100.3011.51231.00000 - Electricity 125,000
100.4011.51231.00000 - Electricity 100,000
100.7001.51231.00000 - Electricity 50,000
4. Authorize additional appropriation from fund balance to the following accounts:
100.2001.58514.00000 General Fund Fuel Allocation $1,070
100.3011.58514.00000 General Fund Fuel Allocation 37,460
100.4001.58514.00000 General Fund Fuel Allocation 94,180
100.5011.58514.00000 General Fund Fuel Allocation 24,615
100.6021.58514.00000 General Fund Fuel Allocation 1,070
100.7001.58514.00000 General Fund Fuel Allocation 37,460
125.3015.58514.00000 EMT Fund Fuel Allocation 6,420
220.5022.58514.00000 Sewer Fund Fuel Allocation 11,775
270.5021.58514.00000 Gas Tax Fuel Allocation 49,230
600.8011.58514.00000 Water Fund Fuel Allocation 56,720
5. Authorize the appropriation of $320,000 to account:
710.5023.49021.00000 Charges for Fuel $320,000
6. Authorize the appropriation of $320,000 from the fund balance to:
710.5023.53720.00000 Equipment Expense Fund Gasoline and Diesel Fuel
7. Authorize the appropriation of $300,000 from the fund balance to: 740.0312.52310.00000 Liability Fund Liability Claims Paid
8. Authorize the appropriation of $80,000 from the fund balance to: 740.0312.52320.00000 Liability Fund Property Damage
9. Authorize the appropriation of $80,000 from the Low & Moderate Income Housing Asset Fund fund balance to:
921.6041.50002.00000 Regular Salaries - Miscellaneous $40,000
921.6041.51670.00000 Other Professional & Consulting Svcs 40,000
10. Authorize the following changes to the City’s Schedule of Positions:
a. Reclassify two Administrative Specialist positions to two Administrative Assistant positions in the Public Works Department.
b. Reclassify the Senior Administrative Analyst position to a Public Works Administrator in the Public Works Department.
c. Eliminate the Real Estate Property Agent in the Public Works Department.
d. Authorize two part-time benefitted Code Compliance Officers in the Community Development Department.
e. Retitle the Records Manager position to a Records Coordinator position in the City Clerk’s Department.
f. Modify the Schedule of Positions to include the Forensic Services Specialist position and eliminate the Forensic Services Supervisor position in the Police Department.
11. Adopt Resolution No. 11531. A Resolution of the City Council of the City of Orange Amending Resolution No. 11512 between the City of Orange and the Orange Management Association.
12. Adopt Resolution No. 11532. A Resolution of the City Council of the City of Orange Amending Resolution No. 11480 relating to the Classification, Compensation, and Terms of Employment of Executive Management and Senior Management Employees.
13. Adopt Resolution No. 11533. A Resolution of the City Council of the City of Orange Rescinding Resolution No. 11514 and amending the Citywide Pay Schedule in accordance with the requirements of California Code of Regulations, Title 2, Section 570.5.
end
4. Fiscal Impact
Upon approval of these appropriations, the estimated fund balance for the General Fund at June 30,2024 will be ($2,350,495). Sufficient funds are available in the unreserved balances of the remaining respective funds to support the requested appropriations.
5. Strategic Plan Goals
Goal 2: Be a fiscally healthy community
a: Expend fiscal resources responsibly.
Goal 2: Be a fiscally healthy community
d: Effectively manage and develop City assets.
6. Discussion and Background
FISCAL YEAR 2023-24 (FY 24) UPDATE
General Fund Revenues
The General Fund has received $49.7 million, or 35% of budgeted revenues through mid-year FY 24, including transfers. Based on current trends and analysis, the total General Fund revenues for FY 24 are estimated to be just over $139.9 million, $850k or 1% under the current budget, see table 1 below.
Table 1: FY 24 General Fund Revenue
|
Revenue Source |
Current Budget |
Mid-Year Actuals |
Year-End Estimates |
Variance to Current Budget |
|
Property Tax |
55,024,850 |
16,529,050 |
54,223,500 |
(801,350) |
|
Sales Tax |
50,438,051 |
18,026,870 |
50,010,600 |
(427,451) |
|
Transient Occupancy Tax |
5,350,300 |
2,221,222 |
5,960,000 |
609,700 |
|
Franchises |
2,852,060 |
392,853 |
2,852,060 |
- |
|
License and Permits |
7,040,474 |
3,272,587 |
6,289,600 |
(750,874) |
|
Fines and Forfeitures |
2,023,320 |
764,165 |
2,017,800 |
(5,520) |
|
Use of Money and Property |
1,463,069 |
1,043,001 |
2,000,000 |
536,931 |
|
Rev from Other Agencies |
2,286,340 |
2,520,608 |
3,627,071 |
1,340,731 |
|
Fees for Service |
5,463,736 |
2,194,657 |
5,585,100 |
121,364 |
|
Miscellaneous Revenue |
1,322,704 |
937,253 |
1,081,400 |
(241,304) |
|
Interfund Revenues |
3,635,631 |
1,817,816 |
3,635,631 |
- |
|
Total Operating Revenue |
136,900,535 |
49,720,082 |
137,282,762 |
382,227 |
|
Transfers In |
3,863,281 |
- |
2,629,000 |
(1,234,281) |
|
TOTAL REVENUES |
140,763,816 |
49,720,082 |
139,911,762 |
(852,054) |
Property Tax, currently the City’s largest source of General Fund revenues, is at $16.2 million midyear, and anticipated to be $54.2 million for FY 24, 1% under the current budget. This is mostly attributed to the decline in home sales and the property transfer tax.
Sales Tax, the City’s second largest source of General Fund revenue, was at $18.0 million at the midyear point, and is anticipated to be about $427k or 1% under the budget at $50.0 million. With the current economic environment, household spending has remained flat due to inflation rates and less discretionary spending. As such, consumers’ spending priorities lie with essential items while deferring non-essential purchases such as autos, general consumer goods, and building and construction categories.
Transient Occupancy Tax (TOT) for the City was approximately $2.2 million at midyear, and is estimated to be at $6.0 million at year-end or 11% above the current budget. This increase is mostly attributed to the City’s established STR program as well as favorable trends in local travel.
The current budget includes a Transfer In for the designation of the amount to set aside for the Catastrophic Reserve according to the City’s Reserve Policy. Staff determined this designation did not need to be reflected as a Transfer In, but rather identified as part of fund balance.
General Fund Expenditures
At midyear, the total for the General Fund expenditures is approximately $65.6 million, or 46% of the budget, including transfers out, see table 2 below.
Table 2: FY 24 General Fund Expenditure
|
Expenditure Category |
Current Budget |
Mid-Year Actuals |
Year-End Estimates |
Variance to Current Budget |
|
Salaries and Benefits |
97,281,513 |
50,901,479 |
99,918,541 |
(2,637,028) |
|
Contractual Services |
16,307,804 |
6,666,166 |
14,754,536 |
1,553,268 |
|
Materials and Supplies |
2,669,845 |
913,958 |
1,967,973 |
701,872 |
|
Miscellaneous Expenses |
365,700 |
230,870 |
263,013 |
102,687 |
|
Capital Outlay |
536,349 |
53,403 |
175,097 |
361,252 |
|
Internal Service Costs |
23,472,851 |
6,853,563 |
23,472,851 |
- |
|
Debt Service |
1,713,000 |
- |
1,713,000 |
- |
|
Total Operating Expenditures |
142,347,062 |
65,619,439 |
142,265,011 |
82,051 |
|
Transfers Out |
1,363,281 |
- |
- |
1,363,281 |
|
TOTAL EXPENDITURES |
143,710,343 |
65,619,439 |
142,265,011 |
1,445,332 |
Salaries and benefits account for $50.9 million of midyear expenditure, about 52% of the current budget in this category. The current budget includes approximately $4.1 million in estimated vacancy savings, which amounts to about 4% of overall salaries and benefits budgeted for the fiscal year. The year-end estimate is projected to be $99.9 million, about $2.6 million or 3% above the current budget, which indicates that the City will not meet its vacancy rate for FY 24. It is important to note that the year-end estimates would have been under budget by about $1.4 million without the estimated vacancy rate.
Contractual services total about $6.7 million at the midyear point and is estimated to be about $14.8 million at year-end, about $1.5 million or 10% under the current budget. Expenditures in this category are tracking lower than the current budget in part due to consulting services costs being underspent as the City works to fill vacancies.
Materials and supplies category has almost $914,000 expended at midyear. The year-end estimate for this category is approximately $700,000 or 26% lower than the current budget of almost $2.7 million. This estimated expenditure is mostly attributed to the receipt of reimbursements for eligible expenses and unfinished projects, of which the balance will likely be proposed to be carried over into the next fiscal year.
The Transfer Out is the set aside amount for the Catastrophic Reserve according to the City’s Reserve Policy. Staff determined this designation did not need to be reflected as a budget item, but rather as a part of fund balance designation.
Budget Adjustments
Along with the adopted budget, carryover appropriations and encumbrances added approximately $1.7 million to the budget. To date, Council has authorized an additional $1.3 million in budget adjustments to the General Fund. Of these budget adjustments, $1.2 million is offset with corresponding revenue, Strike Team reimbursements, and donations.
The following additional budget adjustments to the FY 24 are recommended:
• Homeless Resource Center Grant Funding: The City Council approved the activities at the Homeless Resource Center (HRC) as part of the HOME American Rescue Plan (HOME ARP) on May 8, 2023. The majority of charges incurred since then have been identified as eligible expenses for the HOME ARP plan. Due to the timing and reimbursement of the grant guidelines, not all expenses were charged to the HOME fund and were covered by the General Fund in FY 2023. In order to reimburse these expenses, a transfer of $129,049.48. from the HOME fund (317) to the General Fund Unreserved Fund Balance is proposed.
• Administration Building Security Door Improvements: This project was awarded at the January 23, 2024 City Council meeting, with funding support from the Capital Projects Fund. Alternative funding has been identified, and in an effort to effectively manage the city’s financial resources, it is recommended the project be funded through Capital Bond Project (553) as this project is eligible since it focuses on the City’s physical security at the Civic Center campus. Upon approval of this appropriation, $64,944 of Capital Fund (500) funding will remain unspent and will go back to the unreserved fund balance at the end of the year to support future needs.
• Electricity: Costs associated with electricity have been increasing steadily in recent years, most notably in the last two years. While City departments have been able to absorb costs with unspent budget in areas such as contractual services and materials and supplies, the expense will be too large to cover within the respective departments for FY 24. An amount of $350,000 would cover anticipated electricity costs within several departments including Library, Fire, Police, and Community Services. Electricity costs cover facilities maintained by the City and are partially offset by facility rental fees as applicable.
• Fuel Allocation: While the price and use of fuel has fluctuated over the last few years, the City has maintained the same budget appropriation and has used unspent budget to cover additional fuel costs. Current year end estimates do not support the same level of unspent budget, and an additional appropriation will be necessary to cover the cost of gasoline and diesel fuel for city operations for the remainder of the year. As an internal service cost, this additional funding will be supported by the following unreserved fund balances: General, Emergency Medical Transport (EMT), Sewer, Gas Tax, and Water Funds.
• Liability Claims and Property Damage: Each year, staff appropriates an estimated amount for liability claims, premiums, and administrative costs based on history and knowledge of what is to be expected in the coming fiscal year. Due to unforeseen claims, property damage, and premium costs, $380,000 of additional funding for the Liability Claims Paid and Property Damage accounts are needed. Staff is requesting an appropriation of the unreserved fund balance of the Liability Fund (740) to addresses these expenses.
• Low & Moderate Housing Asset Fund: In order to streamline compliance and inspection monitoring of former Redevelopment Agency (RDA) funding projects, staff is proposing the purchase of asset management software that will be utilized to keep track of agreements, annual compliance monitoring, and residual receipt payment calculation and tracking. Funds are needed to pay for consultant time to assist staff in developing a module that is specific to the City’s needs and business processes. Additionally, funds for staff time are being requested to cover management and administration related to the RDA-funded affordable housing agreements.
• Code Enforcement Support: The responsibilities of the Code Compliance Division have expanded over the past year with the addition of the oversight of Short-Term Rentals and sidewalk vendor enforcement. The City is currently using revenue from short-term rentals for consultant services to augment code compliance staffing in order to meet community expectations on responsiveness and effectiveness. Staff is recommending adding two 20-hour part-time code compliance staff in lieu of outside consultants to specifically cover sidewalk vending enforcement. The estimated annual cost for the two positions is $157,000 or about $77,000 each. If approved, the positions would be supported by using unspent budget from salaries within the department and consulting services in FY 24.
• Organizational Structure Changes: Due to modifications in department organizational structures and increases with level of duties with certain employees, salary ranges and classifications are proposed to be updated to commensurate with the reassignment and level of work for certain departments, including Public Works, Community Development, City Clerk’s, and Police departments. The position changes are cost neutral in all funds and does not affect budgetary projections for out years.
The total impact of these FY 24 adjustments affecting the General Fund total $416,805 which includes the transfer from the HOME fund (310), and are considered in the year-end estimates, see table 3 below.
Table 3: FY 24 General Fund Estimated Fund Balance
|
|
FY 2023-24 Current Budget |
FY 2023-24 Year-End Estimate |
Variance to Current Budget |
|
Estimated Beginning Undesignated Fund Balance - 7/1/2023 |
11,687 |
11,687 |
- |
|
Revenues |
136,900,535 |
137,282,762 |
382,227 |
|
Transfers-In |
3,863,281 |
2,629,000 |
(1,234,281) |
|
Total Revenues |
140,763,816 |
139,911,732 |
(852,054) |
|
Expenditures |
(142,347,063) |
(142,265,011) |
82,051 |
|
Mid-Year Appropriation (Electricity) |
- |
(350,000) |
(350,000) |
|
Mid-Year Appropriation (Fuel) |
- |
(195,855) |
(195,855) |
|
Transfers Out |
(1,363,281) |
- |
1,363,281 |
|
Total Expenditures |
(143,710,344) |
(142,810,866) |
899,477 |
|
Carryovers from FY23 |
1,736,528 |
1,736,528 |
- |
|
Estimated Ending Fund Balance - 6/30/2024 |
(1,198,313) |
(1,150,889) |
47,424 |
|
Catastrophic Reserve Designation |
(1,122,615) |
(1,199,606) |
(76,991) |
|
Estimated Undesignated Fund Balance - 6/30/2024 |
(2,320,928) |
(2,350,495) |
(29,567) |
Table 4 has the estimated Catastrophic Reserve based on the mid-year year-end estimates.
Table 4: FY 24 General Fund Estimated Catastrophic Reserve Balance
|
|
FY 2023-24 Current Budget |
FY 2023-24 Year-End Estimate |
Variance to Current Budget |
|
Beginning Reserve Balance at 7/1 |
22,506,997 |
22,506,997 |
- |
|
Increase/(Decrease) to Reserve |
1,122,615 |
1,199,606 |
76,991 |
|
Estimated Ending Catastrophic Reserve Balance at 6/30/2024 |
23,629,612 |
23,706,603 |
76,991 |
Considering all General Fund revenues and expenditures year-end estimates for FY 24, the operating deficit is estimated to be about $2.35 million. Year-end estimates for operating revenue are projected to be slightly higher, excluding transfers, and remain within 1% of the current budget. However, this does not include the one-time revenue from CR&R. The year-end expenditures are lightly lower than anticipated, but also remain withing 1% of the current budget.
The City staff will continue to monitor revenues and expenditures for FY 24 and will provide further updates in the third quarter budget report. More detailed analysis of anticipated revenues and expenditures for FY 25 will be discussed at the upcoming Budget Study Session, focusing on General Fund, on March 21st.
7. ATTACHMENTS
• General Fund - Mid Year Report Ending 12/31/23
• Resolution No. 11531
• Resolution No. 11532
• Resolution No. 11533