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HomeMy WebLinkAbout65B - DRAFT BUDGETREQUEST FOR COUNCIL ACTION CITY COUNCIL MEETING DATE: JUNE 2, 2020 TITLE: CONSIDER THE FISCAL YEAR 2020-21 DRAFT BUDGET AND THE SEVEN-YEAR CAPITAL IMPROVEMENT PROGRAM CLERK OF COUNCIL USE ONLY: ❑ As Recommended ❑ As Amended ❑ Ordinance on 11' Reading ❑ Ordinance on 2n° Reading ❑ Implementing Resolution ❑ Set Public Hearing For CONTINUED TO /s/ Kristine Ridge FILE NUMBER CITY MANAGER RECOMMENDED ACTION Receive the Fiscal Year 2020-21 (FY20-21) draft budget and provide additional direction. DISCUSSION As required by Santa Ana Charter Sections 604 and 605, the City Manager proposes a budget for City Council consideration. On May 19, 2020, the City Council held a budget work session and provided initial direction for the FY20-21 budget. The purpose of this report is to provide an updated status, and seek additional direction from the City Council. In accordance with Santa Ana Charter Section 607, the City Council must adopt the budget by July 31 of each year. Based on initial City Council direction, staff has rescheduled the public hearing to consider the proposed budget to June 16, 2020, with adoption planned for July 7, 2020. The delay allows staff to have more sales tax data for revenue estimates, and more time to discuss budget -balancing measures with labor groups. This agenda item includes the draft budget, both in summary and detail (Exhibits 1 and 2), as well as the draft Seven -Year Capital Improvement Plan (Exhibit 3). COVID-19 Expenditures and CARES Act Funding The City has incurred COVID-19 related expenditures, including purchases of personal protection equipment, sanitization supplies, Emergency Operations Center support costs, dedicated staff time, and unemployment claims. Compilation of the City's costs is a work in progress. The City has received $3.7 million of federal and state funding for COVID-19 expenditures related to the homeless, federal CDBG funding allocated to small business grants and rental assistance, and a federal CESF grant. The City also expects to receive federal FEMA reimbursement for 93.75% of eligible expenditures. FEMA money is very restrictive and subject to comprehensive audit procedures. An allocation of federal CARES Act money would provide for other COVID-19 related costs not covered by the foregoing revenue sources. California Governor Newsom included an allocation of federal CARES Act dollars to cities with populations over 300,000 in his state budget proposal revised in May. The state has a legal 65B-1 Consider the FY 2020-21 Draft Budget and the Seven -Year CIP June 2, 2020 Page 2 mandate to adopt its budget by June 15. If the state adopts its budget with the Governor's proposed allocation, the City of Santa Ana will receive $28,790,000. CARES Act guidelines published by the Department of Treasury indicate the funding is restricted to COVID-19 related expenditures. It cannot be used to backfill lost revenue. Once the state adopts its budget with a CARES Act funding allocation for the City, staff will return to City Council with a spending plan. Orange County took action to set aside $26 million of CARES Act funding for cities. The City may receive a $2.5 million allocation of that set -aside, to help offset COVID-19 related costs. General Fund Overview The General Fund is the primary operating fund of the City and accounts for unrestricted revenue. A summary of the draft General Fund budget and a calculation of the City Council's reserve policy follows. General Fund Draft Budget Beginning Balance $ 67,784,132 Revenue 307,392,970 Expenditures (310,065,470) Transfers Out for: Debt Service (9,336,460) Cannabis Public Benefit Fund (6,766,700) SARTC Subsidy (1,100,000) Civic Center Authority (1,179,400) Ending Fund Balance $ 46,729,072 Operating Reserve (16.67%of Revenue) 51,242,408 Economic Uncertainty Reserve (minimum 1%) - General Fund Balance Excess/(Shortfall) (4,513,336) Staff does not recommend adopting the draft General Fund budget in its current form, as it would necessitate using $4.5 million of the Operating Reserve. The City receives new information nearly every day, and the draft budget is a moving target. The following scenarios may help the City avoid using the Operating Reserve in FY20-21. 1. Obtain labor concessions. If the labor groups were to forego the wage increase scheduled for July 1, General Fund savings may range from $5.5 million to $6.0 million. 2. CARES Act funding for FY19-20 and FY20-21. As noted above, the City may receive CARES Act funding allocations. Federal guidelines indicate CARES Act funding can pay for staff time, if staff is performing work substantially different from what was budgeted. In other words, if an employee is working in direct response to COVID-19 instead of their originally budgeted purpose, the City may be able to use CARES Act funding to pay for employee compensation. This revenue could offset as much as $3.6 million of employee compensation costs ($1.6 million in FY19-20 and $2.0 million in FY20-21). The City may 65B-2 Consider the FY 2020-21 Draft Budget and the Seven -Year CIP June 2, 2020 Page 3 also be able to use CARES Act funding for two weeks of special administrative leave paid in FY19-20 at a cost of $1.9 million. The City's additional costs related to COVID-19 are not budgeted (e.g. protective supplies, unemployment claims, testing, sanitization, etc.), and the additional revenue would offset the General Fund impact. In addition to the General Fund Reserve thresholds included in the summary above, the City Council's Budget and Financial Policies (adopted June 6, 2017) defines a balanced budget as "ongoing recurring operating revenues matching ongoing recurring operating expenditures including debt service." A summary of proposed FY20-21 recurring and non -recurring General Fund revenue and expenditures follows, which indicates the recurring budget is not in balance. Revenue Expenditures Transfers Out Recurring $ 307,392,970 $ $ (306,140,690) $ $ (17,282,560) $ (3,924,780) (1,100,000) The budget -balancing scenarios outlined above are one-time measures, and the recurring budget would remain unbalanced. A snapshot from the updated Ten -Year General Fund Outlook is included later in this report. Santa Ana Charter Section 607 requires the City Council to adopt a budget to "provide for the support of public recreation programs at least the equivalent of six cents (6) on each one hundred dollars ($100) of the assessed value of taxable property in the City on the legal assessment date for the previous fiscal year." The net taxable value of property in the City for FY19-20 was $27,899,686,424. If we apply the calculation required by the Charter, the required budget for public recreation programs is $16,739,812. The proposed General Fund budget includes $22,367,068 for the Parks, Recreation & Community Services Agency, and $3,061,430 for Youth Services funded by Cannabis tax revenue. Measure X Spending The City's voters approved a 1.5% local sales tax rate via Measure X on the November 2018 ballot. Based upon analysis from the City's sales tax consultant, staff expects Measure X to generate $55.1 million of FY20-21 General Fund revenue. Although Measure X is a general-purpose revenue with no restrictions, the City Council has expressed a desire to budget for services cited in the ballot language. City of Santa Ana, Santa Ana Neighborhood Safety, Homeless Prevention and Essential City Services Enhancement Measure — "To maintain effective 9-1-1 response; retaining firefighters and police officers; addressing homelessness; fixing streets; maintaining parks, youth and senior services, and unrestricted general revenue purposes; shall the sales tax be increased one and one half (1.5) cents until 2029 providing approximately $60 million dollars annually, then reduced to one (1) cent providing approximately $40 million dollars annually, until 2039, requiring annual audits, citizens oversight and for Santa Ana use only?" The proposed FY20-21 budget includes the following allocations in alignment with Measure X ballot language, excluding unrestricted general revenue purposes. Total expenditures tracked, including 65B-3 Consider the FY 2020-21 Draft Budget and the Seven -Year CIP June 2, 2020 Page 4 unrestricted general revenue purposes, is $74.1 million. The detailed list of Measure X spending is included in the Budget Summary book (Exhibit 1). Maintain Effective 9-1-1 Response $ 5,505,163 Retaining Firefighters 3,674,555 Retaining Police Officers 28,669,088 Addressing Homelessness 1,760,600 Fixing Streets - Maintaining Parks 3,114,292 Youth Services 940,415 Senior Services - $ 43,664,113 Measure X spending also includes a City Council approved Vehicle Incentive Program (rebates of the Measure X tax) with an original expected cost of $1,725,000. Actual FY19-20 costs as of May 20 were $682,500. There is no Measure X spending for Fixing Streets, as restricted money is available. The proposed CIP budget includes $21.1 million for street improvements (summary information below, and detailed information in Exhibit 3). There is no Measure X spending for Senior Services. The City provides staffing and support for senior programs, bus tours and Senior Meals Program of $0.8 million. The Santa Ana Housing Authority provides assistance to 700 senior citizen households with a total annual cost of $9.5 million. The City's Mobile Home Rental Assistance program recently provided approximately $25,000 of assistance to seniors. Some of the City's affordable housing projects, such as Santiago Villas on 17th Street and Metro East Senior Park, provide a direct benefit to senior citizens. The City's WORK Center partners with a non-profit to provide part-time work opportunities for senior citizens. The Meals on Wheels program for senior citizens receives $60,000 of the City's annual CDBG allocation; and recently received a one-time allocation of $113,780 from CDBG. Cannabis Public Benefit Fund In December 2018, the City Council adopted Ordinance NS-2959 establishing a Cannabis Public Benefit Fund, requiring one-third of retail and commercial cannabis tax revenue to be set aside for Enforcement Services and one-third to be set aside for Youth Services. FY20-21 estimated revenue for retail and commercial cannabis tax revenue is $10.15 million, and the two-thirds set - aside is $6.77 million. A summary of the proposed FY20-21 budget for the Cannabis Public Benefit Fund follows. Set -Aside Two -Thirds of Adult -Use & Commercial Tax Reven $6,766,700 Expenditures Youth Services 3,061,430 City Attorney's Office 987,350 Police Department 1,425,980 Planning & Building Agency 615,780 Finance & Management Services Agency 354,030 Total Expenditures $6,444,570 LI M Consider the FY 2020-21 Draft Budget and the Seven -Year CIP June 2, 2020 Page 5 City Budget Process The City has an incremental budgeting process, where the proposed budget for the new fiscal year includes the current year budget plus supplemental budget requests. Other approaches such as performance -based budgeting or zero -based budgeting would necessitate workshops for the City Council to provide guidance regarding desired service levels and method of delivery, with a full understanding of the cost of service. For FY20-21, the Budget Office collected detailed information for contracted services, which will support an expansion of the introductory narrative for each Accounting Unit (functional program) in the budget document. Budget staff also plans to expand the range of summary graphics in the budget document. The FY20-21 budget process began in January 2020, when departments started developing supplemental budget requests. The Budget Office implemented the capital budgeting module of the budgeting software this year to improve the internal process. In April, the City Manager met with each department to walk through the supplemental requests. The draft budget includes the following components: 1. General Fund revenue estimates from the Budget Office. 2. General Fund expenditures based upon the FY19-20 budget plus decisions already made by City Council (e.g. increases built into approved contracts), less one-time items, plus supplemental requests supported by the City Manager. The Budget Summary book (Exhibit 1) includes a reconciliation from the FY19-20 budget to the FY20-21 budget. 3. Internal Service Fund revenues and expenses, balanced using estimated service levels provided to the General Fund and restricted funds. Examples include Fleet and Building Maintenance, General Liability and Workers Compensation, Information Technology, and Public Works Project Management. 4. Special Revenue Fund (restricted monies) estimated revenue and expenditures based on available money and allowable activities. Examples include grant funds, Gas Tax, and the Housing Authority. 5. Capital Improvement Projects Funds (restricted monies) estimated revenue and expenditures based on available money, allowable projects, and recommendations from the Capital Improvement Plan. Examples include grant funds and Measure M2. 6. Enterprise Fund (restricted monies) revenue and expenses based upon expected service activity. Examples include water, sewer, and refuse collection. "Available money" includes revenue already received (fund balance), revenue we expect to receive (recurring taxes and per capita allocations from other governmental agencies), and grant revenue that has been awarded (as documented with an award agreement). We do not include revenue that is uncertain for the coming fiscal year, such as grants not yet awarded or developer fees not yet received. The City Council adopts appropriations (the expenditure budget) by Ordinance one fiscal year at a time. The Budget Office monitors revenues throughout the fiscal year, and may adjust its revenue estimates midyear with a report to City Council. L• Consider the FY 2020-21 Draft Budget and the Seven -Year CIP June 2, 2020 Page 6 General Fund Ten -Year Outlook The Ten -Year Outlook starts with the proposed budget in year 1, and applies the following assumptions for years 2-10. The Ten -Year Outlook is only one potential scenario, and actual results will vary. The Ten -Year General Fund Outlook includes: • Annual revenues and expenditures increase by CPI as forecasted by the California Department of Finance (3.7% for FY21-22 and 3.8% thereafter). • An assumed reduction of property tax revenue in FY21-22, resulting from decreased property sales and assessments due to COVID-19. • Measure X sales tax rate decreases from 1.5% to 1.0% in 2029. • Expiration of the Vehicle Incentive Program in 2024. • Removal of one-time items from the budget in future years. • Increasing pension contributions based upon information provided by CalPERS. Staff used the pension outlook tool provided by CalPERS to estimate the impact of the expected current year 0% investment return on future contribution rates. • Retirement of police facility debt in 2024. Results of the Ten -Year Outlook indicate there is a General Fund revenue shortfall to sustain the current expenditure structure. Staff recommends the City Council conduct a comprehensive review of the current service model, and make changes to the budget structure to realign expenditures with revenue. Ten -Year General Fund Outlook N $530 `0 $490 $460.1 $479.2 $447.6 $450 $429.9 $410.7 $410 $380.9 $397.0 $361.6 $370 $394.7 $341A $380.2 $382.5 $328.4 $366.3 $330 $338.7 $325.9 $307.4 $314.0 $290 $250 FY20-21 FY21-22 FY22-23 FY23-24 FY24-25 FY25-26 FY26-27 FY27-28 FY 28-29 FY 29-30 ♦Revenue �Expencitures 6 Transfers Out Consider the FY 2020-21 Draft Budget and the Seven -Year CIP June 2, 2020 Page 7 Capital Improvement Program (CIP) The Public Works Agency maintains a seven-year CIP (Exhibit 3), based upon best practices for infrastructure rehabilitation and maintenance (e.g. Pavement Management System). Similar to all governmental agencies, the City's resources are not sufficient to fund all projects; and staff proposes projects based on priority and the availability of funding. Some projects span multiple fiscal years. The proposed FY2O-21 CIP budget is $75.2 million, funded with restricted money, such as Measure M2, developer fees, Road Maintenance & Rehab Account (RMRA), Active Transportation Program allocations from the state, and water and sewer fees. Although full details are included in Exhibit 3 a summary follows: Bristol Street Widening $11,672,773 Local Street Preventative Maintenance 2,290,419 Fairview Avenue Rehabilitation: City to Segerstrom 2,188,389 17th Street Rehabilitation: Fairview to Flower, 2 segments 1,840,000 MacArthur Boulevard Rehabilitation: Fairview to Raitt 880,000 Alton Avenue Rehabilitation: Main to Standard 770,000 Flower Street Rehabilitation: McFadden to 1st 700,000 Other Street Improvements 823,930 McFadden Ave Protected Bike Lane & Bike Blvd: Harbor to Grand 5,875,000 Standard Avenue Protected Bike Lanes: 3rd to Warner 5,444,000 Kennedy Elementary & Villa Intermediate Safe Routes to School 1,291,000 Other Traffic Improvements 672,820 Utility/Drainage/Lighting Improvements 37,365,000 Cabrillo Irrigation Renovation 300,000 Pacific Electric Bike Trail Lighting Phase II 500,000 Sand poi me Park Security Lighting 300,000 Santa Ana Zoo Giant River Otter Habitat 2,000,000 Morrison Park Security Lighting 250,000 Total New Proposed FY20-21 $75,163,331 In addition to new capital appropriations in FY2O-21, we expect to seek City Council approval for carryovers from FY19-20 capital appropriations for projects not completed by June 30, 2020. The carryover request may exceed $150 million. Staff has attached the detailed list of FY19-20 project appropriations as Exhibit 4. Restricted money funds most of the projects. In many cases, the City cannot reallocate restricted money to another project. If City Council wishes to reallocate funding for a particular project, staff can respond with the available flexibility, if any. FISCAL IMPACT The Budget Summary booklet (Exhibit 1) includes the estimated fiscal impact for each fund. All exhibits are on the City's website at: https://www.santa-ana.org/finance/budget Exhibits: City Budget Summary — a booklet with summary tables Detailed City Budget — a book with all Accounting Unit pages and staff position summaries. Descriptive pages and narration added later for the final published document. 3. Capital Improvement Plan (CIP) Book — seven years beginning Fiscal Year 2020-21 4. Detailed list of FY19-20 CIP appropriations 65B-7