SR - - 2015-16 MID YEAR BUDGET ADJUSTMENTS 2016-17 PRELIMINARY PROJECTIONSOF. 0Rq
AGENDA ITEM
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February 9, 2016 —71
TO: Honorable Mayor and
Members of the City Council
THRU: Rick Otto
City Manager
FROM: William M. Ko "-� lbo Finance Director
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ReviewedNerified By:
City Manager
Finance Dire or
To Be Presen d By:
Will Kolbow
Cons Calendar _ City Mgr Rpts
Council Reports _ Legal Affairs
Boards /Cmtes _ Public Args
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1. SUBJECT
Status of Fiscal Year 2015 -2016 budget and necessary Mid -Year Adjustments and preliminary
projections for Fiscal Year 2016 -17 budget preparation.
2. SUMMARY
This mid -year report provides an update of the FY 2015 -2016 (FY 16) budget and recommends
certain appropriation increases, transfers, and budget adjustments. In addition, this report also
presents a brief review of the FY 2016 -2017 (FY 17) budget that is currently being prepared.
3. RECOMMENDED ACTION
To be approved in one motion:
1. Authorize the transfer of $1,500,000 from the unreserved fund balance of the General Fund to
the Capital Projects Fund (500).
2. Authorize the transfer of $1,000,000 from the unreserved fund balance of the General Fund to
the Accrued Liability Fund (760 for PERS).
3. Authorize the transfer of $1,500,000 from the unreserved fund balance of the General Fund to
the Business Investment Fund (115).
4. Unfreeze a Lieutenant position in the Police Department and authorize the appropriation of
$128,000 from the unreserved fund balance of the General Fund to expenditure account
100.4021.50001.00000, Police Safety - Regular Salaries to cover the remaining six months of
the fiscal year. Full funding of approximately $260,000 will be included in the FY 17 budget.
5. Authorize the transfer of $110,000 from expenditure account 263.7041.51780.20212 - Sr.
Transportation Grant 14 -15 to expenditure account 263.7041.51780.20235 — Sr Transportation
Grant 15 -16.
ITEM n 1 2/9/16
6. Authorize the appropriation of $970,000 from the Accrued Liability Fund (760 for PERS)
unreserved fund balance to expenditure account 760.0000.50510.00000 - PERS Retirement.
4. FISCAL IMPACT
Sufficient funds are available in the unreserved fund balance of the General Fund to support the
requested appropriations. Approval of the recommended action will result in the following
appropriations:
Action
Amount
From:
1
$1,500,000
General Fund
2
1,000,000
General Fund
3
1,500,000
General Fund
4
128,000
General Fund
$4,128,000 Total General Fund
5 $110,000 M2 14 -15 Grant
6 $970,000 Accrued Liability /PERS Fund
To:
Capital Projects (500)
Accrued Liability (760 /PERS)
Business Investment (115)
Salaries and Benefits
M2 15 -16 Grant
Salaries and Benefits
5. STRATEGIC PLAN GOAL(S)
Goal 2: Be a fiscally healthy community.
Goal 2(b): Analyze future fiscal needs and potential revenue opportunities.
6. GENERAL PLAN IMPLEMENTATION
Not applicable.
7. DISCUSSION and BACKGROUND
Fiscal Year 2015 -2016 Update
Review of Revenues and Expenditures
As the economy continues to show improvement, solid signs are reflected in our revenue
receipts. Our largest General Fund revenue source, sales tax, is anticipated to reach $43.1 million,
slightly over the budget of $43 million. We expect that the increases in auto sales and the sale of
consumer goods will offset the decrease in fuel sales due to a decline in gas prices. Property taxes
for the current year are projected to be $24.9 million, which is $760,000 (3.2 %) above budget. This
increase is related to higher assessed values and more property tax increment distributed from the
County of Orange for the Successor Agency. Transient occupancy tax has been tracking upward
and is anticipated to increase by $770,000 or 18.4% higher than the budget projection of $4.2
million. Licenses and fees are estimated to be $657,000 above budget of $4.3 million mainly due
ITEM 2 2/9/16
to increase in building related permits (building, electrical, plumbing, etc.) Based on current
trends, other revenue sources such as motor vehicle license fees, franchises, and fees for services
are expected to be above budget as well. Miscellaneous revenues are anticipated to be $1.6 million
higher than budget of $750,000. Majority of this increase is contributed by the receipts related to
the Yorba Park and Hambarian settlements. Our projections indicate that overall FY 16 General
Fund revenues will end the fiscal year at $106.6 million, which is $4.3 million or 4.1 % over budget.
Expenditures in the General Fund are currently slightly under the adjusted budget of $104.9
million. Through the conclusion of negotiations with several employee groups, the FY 16 budget
includes an adjustment for salaries and benefits. Despite the increase of approximately $1.5
million, staff anticipates the General Fund will end the fiscal year with savings in expenditures
similar to those historically experienced in recent years. However, it is too soon to determine what
the amount of savings will be therefore, it is still too early to estimate the FY 16 year end fund
balance. Staff will be returning to City Council with more information at an upcoming Budget
Study Session.
Transfers to Internal Service Funds
Fiscal Year 2014 -15 (FY 15) ended with $100.4 million in revenue, $4.3 million more than
budgeted, resulting in an ending fund balance of $9.6 million. In keeping with City Council's
direction at the October 13, 2015 Council meeting, staff is recommending a transfer of $4.0 million
from the General Fund unreserved fund balance to the Capital Projects Fund ($1.5 million), the
Accrued Liability /PERS Fund ($1.0 million), and the Business Investment Fund ($1,500,000).
Budget Adjustments
To date, the City Council has authorized $632,000 in budget adjustments to the General Fund.
These have been for grants which have corresponding revenue, as well as the new tree trimming
and custodial services contracts. The following additional budget adjustment to the FY 16 budget
are recommended:
• During the preparation and adoption of the FY 16 budget, funding for the FY 16 Senior
Transportation Grant received from M2 funds was inadvertently budgeted in the FY 15
account. As such, staff is requesting a transfer of $110,000 from the FY 15 project account
20212 to the FY 16 project account 20235 to correct the error.
• Staff is requesting approval to unfreeze a vacant Lieutenant position in the Police Department.
Filling this position will enhance the succession planning efforts as well as improve crime
prevention activities of the Police Department. Additional funding of $128,000 is needed at
this time to cover the cost of this position through the end of this fiscal year. Funding of
approximately $260,000 will be added to the FY 17 budget for this position.
• Per City Council direction during the October 13, 2015, Council meeting, staff has calculated
that a one -time payment to Ca1PERS of $970,000 is necessary to fund the City's unfunded
liability payments for FY 16. This will ensure that the City continues to address and pay down
its PERS unfunded liability in a timely fashion.
ITEM 3 2/9/16
Early Look at Fiscal Year 2016 -2017
Although the economy continues to show signs of recovery, we continue to experience instability
in the global economies and falling oil prices. Despite these factors, sales tax revenue is expected
to remain at a strong level with an additional $300,000 as a result of our business efforts and strong
performances by our automotive dealerships and the business to business sector. Property tax
revenue is projected to increase 3.8 %, or $935,000, because of homes will continue to be assessed
with annual increases in their property taxes and higher assessed values related to the sale of
commercial properties. Motor vehicle license fees and transient occupancy tax are also anticipated
to slightly increase. However, certain one -time revenue is expected to drop including settlement
revenue, therefore our initial analysis suggests that the General Fund revenue estimate for FY 17
is at $106.1 million. This represents a 0.5% decrease or $494,000 lower than our estimated revenue
for FY 16. A more detailed analysis of projected revenue will be provided at an upcoming budget
study session.
Preliminary expenditure estimates are at $107.0 million, $5.5 million more than the FY 16 adopted
budget and $2.9 million more than the FY 16 adjusted budget of $104.9 million, primarily due to
an increase in PERS costs as well as negotiated salary increases. In summary, an increase in PERS
costs and an expected decrease in revenue from fuel sales has added pressure to a tight budget.
With budget preparation still in the early stages, staff will continue to review the revenue and
expenditure budgets to refine our estimates. As such, staff will return to City Council with
strategies to close any gap that may exist.
Water Fend
As a result of the drought and ensuing water conservation efforts, City water production is
projected to drop to approximately 25,000 acre feet (AF) for FY 16. This is a significant decrease
from the 28,643 AF produced in FY 15. As the water production levels drop, both water revenues
and expenses are projected to decrease, resulting in a projected $1.1 million revenue over
expenditures for the water operating budget for FY 16. In keeping with City Council direction, a
25 % water maintenance and operations reserve balance of $6.4 million has been maintained.
Assuming there is normal rain fall for FY 17, we anticipate a slight water production increase to
25,750 AF, which would result in a projected revenue over expenditures of $1.6 million. During
the course of FY 17, staff will closely monitor the water operating budget revenue and expenditures
along with expenditures for CIP. The final approved 3% water rate increase becomes effective,
January 1, 2017. Staff is in the process of hiring a consultant to conduct a water rate study for FY
18 and beyond.
Based on future rain, snow pack, and storage conditions statewide, the State Water Resources
Control Board may extend the water conservation mandates making it challenging to project future
water sales and revenues.
Sanitation Fund
With the ongoing water conservation effort and projected reduction in water consumption, three
of the four components of the Sanitation budget will be impacted. The three revenue components
(based on water consumption) are Street Sweeping, Sewer Maintenance, and Storm
ITEM 4 2/9/16
Water /Environmental Compliance. To date the Sanitation budget is experiencing an estimated
20% drop in revenue. Therefore, the estimated FY 16 and 17 revenues will be reduced 20% from
the original FY 16 budget as follows:
Original 2016 Revised 2016 2017
Budge Estimate Estimate
$3,830,000 $3,064,000 $3,064,000
Since Street Tree Maintenance fee is collected based on the number and type of dwelling unit, the
revenue is projected to stay the same as previously estimated. Currently Public Works Department
is undergoing a Sanitation Rate Study, staff will make recommendations on a rate structure that
supports the necessary services for the various sanitation components.
8. ATTACHMENTS
None
ITEM 5 2/9/16