DISCUSSION
General Fund Revenues
Due to the COVID-19 pandemic and its impact to the economy, General Fund revenue estimates have been significantly reduced for FY 2020-21. The City’s revenue projections have been revised to reflect new estimates from the City’s consultant and other economic data. The amended budget projects an overall decrease of $17.3 million in revenue from the adopted budget to $119.7 million.
Sales tax revenue estimates, which are provided by the City’s consultant, HDL, have been reduced by $2.8 million, representing a 7% decrease from the adopted budget. Property taxes remain stable for FY 2020-21 as property tax assessments were not directly impacted by the pandemic. The amended estimates are revised slightly higher by $1.4 million to $30.7 million.
The most severe decline in revenue is the transient occupancy tax (TOT, or hotel taxes) as the tourism industry continues to struggle with the impacts of the pandemic and the State's social distancing guidelines. Hotel taxes, which accounted for 20% of General Fund revenues in FY 2018-19, have been revised downward from $27.0 million to $10.5 million, representing more than 60% decline. The City’s other general fund revenues, such as vehicle license fees, building permits, parking citations, business license, interest, and other fee-based services are estimated at $39.0 million. This is a slight increase of $0.6 million, mainly due to a change in estimate for interest income. Table 1.1 below summarizes the City’s General Fund revenues.
Table 1.1 General Fund Revenues
General Fund Expenditures
The adopted General Fund budget for FY 2020-21 totaled $132.5 million. The proposed amended budget for General Fund expenditures total $130.2 million, with a decrease of $2.3 million. Public Safety makes up 74% of the overall General Fund budget, Public Works accounts for 10%, and the remaining 15% for Community and Economic Development Department, Community Services, and all other support services. Table 1.2 provides the General Fund budget for each City Department. The proposed budget includes all costs associated with salaries and benefits, including retirement costs, with labor costs making up 63%. of the budget and contractual services about 26%. Table 1.3 summarizes General Fund expenses by expense type.
Table 1.2 General Fund Expenditures By Department
Table 1.3 General Fund Expenditures by Expenditure Type
Funding increases included in the proposed amended budget are:
- Mandated training and contractual obligations
- Subsidy for Street Lighting District
- Revenue Generating efforts which include engineering plan check and inspection services, citation collection, and investment advisory services
- The addition of two Community Services Officers and equipment charges for the Neighborhood Traffic Unit, which was previously approved by Council in December 2019
- City water charges for buildings, parks, and medians
In light of the economic impact to the City’s revenues, the proposed amended budget also includes the following reductions:
- Defunding of 22 vacant positions as a result of the City’s implementation of hiring freeze, totaling $2.1 million in savings.
- Decreasing contributions to the City’s Fleet Management internal service fund for vehicle replacement by 16%, resulting in $0.8 million savings.
- Reducing training and conference expenditures by 30%
- Decreasing funding for part-time staffing and recreational programs
The amended budget includes $1.1 million of transfers from the General Fund to other funds to supplement funding for recreation programs, economic development, and Cable. At the time the FY 2020-21 was adopted, $4.5 million was projected as the year end surplus; however, with the revised revenue and expenditures, the amended budget estimates a deficit of $10.5 million. In order to balance the budget, the use of the following one-time funding sources are:
- $0.5 million which was previously reserved for a potential lawsuit. With the establishment of the City’s General Fund Reserves Policy, sporadic reserves are no longer necessary.
- $2.5 million from the Fleet internal service fund’s fund balance that can be returned to the General Fund. This money was collected from the General Fund over the years to fund for Fire equipment replacement. With the OCFA transition, these funds can be returned to the General Fund.
- $7.5 million use of unreserved fund balance, which includes any surplus from FY 2019-20, currently estimated at $3.2 million. The fund balance is the accumulation of all prior years’ net change to the bottom line of the fund, including excess or deficiency of revenues over or under expenditures, transfers, and other sources or uses. The unreserved portion can be used for any purposes, following the guidelines established by the City’s Administrative Policy No. 200-07, General Fund Reserve.
Table 1.4 General Fund Balancing Measures Summary
Capital Improvement Plan
The Capital Improvement Plan (CIP) for FY 2020-21 includes funding for arterial and residential street rehabilitation, traffic mitigation, storm drain, parks, water, sewer, and landfill improvements. These projects are primarily funded with gas taxes, development impact fees, grants, and enterprise funds. The revised CIP totals approximately $24.7 million, an increase of $4.8 million. These changes include increased funding for water and sewer projects, as well as grant funding for street rehabilitation projects.
Other Funds
Water: The Water Enterprise Fund’s proposed amended budget for FY 2020-21 total $51.6 million. In addition to increases in capital improvement spending, an additional $9.5 million is included for water purchase costs as a result from certain new State regulations. Total available sources total $61.1 million, which includes $44.5 million of estimated revenue.
Housing Authority: The Housing Authority’s proposed amended budget for FY 2020-21 total $36.2 million, an increase of $0.2 million attributed to increased funding for housing successor agency related projects.
Special Assessment Districts: The FY 2020-21 amended budget includes funding received through assessments for the Street Lighting District, Downtown Assessment District, Park Maintenance District, and the Garden Grove Tourism District. Revenue and expenses for all assessments is $3.6 million.
Grants: The City receives local, state, and federal funding for various programs. Grant funds are spent according to the specific requirements of each grant. FY 2020-21 amended budget includes funding for public safety, capital improvements such as street rehabilitation and park improvements, environmental programs, community services, home improvement loans, and homelessness prevention. The total budget for all grant funds is approximately $7.4 million.
Other Governmental Funds: The FY 2020-21 budget amendment includes budget appropriations for cable and other basic funds such as gas taxes, development impact fees, red light enforcement fund, economic development, asset forfeiture, and self-supporting recreation. The specific budget appropriation for each fund is listed in the attached resolution.