DISCUSSION
General Fund Revenues
The City’s current biennial budget was developed during the COVID-19 pandemic. There were many uncertainties and General Fund revenues were estimated using a cautious and conservative budgeting approach. The City’s revenue consultant provided updated revenue projection: for Fiscal Year (FY) 2021-22, it is estimated that the City’s General Fund will end the year with a $23.0 million positive budgetary variance, and for FY 2022-23, revenue estimates are increased by $11.4 million from the adopted budget for the General Fund. While the pandemic initially created unprecedented financial impacts on several revenue streams, the City has experienced an economic recovery driven primarily by stronger real estate market and higher consumer spending levels.
The enhanced financial position provided opportunities for the City to fund several much needed programs, such as homeless initiatives, a civic center and public safety building project, and capital asset reserves especially for the City’s building facilities.
Table 1 presents revised revenue estimates for the General Fund for both fiscal years.
Table 1 – General Fund Revenues
The projected positive budgetary variance from FY2021-22 is proposed to be designated to the following programs and projects:
- Reserve $7.0 million for a navigation center. This fund will serve as initial funding for the City to acquire a facility to effectively address the increased homelessness situation.
- Provide additional $8.0 million in funding for the public facilities/infrastructure improvements project with the focus on the public safety building and the civic center.
- Commit an additional $3.2 million in the General Fund Stability Reserve. The City Council adopted Resolution 9602-19 in December 2019, setting a reserve requirement equivalent to 16.7% of the General Fund’s operating revenues. The revenue has increased since 2019, and the current Stability Reserve amount does not meet the policy threshold. Therefore, an additional amount is being requested to bring the reserve balance to the target level. A resolution to increase the Stability Reserve is attached to the report.
- Transfer $3.0 million to a newly established Building and Structures internal service fund, as outlined in the Capital Assets Renewal and Replacement Reserves Policy.
- Replenish $1.6 million to Worker’s Compensation fund to make up the shortfall in contributions to the fund in the previous fiscal years due to budget constraints caused by the pandemic.
For FY2022-23, the estimated positive budgetary variance of $11.4 million will be allocated to the following mandates and other mandatory increases in the General Fund:
- Fund for estimated labor cost increase in the amount of $2.8 million. As the City negotiates with the various labor groups in light of the expiration of the current Memorandum of Understanding, certain cost increases are included in the amended FY2022-23 budget.
- Contribute $1.7 million to CalPERS to fund for the increase in unfunded accrued liability (UAL).
- Provide a 7% increase in general contractual and commodities budgets to offset cost impact due to inflation.
- Fund for various additional requests for either mandate, subsidy, capital or other contractual obligations, for a total amount of $3.4 million.
General Fund Expenditures
The adopted General Fund Budget for FY2022-23 totaled $144.0 million. The proposed changes total $23.6 million and thus increase the amended budget for the General Fund to $167.6 million. The increase is comprised of the following:
Table 2 – General Fund Appropriation Increases – FY2022-23
The proposed supplemental requests include the following:
- Mandates related to state legislation in the amount of $225,670;
- Election related additional costs of $20,830;
- Development agreement stipulation of $1,500,000;
- Additional cost for homeless programs in the amount of $621,644;
- Additional cost to upgrade a part-time position to full-time Emergency Operations Manager for $167,322. A resolution to add the new employee classification is attached to the report; and
- Other service enhancement initiatives total $224,800.
Amended appropriations for public safety occupies 70.8% of total amended General Fund’s operating budget, excluding capital expenditures. A breakdown of the amended FY2022-23 General Fund appropriations is shown in Table 3.
Table 3 – General Fund Amended FY2022-23 Appropriations by Department
Table 4 presents the General Fund amended FY2022-23 appropriations by expenditure category:
Table 4 – General Fund Amended FY2022-23 Appropriations by Category
General Fund Transfers
Additional transfers in the amount of $4.8 million were included in the amended FY2022-23, primarily consisting of:
- $1.6 million transfer to the Worker’s Compensation internal service fund to replenish the fund’s fund balance; and
- $3.0 million transfer to the Building and Facilities internal service fund in accordance with the newly adopted Capital Asset Renewal and Replacement Reserves Policy.
Transfers from the General Fund are summarized below:
Table 5 – General Fund Transfer Schedule
Other Governmental Funds
Similar to the General Fund, in addition to the estimated increase in salaries and benefits where applicable, major proposed changes to the other governmental funds’ adopted budget include:
- State mandate for Racial and Identity Profiling Act (RIPA) for $70,448 in Police – SLESF Fund;
- Increase of $340,000 in the Fleet Management Fund to cover cost impact due to inflation; and
- Grant expenditure amendments in various grant funds.
Non-governmental Funds
Proposed changes to the non-governmental funds include an estimated increase in salaries and benefits in anticipation of the labor contract renewals. In addition, an increase in election costs is also being proposed. The Housing Authority fund is proposing an increase of $1.8 million in its operating budget in anticipation of an increased allocation for the Housing Choice Voucher Program.
The specific budget amendments for each fund is listed in the attached resolution.
Capital Improvement Plan
Various amendments are proposed to the Capital Improvement Plan (CIP) for FY2022-23 due to new funding sources identified after the adoption of the CIP budget last June. A summary of the amounts increased to the FY2022-23 CIP is listed in Table 6.
Table 6 – Budget Amendment to Capital Improvement Projects – FY2022-23
