Agenda Item Wording:
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Receive and discuss the proposed 2022/23 and 2023/24 budget.
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Deadline for Action: 6/30/2022
Submitting Department: Finance and Technology Services
Contact Name and Phone Number: Renee Nagel 713-4375, Amee Swearingen 713-4170
Department Recommendation:
No action is required tonight. This report will present an overview of the proposed fiscal year 2022/23 and 2023/24 budget and provide a Mid-Year budget update for FY 2021/22.
Background Discussion:
Every two years the City of Visalia adopts a biannual budget. The Budget lays out a strategic resource allocation plan that aligns with community goals, preferences, and needs. The Budget is a policy document, financial plan, operations guide, and communication device all in one.
The Budget also:
• Determines the quality and quantity of City programs and services.
• States expenditure planned and the resources needed.
• Sets targets and provides a means of measuring accomplishments against goals and actual versus planned outcomes.
• Serves as a communication device-for elected officials, the public, and the City organization-that promotes the City’s vision and direction, fiscal health and vitality, and how the public will benefit from the expenditure of tax dollars.
The budget is a dynamic document that demonstrates to the public our commitment to service, accountability to the residents, and our focus on meaningful work and significant projects. The budget document is comprised of a 2-year operating plan (annual budget), a 6-year capital improvement program (capital budget), and appropriations for debt service and other uses. The development of the operating and capital budgets, however, takes place on two separate timelines (see Table 1 - Budget Process Calendar).
The Capital Improvement Program (CIP) is a multi-year planning instrument that drives the identification, evaluation, and financing of capital infrastructure projects in need of renovation, repair and/or construction. Capital projects consist of all projects that cost more than $10,000 and are typically infrastructure, equipment, and vehicles. Capital projects range from street maintenance or construction to the renovation of municipal buildings, recreation centers and ball fields, to sewerage system replacement, and the purchase of vehicles and equipment. The CIP relates these capital project needs to the financial resources that will support their realization and the timeframe in which both the financing and work will take place. Capital projects typically carry considerable future impact, meaning, they have a life span of at least five years or more.
Over the next 2 years, staff is proposing to fund $109.3 million in capital projects. These projects were presented to Council in February and March. Tonight, we will begin the budget workshop meetings that will discuss the operating budget. The Operating Budget is used to finance all day-to-day operations and obligations of the City. This budget includes all departmental operations, debt service, small capital expenditures (less than $10,000), and fund transfer payments (advances and subsidies) for the next two fiscal year’s. The funding for the budget is derived from taxes, fees, licenses, fines, and inter-governmental revenues (state and federal).
The operating budget starts by creating a baseline budget and building upon that to plan out the next two years. The City uses actual numbers from the prior two years and current year projections as the baseline. Finance creates a set of strategic guidelines to help departments prepare their proposed budgets. The strategic guidelines for this two-year budget are to:
• Budget revenues conservatively
• Seek cost saving measures that produce the same service delivery at a lower cost
• Find ways to address deferred maintenance
• Produce a balanced budget
Due to the complexity of creating the budget, a timeline is created to ensure the budget can be adopted by June 30th as shown in Table 1 - Budget Process Calendar.
In the past, the mid-year budget projections were prepared simultaneously with the two-year budget and presented to Council in March. As part of the revised 2-year budget process, the Mid-Year presentation for the current budget year (FY 2021/22) will now be presented at the first budget workshop. Mid-Year projections prepared between 2-year budgets for the first year of each adopted budget will focus on operating funds and be presented in March as done in prior years.
This is one of two or possibly three meetings where staff will be bringing an overview of the entire budget. The first meeting will include a budget overview with a guide to the budget (which is attached), budgeting and fiscal policies, and the mid-year review. The next meeting, on May 16th, will include a discussion of revenues and department budget highlights. The 3rd meeting, if needed, will be held on June 6, 2022, to address any outstanding items. The complete proposed budget will be brought to council on June 20, 2022, to complete the public hearing and the adoption.
Staff recommends that the Council adopt a budget by June 30th to comply with City Charter provisions requiring a budget appropriation for all expenditures. However, if Council is concerned or desires further discussion of the budget, additional hearings could be scheduled. Extending adoption of the budget past June 30th would result in the City having expenditures with no appropriation, in violation of the City Charter. This would be an undesirable outcome and is not recommended by staff.
Budget Overview
The 2022-2024 Biennial Budget is comprised of all City funds, including the General Fund, Special Revenue Funds, Capital Funds, Debt Service Funds, Enterprise Funds, and Internal Service Funds. The proposed budget appropriation for FY 2022/23 is $259.5 million and $269.1 million for FY 2023/24 as shown in Table 2 - Proposed Appropriation.
This budget has been built around the budgetary goals that were adopted by Council in October 2021. These goals were used to ensure the City is maintaining service levels and continuing to strive to bring the best service to the citizens. Below are the budget’s strategic goals:
• Maintain Quality of Life for Citizens
• Continue to Improve Infrastructure and Replace Capital
• Maintain Financial Stability
• Enhance City Services by Adding Staff, Programs, and Technology
• Facilitate and Promote Economic Development
Mid-Year Review
As mentioned above, the two-year budget is built upon projections prepared for the current fiscal year. The focus for this year’s review is the General Fund. There are no notable changes for the Enterprise and Internal Service funds. Their revenues are projected to experience growth and to cover their expenses. For FY 21/22, the General Fund is projected to have a surplus at year-end of $10.7 million as shown in Table 3 - FY 21/22 General Fund Mid-Year projections.
Table 3
FY 21/22 General Fund Mid-Year Projections
Revenues are projected to be $17.5 million higher than budget and $5.7 million higher than last fiscal year. This is mainly due to the larger than normal sales tax growth of 12% which has continued from last fiscal year. The current budget was created during the first months of the pandemic which was a time of great uncertainty. For this reason, staff was very conservative with revenue projections and planned expenditures. FY 21/22 operating expenses are projected to be higher than budget by $1.9 million and $5.7 higher than last fiscal year.
Operating Increases:
Several departments have experienced increases from the budget due to a 4% wage increase and $2,000 one-time bonuses that were recently approved in January 2022. The original budget did not include a wage increase.
In addition, operating expenses have increased due to inflation. Over the last year, inflation has increased by 7.9% and fuel prices have risen throughout the State by $1-2 dollars a gallon. In addition to the cost increases, we are experiencing supply shortages which increase costs due to demand exceeding supply.
Operating Decreases:
A large decrease comes from vacancy savings. This year has a larger than normal number of vacancies and currently there are 30 throughout all departments. Another decrease is from the Community Services - Recreation division. Recreation services were shut down due to COVID-19 restrictions and have slowly started to reopen.
The City remains cautiously optimistic that growth will continue in all General Fund revenues as economic activity in the City increases and new businesses open.
Staff will return at the next meeting to discuss department budget highlights.
Fiscal Impact:
None
Prior Council Action: Council conducted work sessions on Feb 7th, 22nd, 28th, and March 7th, 14th, and 21st to review Capital Project’s.
Other: N/A
Alternatives: N/A
Recommended Motion (and Alternative Motions if expected):
recommendation
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Environmental Assessment Status: N/A
CEQA Review: N/A
Attachments: Click or tap here to enter text.