Agenda Item Wording:
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Review and discuss the proposed Fiscal Year 2024/25 & 25/26 Measure N Budget and continue with the amended expenditure plan previously approved.
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Deadline for Action: 6/30/2024
Submitting Department: Finance and Technology Services
Contact Name and Phone Number: Renee Nagel, Finance and Technology Director; Amee Swearingen, Budget Analyst
Department Recommendation:
City Council review and provide comments on the City Manager’s recommended Measure N budgets for FY 2024/25 and 2025/26.
The Measure N Budget has to be adopted by June 30, 2024 to be able to spend in FY 2024/25. The City does a biannual budget and is currently in the process of preparing a two-year budget to bring forward to Council In June for adoption. In order for staff to incorporate the Measure N budget in with the rest of the City’s budget, staff has prepared a recommended budget for FY 2024/25 and FY 2025/26 for Council’s review. If approved, staff will then continue with the Measure N budget process as outlined in the report.
Background Discussion:
In November of 2016, the voters of Visalia passed a ½ cent Sales Tax Override, Measure N - The Visalia Essential City Services Measure. Sales Tax from Measure N will provide for essential city services such as police and fire, as well as maintenance of parks and roads. The measure uses a detailed, 10-year plan which includes hiring of personnel, construction of capital projects and equipment purchases.
As part of the measure, Council adopted an Accountability Ordinance (Ordinance 16-21) to establish accountability measures as outlined:
Revenues:
• 10% of budgeted revenues must be deposited in an Uncertainty Fund. Money can only be accessed during a fiscal emergency;
• 10% of budgeted revenues must be deposited into the following categories:
o 2% Youth Programs
o 8% Maintenance and Emerging Needs
Expenditures:
• Money shall not be used for debt service payments;
• Uncertainty Fund shall be maintained at 10% of the budgeted revenues;
• Annual expenditure plan must be approved by Council after the following has occurred:
o City Manager makes a recommendation to City Council and makes changes as requested (tonight’s discussion);
o Comments and recommendation received by Sales Tax Oversite Board;
o Two public hearings are held at regular Council Meetings to consider expenditure plan
To ensure that the Measure N budget will be adopted with the rest of the City funds in June; staff is presenting the recommended fiscal year 2024/25 & 2025/26 budgets to start the approval process.
2024/25 & 2025/26 Proposed Budget
The budget includes the amended expenditure plan that includes changes over the past 7 years as shown in Table 1 2024/25 Proposed Measure N Plan (Year 8). The recommended budget for the 2024/25 budget is $15.8 million. This budget does not include any expenditures for the Emerging Needs category which will be brough back to Council and the Oversight Committee once a policy and/or plan has been established.
Table 1
2024/25 Proposed Measure N Amended Plan (Year 8)
In FY 2024/25, the plan adds 1 professional staff and 1 police officer. The professional staff position will be an additional digital evidence technician for the Police Department. In addition, staff is requesting three additional amendments to the plan. One is a position change for the Fire Department from a Battalion Chief (BC) to Deputy Chief. The Battalion Chief in Measure N is the Administrative Battalion Chief. Currently, all BC’s rotate every 2 years and that is not enough time to become reliably competent in the administrative functions. This position change will help ensure that the Deputy Chief is well versed in all administrative functions. It will also help the Fire Chief in large projects as well as assisting the other BC’s with operations.
Second is to increase the street maintenance from $3.8 million to $4.0 million. Over the years, the street maintenance budget has fluctuated between $3.6 million and $4.1 million. With maintenance costs rising over the last few years, staff feels it is important to keep the higher budget versus reducing.
Third is to add back the building maintenance project in the Maintenance and Emerging Needs Fund (8%). As outlined in the plan, the building maintenance project was funded in the first five years and was not funded in years 6-10. Staff recommends funding the building maintenance project in FY 2024/25 for $1.2 million. This project was originally established to replace and update facilities that are funded by the General Fund. Unfortunately, the 5 years of funding was not enough to cover the high costs to replace/repair roofs, replace HVACs, and repair facilities.
The recommended budget for FY 2025/26 is $16.5 million as shown in Table 2, 2025/26 Proposed Measure N Plan (Year 9).
Table 2
2025/26 Proposed Measure N Amended Plan (Year 9)
In FY 2025/26, the plan adds 1 professional staff and 1 police officer. The professional staff position will be an additional Community Service Officer for the Police Department. As in FY 24/25, staff is requesting to amend the plan to fund the building maintenance project for $1.2 million from the Maintenance and Emerging Needs Fund (8%). The street maintenance project does not need to be amended as the plan has the street maintenance at $4 million for year 9.
Measure N Sales Tax
Measure N sales tax is projected to be higher than the plan as shown in Table 3 Measure N Sales Tax Projections. This large difference is due to the plan being established in FY 15/16 and purposely using a very conservative growth percentage to offset unplanned cost increases. This conservative approach is to ensure that this Measure never has to reduce or eliminate expenditures outlined in the plan.
In addition, the past couple of years had larger-than-normal growth due to the multi-year COVID stimulus money that the Federal Government issued. This one-time money has ended and sales tax is projected to end the fiscal year with a negative for the second year in a row. Last fiscal year, Measure N ended with a -1.2% growth and is projected to end this fiscal year with -7%. Based on the past two years, staff is projecting no growth in 24/25 and a 1% growth in 25/26. However, this is very optimistic that the economy does not take a down turn.
Table 3
Measure N Sales Tax Projection
In order to meet the requirements and to be able to track revenues and expenditures, per the plan categories, Measure N is tracked in 4 separate funds. Essential Services, 2% Youth Programs, 8% Maintenance and Emerging Needs, and the Economic Uncertainty. All funds but the Essential Services Fund receive their revenues as a percentage of budgeted revenues. The Essential Services Fund would receive any of the additional. Table 4 Measure N Fund Balance Summary, shows each funds ending cash for both years based on the proposed 2 year budget.
Table 4
Measure N Fund Balance Summary
Measure N Economic Uncertainty Fund
The plan calls for the economic uncertainty fund to be maintained at 10% of budgeted revenues. As mentioned above, staff is projecting sales tax to be down 7% this fiscal year, no growth next year (FY 24/25), and 1% growth in FY 25/26. The negative sales tax projection for this fiscal year lowers the base line that is being used in the next two years. This causes the economic uncertainty fund to be overfunded and will require no additional funds for the next two years. This method is not typically used when calculating an emergency reserve to fund operations. Staff is recommending changing this method to a percentage of operating expenditures. If changed to a percentage of operating expenditures, the current amount in the fund would equal approximately 19%. The General Fund’s emergency reserve policy was recently increased to be no more than 30% of operating expenditures. Staff is requesting to amend the Measure N policy for the economic uncertainty fund to be 30% of operating expenditures instead of 10% of budgeted revenues. This would equal a projected transfer of $1.1 million for FY 24/25 and $0.2 million for FY 25/26.
Once the recommended budget is approved by Council, staff will present the 2 year budget to the Measure N Oversite Committee. Staff will return to Council with comments and will hold two public hearings.
Fiscal Impact:
None
Prior Council Action: None
Other: N/A
Alternatives: N/A
Recommended Motion (and Alternative Motions if expected):
recommendation
Move to approve the recommended Measure N budgets for FY 2024/25 & 2025/26, approve recommended plan changes, and continue with the expenditure plan process end
Environmental Assessment Status: N/A
CEQA Review: N/A
Attachments: None