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HomeMy WebLinkAboutAGENDA REPORT 2024 0522 CCSA SPC ITEM 05ACITY OF MOORPARK, CALIFORNIA City Council Meeting of May 22, 2024 ACTION CONSENSUS OF THE COUNCIL TO RECEIVE THE CITY MANAGER’S BUDGET PROPOSED OPERATING AND CAPITAL IMPROVEMENTS BUDGET PRESENTATION FOR FISCAL YEAR 2024/25, AND TO SCHEDULE THE FISCAL YEAR 2024/25 BUDGET FOR ADOPTION AT THE JUNE 5, 2024, REGULAR MEETING. BY A. Hurtado. A. Receive and Discuss City Manager’s Proposed Operating and Capital Improvements Budget for Fiscal Year 2024/25. Staff Recommendation: Discuss the proposed budget for Fiscal Year 2024/25. (Staff: Troy Brown) Item: 5.A. MOORPARK CITY COUNCIL AGENDA REPORT TO: Honorable City Council FROM: Troy Brown, City Manager DATE: 05/22/2024 Special Meeting SUBJECT: Receive and Discuss City Manager’s Proposed Operating and Capital Improvements Budget for Fiscal Year 2024/25 SUMMARY CITY MANAGER BUDGET MESSAGE I am pleased to present the proposed Fiscal Year (FY) 2024/25 Operating and Capital Improvement Budget to you for your consideration. The FY 2024/25 Operating and Capital Improvement Budget embodies the mission of the City in “Striving to Preserve and Improve the Quality of Life for Moorpark Residents.” Each budget developed and adopted by the City Council follows a theme reflecting the financial environment of the national, state, regional, and local economy, with a focus of advancing the City Council’s values and Goals & Priorities adopted by the Council. Recognizing that the City is undergoing somewhat of a renaissance resulting from private investment in housing and infrastructure, it is important to allocate resources to assist in the construction of significant housing projects to address the City’s housing crisis brought on by years of negative or limited growth in new residential housing starts. The theme of the FY 2024/25 budget is financial sustainability. ECONOMIC OVERVIEW Over the course of the past two calendar years, the U.S. economy has been unusually unstable. Real Gross Domestic (GDP) growth has been straddling a line of expansion and contraction since exiting from the economic downturn of 2020/21 following the COVID-19 pandemic. Consumer spending in early 2021 was at high levels, spawning inflation in fuel, food, consumables, and other service industries across the country. Wage growth was significantly outpaced by the Consumer Price Index (CPI) which prompted Jerome Powell, Chair of the U.S. Federal Reserve, to raise interest rates to curtail spending. During the period of March 2022 to July 2023, Chair Powell raised interest rates 11 times to fend off inflation. According to Forbes Advisor Michael Adams in March 2024, “Once the Fed decided it was time to do something about inflation, it moved forcefully. Over the last 16 months, the Item: 5.A. 1 Honorable City Council 05/22/2024 Special Meeting Page 2 central bank has raised the fed funds rate by more than five percentage points. This has helped reduce red-hot inflation rates that were eating into the purchasing power of everyday Americans.” “Without price stability, the economy does not work for anyone,” Federal Reserve Chair Jerome Powell said at an August 2022 speech at Jackson Hole. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all.” Interest rate hikes administered by Chair Powell did have an impact on inflation, with more traditional CPI increases averaging slightly above 2% compared to an average annual CPI increase of 5.6% since 2021 - the period following COVID. The unemployment rate in the U.S. dipped to 3.8% in March 2024 from the previous month’s two-year high of 3.9%. The number of unemployed persons decreased by 29,000 to 6.4 million, while employment levels saw a significant surge, rising by 498,000 to reach 161.5 million. Additionally, the labor force participation rate increased to 62.7% in 2024 from a near one-year low of 62.5% in the preceding periods, and the employment- population ratio climbed to 60.3% from 60.1%. Despite recent policy tightening measures by the Federal Reserve, the unemployment rate has remained within a narrow range of 3.7% to 3.9% since August 2023, suggesting the labor market remains strong (Source: U.S. Bureau of Labor Statistics). California entered 2024 on very strong economic fundamentals: low unemployment, rising wages, and falling inflation. In 2023, many economic analysts were predicting a recession, but California’s economic resiliency outpaced many of the projections anticipated by economists. Inflation was nearly half of what was predicted in 2022, and the unemployment rate dropped to less than 5%. However, there is more beneath the surface than meets the eye when looking at California’s economy. Sarah Bohn with the Public Policy Institute of California noted: “Most Californians are falling behind: since February 2020, wages have increased 15% on average, but prices have increased 19%. What looks like a $5/hour pay increase actually feels like a $1.25/hour pay cut. While workers in some sectors—such as accommodation/food services and transportation—have seen real gains even after inflation, many Californians are struggling to make ends meet: according to the California Poverty Measure, 31% are in or near poverty (up from 29% in 2021).” Although the California Legislature began the fiscal year with a balanced budget, a budget deficit is projected for FY 2024/25 for the state. As of the time of this budget message, the exact amount of the state budget deficit is projected at approximately $73M. Governor Gavin Newsom’s proposed budget, released on January 10, 2024, estimated a shortfall of approximately $38 billion. The Governor’s May revise leaves the City of Moorpark whole; however, cuts are proposed for the Homeless Housing, Assistance and Prevention (HHAP) program. The City does not receive HHAP funds from the state. Ultimately, the Governor and the legislature will need to work hard and make difficult decisions to address the impending budget deficit. 2 Honorable City Council 05/22/2024 Special Meeting Page 3 Regionally, economic growth in Ventura County has lagged behind other counties in the Southern California Association of Governments jurisdiction1. The major contributing factor to this is housing prices, which have forced businesses to leave in search of broader housing opportunities for its workforce. Ventura County has experienced a declining population from the peak of approximately 850,000 persons in 2015 to today’s estimated countywide population of approximately 826,000 persons. This spells bad news for a region that has traditionally been among the most expensive counties to purchase a home in the state. Locally, while housing opportunities are expanding through construction of new housing units, the economy remains tenuous. The City of Moorpark is a contract City with several outside agencies providing vital services to residents. Some of the services are provided by wholly separate agencies such as: water, fire, and sewer services. Conversely, other services are offered to residents through contractual agreements with the City such as: police, park & landscape maintenance, solid waste, building & safety permits, and certain engineering services. 1 Counties in the Southern California Association of Governments include Ventura, Los Angeles, Riverside, Orange, San Bernardino and Imperial. 3 Honorable City Council 05/22/2024 Special Meeting Page 4 Portions for costs related to certain services are borne by the City, who in turn passes fees onto residents for services provision; resulting in the City subsidizing some portion of the costs of these services or, in some cases, paying the full cost of the service. During the period of 2021 to present, the rising costs of these many contractual services has outpaced increases to CPI and growth in the City’s tax base. This results in the City’s limited dollars not going as far as prior years and puts a strain on the City’s most precious resource, the General Fund. PROPOSED FY 2024/25 BUDGET The Proposed FY 2024/25 budget totals $81.3M and is balanced. The $81.3M represents a 20% increase when compared to FY 2023/24. The increase in expenses is related to increased costs associated with the new library which has funding allocated from the special projects fund ($12.3M) and Endowment ($8.8M). Total fund balance across all funds is proposed to decrease from $82M in FY 2023/24 to $70M in the proposed FY 2024/25 budget. This was previously anticipated as the infusion of City funds into many long-awaited projects coming to fruition. The Princeton Avenue Improvement project and tenant improvements to the new temporary City Hall located at 323 Science Drive are the biggest drivers in the total reduction of fund balances across the City. The recommended Capital Improvement Project (CIP) budget proposes $43.2M in expenses across multiple funds. Much of the funding is carryover amounts from prior year allocations. The largest expense in the CIP is related to the prior commitment of $29.6M for the new library. The General Fund contribution to Capital Improvement Project in the proposed FY 2024/25 budget is proposed to be only $662,000. General Fund The General Fund is the fund that provides the bulk of municipal services in the City. The General Fund budget is proposed at $24.5M, an increase of approximately 10% over FY 2023/24. While balanced, it is important to note the Transfer Out of the General Fund has increased by $500,000 to sustain Parks Maintenance as well as Community Development activities. The proposed General Fund budget also includes a 3% Cost-of- Living adjustment for all employees per previously agreed labor negotiations. In looking at revenues, the two primary contributors to General Fund Revenues are Property Taxes and Sales taxes, including Transient Occupancy Tax, which make up 65% of all General Fund revenues. Revenues from sales taxes is one of the most volatile revenue resources for the City and patterns economic drivers. During times of national economic prosperity, sales taxes tend to be higher due to greater consumer confidence and additional disposable income being available in households. Currently, only goods, consumables, and general sales taxes in California generate revenues; services are not taxed. 4 Honorable City Council 05/22/2024 Special Meeting Page 5 Sales Tax The retail industry is a strong contributor to sales tax revenues for the City. Globally, this industry continues to experience a transformation as the proliferation of online sales penetrating the consumer market are occurring at a rate higher than originally contemplated. Online sales transactions do not result in a point-of-sale transaction for the City. The internet sales that generate sales taxes flow to countywide pools rather than direct allocations to the City. The City receives a portion of sales taxes from the countywide pool based on a percentage commensurate to total sales generated by neighboring cities in the County, rather than direct allocations where the City receives its full one percent (1%) of every dollar. Growth in online shopping is also causing a strain on traditional brick and mortar stores resulting in less foot traffic and smaller profit margins to cover rents and leases. Property Tax In the FY 2024/25 Proposed Budget, property tax is projected to total $10.8M or 44% of total General Fund revenues. Property tax growth has been strong over the past several fiscal years and revenues in this category are now consistently above pre-recession levels. On average, the City can expect to receive only $0.083 from every property tax dollar collected for real property in the City. Property tax revenues are mainly distributed to a number of other governmental agencies for a variety of services to support residents’ needs such as: schools, county services, and fire protection to name a few. Several residential and commercial development projects in the City have either been recently entitled or re-entitled which will add to the City’s property tax base. Some of these projects are included on the following page. $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 CITY OF MOORPARK - 10 YEARS SALES TAX HISTORY 5 Honorable City Council 05/22/2024 Special Meeting Page 6 • High Street Depot – 79 residential units with approximately 14,000 square feet of commercial space (construction underway) • Vendra Gardens – 200 residential units (construction underway) • Hitch Ranch – 755 residential units (construction anticipated in 2025) • Beltramo Ranch – 47 detached residential units (construction anticipated 2025) • North Ranch – 139 detached residential units (construction timeline unknown) • Green Island Villas – 69 multi-family units (construction timeline unknown) • Pacific Communities – 284 detached small-lot residential units (construction anticipated 2025) • Everett Street Terrace – 60 residential condominium units (construction timeline unknown) Although each of these projects will add to the City’s property tax base, it is important to recognize that property tax revenues derived from residential development are insufficient to meet the ongoing cost to service new development with the City receiving only $0.08 of every dollar assessed. This was further confirmed in 2023 when graduate students of the Master of Public Policy and Administration program at California Lutheran University completed an analysis of the “Housing Production Fiscal Impacts on the City of Moorpark” to examine the financial impacts of residential development on existing services to determine the extent of the financial impacts on City resources. The City receives a small portion of property tax revenues derived from secured properties in the City. As shown on the below graph, the Moorpark General Fund only receives approximately $0.08 of every dollar with remaining amounts allocated to various governmental agencies for service provision within their respective service areas. Moorpark Unified School District receives the largest portion of property tax allocations, approximately $0.33 of every dollar, a 300% greater share than the City. The below illustration shows a breakdown of the distribution of Property Tax dollars derived from secure properties in the city. 6 Honorable City Council 05/22/2024 Special Meeting Page 7 General Fund revenues total $24,498,468 and are comprised of many sources, however sales and property taxes represent the largest proportion of General Fund revenue. Together these sources account for sixty-five percent (65%) off all revenues. Charges for fees, intergovernmental, grants and franchise fees make up remaining thirty-four percent (34%) of total General Fund revenues. 7 Honorable City Council 05/22/2024 Special Meeting Page 8 On the expense side, the proposed General Fund budget supports all municipal services. Total expenses for the General Fund are proposed at $23,903,631 and are allocated across departments as shown by the chart below. The City obtains Police Services through a contract with the Ventura County Sheriff’s Office. The full range of police services account for 37% ($8.76M) of the overall proposed expenses. The Parks, Recreation & Community Services Department makes up the next largest percentage with nearly 30% ($6.6M) being allocated for important quality of life services across the City. Remaining City departments made up of City Manager’s Office, Finance/Administrative Services, Community Development, Public Works, City Council, and City Attorney’s Office comprise of 35% of total General Fund expenses. The below chart depicts each department’s financial impact on the General Fund. 43.96% 21.43% 15.35% 8.89% 6.09% 3.09%1.19% General Fund Revenue, FY2024-25 Property Taxes Sales Tax & Transient Occupancy Tax Charges for Services, Fines, Fees Intergovernmental Franshise Fees Grants & Donations Miscellaneous Property Taxes 10,770,000.00$ 43.96% Sales Tax & Transient Occupancy Tax 5,250,000.00$ 21.43% Charges for Services, Fines, Fees 3,760,010.00$ 15.35% Intergovernmental 2,177,232.00$ 8.89% Franshise Fees 1,492,900.00$ 6.09% Grants & Donations 756,976.00$ 3.09% Miscellaneous 291,350.00$ 1.19% Grand Total 24,498,468.00$ 100% 8 Honorable City Council 05/22/2024 Special Meeting Page 9 ORGANIZATIONAL CHANGES To keep pace with the demands of service provision and to create greater efficiency between departments, the following organizational changes are being recommended for FY 2024/25 and beyond. First, the Human Resources division is proposed to be relocated to the City Manager’s Office. Previously Human Resources was in the Finance/Administrative Services Department which was serving as a quasi-administrative services department overseeing all internal service divisions (Information Systems, Human Resources, and Finance). The City has experienced turnover in the Finance Director position and is currently recruiting for that position. With Human Resources relocating to the City Manager’s Office, the successful Finance Director candidate will dedicate more attention to finance activities, along with Information Systems. To support Human Resources, a Human Resource Specialist is proposed to be added. The position will be a reclassification of an existing Administrative Assistant II from the City Manager’s Office. The reclassification will provide for capacity within Human Resources to support human resources development activities such a management/supervisor training, mandated training, performance evaluation, support for 36.65% 27.96% 10.81% 8.31% 8.22% 6.66% 0.97%0.42% General Fund Spending by Department, FY2024-25 Public Safety Parks & Recreation Services City Manager Finance/Admin Srvs Community Development Public Works City Council City Attorney Public Safety 8,761,195.00$ 36.65% Parks & Recreation Services 6,682,985.25$ 27.96% City Manager 2,584,685.00$ 10.81% Finance/Admin Srvs 1,986,201.70$ 8.31% Community Development 1,965,987.00$ 8.22% Public Works 1,591,711.00$ 6.66% City Council 230,866.00$ 0.97% City Attorney 100,000.00$ 0.42% Grand Total 23,903,630.95$ 100.00% 9 Honorable City Council 05/22/2024 Special Meeting Page 10 the hiring/onboarding process, safety / OSHA compliance, and more. The financial impact of upgrading the Administrative Assistant II classification to a Human Resources Specialist is $15,340. The Public Works Department has undergone personnel transitions over the years as well. The Department now functions with two Analysts that run broad program activities such as: Wastewater/Drainage (compliance with Regional Water Quality Control Board license), Transportation, Parking Enforcement, Animal/Vector Control, Annual Pavement Management, and more. The scope of these areas has grown significantly in recent years, requiring additional focus and attention. As a result, the Administrative Specialist and Public Works Manager positions were previously reclassified to Analysts positions; one Senior Management Analyst and one Management Analyst. In 2020, the City entered into a contract with M6 Consulting, Inc. (M6) to provide plan check, inspection, and other services related to engineering. M6 has served the community dutifully and is performing well under the current terms of their contract. Public Works workload has increased as the number of projects approved through the entitlement process in Community Development has been completed. Although M6 is performing their duties well, the City is in a precarious position having only one position carrying the title of Engineer. Therefore, in addition to and in support of the City Engineer, an Assistant Engineer is proposed to be added to the Public Works Department. The fully loaded cost for this position is $136,114 across a variety of funds. The City has traditionally managed records using paper systems and taken the position to save all records. While this is a benefit on some levels, in practice, promulgating this approach across all departments has led to inconsistencies in records management. The City has duplicate copies of paper files in various departments, other records from meetings and presentations dating back to the 1990’s, aged documents that are not records like correspondence from other agencies (annual reports, letters, etc.), and more. Over the years, the City has taken steps to improve its record management processes. Consultants have been used in varying fashions to assist with scanning of documents, developing indexes for filing and retrieval, and providing policy direction to staff. There are a variety of tools and resources available to advance the City’s efforts in records management; the most important of which is a dedicated resource to coordinate, plan, and implement a comprehensive approach. Effective records management systems assist cities by creating efficiencies in receipt of documents, storage, and disposal consistent with appropriate local and state law. Records management also aids in responding to numerous public records requests received from members of the public and legal proceedings. Records Management has been among the areas in need of attention in the City. This need has been heightened given the anticipated relocation to 323 Science Drive, which upon occupancy will result in less room for the storage of paper. 10 Honorable City Council 05/22/2024 Special Meeting Page 11 A Records Supervisor is recommended to be added in the City Manager’s Office. The position will be located in the City Clerk’s Office and will lead records management activities across the City. The cost for this position is $141,204 and, if approved, will be filled as soon as possible. Finally, in an effort to retain an incumbent in the Planning Manager position, in 2022 the City upgraded the Planning Manager position to Deputy Community Development Director. With the promotion of the Deputy Community Development Director to Community Development Director, the deputy position has been downgraded to a Planning Manager. This results in an anticipated savings of $15,340. 10-YEAR LONG TERM FINANCIAL PLAN Per the direction of the City Council, a Long-term Financial Plan (LTFP) has been developed and incorporated into the budget to provide more focus and attention on the overall long-term fiscal sustainability of the City. The goal of the LTFP is to serve as a proactive tool to ensure long-term efficient and effective management of City services, finances, operations, and capital improvement projects. In addition, the LTFP will serve as a budget model for the General Fund in its forecasting of revenues and expenditures over a 10-year period. The findings and conclusions of the LTFP provide an opportunity for the City to reflect and shift its view of the future as different conditions arise. Although the LTFP is not an accounting tool, it is valuable for policy makers by providing a look into the financial future of the City and the myriad of demands placed on the City. The LTFP can qualify and quantify decisions and guide the decision-making process by placing a focus on maintaining the current quality of services, enhancing services and/or programs, forecasting economic recessions, and identifying projected long-term financial imbalances early. The LTFP takes a forward-looking view at the City’s General Fund operating revenues and expenditures. Its purpose is to identify financial trends, shortfalls, opportunities, and issues so the City can proactively address them. When all the assumptions are aggregated using actuals from FY 2021/22 as a base year and are extrapolated out 10 years, the model calculates anticipated revenues and expenditures based on historical levels of growth. The results of the straight-line projections of the LTFP are graphically depicted below. Presuming the assumptions manifest themselves over the next 10 years as projected in the LTFP, in FY 2027/28 the City’s expenditures will exceed resources resulting in an ongoing structural deficit for the City. 11 Honorable City Council 05/22/2024 Special Meeting Page 12 For FY 2024/25 the LTFP projects a balanced budget. ACKNOWLEDGEMENTS The City remains in good financial footing. The City’s retirement obligations and Other Post Employment Benefits are both > 95% funded and the City has no General Fund debt service. Reserve levels remain strong with total General Fund reserves of 25% of the entire General Fund budget. From a cash flow basis, the City has sufficient cash on hand to meet its operational needs and remaining funds are invested conservatively to protect principal amounts, consistent with the City’s Investment Policy. The proposed FY 2024/25 Operating and Capital Improvement Budget furthers the City Council’s philosophy of physical conservatism while providing adequate resources to meet the service needs of the community. However, the budget holds the line on Police Services which will need to be addressed in future budget cycles. Additional resources in Police Services will be needed to ensure Moorpark remains the safest city in Ventura County and among the safest in the state. Through the Council’s careful attention to fiscal stewardship, the City remains in a strong financial position to meet the needs of residents and business in the coming year. A debt of gratitude should be bestowed to the Mayor and Council for their approach to financial management of the very limited resources the City has at its disposal. Development of the annual Operating and Capital Improvement Budget burdens every department in the City. Staff has developed a conservative budget that meets the day- to-day needs of the City. Many thanks to everyone involved in putting together responsible budgets for the City Council’s consideration. Although budget development responsibilities exist in every department, the work of putting the budget together falls squarely on a few individuals. To that end, I want to recognize Daniel Kim, City $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 2023 10-Year Financial Plan GF Revenues GF Expenses 12 Honorable City Council 05/22/2024 Special Meeting Page 13 Engineer/Public Works Director; Hiromi Dever, Interim Finance Director; Charan Bhamber, Accountant II; Daisy Amezcua, Senior Account Technician II; Donna Phipps, Account Technician II; and Teresa Ruiz, Account Technician II for their hard work and dedication in preparing the proposed FY 2024/25 Operating and Capital Improvements Budget. Respectfully Submitted, Troy Brown City Manager Refer to the City Manager’s Draft Recommended Budget binder previously distributed to the City Council on May 1, 2024. The proposed budget is posted to the City’s website at: www.moorparkca.gov/RecommendedBudget2024/25 STAFF RECOMMENDATION Discuss the proposed budget for Fiscal Year 2024/25. 13