06-23-2020 - AGENDA ITEM 06 ADOPTION OF THE CITY OF WEST COVINA FISCAL YEAR 2020-21 ANNUAL OPERATING AND CAPITAL IMPROVEMENT PROGRAM BUDGETAGENDA ITEM NO. 6
AGENDA STAFF REPORT
City of West Covina I Office of the City Manager
DATE: June 23, 2020
TO: Mayor and City Council
FROM: David Carmany
City Manager
SUBJECT: ADOPTION OF THE CITY OF WEST COVINA FISCAL YEAR 2020-21 ANNUAL
OPERATING AND CAPITAL IMPROVEMENT PROGRAM BUDGET
RECOMMENDATION:
It is recommended that the City Council approve the Fiscal Year 2020-21 Proposed Operating and Capital
Improvement Program Budget by adopting the following resolution:
RESOLUTION NO.2020-64 — A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF WEST COVINA, CALIFORNIA, ADOPTING THE OPERATING AND CAPITAL
IMPROVEMENT PROGRAM BUDGET FOR THE CITY OF WEST COVINA, WEST
COVINA PUBLIC FINANCING AUTHORITY, WEST COVINA HOUSING
AUTHORITY, AND THE SUCCESSOR AGENCY TO THE FORMER WEST COVINA
REDEVELOPMENT AGENCY FOR FISCAL YEAR 2020-21
BACKGROUND:
On February 18, 2020, the Finance Department held a Fiscal Year (FY) 2020-21 budget kickoff meeting with
City of West Covina staff to begin the development of the FY 2020-21 budget. All department budgets were to
be submitted to the Finance Department by March 12, 2020 and were reviewed with the City Manager over the
course of the following weeks. The Finance Department is responsible for the development of the preliminary
and final budget preparation
As part of the FY 2020-21 Operating and Capital Improvement Program (CIP) Budget preparation, staff
presented the budget to the City Council on June 2, 2020, gave a presentation to the Audit & Finance
Committee on June 3, 2020, and held one Community Budget Workshop on June 9, 2020.
Included in the budget document is a Ca1PERS payment for the unfunded liability in the amount of
$13,039,224. In previous years, the City made this payment in one payment by July 31st. By doing so, the City
would save approximately $450,000. However, the City is expected to issue Pension Obligation Bonds by
September of this year and, therefore, will be making monthly payments for this liability.
The budget also includes recommendations for not funding nine vacant positions in the Police Department.
There are also vacancies in the other departments of the City. Due to the COVID-19 pandemic, all vacant
positions of the City have been frozen and will be filled based on critical needs.
https://destinyhosted.com/print_ag_memo.Gfm?seq=835&rev_num=0&mode=6demal&reloaded=true&id=93782 1/6
11/24/2020
Print Staff Report
DISCUSSION:
This item was first presented to the City Council at the June 2, 2020 meeting.
The development of the Proposed FY 2020-21 Operating and Capital Improvement Project (CIP) Budget
presented many challenges for the City Council, staff, and the community. General Fund expenditures continue
to outpace revenue growth. Due to the COVID-19 pandemic, the extreme stress put on the economy
nationwide is unprecedented and there is uncertainty surrounding the revenues of the City. The balanced
budget is based on credible numbers and restructuring of operations. However, much depends on how quickly
the local businesses are opened and how quickly the sales tax numbers rebound.
Closing the Gap
The financial challenges, discussed at the budget presentations listed above, required staff to re-evaluate
services and workflow at all levels of City operations. Once again this year, the budget is balanced with one-
time monies. Assumptions made during the budget preparation assumed that sales tax revenues would be down
in the coming year, property tax would increase slightly, and Transient Occupancy Tax would be flat. It will be
extremely important in the coming year to monitor these revenues and make necessary adjustments in the
budget as early as possible.
Expenditures were based on a status quo budget, Fire Department overtime was decreased from approximately
$2.1 million to $780,000, and no layoffs of City personnel are proposed in the budget document; however,
vacant positions have been frozen for the Fiscal Year 2020-21. Lastly, funds accumulated in the debt service
fund will be used to partially make bond interest and principal payments to reduce the amount that is needed to
be transferred from the General Fund.
Future Challenges
While staff was successful in closing the operating deficit for the Fiscal Year 2020-21, there are still several
significant challenges ahead that need to be addressed.
• Structural deficit still exists. Several one-time revenues and transfers from various fund balances are
helping to close the gap. While significant structural changes have been made to the organization to
control future costs, rising pension and medical costs are still increasing annually and a structural deficit
still exists. Further actions to address this structural deficit, including further cuts to expenditures and
seeking new revenues will continue during FY 2020-21.
• Antiquated business license tax structure.
• Memorandum of Understanding (MOUs) for seven of the nine bargaining groups are being negotiated
during FY 2019-20 and have not been completed at the date of this report. MOUs for Police
Management, Fire Management, Confidential, Maintenance and Crafts, General, Mid -Management, and
Non -Sworn personnel are all currently expired.
• Pension costs are projected to increase by about $2 million a year, through FY 2024-25. With the global
COVID-19 pandemic during FY 2019-20, pension costs two years from now will be especially high.
• Sales tax revenues are projected to decrease in FY 2020-21.
• Aging of the City's infrastructure (i.e. roofs, hearing and air conditioning units, public restrooms, sports
fields, etc.) and vehicles.
• Escalating costs for Animal Care & Control from Inland Valley Humane Society.
• Addressing Homeless Services needed in the community.
• Resolving outstanding Department of Finance issues that are lingering from the elimination of
redevelopment.
FISCAL YEAR 2020-21 PROPOSED BUDGET INFORMATION:
The City Budget is a policy document of the City Council that outlines a plan for the upcoming fiscal year
based on the most current projections of revenues and expenditures available. Staff will continue to monitor
https://destinyhosted.com/print_ag_memo.Gfm?seq=835&rev_num=0&mode=6demal&reloaded=true&id=93782 2/6
11/24/2020
Print Staff Report
key economic indicators, sources of revenues, and spending levels as part of ongoing efforts to provide a
sound conservative approach. As the budget is a live document, staff will be constantly evaluating budget
performance, financial conditions, and City Council recommendations, and make adjustments when necessary
during the fiscal year. Any adjustments will be brought forth for City Council approval to keep this live
document at the most current state based on all indicators.
Estimated revenues (including transfers in) on an all funds basis are $119,104,704. Many funds make up the
total budget amount, with the largest being the General Fund in the amount of $66,672,236, or 56% of the
City's budget.
Estimated expenditures (including transfers out) for all budgeted funds are estimated at $121,140,264. Many
funds make up the total budget amount, with the largest being the General Fund in the amount of $66,672,236,
or 55% of the City's budget. Salary and benefits are 49% of the City's total budget followed by maintenance
and operations at 30%.
General Fund
The City's principal financial goal is to provide an appropriate level of municipal services with the ability to
adapt to local and regional economic changes, while maintaining and enhancing the sound fiscal financial
condition of the City. The City's General Fund has been negatively impacted in the past number of years by
the economic recession and increases in pension costs. This fund is utilized to provide the basic services to the
City (i.e. police, fire, planning, administrative services, parks and recreation, etc.).
General Fund Revenues:
Total General Fund revenues are projected to be $66,672,236, an increase of $1,313,463 or 2% from the prior
year adopted budget. Although many of the revenue sources of the City are slightly increasing, due to the
COVID-19 pandemic, many of the major revenue sources are expected to decline. The numbers that are
budgeted reflect a decrease in business license, transient occupancy tax, animal control & licensing, and
franchise taxes. The revenues will need to be monitored very closely during the year and adjustments made as
revenues are being negatively impacted by the pandemic. Allocated costs are a type of expense that are clearly
associated with and can be readily assigned to a certain business process, project or department. Allocated
costs have been reallocated into the General Fund for Miscellaneous Reimbursements in the amount of $1.5
million.
Property tax and sales tax continue to be the City's main source of revenue at 41 % and 24%, respectively. The
City is also expected to see an increase in permit fee revenue due to the fee schedule being updated during
Fiscal Year 2019-20.
https://destinyhosted.com/print_ag_memo.Gfm?seq=835&rev_num=0&mode=6demal&reloaded=true&id=93782 3/6
11/24/2020 Print Staff Report
General Fund Revenues
Property Taxes $66,672,236
41% 1 Sales Tax
the Taxes
13%
& Permits
-itures
Agencies Property
4% 2%
General Fund Expenditures:
At this time, General Fund expenditures for FY 2020-21 are projected to be $66,672,236 reflecting a balanced
General Fund budget. This equates to an increase in budgeted expenditures of $1,313,463 when compared to
the adopted budget for FY 2019-20.
The chart below indicates that Support Services (which includes Administration, City Clerk, Finance and
Human Resources), Community Development, and Police Department percentages remain the same as last
year. Public Services and Fire both decreased by 1% and Transfers Out increased to 3% from 1% last year. The
increase in the transfers is mainly due to debt service payments for the 2018 bonds. The reduction in the Fire
Department percentage is due to the overtime budget being decreased from $2.1 million in Fiscal Year 2019-
20 to $782,948 in Fiscal Year 2020-21.
https://destinyhosted.com/print_ag_memo.Gfm?seq=835&rev_num=0&mode=Extemal&reloaded=true&id=93782 4/6
11/24/2020 Print Staff Report
General Fund Expenditures by Department
$66,672,236
Fire
police
M163,7:
47%
Public Services
$5,456,355
aac "immunity
velopmem
2,16o,896
3%
Transfers Out
$1,620,322
3%
pport Services
$6,249,680
9%
General Fund Reserves:
To maintain the City's credit rating and meet seasonal cash flow shortfalls, economic downturns or a local
disaster, the budget provides for an anticipated fund balance for the General Fund. The General Fund ending
unassigned fund balance, or reserve, is equivalent to a "Savings Account" to cover unexpected costs or
significant economic changes. The intent is to not use this for normal operating expenses. General Fund ending
unassigned fund balance is projected to be approximately $9,593,864, which is 14.3% of operating
expenditures, which does not meet the City's required 17% per the City's reserve policy. Another standard for
unrestricted budgetary fund balance is recommended by the Government Finance Officers Association
(GFOA). GFOA recommends, at a minimum, that general-purpose governments, regardless of size, maintain
unrestricted budgetary fund balance in their general fund of no less than two months of regular general fund
operating revenues or regular general fund operating expenditures. Per the City's policy, when reserves dip
below the required 17%, a plan must be implemented to replenish the reserves within the next few years. Staff
will return to the City Council with a plan to replenish the reserves at a future date.
At this time, the General Fund's estimated ending fund balance for FY 2020-21 is $16.1 million; however,
$6.5 million is considered nonspendable. The nonspendable portion consists of unpaid loans to the former
Redevelopment Agency which have been approved by the Department of Finance (DOF) and will be repaid
over the next few years in the amount of $3.3 million, approximately $200,000 in receivables, and land held
for resale in the amount of $3 million.
Capital Improvement Program (CIP):
Staff is recommending a number of CIP projects for FY 2020-21, with all of them being funded from special
revenue funds. These projects are listed in the Operating and Capital Improvement Project Budget for FY
2020-21 beginning on page 317 of the budget document.
LEGAL REVIEW:
The City Attorney's Office has reviewed the resolution and approved it as to form.
https://destinyhosted.com/print_ag_memo.Gfm?seq=835&rev_num=0&mode=6demal&reloaded=true&id=93782 5/6
11/24/2020 Print Staff Report
Prepared by: Robbeyn Bird, Finance Director
Fiscal Impact
FISCAL IMPACT:
The Proposed Operating and Capital Improvement Project Budget for the City of West Covina for FY 2019-
20 is $121,140,264. City Staff is presenting a balanced budget for the General Fund, which includes
appropriations and transfers to other funds in the amount of $66,672,236. This balanced budget is conditional
on the assumption that the economy will rebound from the effects of the global pandemic. Close scrutiny and
continual review of budget projections by staff and the City Council will be necessary throughout the entire
fiscal year and if the economy is not rebounding sufficiently, clear and concise direction will be needed from
the City Council.
Attachments
Attachment No. 1 - Resolution No. 2020-64 - Budget Adoption Resolution
CITY Achieve Fiscal Sustainability and Financial Stability
COUNCIL Enhance City Facilities and Infrastructure
GOALS & Enhance the City Image and Effectiveness
OBJECTIVES: Protect Public Safety
Respond to the Global COVID-19 Pandemic
Engage in Proactive Economic Development
https://destinyhosted.com/print_ag_memo.Gfm?seq=835&rev_num=0&mode=6demal&reloaded=true&id=93782 6/6
ATTACHMENT NO.1
RESOLUTION NO.2020-64
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF WEST COVINA, CALIFORNIA, ADOPTING THE
OPERATING AND CAPITAL IMPROVEMENT
PROGRAM BUDGET FOR THE CITY OF WEST
COVINA, WEST COVINA PUBLIC FINANCING
AUTHORITY, WEST COVINA HOUSING AUTHORITY,
AND THE SUCCESSOR AGENCY TO THE FORMER
WEST COVINA REDEVELOPMENT AGENCY FOR
FISCAL YEAR 2020-21
WHEREAS, the City Manager has presented to the City Council a proposed budget for
Fiscal Year 2020-21 in compliance with Section 2-151(m) of the West Covina Municipal Code;
and
WHEREAS, at its regular meeting on June 2, 2020, the City Council considered the
proposed budget, referred the proposed budget to the Finance and Audit Committee for review
and comments at the Committee's June 3, 2020 meeting, and directed that the proposed budget
be broadly publicly disseminated, including at a Corn Kmity Budget Workshop on June 9, 2020;
and
WHEREAS, at its regular meeting on June 3, 2020, the Finance and Audit Committee
reviewed the proposed budget; and
WHEREAS, on June 9, 2020, the City held a Community Budget Workshop regarding
the proposed budget; and
WHEREAS, at its regular meeting on June 16, 2020, the City Council father considered
the proposed budget; and
WHEREAS, at a special meeting on June 23, 2020, the City Council further considered
the proposed budget; and
WHEREAS, the City solicited and received input from the pubfic at the June 2, 2020,
June 3, 2020, June 9, 2020, June 16, 2020, and June 23, 2020 meetings; and
WHEREAS, the City Council of the City of West Covina has considered the proposed
budget and input from the public and desires to approve and adopt the Fiscal Year 2020-21 budget
for the City, West Covina Public Financing Authority, Housing Authority, Successor Agency to
the Former West Covina Redevelopment Agency and the Capital Improvement Program
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF WEST COVINA,
CALIFORNIA DOES HEREBY RESOLVE AS FOLLOWS:
SECTION 1. The Operating and Capital Improvement Program Budget for the City of
West Covina, West Covina Public Financing Authority, and West Covina Housing Authority for
Fiscal Year 2020-21, as prepared and submitted by the City Manager and as modified by the City
Council, is hereby approved, adopted and appropriated (`Fiscal Year 2020-21 Budgef). A copy
of said budget is hereby ordered to be filed in the Office of the City Clerk within thirty (30) days
and shall be certified by the City Clerk as having been adopted by this resolution.
SECTION 2. The budget for the Successor Agency to the Former West Covina
Redevelopment Agency for Fiscal Year 2020-21, as prepared and submitted by the Executive
Director and as modified by the Agency Board Members, is hereby approved, adopted and
appropriated, on the express condition that said budget be published the same as a separate
component of the City of West Covina's budget, and further conditioned on the City of West
Covina, its General Fund and all its various other accounting funds are not obligated to finance or
fulfill any Successor Agency obligations. A copy of said budget is hereby ordered to be filed in
the Office of the City Clerk/Secretary within dirty (30) days and shall be certified by the City
Clerk/Secretary as having been adopted by this resolution.
SECTION 3. From the effective date of said budget, appropriations may be reallocated
from one activity account to another within the Operating Budget upon review by the Finance
Department and approval of the City Manager or his/her designee, provided there is no change in
the scope of service delivery level or increase in the appropriation as approved by the City Council.
SECTION 4. As necessary, appropriations may be made for donations and grants
received during the fiscal year up to $30,000 per source or grantor upon review by the Finance
Department and approval of the City Manager or his/her designee. Donations and grant awards
with matching requirements, or exceeding $30,000 from a single source or grantor, require City
Council approval
SECTION 5. The approved budgets for the Capital Improvement Program remain as
authorized appropriations for the individual capital projects until these capital projects are
completed. Any unexpended authorized appropriations for each capital project is automatically
carried over from fiscal year to fiscal year, until the funds of the individual capital project are
expended or the capital project is canceled. Following the completion of the individual capital
projects, the unexpended appropriations of each completed capital project shall be canceled and
the capital projects funding sources shall be released from their unexpended funding commitme nt.
SECTION 6. The City Council does hereby authorize and approve the number and
classification of employees in the respective functions, departments and/or activities as set forth
in the Fiscal Year 2020-21 Budget. No increase shall be made in this number of positions without
City Council approval However, the City Manager is authorized to transfer such positions within
existing position classifications and reorganize departments under the City Manager's authority,
if in the City Manager's judgment such actions will result in a higher degree of efficiency of
overall operations of the City.
SECTION 7. At the close of the 2019-20 Fiscal Year, unexpended appropriations in the
Operating Budget may be carried forward to the 2020-21 Fiscal Year upon review by the Finance
Department and approval of the City Manager or his/her designee for the expense of outstanding
purchase commitments and programs.
SECTION 8. The City Clerk shall certify to the adoption of this resolution and shall enter
the same in the book of original resolutions and it shall become effective inurediately.
APPROVED AND ADOPTED on this 23rd day of June, 2020.
Tony Wu
Mayor
APPROVED AS TO FORM ATTEST
Thomas P. Duarte Lisa Sherrick
City Attorney Assistant City Clerk
I, Lisa Sherrick, ASSISTANT CITY CLERK of the City of West Covina, California, do
hereby certify that the foregoing Resolution No. 2020-64 was duly adopted by the City Council of
the City of West Covina, California, at a special meeting thereof hell on the 23rd day of June,
2020, by the following vote of the City Council:
AYES:
NOES:
ABSENT:
ABSTAIN:
Lisa Sherrick
Assistant City Clerk