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6-15-2021 AGENDA ITEM NO.17 - CONSIDERATION OF THE CITY OF WEST COVINA FISCAL YEAR 2021-22 ANNUAL OPERATING AND CAPITAL IMPROVEMENT PROGRAM BUDGETAGENDA ITEM NO. 17 AGENDA STAFF REPORT City of West Covina I Office of the City Manager DATE: June 15, 2021 TO: Mayor and City Council FROM: David Carmany City Manager SUBJECT: CONSIDERATION OF THE CITY OF WEST COVINA FISCAL YEAR 2021-22 ANNUAL OPERATING AND CAPITAL IMPROVEMENT PROGRAM BUDGET RECOMMENDATION: It is recommended that the City Council approve the Fiscal Year 2021-22 Proposed Operating and Capital Improvement Program Budget by adopting the following resolution: RESOLUTION NO.2021-66 — 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 2021-22 BACKGROUND: On January 25, 2021, the Finance Department distributed budget instructions for Fiscal Year (FY) 2021-22 with City of West Covina staff to begin the development of the FY 2021-22 budget. All department budgets were to be submitted to the Finance Department by March 18, 2021 and 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 2021-22 Operating and Capital Improvement Program (CIP) Budget preparation, the budget was presented to the City Council on May 18, 2021 and two Community Budget Workshops were held on May 19, 2021 and June 9, 2021. The 2021-22 Budget is a roll-over budget with minimal increases in expenditures. However, the budget includes a Public Works Director position. The budget also includes recommendations to use fund balance to close the structural deficit in the amount of $2.3 million. DISCUSSION: This item was first presented to the City Council at the May 18, 2021 meeting. The development of the Proposed FY 2021-22 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. The City continues to face the effects of the COVID-19 pandemic. Closing the Gap The financial challenges in West Covina continue in the 2021-22 Fiscal Year. The City is facing a structural deficit of $2.3 million. Assumptions made during the budget preparation, assumed that sales tax revenues would remain flat in the coming year, property tax would increase slightly, and Transient Occupancy Tax would decline substantially. 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 and no layoffs of City personnel are proposed in the budget document, however; certain vacant positions have been frozen for the Fiscal Year 2021-22. Future Challenges There are still several significant challenges ahead that need to be addressed. • Structural deficit still exists. General Fund reserves are being used to balance the budget for fiscal year 2021-22 in the amount of $2.3 million. While significant structural changes have been made to the organization to control future costs, loss of general fund revenues due to the COVID-19 pandemic continue. • Memorandum of Understanding (MOUs) for eight of the nine bargaining groups will be negotiated during FY 2021-22. MOUs for Police Management, Fire Management, Confidential, Maintenance and Crafts, General, Mid -Management, and Non -Sworn personnel all expire on June 30, 2021. • Sales tax revenues are projected to remain flat in FY 2021-22. • Aging of the City's infrastructure (i.e. roofs, heating and air conditioning units, public restrooms, sports fields, etc.) and vehicles. • Addressing Homeless Services needed in the community. • Resolving outstanding Department of Finance issues that are lingering from the elimination of redevelopment. FISCAL YEAR 2021-22 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 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 $145,713,500. Many funds make up the total budget amount, with the largest being the General Fund in the amount of $67,814,100, or 47% of the City's budget. Estimated expenditures (including transfers out) for all budgeted funds are estimated at $159,635,100. Many funds make up the total budget amount, with the largest being the General Fund in the amount of $67,814,100, or 42% of the City's budget. Salary and benefits are 29% of the City's total budget as is maintenance and operations. 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 $67,814,100, an increase of $1,141,864 or 1.7% from the prior year adopted budget. Included in the $67.8 million, is $2.3 million recommended to be utilized from the General Fund reserves to balance the budget. The revenues will need to be monitored very closely during the year and adjustments made as necessary. Property tax and sales tax continue to be the City's main source of revenue at 42% and 23%, respectively The City is also expected to see an increase in permit fee revenue due to the fee schedule being updated during fiscal year 2021-22. General Fund Expenditures: At this time, General Fund expenditures for FY 2021-22 are projected to be $67,814,100 reflecting a balanced General Fund budget. This equates to an increase in budgeted expenditures of $1,141,864 when compared to the adopted budget for FY 2020-21. 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 $17,873,663, which is 26.8% of operating expenditures, which exceeds 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. At this time, the General Fund's estimated ending fund balance for FY2021-22 is $21.4 million; however, $3.5 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 $500 thousand, approximately $41 thousand 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 2021-22, with all of them being funded from special revenue funds. These projects are listed in the Operating and CIP Budget for FY 2021-22 beginning on page 389 of the budget document. LEGAL REVIEW: The City Attorney's Office has reviewed the resolution and approved it as to form. Fiscal Impact FISCAL IMPACT: The Proposed Operating and Capital Improvement Project Budget for the City of West Covina for FY 2021-22 is $159,635,100. City Staff is presenting a balanced budget for the General Fund, which includes appropriations and transfers to other funds in the amount of $67,814,100. This balanced budget includes the use of General Fund reserves in the amount of $2.3 million. Close scrutiny and continual review of budget projections by staff and the City Council will be necessary throughout the entire fiscal year and clear and concise direction will be needed from the City Council. Attachments Attachment No. 1 - Resolution No. 2021-66 (Adopting FY 2021-22 Budget) CITY COUNCIL GOALS & OBJECTIVES: Achieve Fiscal Sustainability and Financial Stability Enhance City Facilities and Infrastructure Enhance the City Image and Effectiveness Protect Public Safety Respond to the Global COVID-19 Pandemic Engage in Proactive Economic Development RESOLUTION NO.2021-66 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 2021-22 WHEREAS, the City Manager has presented to the City Council a proposed budget for Fiscal Year 2021-22 in compliance with Section 2-151(m) of the West Covina Municipal Code; and WHEREAS, at its regular meeting on May 18, 2021, the City Council considered the proposed budget, received and Sled the proposed operating and capital improvement budget, directed that the proposed budget be broadly publicly disseminated, including at Community Budget Workshops on May 19 , 2021 and June 9, 2021; and scheduled it for adoption at the June 15, 2021 City Council meeting; and WHEREAS, on May 19, 2021 and June 9, 2021, the City held Community Budget Workshops regarding the proposed budget; and WHEREAS, at its regular meeting on June 15, 2021, the City Council further considered the proposed budget; and WHEREAS, the City solicited and received input from the pubic at the May 18, 2021, May 19, 2021, June 9, 2021 and June 15, 2021 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 2021-22 Operating and Capital Improvement Program Budget for the City, West Covina Public Financing Authority, Housing Authority, Successor Agency to the Former West Covina. Redevelopment Agency. 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 2021-22, as prepared and submitted by the City Manager and as modified by the City Council, is hereby approved, adopted and appropriated ("Fiscal Year 2021-22 Budget). 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 2021-22, 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 fiilfill any Successor Agency obligations. A copy of said budget is hereby ordered to be filed in the Office of the City Clerk/Secretary within thirty (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 bereleased from their unexpended funding commitment. 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 2021-22 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 resuk in a higher degree of efficiency of overall operations of the City. SECTION 7. At the close of the 2020-21 Fiscal Year, unexpended appropriations in the Operating Budget may be carried forward to the 2021-22 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 resohrtions and it shall become effective immediately. APPROVED AND ADOPTED on this 15th day of June, 2021. APPROVED AS TO FORM Thomas P. Duarte City Attorney Letty Lopez-Viado Mayor ATTEST Lisa Sherrick Assistant City Clerk I, Lisa Sherrick, ASSISTANT CITY CLERK of the City of West Covina, California, do hereby certify that the foregoing Resolution No. 2021-66 was duly adopted by the City Council of the City of West Covina, California, at a regular meeting thereof held on the 15th day of June, 2021, by the following vote of the City Council: AYES: NOES: ABSENT: ABSTAIN: Lisa Sherrick Assistant City Clerk