MEETING DATE:
JUNE 11, 2024
SUBJECT:
Title
RESOLUTION NOS. 2024-9304 & 2024-9305 - OPERATIONS & MAINTENANCE BUDGET FOR THE FISCAL YEAR BEGINNING JULY 1, 2024; CAPITAL IMPROVEMENT PROGRAM BUDGET FOR THE FIVE FISCAL YEARS ENDING 2028-29; APPROPRIATING MONEY OUT OF THE TREASURY FOR BUDGETARY PURPOSES; AND AUTHORIZING APPROPRIATION AND TRANSFER OF FUNDS FOR THE ESTABLISHMENT OF AN APPROPRIATED RESERVE FOR FUTURE EXPENDITURES AND/OR CONTINGENCIES FOR FISCAL YEAR 2024-25
Body
Recommendation
Recommendation
ADOPT the following:
1) Resolution adopting the Operations & Maintenance Budget of the City of San Marcos for the Fiscal Year beginning July 1, 2024 and the Capital Improvement Program Budget for the five fiscal years ending 2028-29, and appropriating money out of the treasury for budgetary purposes; and
2) Resolution authorizing the appropriation and transfer of funds for the establishment of an appropriated reserve fund for future expenditures and/or contingencies for FY 2024-25.
Body
Board or Commission Action
The City Council met during a Budget Workshop on April 11, 2024 and the Budget Review Committee met on May 29, 2024 to provide guidance for the development of the proposed Operations & Maintenance Budget and Capital Improvement Program Budget.
Relevant Council Strategic Theme
Planning for the Future
Relevant Department Goal
Not applicable.
Executive Summary
Each year the City Manager, Finance Director, and all City departments collaborate and analyze their future operational needs to create a budget plan that aligns with priorities of the City Council. The proposed Operations & Maintenance Budget for Fiscal Year 2024-25 includes requests recommended by the City Manager for approval by the City Council.
Prior to presenting the budgets to the City Council for consideration, the City Council-appointed citizen Budget Review Committee met to review and discuss the proposed budgets and recommended solutions to address the projected budget needs and challenges for the Fiscal Year 2024-25 Operations & Maintenance Budget. To mitigate the anticipated budget constraints and negative impacts to the City’s major revenue sources, staff identified areas of savings, operational efficiencies, and postpones non-essential projects and programs. Additionally, one-time non-recurring revenue sources were utilized in the proposed Fiscal Year 2024-25 Operations & Maintenance Budget to reach a balanced budget.
City Council approval of the proposed Fiscal Year 2024-25 Operations & Maintenance Budget will still maintain an unassigned fund balance consistent with the General Fund Reserve Policy and the Fiscal Management Policy, as well as maintain consistency with the Council’s continuing commitment to providing high levels of service to the City’s residents, visitors and business community.
Discussion
The proposed Operations & Maintenance Budget for Fiscal Year (FY) 2024-25 and Capital Improvement Program Budget for FY 2024-25 through FY 2028-29 represent collaboration and analysis by the City Manager, Finance Director and all City departments that reflect the priorities of City Council. Prior to presenting the City Manager-recommended budgets to the City Council for consideration, the City Council-appointed citizen Budget Review Committee met to review and discuss the proposed budgets and recommended solutions to address the budget challenges. City staff and the Council also hosted a public City Budget Workshop on Aprill 11, 2024 to solicit public comments about the City’s budget challenges and determine council recommendations for optimal service delivery.
As part of the budget process, departmental budget requests are submitted for items typically associated with ongoing or recurring operations, programs, projects, and one-time needs for consideration, as well as providing current year updated projections. Due to anticipated budget constraints resulting from a challenging economic environment and adverse economic trajectory, one-time requests were not included in the proposed budget requests approved by the City Manager for recommendation to City Council, and the departments collaborated with the City Manager to identify areas of savings and operational efficiencies to reduce expenses while maintaining critical services.
The proposed FY 2024-25 Operations & Maintenance Budget includes normally anticipated annual increases related to Sheriff Contract Costs, normal Employee Benefit & Contract Costs per current MOUs with employee groups, and steep inflationary increases for non-discretionary services. These resulted in about a $4 million increase over prior year. Known salary and benefit impacts to the budget include scheduled merit step increases for eligible employees and expected retirement and health cost increases.
Outside of normal anticipated cost increases outlined above, direct expenses such as contract services, supplies, and maintenance represent requests lower than the related FY 2023-24 adopted expense budget. This notable accomplishment was due to the diligence of City staff to identify cost efficiencies wherever possible and postponing non-essential projects and programs. Part of this ongoing effort has been a series of Best Value Analyses to determine the best method of service delivery for various city functions at or above the service levels currently expected by the community. As a result of the Best Value Analyses, there was a re-alignment of some services such as ballfield maintenance and building permit review from a contract model to in-house staff. This re-alignment of services will allow the City to realize long-term cost savings as well as be able to provide a heightened level of service to the community in the immediate and long-term. Additionally, some current vacant positions will be filled on an as-needed basis and/or be put on hold as departments review optimal operating levels.
However, despite staff’s best efforts to find efficiencies wherever possible and eliminating requests not required for essential service delivery and operations, rising costs in normal operating expenditures continue to outpace growth of revenue sources. Moreover, services that are unable to be provided by in-house staff such as utilities, insurance, and fuel costs have seen average increases of 15% in the past 5 years, leading to cost increases outside of City staff control, exacerbating the City’s structural revenue hardships.
Although no major regular revenue sources are projected to decrease over the FY 2023-24 adopted budget, the majority of major revenue sources are flat, or less than 1% growth compared to Fiscal Year 2023-24 adopted budget with the exception of Franchise fees and Property Tax revenue. Property tax revenue growth is anticipated over FY 2023-24 due to the increased activity in housing market sales, specifically in new construction, and the easing of mortgage loan rates. However, all other revenue sources are experiencing significantly slower revenue growth combined with a lower revenue baseline than anticipated.
Therefore, due to rising costs in expenditure categories outside of staff’s direct control and slower revenue growth compared to expenditures, an appropriation of one-time revenue opportunities identified by staff was required to balance the budget, while remaining consistent with the Council’s continuing commitment to providing high levels of service to the City’s community. These one-time revenue sources include an anticipated $1M appropriation of excess reserves within real estate partnership funds, as well as $0.3M in PASIS reserves in excess of required amounts.
In addition to the priorities of the City Council, the General Fund Reserve Policy and the Fiscal Management Policy guide the budget decision-making process. These policies include the establishment and maintenance of General Fund operating reserves as well as funding for City vehicle and equipment acquisition/replacement, facility replacement/rehabilitation, and infrastructure replacement/rehabilitation. The proposed FY 2024-25 General Fund Operating Budget includes an unassigned fund balance at a minimum of 40% of General Fund annual operating expenditures. While it is not anticipated that any additional replacement/rehabilitation funds appropriation is possible for FY 2024-25, staff has reviewed the three replacement/rehabilitation funds and anticipates that projected the current balances are sufficient to meet the existing needs, while maintaining a projected ending balance of $2.3 million. Therefore, staff is recommending no transfer to the City’s three replacement/rehabilitation funds.
The City’s proposed FY 2024-25 Operations & Maintenance Budget includes appropriations for the General Fund ($93.4 million), Special Revenue Funds ($30.3 million), Debt Service Fund ($0.4 million), Enterprise Fund ($12.8 million), and various other funds essential to city operations ($28.1 million). The Capital Improvement Program budget appropriation for FY 2024-25 totals $16.9 million and includes funding from some of the funds mentioned above.
The proposed budget also reflects budget projections for the current fiscal year. The original adopted FY 2023-24 Operations & Maintenance Budget utilized unassigned General Fund Reserves. During the year, additional expenses and revenues were identified and approved in the mid-year budget, and staff worked to further identify opportunities to minimize costs wherever possible. Due to staff efforts, as well as mid-year increases to revenue, it is anticipated that the adopted $3.8M deficit will decrease, contingent upon the final outcome for the current fiscal year, which would be balanced utilizing General Fund Reserves. The updated FY 2023-24 General Fund budget projection maintains the minimum unassigned fund balance consistent with the priorities of City Council, the General Fund Reserve Policy, and the Fiscal Management Policy.
In addition to the financial information presented in the attachments, the budget book, which will be produced and available to citizens online by July 1st, contains general department information including organizational charts and department information. The City Manager’s budget transmittal letter provides background to the budget document, overall economic factors that were considered in the development of the budget, challenges and solutions associated with developing the budgets, as well as community highlights and future planning.
Fiscal Impact
The proposed Operations & Maintenance Budget appropriation for FY 2024-25 is $165 million. The Capital Improvement Program Budget appropriation for FY 2024-25 is $16.9 million.
Attachments
1) Proposed Annual Operations & Capital Improvement Program Budget
2) Resolution - Budget
3) Resolution - Reserve Fund
Prepared by: Janet Brotherton, Senior Management Analyst
Submitted by: Donna Apar, Finance Director
Reviewed by: Donna Apar, Finance Director
Approved by: Michelle Bender, City Manager