MEETING DATE:
June 8, 2021
SUBJECT:
Title
RESOLUTION NO. 2021-8887 AND 2021-8888 - ADOPTING THE BUDGET OF THE CITY OF SAN MARCOS FOR THE FISCAL YEAR (FY) BEGINNING JULY 1, 2021 AND THE CAPITAL IMPROVEMENT PROJECTS BUDGET FOR THE FIVE YEARS ENDING 2025-26, AND 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 2021-22
Body
Recommendation
Recommendation
ADOPT the following resolutions:
1) Resolution 2021- 8887 adopting the budget of the city of San Marcos for the FY beginning July 1, 2021 and the capital improvement projects budget for the five years ending 2025-26, and appropriating money out of the treasury for budgetary purposes; and
2) Resolution 2021-8888 authorizing the appropriation and transfer of funds for the establishment of an appropriated reserve fund for future expenditures and/or contingencies for FY 2021-22.
Body
Board or Commission Action
The City Council met during a Budget Workshop on March 9 and the Budget Review Committee met on May 27 to review 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
The City’s fiscal year begins July 1st and ends on June 30th. Each year staff presents the City Council with the proposed Operations & Maintenance Budget and Capital Improvement Program Budget for the next fiscal year.
As part of the budget process, departmental supplemental budget requests are submitted for items typically associated with one-time needs or recurring programs/projects. These are included in the department’s budget submitted to the City Manager. The proposed budget includes requests approved by the City Manager for recommendation to City Council. The budget development for the proposed FY 2021-22 Operations & Maintenance Budget reflects the continued significant and negative impact to the City’s key revenue sources (sales tax, property tax, rental & investment income, and Transient Occupancy Tax) resulting from the nationally declared public emergency, COVID-19.
The proposed Operations & Maintenance Budget for FY 2021-22 and Capital Improvement Program Budget for FY 2021-22 through FY 2025-26 represent collaboration and analysis by the City Manager, Finance Director and all City departments and reflect the priorities of 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 solution to address the projected budget deficit. The proposed FY 2021-22 Operations & Maintenance Budget requires the appropriation of Reserve funds to reach a balance as a result of COVID-19 and is consistent with the Council’s continuing commitment to providing high levels of service to the City’s residents, visitors, and business community.
The proposed Operations & Maintenance Budget for FY 2021-22 budget projections for the current fiscal year. The original adopted FY 2020-21 included an anticipated operating deficit created by the COVID-19 pandemic. Updated expense and revenue projections result in a balanced budget for FY 2020-21.
Discussion
The City Manager’s budget transmittal letter highlights changes to the budget document, overall economic factors that were considered in the development of the budget, challenges associated with developing the budgets, as well as key components of the proposed General Fund budget from both a revenue and expenditure perspective. The letter includes a Capital Improvement Program Budget section which provides a high level overview of the types of projects being funded, as well as funding sources. It concludes with the City Manager’s outlook of the City’s finances.
The budget development for the proposed FY 2021-22 Operations & Maintenance Budget continues to experience the significant impact of the nationally declared public emergency, COVID-19. On February 14, 2020, San Diego County declared a local health emergency and proclaimed a local emergency regarding COVID-19, which was ratified and extended by the San Diego County Board of Directors on February 19, 2020. On March 4, 2020, Governor Gavin Newsome declared a state of emergency in the State of California due to COVID-19. On March 16, 2020, the City Manager, acting in his capacity as Director of Emergency Services, proclaimed the existence of a local emergency due to COVID-19, which was ratified by the City Council on March 20, 2020. Subsequent to the declarations above, the federal, state and county governments have issued a series of regulatory actions and guidance for how the public, including the business community, should behave and adjust their business practices to comply with the regulatory changes and implement the recommended guidance. These economic impacts, which are a direct result of the ongoing COVID-19 public health emergency, continue to negatively impact the City’s key revenue sources - sales tax, property tax, rental & investment income, and Transient Occupancy Tax.
The proposed FY 2021-22 Operations & Maintenance Budget includes normally anticipated annual increases related to Sheriff Contract Costs, Employee Benefit & Contract Costs, regular PERS cost, and normal UAL payment result in about a $3M increase over prior year. The recommended budget includes negotiated employee compensation under the approved Memorandums of Understanding for the San Marcos Classified Miscellaneous Employees’ Association, San Marcos Supervisors Employees’ Association, and San Marcos Professional Firefighters’ Association effective July 1, 2019. To ensure fairness and equity across labor divisions, unrepresented employees will be receiving a salary range structure which mirrors the negotiated increase for all non-sworn safety positions. The California minimum wage will increase from $14/hour to $15/hour on January 1, 2022. These changes are reflected in the attached Exhibit A - Classification and Compensation Schedule. Other salary and benefit impacts to the budget include scheduled merit step increases for eligible employees, and expected retirement and health cost increases.
Although major revenue sources are projected to increase over the FY 2020-21 adopted budget, the FY 2021-22 projected revenue is a major decline over pre-pandemic fiscal years. As such, staff has taken extraordinary steps to decrease expenditures to fit within revenue constraints while still maintaining appropriate service levels offered to the public. Additionally, department reorganizations and restructuring was implemented to help mitigate the budget deficit. However, a projected deficit of $2.5 million exists for FY 2021-22.
The City’s proposed Operations & Maintenance Budget for FY 2021-22 totals $141.7 million and reflects salaries based on the FY 2021-22 Classification and Compensation Schedule. The FY 2021-22 budget includes appropriations for the General Fund ($80.3 million), Special Revenue Funds ($18.2 million), Debt Service Fund ($0.4 million), Enterprise Fund ($10.5 million), and various other funds essential to city operations ($32.3 million). The Capital Improvement Program budget appropriation for FY 2021-22 totals $6.7 million and includes funding from some of the funds mentioned above.
In addition to the priorities of 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 2021-22 General Fund Operating Budget reflects the remaining $1 million balance of the loans issued for the Business Sustainability Program from the Catastrophic/Emergency Reserve to provide assistance to local businesses adversely impacted by the COVID-19 pandemic.
Additionally, Staff has reviewed the three replacement/rehabilitation funds and anticipates that combined projected starting balance of $11 million is sufficient to meet the existing needs. To help address the Fire Department’s vehicle and equipment needs, the proposed budget includes a $400K transfer from the City Infrastructure Replacement/Rehabilitation to the Vehicle and Equipment Rehabilitation/Replacement Fund.
To mitigate the continued negative impacts to the City’s major revenue sources resulting from the COVID-19 emergency, Staff is requesting an appropriation of $ 2.5 million from the Economic Contingency/Pension Stabilization Reserve to the General Fund Operating Budget and is recommending a zero transfer to the City’s three replacement/rehabilitation funds in the proposed FY 2021-22 Operations & Maintenance Budget per the Fiscal Management Policy for City Council approval.
The proposed budget also reflects budget projections for the current fiscal year. The original adopted FY 2020-21 operational budget included an anticipated operating deficit created by the COVID-19 pandemic. To mitigate the use of reserves to fill the revenue gap created by COVID-19, staff has taken significant actions such as a reduced work schedule (non-safety staff), reduction in part-time staff, hiring freeze on all vacant positions, an adjustment to expense appropriations in line with current operating restrictions, departmental re-organizations, reprogramming one-time revenue from the Sale of Fixed Asset, and an overall substantial decrease in spending. As a result of the above mitigating actions, the updated expense and revenue projections are expected to result in a balanced budget for the FY 2020-21General Fund operational budget. The proposed update to the FY 2020-21 General Fund operational budget includes the allocation of available unassigned fund balance toward the replacement/rehabilitation funds, General Plan Amendment Capital Improvement Program Project (CIP #PL001) and labor concession reimbursements, which were previously underfunded due to the negative impacts of COVID-19. The approval of this amended appropriation of the updated FY 2020-21 General Fund expense and revenue budget projections will maintain an FY 2020-21 unassigned fund balance of 40% to be 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 goals and metrics.
Fiscal Impact
The City’s proposed Operations & Maintenance Budget appropriation for FY 2021-22 is $141.7 million and the Capital Improvement Program Budget appropriation for FY 2021-22 is $6.7 million.
The proposed update to the Operations & Maintenance Budget appropriation for FY 2020-21 is $137.2 million which includes a General Fund equity transfer of $4.7 million allocated between the three replacement/rehabilitation funds per the Fiscal Management Policy and an amendment to the General Plan Amendment Capital Improvement Program Project (CIP #PL001) for a total project cost of $2,219,936 as detailed in Attachment 6.
Attachments
1) City Manager’s Budget Transmittal Letter
2) Proposed Annual Operations & Capital Budget FY 2021-22
3) Resolution 2021- 8887
4) Resolution 2021- 8888
5) Exhibit A: Classification and Compensation Schedule
6) General Plan Amendment Capital Improvement Program Project (CIP #PL001)
Prepared by: Donna Apar, Assistant Finance Director
Submitted by: Lisa Fowler, Finance Director
Reviewed by: Michelle Bender, HR/Risk Director/Deputy City Manager
Approved by: Jack Griffin, City Manager