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HomeMy WebLinkAboutItem 07a - Adoption of Operating Budget and CIP and Equipment PlansAdoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 1 of 15 DATE: June 16, 2020 TO: Honorable Mayor and City Council FROM: Dominic Lazzaretto, City Manager Hue Quach, Administrative Services Director SUBJECT: RESOLUTION NO. 7315 ADOPTING A BUDGET FOR FISCAL YEAR 2020-21 AND APPROPRIATING THE AMOUNTS SPECIFIED THEREIN AS EXPENDITURES FROM THE VARIOUS FUNDS Recommendation: Adopt RESOLUTION NO. 7316 ADOPTING A CAPITAL IMPROVEMENT AND EQUIPMENT PLAN FOR FISCAL YEARS 2020-21 THROUGH 2024-25 Recommendation: Adopt SUMMARY Sections 1204 and 1205 of the Arcadia City Charter require a public notice and a public hearing for consideration of the proposed Operating Budget and Five-Year Capital Program for the ensuing fiscal year, which is required to be adopted by July 1. The recommended actions are necessary to implement the budget for Fiscal Year 2020-21. This year’s budget process included Budget Study Sessions with the City Council on May 19 and June 2, 2020. Copies of the proposed Operating Budget were provided for the City Council’s review. Inclusive in the draft Budget were all operating funds including General, Special Revenues, Enterprise, and the Successor Agency. Additionally, the City Council received the Capital Improvement and Equipment Replacement Fund budgets in a separate document. All funds total $120.5 million in expenditures, of which the General Fund’s budget is $63.9 million (excluding Transfers Out noted below). As Special Revenues, Enterprise, and Debt Service funds are restricted to specific purposes and are generally self-sustaining, this report will primarily focus on the General Fund’s Operating Budget. The proposed FY 2020-21 General Fund Operating Budget anticipates Total Operating Revenues of $65.6 million and Operating Expenses at $63.9 million. Based on the many unknowns associated with COVID-19, staff has prepared a recommended Budget that assumes a scenario in which the general public continues to be highly impacted by social Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 2 of 15 restrictions both because of ongoing restrictions and another possible shutdown this winter. This scenario would have a significant impact on the City’s operations and ability to generate revenues. Impact to several of the City’s key General Fund revenues – Sales Tax, Transient Occupancy Tax, Fees for Services, and other revenues – have been projected. The adoption of Measure A and the significant increase in taxes it brings is what makes it possible to present a balanced Budget that does not use Reserve funds and maintains service levels in the community. While the amount projected to be received in the coming year has been reduced from pre-COVID projections, even the reduced number has the effect of buoying the organization during this economic downturn. The proposed Budget does not contain any new programs for consideration; instead, significant cuts have been made throughout all departments – but most significantly in the Library & Museum and Recreation & Community Services Departments, whose operations are most directly impacted by the ongoing restrictions from COVID-19. Due to the uncertain nature of COVID-19 and its impacts, the Budget has been put together as conservatively as possible; nevertheless, it would be appropriate for the City Council to review the document on a quarterly basis in the coming year to be able to adjust to any required changes as quickly as possible. After total revenue and expenditures are considered, the ending Operating General Fund Balance, as proposed, will reflect a balanced budget with an expected surplus of $251,700, which would add to the projected ending Operating Fund Balance of $3,216,900. A recent assessment of the City’s cash flow shows the City to be sound with liquidity and capacity to weather the anticipated economic downturn. The City continues to meet the need for setting aside an Emergency Reserve Fund, currently with a balance of $10.1 million, as well as having other reserve fund balances, such as for Workers’ Compensation costs, Liability Claims expenses, and Capital Improvement and Equipment Replacement Funds. Inclusive of the Emergency Reserve Fund balance noted above, the City’s Unrestricted Reserve Balances totals $31.4 million. FY 20-21 Budget Beginning Fund Balance: $ 2,965,200 Total Revenues 68,308,500 Total Expenditures 63,945,650 Subtotal: 4,362,850 Total Fund Transfers (4,111,100) Net Surplus / (Deficit): $251,750 Ending Fund Balance: $ 3,216,950 Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 3 of 15 The proposed Budget transfer of funds are itemized as follows: • Lighting District $ 786,300 • Local Law Enforcement $ 124,800 • Capital Improvement Fund $1,600,000 • Equipment Replacement Fund $1,600,000 Total: $4,111,100 Annually, a goal of $2.4 million is set for transfers to the Capital Improvement Fund in order to create a balance sufficient to meet annual maintenance and replacement needs. The $1.6 million proposed does not reach the goal amount for the year, but does more than offset proposed expenditures in the coming year. The Capital Improvement Fund provides most of the funding for such essential maintenance as pavement rehabilitation, building repairs, and parks maintenance. Due to COVID-19’s effect on the Budget, deferral of capital improvement projects totaling $1.2 million is recommended until further clarity is known. These projects can be delayed for a year or two without impacting the overall quality of the City’s buildings and infrastructure. Key projects that were maintained in the Capital Improvement Fund budget are the annual slurry seal program and the Arcadia Unified School Track Replacement. Total proposed projects funded by the Capital Improvement Fund will be $940,500. Citywide, the combined capital projects for all funds has been budgeted at $10.4 million. In the Equipment Replacement Fund, this year’s transfer approaches the annual goal amount. The General Fund is budgeted to transfer $1.6 million to the Fund versus the annual goal of $1.8 million. Total proposed asset replacement costs funded by the Equipment Replacement Fund will be $661,700, meaning the ending Fund balance will rise by over $900,000. The Equipment Replacement Fund provides funding for essential equipment such as computers, vehicles, and major office equipment. Similar to the Capital Improvement Fund, roughly $1.5 million in proposed expenditures have been deferred to future years, which can be accomplished without jeopardizing operations or employee safety. During the Budget Study Session of May 19, a detailed discussion ensued about the pension debt and the desire to accelerate payments to CalPERS to generate substantial long-term savings. The City Council provided direction to use $2.9 million of the City’s reserve funds for this prepayment. The City Council also directed staff to eliminate expenditures related to Law Day, which the Arcadia Chinese Association has offered to take over. This will save the City approximately $2,000 per year. These directives have been incorporated in the proposed Budget. It is recommended that the City Council adopt the proposed resolutions to enact the Fiscal Year 2020-21 Operating Budget as well as the Capital and Equipment Replacement Plans, including the $2.9 million in additional payments to CalPERS. The recommendation goes further to require staff to continue to monitor COVID-19’s impact Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 4 of 15 to the City’s fiscal position and, on at least a quarterly basis, provide updates to the City Council. BACKGROUND At the start of the Budget process in mid-February, there was a fairly optimistic mood when looking forward to the upcoming Fiscal Year. The City’s residents in June 2019 had approved Measure A, a .75% general transactions and use tax that was estimated to provide an additional revenue stream of at least $8.6 million to the General Fund. The approval of Measure A ensured that the City could continue its excellence in providing services to the residents and businesses in Arcadia. Moreover, after working diligently with the Citizens Financial Advisory Committee to develop a long range plan to reduce the City’s CalPERS pension liabilities, the coming year would have marked the first year in which the City could take that important step forward in greatly reducing that burden. In fact, the original Budget showed a projected surplus of over $3 million, including full transfers to all sinking funds, which would have been sent to CalPERS to address the City’s long-term pension liabilities. Around mid-February, the pandemic had already made its traces around the world. There were growing numbers of cases as well as deaths, and of particular concern was the speed to which those new cases were tallying worldwide. Looming was a potential health crisis; however, the economic impact and the devastating effect of it was not yet imagined. The COVID-19 pandemic caused economic disruption at unprecedented speed as it changed people’s mobility and the norms of business in all services and industries leading to closure of all types of businesses, travels, hotels, tourism, and any places where gatherings take place. The impact of COVID-19 would be felt by all state and local governments as social restrictions have had a significant impact on the various taxes and fees normally paid. Specifically, City taxes that are most affected are: Sales and Transaction Use Tax, Transient Occupancy Tax, Business License Tax, recreational class and sports fees, and various planning and building permit fees. This year’s Budget was the most difficult to compile in at least a generation due to the unprecedented fiscal and societal uncertainties related to the ongoing COVID-19 public health crisis. There simply is no comparable reference point to this contagion event. As such, the Budget has been prepared with the maximum amount of flexibility built in and an eye for being highly conservative. As we move forward, the FY 2020-21 budget year not only focuses on retaining critical and essential services, but it will also require the City to continue to address the impact of COVID-19 in the working environment and to ensure a safe workable place as we transition to opening our facilities and programs to the community. DISCUSSION It is in this context that the FY 2020-21 Budget forecasts reductions in both revenues and expenditures. However, it needs to be noted that in this year’s budget, the forecasting of Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 5 of 15 revenue, was like no other. Aside from uncertainties brought about by COVID-19, the passage of Measure A and the revenue resulting from it has camouflaged what would have been thought to be an obvious revenue decline under normal circumstances. To further explain, FY 2020-21 is the first year in which a full year of Measure A revenue would be received. This full year’s projected amount changed the bottom line and caused this “artificial” growth when simply comparing the proposed budget to the prior Fiscal Years. In addition, because the pandemic caused a significant reduction of revenues for the months of March through June 2020, FY 2019-20 will end much lower than initially projected. This further adds to the apparent growth seen when you simply compare the two years. A better way of looking at how COVID-19 has impacted the Budget is to compare the original projections that were included in the prior year’s Budget to those in this Budget. It was forecasted that General Fund revenue for FY 2020-21 would be $74.6 million versus the current projection of $68.2 million – a decrease of nearly $6.5 million. Similarly, on the expenditure side, the prior year’s budget projection anticipated expenditures of $74.6 million versus the $68.0 million that is currently proposed, illustrating $4.6 million in cuts that have been included in the proposed document. Summarized in the table below is the General Fund Operating Budget for: FY 2019-20 Year Ending Estimates, FY 2020-21 Proposed Budget for Adoption, and a FY 2021-22 Preliminary Budget Outlook. Please note that FY 2021-22 is not proposed for adoption as the City adopts its Operating Budget annually. GENERAL FUND FY19-20 FY20-21 FY21-22 Estimates Budget Budget Beginning Fund Balance 6,192,500 2,965,200 3,216,900 Estimated Revenue 59,004,400 65,627,600 70,694,500 Proposed Expenditures 64,622,800 63,881,700 69,102,700 Revenue over Expenditures (5,618,400) 1,745,900 1,591,800 Fund Transfers Transfers-In from other funds 4,698,000 2,616,900 5,132,500 Transfers-Out to other funds (2,306,900) (4,111,100) (5,127,200) Net Transfers 2,391,100 (1,494,200) 5,300 Subtotal Operating Balance (3,227,300) 251,700 1,597,100 Ending Fund Balance 2,965,200 3,216,900 4,814,000 Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 6 of 15 As shown in the table above, the City’s General Fund Ending Fund Balance will increase to $3.2 million as a result of a projected surplus of $251,700, which allows for adequate cash flows between Fiscal Years. Per City Council direction, the City also maintains an Emergency Reserve at $10.1 million. Inclusive of other designated fund balances, such as the Workers’ Compensation, General Liability Claims, Capital Improvement, and Equipment Replacement Fund, the City’s Reserve Balances totals $31.4 million as of this writing. That total reserve fund balance, through planned use, will be reduced by the end of the Fiscal Year. At the May 19 Budget Study Session, the City Council provided direction to use $2.9 million of reserve fund balances for prepayment contributions to CalPERS. FY 2020-21 Proposed Revenues FY 19-20 FY 19-20 FY 20-21 FY 21-22 Revenue Source Budget Estimated Budget Budget Taxes 41,868,400 38,332,500 44,034,500 48,810,400 License & Permits 4,590,700 4,314,500 4,556,200 4,626,200 Fines & Penalties 527,500 421,900 416,500 506,500 Use Money & Property 1,562,000 1,784,000 1,517,800 1,560,900 Revenue from Other Agencies 7,573,300 7,841,800 8,771,800 8,226,000 Charge Current Services 3,647,600 3,068,800 3,284,200 3,239,900 Library 122,400 97,900 89,400 89,400 Recreation 1,261,900 916,500 747,700 1,357,000 Other Revenue 2,296,800 2,226,500 2,209,500 2,278,200 Total Revenues Subtotal 63,450,600 59,004,400 65,627,600 70,694,500 Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 7 of 15 For FY 2020-21, total General Fund revenues are expected to increase when compared to FY 2019-20 Year End Estimated. The largest revenue source to the City’s General Fund is from Taxes. The key revenues under this group are: Property Tax, Sales Tax, Transient Occupancy Tax, Utility Users’ Tax, and Motor Vehicle License Fees. Their projected receipts are shown in the table below. Property Tax: The City expects to continue to see growth in home valuation, a benefit that can be credited to the current low interest rate environment. Although home sales and housing activities have leveled off in comparison to recent years, home sales prices are forecast to reflect higher price points. Arcadia is expected to be at or above the historical valuation trends in Los Angeles County. A 2.5% growth projection is budgeted and could be considered ultra-conservative when Arcadia has grown at over 5% annually in the past decade. Due to uncertainties associated with COVID-19, a cautious projection is used to give some leeway to respond should the budget worsen during the year. The City expects see a continued growth in property tax receipts in the range of 2.5%, or nearly $413,800, for FY 2020-21. Sales Tax: Sales tax revenue is expected to see a significant increase when comparing to the prior year’s estimated ending figure. This is due to the passage of Measure A (0.75% Transaction Use Tax) as the revenue resulting from it has disguised an expected decline in sales taxes. FY 2020-21 is the first year in which a full year of Measure A revenue is to be received. Looking at this differently to get a sense of how much our baseline sales tax is expected to decrease, the graph below shows a history of actual tax receipts going back to FY 2011-12 and comparing the historical receipts to the FY 2020-21 budgeted sales tax, excluding the value of Measure A. This comparison is ONLY on the 1% Bradley Burns portion of sales tax receipts. Description FY 2019-20 YE Estimates FY 2020-21 Proposed Budget Difference % Change Property Tax $ 15,862,000 $ 16,968,000 $ 413,800 2.5% Sales Tax $ 10,763,200 $ 16,506,400 $ 5,743,200 53.4% Transient Occupancy Tax $ 2,424,200 $ 2,035,600 $ (388,600) -16.0% Utility Users’ Tax $ 6,600,800 $ 6,638,100 $ 37,300 0.6% Motor Vehicle License Fees $ 7,773,400 $ 7,967,800 $ 194,400 2.5% Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 8 of 15 In the above graph, the blue line represents actual sales tax receipts of the 1% Bradley Burns tax the City has traditionally received. The red dotted line shows that the current forecast for FY 2020-21 is below the actual receipts of FY 2012-13, dropping to the sales tax receipt to the level it was eight years ago. From the peak in FY 2018-19, the Bradley Burns taxes in Arcadia are projected to be nearly 20% less. Sales tax in total is projected to come in at $16.5 million. Though it shows a growth by percentage and dollar when compared to the prior year data, without the pandemic, sales tax projection for FY 2020-21 would have reached $20.5 million. From this perspective, the overall sales tax projection for FY 2020-21 has shrunk by 19.5%. Transient Occupancy Tax (“TOT”): COVID-19 impacted the economy with sudden and shocking waves that led to closure of all types of business where gathering may take place. The travel and tourism industries were especially hard hit. Similar to the sales tax category, the hotel tax projection has been reduced by 41.3%, or $1.5 million when compared to the FY 2019-20 Adopted Budget, or a reduction of 16% when compared to the FY 2019-20 Year End Estimate. This is especially telling in that the Year End Estimate already includes a projected reduction of occupancy of 84% for the months of March through June 2020. An estimate of $2.0 million in TOT revenues has been used for FY 2020-21. This forecast figure includes a partial year opening of the Le Meridian hotel with an expected opening in February 2021. The revenues for this property specifically have been projected to be extremely low compared to previous estimates. Not only is occupancy expected to lag, but the average room rate for a luxury property will surely be decreased in a restricted travel environment, which is expected to continue until the pandemic is under control. Utility Users’ Tax: Utility Users’ Tax (“UUT”) is projected to have a slight increase of 0.6% when compared to the FY 2019-20 Year Ending Estimate. While water conservation is expected to continue, water rates will increase as a result of imported water costs rising and the need to add treatment and repairs to City wells. A continued reduction in the telephone UUT is predicted as landline telephone use continues to drop and cellular 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000 11,000,000 12,000,000 FY 11-12 FY 12-13 FY 13-14 FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20 FY 20-21 Bradley Burns -1% Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 9 of 15 companies provide lower cost options for consumers. Overall, the FY 2020-21 projected UUT is approximately $6.6 million, 0.6% greater than FY 2019-20. Motor Vehicle License Fees (“VLF”): This tax is projected to increase by 2.5%, to $8.0 million. Revenues from this line item are largely tied to annual property assessed valuation. Because of this, the City has benefitted from many years of generous growth and will continue to do so in the next Fiscal Year. FY 2020-21 Proposed Expenses Total operating expenditures for FY 2020-21 has been proposed at $63.9 million, a decrease of 2.2% versus FY 2019-20 Budget of $65.4 million. However, when taking into consideration inflation, pension cost increases, and the continued rise of minimum wage, projected expenditures were expected to reach $66.3 million prior to the pandemic. Through the budgeting process, departments identified reductions of $2.4 million based on operating in a COVID-19 environment. Some of these savings will include all departments holding non-critical positions vacant for an extended period. Other areas of cuts include non-essential equipment and supplies that can be deferred without affecting services as well as all training expenses that otherwise would be in place if COVID-19 did not exist. As always, the staff has identified any savings possible from reducing waste and excessive contingency funds, while ensuring that service levels to the community remain high. City Manager 2% City Clerk 1% City Attorney 1% General City 3% Administrative Services 5% Police 37% Fire 26% Public Works Services 7% Development Services 8% Recreation & Community Services 5% Library & Museum Services 6% GENERAL FUND EXPENDITURE FY20-21 Budget Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 10 of 15 Outlook and Budget Challenges At the forefront of many California government entities is the concern over escalating pension costs. Arcadia is no different. The growing liability over the past decade has translated to higher employer contributions to pension plans, which created significant budget constraints. To alleviate this, the City Council proposed an initiative, known as Measure A, asking for the community approval of a 0.75% Transaction Use Tax. The community voted to approve Measure A with a 63.8% approval rating in June 2019. The promise to the voters was that Measure A would allow the City to address the pension problem, even in times of economic downturn, while still maintaining high levels of service to the community. The proposed Budget reflects this. Steps Taken to Date In June 2019, the City Council approved a contract with Urban Futures (“UFI”) to provide pension advisory services to assist the Citizen’s Financial Advisory Committee (“Committee”) with developing recommendations to address the City’s rising pension costs and its unfunded actuarial liabilities (UAL) with the California Public Employees’ Retirement System (“CalPERS”). A Comprehensive Management Plan was developed which provides a detailed pension funding strategy with six specific recommendations. A number of those strategies have begun and their progress is as follows: 1. General Fund Revenues and Reserves: As part of the proposed strategies to consider, the Committee discussed use of Reserves or one-time monies to be used to pay down the UAL. At the May 19, 2020, Budget Study Session, the City Council provided direction to appropriate $2.9 million from reserve fund balances and make an Additional Discretionary Payment for the one-time prepayment to CalPERS. This would provide significant long-term savings as the payment would be used to pay down CalPERS’ longest and most costly liabilities amongst the City’s Public Safety and Miscellaneous Pension plans. 2. Leveraged Refunding: The Successor Agency of the City of Arcadia has two outstanding Taxable Allocation Bonds. The refunding could be structured to provide “up-front savings” in the first three years totaling $4.2 million, or $1.2 million on a net present value (NPV) basis. The City receives a 10.44% share of residual cash flows from the excess tax increment revenues, so the City’s share of these savings would be approximately $428,000. At the May 19, 2020, City Council meeting, the City Council as the Successor Agency to the Arcadia Redevelopment Agency authorized the issuance and sale of Tax Allocation Refunding Bonds. The procedure calls for the item to be approved by the Fifth District Consolidated Oversight Board, then the State Department of Finance for review. Anticipating that the bond refinancing will take place, the City would then take its share, an estimate of $428,000, and make additional prepayment to CalPERS to further reduce the UAL balance. Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 11 of 15 In a recent development, the Successor Agency finalized the sale of its remaining property, the Bekins building located at 33 W. Huntington Drive. The City will receive a share of the sales proceed, estimated to be $291,000. This amount will also be used to make prepayment to CalPERS. 3. Pension Obligation Bonds: CalPERS members are required to make fixed UAL payments each year. Therefore, the UAL payments should be considered as, and managed like, any other debt or loan. The Discount Rate used by CalPERS to amortize each base—or loan—is equal to 7%. In California, Pension Obligation Bonds effectively “refinance” UAL payments with taxable bonds at a lower rate. At this time, the rate is expected to be less than 4%, leading to substantial long-term savings. The proceeds from the POBs would be used to make Additional Discretionary Payments to CalPERS, further reducing the unfunded liability. On March 17, 2020, City Council authorized and gave direction to pursue this financing tool as a pension funding possibility. A judicial validation proceeding has been initiated; however, due to the COVID-19 pandemic, the courts have been closed until at least July 1, 2020. Once the judicial validation review process is approved, staff will proceed with the necessary steps to commence with the issuance of bonds. A key step to the process will be additional meetings with the Citizen Financial Advisory Committee to discuss and determine the appropriate issuance amount that would warrant the reasonableness of the debt. At the time of development for the Comprehensive Management Plan, a probable amount that has been discussed was a $75 million bond issuance. If the City were to issue Pension Obligation Bonds in the amount noted, adding all the other line items would provide a total funding source of $78.6 million as payment towards the UAL balance. That the total payment would provide an estimated $50.9 million in long-term cash flow savings to the City. 4. Sale of Golf Course: A recommendation of the Citizens Financial Advisory Committee was to explore the possibility of selling the 3-Par Golf Course near Live Solution / Funding Source Payment Amount Projected Savings Discretionary Payment 2,900,000$ 4,230,000 City Share of Savings From Successor Agency Bond Refunding 428,000 1,010,000 Proceeds From Sale of Bekin Building 291,000 690,000 Pension Obligation Bonds 75,000,000 45,000,000 Total: 78,619,000$ 50,930,000$ Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 12 of 15 Oak Ave. and use the proceeds as a large discretionary payment to CalPERS. Staff has been in the process of doing background work to better understand the history of the site and preparing a request for proposals from an appraiser, so that a fair sales price can be understood. In advance of that, the City recently received an unsolicited letter from a developer offering $23 million for the site, with some significant contingencies. At that price, using the same general savings factor above, the City would see approximately $44.2 million in pension savings over time. Capital Improvement and Equipment Replacement Funds Over the past several years, the City to has been able to transfer a significant amount of funds into the Capital Improvement and Equipment Replacement Funds through disciplined savings as well as transferring any excess funds at the end of each year. It is still important for the City to continue a steady deposit into these funds, which were not replenished for many years during the last economic downturn and began to be at dangerously low levels. The FY 2020-21 Budget proposes a transfer of $1.6 million from the General Fund to each of these accounts. While this is a bit smaller than the goal amounts established for these funds to make them sustaining, the amounts to be transferred this year will surpass the proposed spending in FY 2020-21. During a significant financial crisis, being able to transfer even these amounts is a luxury few cities can afford and a testament to the restraint the organization has shown as a whole to keep costs low relative to service levels. The FY 2020-21 Capital Improvement Plan proposes 28 projects totaling $10.4 million in expenditures, of which $940,500 would be paid from the Capital Improvement Fund. The Capital Improvement Fund provides the majority of funding for such essential maintenance as pavement rehabilitation, building repairs, and parks maintenance. Due to COVID-19’s effect on the budget, $1.2 million in capital improvement projects is recommended until further clarity is known. While these deferred projects are needed eventually, delaying them for a short period will not be critical and will provide some flexibility to the organization during the economic downturn. Listed are the various Capital Improvement Fund deferred projects that were initially slated for the Fiscal Year: • Pavement Rehabilitation - $500,000 • Various City Facility Improvements - $380,000 • Fire Station Kitchen Remodel - $85,000 • Replacement of HVAC Units - $60,000 • Peacock Fountain Pump Replacement - $60,000 • Library Landscaping Improvements - $25,000 • Longden Baseball Field Electric Panel - $25,000 Note that the majority of pavement rehabilitation projects are funded via grants and other special funds. The amount deferred above is only a small percentage of the total. The remaining $9.4 million of capital improvement projects come from grants, state Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 13 of 15 subventions, and local special funds such as the Prop C Transportation Fund. The table below summarizes some of the major proposed projects. FISCAL YEAR 2020-21 MAJOR CAPITAL IMPROVEMENT PROJECTS Project Description Project Budget Funding Source Annual Slurry Seal Program $600,000 Capital Improvement Annual Meter Replacement Program $250,000 Water Fund Main Basin New Well - Construction $1,800,000 Water Fund Pavement Rehabilitation Program $1,100,000 Road Maintenance & Rehabilitation Program (SB1) Sewer Main Replacement Program $900,000 Sewer Fund Water Main Replacement Program $800,000 Water Fund Chapman Well Blend Plan & Well Rehab $1,410,000 Water Fund Traffic Signal Fiber Optics Network Extensions $400,000 Transportation Impact Fund Arterial Rehabilitation Program – Baldwin Ave from Camino Real Ave to Las Tunas Dr. $1,000,000 Proposition C Fund Santa Anita Ave Corridor Traffic Signal Improvements $800,000 Transportation Impact Fund The Equipment Fund is estimated to require an annual transfer of $1.8 million on average from the General Fund. The General Fund has been budgeted to transfer $1.6 million to replenish the fund in FY 2020-21. The Equipment Replacement Fund provides funding for essential equipment such as computers, vehicles, and major office equipment. Similar to the Capital Improvement Fund, roughly $1.5 million in costs have been deferred to future years. The most significant of these deferrals includes the purchase of a fire engine; the remainder includes things such as front line police vehicles. The Equipment Plan proposes 22 different equipment purchases totaling $789,200 in expenditures, of which $661,700 would be paid for from the Equipment Replacement Fund. The table below summarizes some of the major proposed equipment purchases. Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 14 of 15 FISCAL YEAR 2020-21 MAJOR EQUIPMENT REPLACEMENT PURCHASES Equipment Replacement Description Replacement Budget Funding Source Police Dept. Radio Equipment Replacement $117,000 Equipment Replacement Public Works Tools & Equipment Replacement $47,500 Equipment Replacement/ Water Funds Police Records Mgmt & Crimemapping System Upgrades for NIBRS Compliance $76,200 Equipment Replacement Automatic License Plate Reader Replacement & Upgrades $82,000 Equipment Replacement Fire Communication & Technology Equipment Replacement Program $80,000 Equipment Replacement It is imperative that the City find a means for depositing funds into these highly essential accounts at or above the minimum required contributions in the coming years to help them approach sustainable levels. Otherwise, the City’s infrastructure will quickly fall into disrepair and the staff will not have the tools and equipment necessary to do their essential duties. The reduction in total transfers for this Fiscal Year is possible due to having achieved strong balances in the Capital and Equipment Replacement Funds. The combination of deferred expenditures and reduced transfers into these Funds will allow some flexibility during the response to the pandemic without crippling the long-term outlook for the organization. CONCLUSION The FY 2020-21 General Fund Operating Budget, as proposed, is balanced with a projected surplus of $251,750. This is based on Total Operating Revenues of $68.3 million, Operating Expenses of $63.4 million, and transfers of $4.1 million. Revenue projections have been reduced significantly and expenditures have been reduced to respond to the ongoing fiscal impacts of COVID-19 . The impact of COVID-19 has placed added budgetary pressure for the coming year and possibly longer. Making it more difficult is not having a point reference for finding solutions to deal with the current situation. COVID-19 is different than a normal economic downturn or emergency event in that it is open-ended and may have long-term impacts to the way Adoption of the Operating Budget and CIP and Equipment Plans June 16, 2020 Page 15 of 15 society works, plays, and interacts. As we move forward, FY 2020-21 will focus on reacting to surprises that are surely in store for the community. Should the economic picture worsen throughout the year, staff will propose adjustments for the City Council to consider. Paramount will be retaining essential services and creating a safe workplace as we transition toward re-opening City facilities and programs. It is recommended that the City Council adopt the proposed resolutions to enact the Fiscal Year 2020-21 Operating Budget as well as the Capital and Equipment Replacement Plans. This includes City Council’s direction to make a pre-payment of $2.9 million to CalPERS, reducing the City’s pension liability and providing significant long-term savings. The recommendation goes further to include post budget adoption activities, wherein staff will, on at least a quarterly basis, provide financial and budgetary updates to the City Council in the event that further actions are necessary to maintain a balanced budget. Though there will be many uncertainties that will be presented over the next Fiscal Year, by implementing this Budget, the City’s staff will maintain its commitment to providing the Arcadia community with unsurpassed service in a fiscally responsible manner. Attached to this staff report are the following: • Exhibit “A”: a summary of Sources and Uses of Funds for All Funds reflecting the proposed Operating Budget presented to Council for adoption • Exhibit “B”: a summary of the proposed Five-year Capital Improvement and Equipment Replacement Plan RECOMMENDATION It is recommended that the City Council: 1) Adopt Resolution No. 7315 adopting a Budget for Fiscal Year 2020-21 and appropriating the amounts specified therein as expenditures from the Funds; and 2) Adopt Resolution No. 7316 adopting a Capital Improvement and Equipment Plan for the Fiscal Years 2020-21 through 2024-25. Attachments: Exhibit “A” – All Funds Operating Budget Summary Exhibit “B” – Five-Year Summary of Capital and Equipment Plan Resolution No. 7315 Resolution No. 7316 EXHIBIT A Ending Fund Fund Beginning Outside Transfer Total Appropriation Transfer Total Balance Fund FY20-21 Sources In Out FY20-21 General Fund 2,965,200 65,627,600 2,616,900 71,209,700 63,881,700 4,111,100 67,992,800 3,216,900 Narcotic Seizure Federal 102,200 94,900 0 197,100 0 0 0 197,100 COPS 263,100 168,600 0 431,700 167,700 0 167,700 264,000 Local Law Enforcement 0 100,000 124,600 224,600 224,600 0 224,600 0 Medical/Dental 364,400 0 4,704,700 5,069,100 4,703,200 1,500 4,704,700 364,400 IRS Task Force 460,500 3,500 0 464,000 0 0 0 464,000 Worker Compensation/Liability 3,921,300 29,400 2,511,400 6,462,100 2,548,600 0 2,548,600 3,913,500 Homeland Security 0 13,000 0 13,000 10,000 0 10,000 3,000 Homeless Plan 0 38,000 0 38,000 38,000 0 38,000 0 Office of Traffic Safety Grant 0 73,800 0 73,800 73,800 0 73,800 0 California OES HSGP 0 120,000 0 120,000 120,000 0 120,000 0 Misc. P.E.R.S. Employee Retirement Fund 1,351,600 1,499,900 0 2,851,500 2,851,500 0 2,851,500 0 Emergency Reserve 10,097,000 0 0 10,097,000 0 50,000 50,000 10,047,000 Emergency Response 0 0 50,000 50,000 50,000 0 50,000 0 Parks & Recreation 6,304,100 797,300 0 7,101,400 100,000 31,300 131,300 6,970,100 Traffic Safety 0 220,000 0 220,000 0 220,000 220,000 0 Public, Educational/Governmental Access 854,600 91,400 0 946,000 25,000 0 25,000 921,000 Used Oil Grant 10,800 15,600 0 26,400 15,500 0 15,500 10,900 DOC Beverage Grant 36,300 14,800 0 51,100 14,500 0 14,500 36,600 Solid Waste 1,803,100 682,500 0 2,485,600 442,000 300,000 742,000 1,743,600 Measure W ‐ Safe Clean Water Program 420,000 1,023,200 0 1,443,200 300,000 0 300,000 1,143,200 State Gas Tax (180,900) 1,383,000 0 1,202,100 0 1,435,200 1,435,200 (233,100) Road Maintenance/Rehabilitation Act 69,800 1,014,100 0 1,083,900 1,100,000 0 1,100,000 (16,100) Air Quality Management District 18,600 74,400 0 93,000 22,300 0 22,300 70,700 Community Development Block Grant 0 326,100 0 326,100 326,100 0 326,100 0 Santa Anita Grade Separation 1,629,700 12,200 0 1,641,900 0 0 0 1,641,900 Transit 0 1,146,000 1,448,000 2,594,000 2,594,000 0 2,594,000 0 Proposition A 1,169,300 1,256,800 0 2,426,100 120,700 868,800 989,500 1,436,600 Transportation Impact Fund 358,800 862,700 0 1,221,500 1,300,000 0 1,300,000 (78,500) Proposition C 617,200 1,033,600 0 1,650,800 1,103,700 0 1,103,700 547,100 TDA Article 3 Bikeway 54,100 104,100 0 158,200 50,000 0 50,000 108,200 STPL & ITS Special Fund 0 0 0 0 0 0 0 0 Measure R 470,200 775,500 0 1,245,700 69,400 579,200 648,600 597,100 Measure M 428,800 1,029,900 0 1,458,700 255,000 0 255,000 1,203,700 Capital Improvement 5,710,300 267,800 1,600,000 7,578,100 1,053,800 0 1,053,800 6,524,300 City Hall Reserve 1,500,000 0 0 1,500,000 1,499,900 0 1,499,900 100 Lighting Maintenance 268,500 491,900 786,300 1,546,700 1,278,200 0 1,278,200 268,500 Water Fund 12,680,400 14,816,200 0 27,496,600 19,592,100 0 19,592,100 7,904,500 Sewer Fund 1,940,800 2,455,100 0 4,395,900 2,522,900 0 2,522,900 1,873,000 Equipment Replacement 5,474,300 51,100 1,600,000 7,125,400 661,700 31,600 693,300 6,432,100 Redevelopment Successor Agency 0 2,703,700 0 2,703,700 2,703,700 0 2,703,700 0 General Obligation Bond 2012 363,500 420,100 0 783,600 420,100 0 420,100 363,500 General Obligation Bond 2011 486,350 596,600 0 1,082,950 596,600 0 596,600 486,350    Total 62,013,950 101,434,400 15,441,900 178,890,250 112,836,300 7,628,700 120,465,000 58,425,250 CITY OF ARCADIA SUMMARY BY FUND FISCAL YEAR 2020-2021 PROPOSED BUDGET SOURCES OF FUNDS USES OF FUNDS EXHIBIT B ESTIMATED ESTIMATED PROPOSED ESTIMATED FUNDS FIVE-YEAR FIVE-YEAR FUNDS 7/1/2020 REVENUE EXPENDITURE 6/30/2025 CAPITAL OUTLAY FUND 5,710,300 12,855,900 (10,748,500) 7,817,700 PARK AND RECREATION FUND 6,304,100 4,132,400 (5,349,900) 5,086,600 MEASURE W CLEAN, SAFE WATER PROGRAM 420,000 5,115,700 (5,250,000) 285,700 GAS TAX (HUTA) FUND (180,900) 7,257,000 (7,309,600) (233,500) ROAD MAINTENANCE AND REHABILITATION PROGRAM 44,000 5,432,000 (4,600,000) 876,000 AQMD 18,600 376,000 (111,500) 283,100 PROP C LOCAL RETURN 617,200 5,173,300 (4,741,800) 1,048,700 TRANSPORTATION IMPACT FUND 358,800 2,069,900 (1,700,000) 728,700 MEASURE R LOCAL RETURN 470,200 3,886,800 (3,352,900) 1,004,100 MEASURE M LOCAL RETURN 428,800 6,162,900 (5,375,000) 1,216,700 WATER FACILITY RESERVE 13,142,400 289,700 (10,830,000) 2,602,100 WATER EQUIPMENT RESERVE 219,500 3,300 (1,039,000) (816,200) SEWER FUND 1,940,800 12,978,700 (13,090,400) 1,829,100 EQUIPMENT FUND 5,474,300 9,055,200 (10,342,400) 4,187,100 CITY OF ARCADIA SUMMARY OF PROPOSED FIVE YEAR CAPITAL PROGRAMS FISCAL YEAR 2020-21 THROUGH 2024-25