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HomeMy WebLinkAboutItem 09a - Adopting Operating Budget and CIP and Equipment PlansAdoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 1 of 16 DATE: June 7, 2022 TO: Honorable Mayor and City Council FROM: Dominic Lazzaretto, City Manager Hue Quach, Administrative Services Director SUBJECT: RESOLUTIONS RELATING TO THE ADOPTION OF THE FISCAL YEAR 2022-23 OPERATING BUDGET AND THE FISCAL YEARS 2022-23 THROUGH 2026-27 CAPITAL IMPROVEMENT AND EQUIPMENT PLAN. RESOLUTION NO. 7443 ADOPTING A BUDGET FOR FISCAL YEAR 2022-23 AND APPROPRIATING THE AMOUNTS SPECIFIED THEREIN AS EXPENDITURES FROM THE FUNDS Recommendation: Adopt RESOLUTION NO. 7444 ADOPTING A CAPITAL IMPROVEMENT AND EQUIPMENT PLAN FOR FISCAL YEARS 2022-23 THROUGH 2026-27 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 2022-23. This year’s budget process included one Budget Study Session with the City Council on May 3, 2022. 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 $146.7 million in expenditures, of which the General Fund’s budget is $77.9 million (including 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. Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 2 of 16 The proposed Fiscal Year 2022-23 Operating Budget forecasts a return to the pre- pandemic period with hints of concern for inflation, supply chain issues, and continuing COVID conditions. While the latest economic indicators are signaling a recession, there are no clear predictors to offer certainty as to when a recession will happen. The key categories that would be at risk, should a recession occur, are sales tax, transient occupancy tax, and business license fees. However, recent actual economic data shows continuing strength and growth. For example, a low unemployment rate, stronger retail spending, and higher percentages of personal savings would suggest that an economic slowdown is not imminent. This leads to the view that consumers will be able to endure inflation and other current macroeconomic concerns. Projected for the near term, inflation would initially generate higher tax receipts since purchasing has not slowed. The outlook for Fiscal Year 2022-23 is hopeful; however, caution is recommended for Fiscal Year 2023-24 and beyond, since sustained inflationary impacts could eventually cause recessive behaviors in the marketplace. The proposed Fiscal Year 2022-23 General Fund Operating Budget anticipates Total Operating Revenues of $74.4 million and Expenditures of $72.1 million. Collectively, the net of revenue to expenditures, inclusive of all Fund Transfers In and Out, is projected to provide a surplus of $2.5 million at the end of the Fiscal Year. After total revenue and expenditures are considered, the ending Fund Balance of the Operating General Fund is expected to increase to $14,748,500. The projected General Fund Operating Fund Balance would maintain a certain balance to provide cash flow needs of daily operations during the Fiscal Year; however, it is also suitable to make a transfer to the Emergency Reserve Fund balance to bring it to the 20% goal level established in the City’s Financial Policies. Currently, it has a balance of $12.8 million. The Emergency Reserve Fund is suggested to hold a sum equaling 20% of the annual operating expenditure, which would be equivalent to $14.5 million based on the current proposed Fiscal Year 2022-23 Operating Budget. Currently, all combined unrestricted fund balances: General Fund Operating, Emergency Reserve, Capital Improvement, and Equipment Replacement totals approximately $38.8 million. Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 3 of 16 The General Fund Operating Budget is summarized in the table below: Fiscal Year 2022-23 General Fund Budget Summary FY 22-23 Budget Beginning Fund Balance 12,297,400$ Estimated Revenues 74,428,400 Transfers In 5,898,400 Expenses & Uses (71,689,000) New Programs (409,500) Revenue over Expenses 8,228,300$ Transfer to Equipment Replacement (2,400,000) Transfer to Capital Improvement Fund (2,400,000) Transfer to Local Law Enforcement Prgm (116,700) Transfer to Lighting Assessment District (810,500) Total Transfer Out (5,727,200) Subtotal Operating Balance 2,501,100 Ending Fund Balance 14,798,500$ The proposed Budget transfer of funds are itemized as follows: • Lighting District $ 810,500 • Local Law Enforcement $ 116,700 • Capital Improvement Fund $2,400,000 • Equipment Replacement Fund $2,400,000 Total: $5,727,200 Annually, a goal of $2.4 million is set for transfers to the Capital Improvement Fund to create a balance sufficient to meet annual maintenance and replacement needs. The Capital Improvement Fund provides most of the funding for essential maintenance such as pavement rehabilitation, building repairs, and parks maintenance. Some of the key projects in the coming Fiscal Year budgeted in the Capital Improvement Fund are the Compressed Natural Gas Fuel Station at the Public Works Service Yard, Pavement Rehabilitation Program, Bonita Park Concession Building, and the Baseball Field Bleachers at various locations. Total proposed projects funded by the Capital Improvement Fund will be $3.4 million. Citywide, the combined capital projects for all funds have been budgeted at $16.5 million. In the Equipment Replacement Fund, this year’s transfer has been set at $2.4 million, meeting the set goal amount to provide sufficient funding for future annual equipment replacements. The Equipment Replacement Fund provides funding for essential Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 4 of 16 equipment such as computers, vehicles, and major office equipment. Total proposed asset replacement costs funded by the Equipment Replacement Fund will be $4.7 million. One significant item proposed for Fiscal Year 2022-23 is the replacement of the Fire Department’s breathing equipment, which is scheduled to reach their expected 15-year useful life next year. The cost for the replacement has been budgeted at approximately $1.15 million. Added to the City’s overall Operating Budget this year are new programs totaling $409,500 proposed in the General Fund. These new programs and expenditures are anticipated from various departments to respond to emerging operational needs or to further improve services. Additionally, to continue with the City’s adopted pension strategy, the proposed Fiscal Year 2022-23 budget includes a line item for advance payment of long-term liabilities, such as the Unfunded Accrual Liabilities (“UAL”) of CalPERS. A line item of $1.0 million has been budgeted for the advance discretionary prepayment to CalPERS. Should this line item become unnecessary, as an example, because the pension funding ratio is at or above a 90% level, this budget line item will be reviewed for consideration of other means to reduce long-term liabilities. For example, by creating a Section 115 Pension Trust account, a tool for investing and saving for future pension related costs. Alternatively, use the budget line item to contribute to the existing retiree medical trust fund. This idea continues the City Council’s directives to further reduce pension debt via accelerated payments to CalPERS or creating a financial tool, with the goal of generating substantial long-term savings. It is recommended that the City Council adopt the proposed Resolutions to enact the Fiscal Year 2022-23 Operating Budget as well as the Five-Year Capital and Equipment Replacement Plans. DISCUSSION At the start of the current year’s budget process in mid-February, the general mood for the short-term financial position was generally optimistic. Specifically, reports of cases and deaths due to COVID-19 were down significantly and restrictions were lifted, which helped the economy to come back to life. It is in this context that the proposed Fiscal Year 2022-23 budget has been developed. The expectation is that receipts of taxes, fees, and other revenue sources will be better than the current Fiscal Year and will move to a recovery level, equal to or greater than the pre-pandemic period. One key element from the revenue trajectory is Measure A, a 0.75% Transaction and Use Tax (Sales Tax) that was passed overwhelmingly by Arcadia voters in June 2019. This revenue stream has been critical in keeping afloat the City’s budget by adding $5-$6 million per year during the COVID period. Without this voter approved measure, the City would have had to initiate service cuts and/or review other means to bring about an annual balance budget. In the coming year, Measure A revenues are expected to exceed the annual projections that were provided at the time of adoption. Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 5 of 16 Summarized in the table below is the General Fund Operating Budget for: Fiscal Year 2021-22 Year Ending Estimates, Fiscal Year 2022-23 Proposed Budget for Adoption, and a Fiscal Year 2023-24 Preliminary Budget Outlook. Please note that Fiscal Year 2023- 24 is not proposed for adoption at this time and is merely presented as a forecasting tool, since the City adopts its Operating Budget annually. General Fund Activity FY 21-22 FY 22-23 FY 23-24 Estimates Budget Budget Beginning Fund Balance 8,448,700$ 12,297,400$ 14,748,500$ Estimated Revenues 72,277,300$ 74,428,400$ 73,800,900$ Transfers In 4,722,600 5,898,400 4,387,200 Expenses & Uses (68,351,200)(73,075,700)(74,246,900) Revenue over Expenses 8,648,700$ 7,251,100$ 3,941,200$ Transfer to Equipment Replacement Fund (2,400,000)(2,400,000)(2,400,000) Transfer to Capital Improvement Fund (2,400,000)(2,400,000)(2,400,000) Subtotal Operating Balance 3,848,700 2,451,100 (858,800) Ending Fund Balance 12,297,400$ 14,748,500$ 13,889,700$ As shown in the table above, the City’s General Fund Operating Ending Fund Balance will increase to $14.7 million because of projected surpluses of $3.85 million in Fiscal Year 2021-22 and $2.5 million in Fiscal Year 2022-23. Assuming that occurs, a portion of the Operating Fund Balance will be transferred into the City’s Emergency Reserve to reach the City’s adopted Reserve Policy level equivalent to 20% of annual operating expenditures. Currently, that Emergency Reserve balance is at $12.8 million. Given the annual operating expenditures proposed in the budget, $14.5 million should be held in the City’s Emergency Reserve Fund; therefore, a transfer of $1.7 million is expected from the Operating Fund Balance at the conclusion of the Fiscal Year. Inclusive of other designated fund balances, such as the Self Insurance Medical Fund, Capital Improvement and Equipment Replacement Fund, the City’s Reserve balances total $43.3 million as of this writing. Fiscal Year 2022-23 Proposed Revenues For Fiscal Year 2022-23, total General Fund revenues are expected to increase 2.98% when compared to Fiscal Year 2021-22 Year End Estimates. Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 6 of 16 General Fund Revenue Projections FY 21-22 FY 22-23 Estimates Budget $% Taxes 49,766,800$ 51,191,700$ 1,424,900$ 2.86% License & Permits 5,060,400 5,488,000 427,600 8.45% Fines & Penalties 417,000 413,500 (3,500)-0.84% Use Money & Property 1,455,900 1,451,300 (4,600)-0.32% Revenue from Other Agencies 8,357,900 8,667,700 309,800 3.71% Charge Current Services 3,859,700 3,471,400 (388,300)-10.06% Library 81,300 84,700 3,400 4.18% Recreation 1,088,800 1,325,100 236,300 21.70% Other Revenue 2,189,500 2,335,000 145,500 6.65% Total Revenue 72,277,300$ 74,428,400$ 2,151,100$ 2.98% Changes 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. General Fund Tax Revenue Projections Description FY 2021-22 YE Estimates FY 2022-23 Proposed Budget Difference % Change Property Tax 18,038,400$ 18,694,800$ 656,400$ 3.64% Sales Tax 18,899,000 19,277,000 378,000 2.00% Transient Occupancy Tax 3,304,900 3,503,200 198,300 6.00% Utility Users ’ Tax 7,360,000 7,433,600 73,600 1.00% Motor Vehicle License Fees 8,292,900 8,607,700 314,800 3.80% Property Tax: The City expects to see continued growth in home valuation, a benefit that can be credited to Arcadia being a desirable community with a top ranked public school district. Home sales and development activities for high market value areas, such as Arcadia, have leveled off in comparison to recent years; however, values are holding and sales continue to be fast-paced. Home sales prices are forecasted to reflect higher price points in California due scarcity of supply at all price points. However, due to recent rise in interest rates and other uncertainties that may lead to slowing home sales activities, a cautious projection is used to give some latitude to respond should the budget reflect a downward trend during the year. The City expects see a continued growth in Property Tax receipts in the range of 3.6%, or nearly $656,400, for Fiscal Year 2022-23. Sales and Transaction Use Tax: Recent economic data may suggest signs of a slowing economy and possibly a recession. It should be noted that there is no predictor to offer when a recession will happen with a high degree of certainty. There is a sense that Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 7 of 16 inflation is expected to ease as supply chain issues and demands will find its balance by the end of 2022. Some signs have already suggested that inflation has reached its peak. Unemployment nationwide is still low, sturdy strength of retail spending continues, and a recent survey showing higher percentages of savings combined with stronger personal balance sheet give an indication that the consumer will be able to endure the existing economic concerns. This perspective suggests that a recession is much further away than what some analysts have been predicting. In addition, it should be noted that when economic downturns happen, City revenue shifts lag behind the general economy, which gives the City time to react to any changes that may be coming. It is predicted that inflation would initially generate higher sales tax level due to higher cost for all things. Sales and Transaction Use Tax in total is projected to come in at $19.3 million, a 2.0% increase versus the prior Fiscal Year. The projection is a conservative estimate as it has factored in the potential for a slower economy just before the end of Fiscal Year 2022-23. The future forecast in Fiscal Year 2023-24 does anticipate additional slowing in this area in case a recession does hit during the next calendar year. Transient Occupancy Tax (“TOT”): The projection for this category in Fiscal Year 2022- 23 is for a 6.0% increase when compared to the prior year, representing expected revenue of $3.5 million versus the prior year’s ending estimate of $3.3 million. Although the year-to-year comparison can seem optimistic, it is supported by data showing that travel and tourism industry have rebounded, set up by the pent-up demands caused by COVID. These signs include greater air traffic, airlines adding more flights, rental car shortages, and the City’s transient occupancy tax receipts showing higher local hotel occupancy levels. The projection of the 6.0% increase in TOT revenue is conservative given the entrance of a new luxury hotel, Le Meridian, and the expected recovery in travel and tourism generally. Utility Users’ Tax: Utility Users’ Tax (“UUT”) is projected to generate $7.4 million, or a 1.0% increase in comparison to the Fiscal Year 2021-22 Year Ending Estimate. Fundamentally, demand for water, electricity, and gas is expected to increase with billings expected to rise naturally with inflationary elements. While water conservation is expected to continue, water rates will increase because of rising imported water costs, treatment and filtration costs, and ongoing repairs of City wells, which will offset any potential decreases in this area. Motor Vehicle License Fees (“VLF”): This tax is projected to increase by 3.8%, to $8.6 million. Revenues from this line item are largely tied to annual property assessed valuation. However, in recent years, the pandemic has driven greater demand for autos, causing extraordinarily high prices for new and used vehicles. Because of those contributing factors, the City will continue to benefit from growth in VLF in the next Fiscal Year. Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 8 of 16 Fiscal Year 2022-23 Proposed Expenses Total operating expenditures for Fiscal Year 2022-23 have been proposed at $71.7 million, an increase of 2.7% versus Fiscal Year 2021-22 Budget of $69.8 million. No significant changes have been added to the Fiscal Year 2022-23 Operating Budget other than contractual increases from multi-year service agreements and the second of a three- year labor agreement. While some natural inflationary increases have been included and new services have been added to meet community demands as we begin “normalizing” after the pandemic, staff has carefully controlled costs in most areas so that the increases are negligible and have no material effects to the overall operating expenditures. The Budget also includes transfers of annual set goal amounts of $2.4 million each to the Capital and Equipment Replacement Funds in order to ensure that funding is available in the future for significant expenditures in those categories, which are described in greater detail later in this report. Fiscal Year 2022-23 Expenditures by Department As shown in the table above, the City continues to place its highest priorities on public safety, with Police and Fire expenditures totaling 60% of overall General Fund Expenditures. City Manager $2,587,100 4% Admin Svrcs $4,068,700 6%Police $24,581,400 34% Fire $18,611,200 26%Public Works $4,609,600 6% Dev. Svcs $5,301,000 7% Recreation $3,436,300 5% Library & Museum $4,555,500 6% General City $3,938,200 6% Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 9 of 16 Proposed New Programs New programs and expenditures are anticipated from various departments to respond to emerging operational needs, as well as to respond to direction received at the City Council Study Session and City Council meetings. New programs proposed for the Fiscal Year 2022-23 total $409,500. These programs include the following: Fire Department: Fire Training Captain ($97,200): Assign one Fire Captain to a 40-hour schedule to assist the Arcadia Fire Department's (“AFD”) Training Program. Due to vacancies in the Firefighter and Fire Engineer ranks, AFD will have numerous probationary members during Fiscal Year 2022-23. The 40-hour Fire Training Captain will allow for consistent training and evaluation of newly-hired and promoted members. This position will also assist in scheduling in-service training and administering three multi-company training sessions for each 24-hour work shift. This is a temporary Program with an expected duration of five months. The effectiveness of the Program will be evaluated at the three and five-month period. Fire Prevention Specialist ($5,600): This will be a two-year phased in program to augment current Fire Department staffing. Since 2004, the City has seen an unprecedented level of activity in development and construction. Due to this increase, the Fire Prevention Bureau has seen its scope of services evolve throughout the years. This evolution has presented challenges for the Bureau to maintain acceptable levels of service, especially in light of more complex Fire Codes and an increasing variety of risks facing the community. The Fire Department will address the new challenges caused by development by renaming the Fire Prevention Bureau to Community Risk Reduction (CRR). This renamed division will be tasked with implementing proactive measures that will reduce the community’s risks, with will be identified by an internally performed Community Risk Assessment. Natural hazards, emergency preparedness, hazardous materials, and quality of life issues will be addressed by the assessment. To maintain adequate service levels and achieve this expanded mission, CRR will need to augment its current staffing. This will be achieved in two phases over Fiscal Year 2022- 23 and 2023-24. In Fiscal Year 2022-23, a new promotional position will be created. This new position will aid in supervisory responsibilities, staff development, and succession planning. This new position will be titled Senior Fire Prevention Specialist. In Fiscal Year 2023-24, the vacated full-time Fire Prevention Specialist position will also be filled. Medical Director ($32,000): A Medical Director for the Arcadia Fire Department is critical for a successful Emergency Medical Services (“EMS”) program. The Los Angeles County Department of Health Services Policy Number 411 recommends and will soon require a Medical Director as part of a participating EMS agency such as the Arcadia Fire Department. Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 10 of 16 In addition to enhancing its emergency medical services to the City, there are several benefits in hiring a full-time Medical Director for the AFD, which includes: providing continuing education requirements to AFD's Emergency Medical Technicians (“EMT”) and Paramedics; with a Medical Director's approval, AFD will have the opportunity to sign up for various medical trial programs, where the Los Angeles Department of Health Services is at the forefront; and it will also make it easier for AFD's Paramedics to transition from Fireline EMT's to Fireline Paramedics, who could perform more complex lifesaving procedures with the direct oversight of a Medical Director in the AFD's narcotics program. While the Medical Director will be available to the City “full-time”, it will be achieved through contracting with a local medical professional, who will provide the service to the community as part of their other activities. Development Services Department: Document Scanning and Electronic Retention Project ($30,000): For many years, Development Services Department has retained paper copies of files and projects. The City is required to retain all commercial and multi-family plans and, over time, these files have filled our basement and storage areas. These documents are difficult to locate and access, sustain damage over time, and can be extremely time intensive to access and copy when needed. The City has a system to scan current building permits and plans, but a very large backlog of older plans and documents exists for documents needing to be scanned into a searchable index. This would be the beginning of a multi-year project to establish a cloud-based document storage system (likely Laserfiche) with an easy-to- understand index and scanning protocol for these historic records before they deteriorate any further. Inclusionary Housing/Economic Feasibility Study ($95,000): As part of the Housing Element Update efforts, the City will be required to adopt a policy or ordinance to mandate affordable housing units as part of any new multi-unit housing project. Preparing such a policy or ordinance requires significant technical analysis, including an economic evaluation of regional housing trends, the cost to produce affordable housing vs. market rate housing, the existing demand for affordable and market rate housing, and the current housing options available. The study will include examining current market conditions, completing an economic feasibility study, and making recommendations prior to developing the ordinance. Additionally, the consultants would conduct an initial environmental review of the project, determine the appropriate environmental process per CEQA, and prepare the environmental analysis. This project would be a collaborative effort between the Planning Division and the consultants. However, due to the complexity of the requirements, professional experience is needed. Staff impact would be minimal and focused on guiding and monitoring the work of a consultant. Library & Museum Services Department: Full time Museum Coordinator ($19,300): This is a request for a classification change for the existing Museum Education Coordinator position from 30 hours per week to 40 Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 11 of 16 hours per week. The Museum Education Coordinator's workload has increased as this position has continued to engage with the schools, volunteers, and the community, even under pandemic conditions. With the expansion of duties, an increase in hours is warranted in order to remain effective and meet the desires of the community. Public Works Services Department: Building Maintenance Technician ($93,000): Facility maintenance is imperative to ensure the safety of both City employees and residents. It is evident that proper and regular maintenance can save money and avoid having to contract out for work. The Public Works Services Department currently has one Building Maintenance Crew Supervisor and one Building Maintenance Technician to oversee maintenance of dozens of City buildings and facilities. With buildings aging and many major renovations done over 20 years ago at this point, there are times when the crew cannot respond as quickly as needed to service requests. In addition, with an increasingly competitive labor market, contracting out for the minor, routine maintenance work is becoming prohibitively expensive or nearly impossible, with contractors focusing on larger and more lucrative jobs. Adding another Building Maintenance Technician would be more cost-effective than contracting and would allow for a quicker response to work orders. Consistency and an ability for regular upkeep of building maintenance would also mitigate unpredictable repairs. Recreation & Community Services Department: Office Assistant ($37,400): The Recreation & Community Services Department is requesting to add 1.0 full-time equivalent for an Office Assistant position for the department. This position will work half of the day at the Community Center and half the day at the Recreation Office to support the front desks during the busiest times of the day and will assist with answering phones, registering for classes and programs, and miscellaneous clerical duties. This new full-time position will be created by adding additional hours from the currently budgeted part-time recreation leader position. The current budget for the part-time position, inclusive of benefits, is approximately $46,400. To transition to a full-time position, an additional budget appropriation of $37,400 is needed. Capital Improvement and Equipment Replacement Funds Over the past several years, the City to has been able to transfer a sizeable 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 had previously reached dangerously low levels due to a lack of regular deposits into these funds. The Fiscal Year 2022-23 Budget proposes a transfer of $4.8 million from the General Fund, $2.4 million to Capital Improvement and $2.4 million to Equipment Replacement to establish a sustaining fund balance for future purchases and projects. The $2.4 million deposit into these funds is the recommended annual minimum deposit Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 12 of 16 in these funds to maintain sufficient balances over time based on 10-year historical spending patterns and known expenditures in the coming years. Capital Improvement Fund: The Fiscal Year 2022-23 Capital Improvement Plan proposes 45 projects totaling $16.5 million in expenditures, of which $3.4 million would be paid from the Capital Improvement Fund. The Capital Improvement Fund provides most of the funding for such essential maintenance activities such as pavement rehabilitation, building repairs, and parks maintenance. The table below summarizes some of the major proposed projects planned for the year. Fiscal Year 2022-23 MAJOR CAPITAL IMPROVEMENT PROJECTS Project Description Project Budget Funding Source Annual Slurry Seal Program $800,000 Capital Improvement Fund Advanced Metering Infrastructure (AMI)/ Meter Replacement Program $800,000 ARPA Fund Bonita Park Concession Building Improvement Project $710,000 Park & Recreation Facilities Fund Community Center Facility Improvements $325,000 Capital Improvement Fund Pavement Rehabilitation Program $2,050,000 Capital Improvement & RMRP (SB1) - $1.2Mil Measure W - $150k Sewer Main Replacement Program $750,000 Sewer Fund Water Main Replacement Program $400,000 ARPA Fund Compressed Natural Gas Fueling Station $2,000,000 Measure M - $400k FTA Sec. 5307 - $1.6 mil Baseball Field Bleacher Project $950,000 Capital Improvement Fund $430k Park & Rec Fund $520k Arterial Pavement Rehabilitation: 1st & 2nd Aves from Huntington Dr. to Duarte Rd. $2,000,000 Prop C $300k & Prop C Grant $1.7 mil Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 13 of 16 Equipment Replacement Fund: The Equipment Replacement Fund was originally estimated to require an annual transfer of $1.8 million on average from the General Fund to ensure sustainability. However, with yearly rising costs from inflation and new equipment demands in the areas of technology investments specifically, a yearly transfer of $2.4 million would now be the appropriate number to deposit annually to meet future year needs. The Equipment Replacement Fund provides funding for essential equipment such as computers, vehicles, and major office equipment. New proposals for this year include a larger than usual number of vehicle replacements, including heavy duty vehicles from Public Works, Fire, and Police Departments. The City has a practice of extending the life of vehicles past their typical commercial vehicle life expectancy. Mileage and annual maintenance cost are weighed against their benefit as determinant factors for their replacement. This year, more vehicles are budgeted for replacement due to COVID related manufacturing back-logs. This is because many vehicles currently have up to a 12 month waiting period. Specifically, Police Patrol vehicles and other sedans with long wait times will be pre-ordered in anticipation of the delay so that the vehicles are available when they are needed. Public Works will need to replace a heavy-duty valve truck in the Water Division and a Sewer CCTV Truck will be purchased to transition from contracting for an annual CCTV video service to being able to do it in-house. Having a CCTV camera vehicle will eliminate the need for an annual contract of $50,000 for CCTV services, as well as the Engineering staff time required to generate, advertise, execute, and coordinate the CCTV contract – time that can then be spent on other projects. City field staff will eliminate up to 160 hours of time spent annually on traffic control and inspection services, which are requested by the CCTV contractor while performing video services. Most importantly, it will allow staff to respond immediately when issues are found during regular cleaning by videoing the sewer line of concern. In total, the Equipment Replacement Fund proposes 37 different equipment purchases totaling $4.7 million, of which $3.9 million is funded by 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 7, 2022 Page 14 of 16 Fiscal Year 2022-23 MAJOR EQUIPMENT REPLACEMENT PURCHASES Equipment Replacement Description Replacement Budget Funding Source Enterprise Resource Planning (ERP) Financial Software $500,000 Equipment Replacement Vehicle Replacement / Water/Sewer: Valve Truck, Sewer CCTV Truck, & Sedans (2) $616,000 Water & Sewer Funds Vehicle Replacement/Police: Patrol Vehicles (6); Communication & Lighting Equipment $408,000 Equipment Replacement Vehicle Replacement/Fire: Rescue Ambulance w/Communication & Lighting Equipment $385,000 Equipment Replacement Fire Dept. - Communication & Technology Equipment Replacement $80,000 Equipment Replacement Fire Dept. – Replacement of all Self-Contained Breathing Apparatus (SCBA) & Annual Maintenance Program $1,148,800 Equipment Replacement Library - Complete Facility Furniture Replacement: Study Carrels; Tables & Chairs; $227,700 Equipment Replacement It is imperative that the City find a means for depositing funds into these 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. ECONOMIC OUTLOOK The General Fund Fiscal Year 2022-23 Operating Budget outlook presents a cautious recovery from the economic damages suffered during the COVID-19 pandemic. Through Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 15 of 16 strong management with fiscal restraint practices, and thankfully, the passage of a Transaction Use Tax in 2019, the City has weathered significant reductions of major tax revenues and business-related fees. Collectively, those pieces have placed the City in a position to project a strong surplus for Fiscal Year 2022-23. However, the recent rise of inflation data, supply chain issues, continuing COVID impacts, and unknown affects from the Russia/Ukraine War have provided arguments to be cautious and aware of where the economy may be headed. It is within this setting that a budget stress test was performed to lend clues to where the City’s future finances may be headed. This stress test assumed a recession taking place at the beginning of Fiscal Year 2023-24 and all other expenditures remaining unchanged (see chart below). The results are positive in that ongoing recessionary effects, or yearly deficits, would range between 1.3% - 2.0%, or roughly between $970k to $1.4 million. This is positive in that these deficits could reasonably be erased with expenditure savings, if needed, that would not sacrifice services to the community. Departments have always been able to find ways of keeping critical services intact by adapting through a tough economic environment and delivering those things most valued by residents and business customers. Additionally, many past budgets have yielded net positive results – through better than predicted revenues and lower than predicted expenditures – well in excess of these possible deficit figures, meaning that the stress test amounts are well within the margin of error for the City’s conservative budgeting practices. Potential Budget Shortfalls In A Recessionary Scenario CONCLUSION The Fiscal Year 2022-23 General Fund Operating Budget, as proposed, is balanced with a projected surplus of $2.5 million. This is based on Total Operating Revenues and 60 65 70 75 80 85 90 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 Mi l l i o n s Revenue & Sources Expenditures & Transfers Adoption of the Operating Budget and CIP and Equipment Plans June 7, 2022 Page 16 of 16 Transfers In of $80.3 million, net of Operating Expenditures and Transfers Out of $77.8 million. The City is fortunate to have had a history of conservative spending and has amassed the savings necessary to cope with economic uncertainties over a short-term while allowing time to plan and execute over the long-term. By implementing this Budget, City staff will continue providing the community with unsurpassed service in a fiscally responsible manner. It is recommended that the City Council adopt the proposed Resolutions to enact the Fiscal Year 2022-23 Operating Budget as well as the Five-Year Capital and Equipment Replacement Plans. 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. 7443 adopting a Budget for Fiscal Year 2022-23 and appropriating the amounts specified therein as expenditures from various funds; and 2) Adopt Resolution No. 7444 adopting a Capital Improvement and Equipment Plan for the Fiscal Years 2022-23 through 2026-27. Attachments: Exhibit “A” – All Funds Operating Budget Summary Exhibit “B” – Five-Year Summary of Capital and Equipment Plan Resolution No. 7443 Resolution No. 7444 Exhibit "A' Ending Fund Fund Beginning Outside Transfer Total Appropriation Transfer Total Balance Fund FY22-23 Sources In Out FY22-23 General Fund 12,297,400 74,428,400 5,898,400 92,624,200 72,148,500 5,727,200 77,875,700 14,748,500 Narcotic Seizure Federal 135,600 31,400 0 167,000 0 0 0 167,000 COPS 269,700 172,700 0 442,400 175,100 0 175,100 267,300 Medical/Dental 428,000 0 4,751,700 5,179,700 4,750,200 1,500 4,751,700 428,000 Local Law Enforcement 0 110,000 116,700 226,700 226,700 0 226,700 0 IRS Task Force 466,100 4,700 0 470,800 0 0 0 470,800 Worker Compensation/Liability 5,265,900 52,700 2,710,100 8,028,700 2,696,200 0 2,696,200 5,332,500 Homeland Security (3,000)0 0 (3,000)0 0 0 (3,000) Library State Grant 600 0 0 600 0 0 0 600 Homelessness Plan 0 466,200 0 466,200 466,200 0 466,200 0 Office of Traffic Safety Grant 0 96,500 0 96,500 96,500 0 96,500 0 California OES HSGP 0 0 0 0 0 0 0 0 Autotheft Prevention Taskforce 0 151,400 0 151,400 151,400 0 151,400 0 Emergency Reserve 12,794,700 0 0 12,794,700 0 0 0 12,794,700 America Rescue Plan Act 8,683,800 0 0 8,683,800 6,239,700 0 6,239,700 2,444,100 Public, Educational/Governmental Access 1,041,500 90,400 0 1,131,900 0 0 0 1,131,900 Parks & Recreation 4,374,300 1,443,700 0 5,818,000 1,305,000 32,900 1,337,900 4,480,100 Used Oil Grant 16,000 15,700 0 31,700 7,000 0 7,000 24,700 DOC Beverage Grant 67,200 15,200 0 82,400 0 0 0 82,400 Traffic Safety 0 152,000 0 152,000 0 152,000 152,000 0 Solid Waste 1,916,600 719,200 0 2,635,800 389,100 300,000 689,100 1,946,700 Measure W ‐ Safe Clean Water Program 888,000 1,028,900 0 1,916,900 371,000 0 371,000 1,545,900 State Gas Tax (20,700) 1,667,400 0 1,646,700 0 1,488,600 1,488,600 158,100 Road Maintenance/Rehabilitation Act 445,600 1,318,800 0 1,764,400 1,200,000 0 1,200,000 564,400 Air Quality Management District 95,500 75,500 0 171,000 22,300 0 22,300 148,700 Community Development Block Grant 0 360,600 0 360,600 360,600 0 360,600 0 Santa Anita Grade Separation 00 00 000 0 Transit 3,900 2,878,500 674,300 3,556,700 2,868,500 0 2,868,500 688,200 Proposition A 1,774,900 1,423,700 0 3,198,600 291,500 1,011,300 1,302,800 1,895,800 Transportation Impact Fund (202,400) 300,000 0 97,600 200,000 0 200,000 (102,400) Proposition C 835,200 2,871,000 0 3,706,200 3,510,600 0 3,510,600 195,600 TDA Article 3 Bikeway 59,600 600 0 60,200 0 0 0 60,200 Measure R 1,065,600 885,700 0 1,951,300 77,000 674,200 751,200 1,200,100 Measure M 1,178,500 1,003,600 0 2,182,100 2,162,000 0 2,162,000 20,100 City Hall Reserve 100 0 0 100 0 0 0 100 Lighting Maintenance 228,200 1,350,900 810,500 2,389,600 1,350,900 0 1,350,900 1,038,700 Water Fund (6,326,000) 16,006,600 0 9,680,600 17,416,900 0 17,416,900 (7,736,300) Sewer Fund 2,964,300 2,564,600 0 5,528,900 2,792,700 0 2,792,700 2,736,200 Par 3 Golf Course Fund 1,095,500 2,096,500 0 3,192,000 1,305,600 0 1,305,600 1,886,400 Equipment Replacement 6,328,200 88,300 2,400,000 8,816,500 3,899,700 33,200 3,932,900 4,883,600 Redevelopment Successor Agency 0 183,700 0 183,700 183,700 0 183,700 0 General Obligation Bond 2012 415,800 421,200 0 837,000 421,200 0 421,200 415,800 General Obligation Bond 2011 543,600 592,600 0 1,136,200 592,600 0 592,600 543,600 Pension Obligation Bond 2020 0 5,876,800 0 5,876,800 5,876,800 0 5,876,800 0    Total 67,494,300 121,429,100 19,761,700 208,685,100 137,253,800 9,420,900 146,674,700 62,010,400 CITY OF ARCADIA SUMMARY BY FUND FISCAL YEAR 2022-2023 PROPOSED BUDGET SOURCES OF FUNDS USES OF FUNDS ESTIMATED ESTIMATED PROPOSED ESTIMATED FUNDS FIVE-YEAR FIVE-YEAR FUNDS 7/01/2022 REVENUE EXPENDITURE 6/30/2027 CAPITAL OUTLAY FUND 10,324,400 14,525,300 (15,220,400)9,629,300 PARK AND RECREATION FUND 8,112,000 6,553,200 (5,217,400)9,447,800 MEASURE W CLEAN, SAFE WATER PROGRAM 1,038,800 5,199,600 (4,376,000)1,862,400 GAS TAX (HUTA) FUND (58,700)8,348,800 (7,701,800)588,300 ROAD MAINTENANCE AND REHABILITATION PROGRAM 1,545,600 6,617,400 (7,100,000)1,063,000 AQMD 142,600 383,000 (161,500)364,100 PROP C LOCAL RETURN 2,927,200 7,587,700 (9,541,300)973,600 TRANSPORTATION IMPACT FUND 1,547,700 1,517,900 (2,650,000)415,600 MEASURE R LOCAL RETURN 1,482,800 4,475,200 (3,243,200)2,714,800 MEASURE M LOCAL RETURN 3,550,700 6,559,300 (9,310,000)800,000 WATER FACILITY RESERVE 14,829,100 2,188,500 (13,477,500)3,540,100 WATER EQUIPMENT RESERVE 227,000 2,300 (2,192,000) (1,962,700) SEWER FUND 4,209,700 13,103,800 (15,971,100)1,342,400 EQUIPMENT FUND 8,014,000 12,387,400 (15,512,300)4,889,100 CITY OF ARCADIA SUMMARY OF PROPOSED FIVE YEAR CAPITAL PROGRAMS FISCAL YEAR 2022-23 THROUGH 2026-27 Exhibit "B" RESOLUTION NO. 7444 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ARCADIA, CALIFORNIA, ADOPTING A CAPITAL IMPROVEMENT AND EQUIPMENT PLAN FOR FISCAL YEARS 2022,.23 THROUGH 2026-27 WHEREAS, on June 7, 2022, the City Manager submitted to the City Council a proposed plan entitled, "Capital Improvement and Equipment Plan, Fiscal Years 2022- 2027", a copy of which is on file in the office of the City Clerk; and WHEREAS, Section 1205 of the Arcadia City Charter requires notice and hearing for the consideration of a capital program and its adoption by resolution of the City Council; and WHEREAS, notice of the public hearing on the proposed Capital Improvement and Equipment Plan was published on May 19, 2022 and May 23, 2022; and WHEREAS, the duly noticed public hearing was conducted by the City Council on June 7, 2022. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF ARCADIA, CALIFORNIA, DOES HEREBY FIND, DETERMINE AND RESOLVE AS FOLLOWS: SECTION 1. That certain "Capital Improvement and Equipment Plan, Fiscal Years 2022-2027", as on file in the office of the City Clerk, together with any approved amendments thereto, is hereby adopted, in pertinent part, for Fiscal Year 2022-2023. SECTION 2. The City Clerk shall certify to the adoption of this Resolution. [SIGNATURES ON NEXT PAGE] 1