TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Javier Carcamo, Finance Director
PREPARED BY: Tanner Benson, Accountant
SUBJECT:
title
Fiscal Year 2024/25 Proposed Budget Adjustments
end
RECOMMENDATION
recommendation
Receive and file the report;
Approve Amendment to the Fiscal Year 2024/25 Operating Budget as defined in this report; and
Approve the updated Schedule of Authorized Positions.
body
PRIOR ACTION/VOTE
On June 6, 2023, the City Council; the Boards of Directors of the Murrieta Fire District (MFD), the Community Services District (CSD), the Murrieta Library District (MLD), and the Housing Authority (MHA); and the City Council acting as Successor to the Redevelopment Agency (RSA), adopted a series of Resolutions (23-4671, MFD 23-219, CSD 23-276, MLB 23-17, RSA 23-29, and MHA 23-43) approving the Operating Budgets for Fiscal Years (FY 2023/24 and 2024/25 (Vote: 4-0-1).
On November 21, 2023, the City Council; the Boards of Directors of the MFD, CSD, MLD, and MHA; and the RSA approved the FY 2023/24 First Quarter Financial Update Report and Proposed Budget Adjustments, as well as updates to the FY 2023/24 Capital Budget (Vote: 5-0).
On December 5, 2023, the City Council; the Boards of Directors of the MFD, CSD, MLD, and MHA; and the RSA approved the FY 2022/23 Year End Report and Carryover Appropriations to FY 2023/24 (Vote: 5-0).
On March 5, 2024, the City Council; the Boards of Directors of the MFD, CSD, MLD, and MHA; and the RSA approved the FY 2023/24 Second Quarter Financial Update Report and Proposed Budget Adjustments (Vote: 5-0).
On May 7, 2024, the City Council; the Boards of Directors of the MFD, CSD, MLD, and MHA; and the RSA approved the FY 2023/24 Third Quarter Financial Update Report and Proposed Budget Adjustments (Vote: 5-0).
CITY COUNCIL GOAL
Maintain a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency.
BACKGROUND
The City of Murrieta (City) adopts a biennial budget every two years, starting in odd-numbered years. The budget period runs from July 1 to June 30. The Fiscal Year 2024/25 budget was adopted on June 6, 2023. Since the budget was adopted, there have been changes in the economy that have negatively impacted Sales Tax generation, particularly in the hospitality and auto sales industries, as well as the City’s “Charges for Services” revenue category. Higher than normal inflation has reduced consumer spending. To address the inflation rate, the Federal Reserve increased interest rates to its highest point in more than twenty years. Interest rates have remained high to combat inflation. While it serves its intended purpose of reducing inflation, the consequence is reduced Sales Tax revenues, primarily due to fewer car sales and less discretionary spending.
As was done with the Fiscal Year 2023/24 Operating Budget, staff proposes updating the 2024/25 Operating Budget to true-up current revenue projections versus the original budgeted amount. To address the reductions in revenue, the City Manager requested that departments find budgetary savings within their departments of at least 10% to help balance the budget for Fiscal Year 2024/25. These requests resulted in further adjustments to revenue, Operation & Maintenance costs, and a freeze on hiring for positions that become vacant throughout the fiscal year unless the position is determined essential and is approved by the City Manager. Additionally, since the budget was adopted, the City Council has approved several labor group agreements. This report incorporates increases to the salary and benefits budgets associated with those agreements.
Historically, the City has maintained a conservative budget approach to ensure fiscal sustainability in the long term. With a strong Operating Reserve balance of at least 25% of the Operating Budget and adequate Unassigned Fund Balances to cover short-term budget deficits, the City’s fiscal position remains very good. While the City’s key revenue sources fluctuate, it has the capacity to address unforeseen economic changes by implementing successful cost-saving measures and using available Unassigned Fund Balance. The proposed precautionary measures will ensure the City is in a very good fiscal position while maintaining the current level of services for residents.
In summary, this budget update report serves two purposes:
1. Update the Fiscal Year 2024/25 Operating Budget to request appropriations for items not included in the original budget adoption and adjust budgets for various revenue and expenditures accounts detailed in Attachment 1; and
2. Approve the updated Schedule of Authorized Positions.
Fiscal Year 2024/25 Proposed Adjustments
This report outlines the proposed changes for the five major funds (General Fund, Measure T, Fire District, Community Services District (CSD), and Library). Attachment 1 contains a detailed list of all proposed changes, and Attachment 2 provides a summary of the proposed changes for the five major funds, as well as a summary of the total operating budget for all funds.
General Fund Changes
The proposed General Fund revenue changes encompass an overall decrease of $2,927,225 (or 4%). These changes are necessary to align projected revenue collections with what is now anticipated to be received for this fiscal year. This overall decrease is due to a combination of decreases and increases in different revenue accounts. The most significant proposed changes are listed below.
The proposed decreases in revenue total $6,079,226:
• Decrease projected for Bradley Burns Sales Tax amounts to $2,179,926;
• Decrease in Transient Occupancy Tax (TOT) of $2,966,000; and
• Remaining decreases totaling $933,300 are in Charges for Services, Licenses and Permits, and Property Transfer Taxes.
The proposed increases in revenue total $3,152,001:
• Increases in the Other Miscellaneous Revenue of $2,751,919 for increases in Interest Income projections and Intergovernmental Revenues received by Federal, State, and other local sources; and
• Increases in Property Tax collections amounting to $400,082.
The proposed expenditure budget is being increased by $4,905,767. This includes both decreases and increases in different expenditure accounts. As previously mentioned, the City Manager and Executive Team implemented cost-saving measures to help offset the projected revenue decreases. Each department was asked to review its Operations and Maintenance and Capital Outlay Budgets and propose reduced expenditures, purchases that could be delayed, or items that could be decreased without significantly impacting City services. In addition to these reductions are increases in personnel costs associated with previously approved public safety related labor agreements and anticipated labor agreements for the other labor groups and the removal of new positions earmarked to come online this fiscal year. A summary of the changes is as follows:
• Personnel-There has been an overall expenditure increase of $5,554,645, mainly due to the previously approved public safety related labor agreements and anticipated labor agreements for the other labor groups. Factored into the overall increase is a cost-saving measure of a 10% reduction in standard Overtime budgets across all departments, which takes into account salary and benefit reductions for the positions being postponed.
• Operations & Maintenance - an overall decrease of $513,878.
o Decreases of $916,727 are in Contract Services ($376,358), Building, Radio, and Software Maintenance ($199,752), Special Programs ($50,000), Merchant Card fees ($47,000), Training and Supplies ($61,100), and Furniture and Equipment ($25,700).
o Increases of $402,849 are primarily related to increases of $35,400 in Bank, Credit Card, Investment, and Property Tax related fees, $224,000 in Attorney costs, and $122,644 for Animal Control services costs.
• Capital Outlay - Decrease of $135,000 in a Public Works-related reduction in Machinery & Equipment to replace a 5-yard dump truck.
Based on the proposed cost-saving measures and budget adjustments identified above, the General Fund proposed amended revenue budget is $69,442,613, while the amended expenditure budget is $76,889,622. This results in projected use of Unassigned Fund Balance of $7,447,009.
Measure T Changes
The proposed revenue budget reduction is $2,371,807, or 8%. This aligns Sales Tax projections with the amount expected to be received for the fiscal year.
Likewise, staff proposes expenditure budget reductions, which net to $379,726. This includes both decreases and increases in different expenditure accounts as listed below.
The proposed budget decreases amount to $710,014 and are summarized as follows:
• Operations & Maintenance - A decrease of $425,014 from various departments resulting from the City’s cost-saving measures for Landscape Maintenance, Rental Expenses, and Contract Services; and
• Capital Outlay-The Police Department deferred the purchase of three (3) vehicles associated with the postponed positions, resulting in a budgetary savings of $285,000.
The increases of $330,288 are mainly due to the previously approved public safety related labor agreements and anticipated labor agreements for the other labor groups. Factored into the increase is 1) a cost-saving measure of a 10% reduction in standard Overtime budgets across all departments, and 2) salary and benefit reductions for the new positions originally planned for Fiscal Year 2024/25 that are being postponed.
Based on the proposed cost-saving measures and budget adjustments identified above, the Measure T Fund proposed amended revenue budget is $29,077,993, while the amended expenditure budget is $28,211,157. This results in a projected contribution of $866,836 to Unassigned Fund Balance.
Fire District Changes
The proposed budget increase for revenue is $816,916 (3%). This increase is due to a combination of decreases and increases in different revenue accounts, including:
• The increase of $769,642 aligns with projected Property Tax collections for the fiscal year;
• The net increase of $145,224 in Other Miscellaneous Revenue is made up of increases in other reimbursements, special events (Firefighers’ Barbeque), interest earnings, and fines paid by the ambulance service provider AMR (American Medical Response) when their response time is not timely; and
• The net decrease in Charges for Services of $97,950 comes from analyzing the trends of actual revenues collected over the last four fiscal years for various services provided.
Likewise, staff proposes expenditure budget increases of $1,681,649, which includes decreases and increases in different expenditure accounts, such as:
• A decrease of $101,154 in Operations & Maintenance associated with the City’s cost-saving measures in Contract Services, Supplies, and Training; and
• An increase of $1,782,803 mainly due to the previously approved public safety related labor agreements and anticipated labor agreements for the other labor groups. A 10% reduction in standard Overtime budgets is factored into the increase.
CSD Changes
The proposed budget change for revenue is a $31,597 increase (1%). This mainly aligns Special Assessment Revenues with projected FY 2024/25 collections. There is also an increase of $4,007 in Other Miscellaneous Revenue, which is made up of increases to Other Reimbursements and Interest Revenues. There is a decrease in Charges for Services of $10,000, which is from analyzing the trends of actual revenues collected over the last four fiscal years for various services provided.
Likewise, staff proposes an expenditure budget increase of $367,639. This includes both decreases and increases in different expenditure accounts, including:
• A decrease of $134,233 in Operations & Maintenance associated with the City’s cost-saving measures in Contract Services, Supplies, Training, and Program costs; and
• An increase of $501,871 mainly due to the previously approved public safety related labor agreements and anticipated labor agreements for the other labor groups. A 10% reduction in standard Overtime budgets is factored into the increase.
Library Changes
The proposed budget revenue increase is $107,190, or 3%. This increase is due to a combination of decreases and increases in different revenue accounts. The increase of $97,090 aligns with the anticipated Property Tax collections for this fiscal year. The increase of $9,500 in Other Miscellaneous Revenue is made up of increases in Interest Revenue, decreases in the projected collection of Miscellaneous Fines, and the sale of promotional items based on analysis of revenue collection from the last four fiscal years.
Likewise, staff proposes an expenditure budget increase of $188,403. This includes both decreases and increases in different expenditure accounts, including:
• A decrease of $64,554 in Operations & Maintenance associated with the City’s cost-saving measures in Contract Services, Supplies, Training, and Program costs;
• A decrease of $17,400 in Furniture and Fixtures; and
• An increase of $270,357 mainly due to the previously approved public safety related labor agreements and anticipated labor agreements for the other labor groups. A 10% reduction in standard Overtime budgets is factored into the increase.
Staffing Changes
Staff regularly brings the Schedule of Authorized Positions to the City Council to adjust for new positions and titles assigned to current positions. This proposed schedule update removes thirteen (12) Full-Time Equivalent (FTE) positions for FY 2024/25, bringing the total to 466.59 FTE positions (Attachment 3). This list includes a combination of additions, position title changes, and the reclassification of positions that are necessary as part of a structural realignment of the organization intended to increase operational efficiency and effectiveness. The budgetary changes for these positions are included in this report's proposed adjustments.
Fund Balance and Reserves
The General Fund is proposed to have a draw on Unassigned Fund Balance of $9,491,975 at the end of the Fiscal Year. Of that, approximately $7.4 million is due to an operating deficit (negative variance between revenues and expenditures), and about $2 million is being used toward the FY 2024/25 Capital Improvement Plan budget to fund projects such as pickleball courts, Murrieta Innovation Center improvements, Fire Station 1 concrete improvements, and the City Hall and Fire Station 1 generators. Lastly, a $833,670 transfer to the operating reserve was approved at the time of the budget adoption to maintain the operating reserve balance of at least 25%. The Ending Unassigned Fund Balance for the General Fund is estimated at $6,036,135.
The Measure T Fund is expected to contribute $1,084,085 to Unassigned Fund Balance. Of that, $866,836 is an operating surplus (positive variance between revenues and expenditures) contributing to the Unassigned Fund Balance, and it also includes a budget reduction of $217,249 to defund the Capital Improvement Plan budget for several projects that either have been completed or deferred for the future. Lastly, a $626,487 transfer to the operating reserve was approved at the time of the budget adoption to maintain the operating reserve balance of at least 25%. The Ending Unassigned Fund Balance for the Measure T Fund is estimated at $2,694,091.
The Fire Fund is proposed to use Unassigned Fund Balance of $862,442 at the end of the Fiscal Year. Of that, $864,733 is an operating deficit (negative variance between revenues and expenditures) or use of Unassigned Fund Balance, and it also includes a budget reduction of $2,291 to defund a Capital Improvement Plan Project. The Transfer In budget for this fund will be trued up at year-end since this fund is dependent on the Measure T Fund to cover its operating shortfall.
The CSD Fund is proposed to use Unassigned Fund Balance of $336,041 at the end of the Fiscal Year, which is due to an operating deficit (negative variance between revenues and expenditures). The Transfer-in budget for this fund will be trued up at year-end since it is dependent on the Measure T Fund to cover its operating shortfall.
The Library Fund is proposed to use Unassigned Fund Balance of $81,213 at the end of the Fiscal Year, which is due to an operating deficit (negative variance between revenues and expenditures). The Transfer-in budget for this fund will be trued up at year-end since it is dependent on the Measure T Fund to cover its operating shortfall.
The estimated Unassigned Fund Balances for the funds mentioned above are subject to change for the following reasons:
• As of the writing of this report, the FY 2023/24 audit has not been completed. Therefore, the estimated beginning Unassigned Fund Balance is subject to change; and
• Operating activities through FY 2024/25 differ from the estimated operating budget due to economic changes, unanticipated expenses or revenues, and budgetary savings.
Below is a summary of this information. Attachment 4 includes a table with all funds and the fiscal impact of these proposed changes.
FISCAL IMPACT
The proposed amendments for the Fiscal Year 2024/25 Operating Budget include a decrease in revenue of $4,356,077 and an increase in expenditures of $5,537,381, which equates to a use of Unassigned Fund Balance across all funds. Unassigned Fund Balance is available to cover the budget deficits within each applicable fund. Attachment 1 includes a complete list of the requested changes by the General Ledger Account.
ATTACHMENTS
1. FY 2024/25 Proposed Budget Adjustments
2. Summary of FY 2024/25 Proposed Budget Adjustments
3. Updated Fiscal Year 2024/25 Authorized Position List
4. Fund Balances for All Funds (Estimated)