TO: HONORABLE CHAIR AND MEMBERS OF THE TRANSACTION AND USE TAX OVERSIGHT COMMITTEE
FROM: Javier Carcamo, Finance Director
PREPARED BY: Paige Hartman-Salazar, Management Analyst - Special Projects
SUBJECT:
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Measure T 3rd Quarter Proposed Adjustments
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RECOMMENDATION
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Receive and file.
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BACKGROUND
The City of Murrieta adopts a biennial budget and operates on a June 30 year-end fiscal year. We are currently a little over halfway through the first year of the biennial budget cycle. As part of management best practices and as recommended by the Government Finance Officer Association, City staff monitors, measures, and evaluates financial performance through the mid-year mark. The mid-year or quarterly evaluation encompasses the review of financial activities and benchmarking against the adopted budget. Based on the mid-year financial review, staff prepared a quarterly budget report.
The adopted Transaction & Use Tax revenue is $30.5 for FY 2023-24. Based on the City’s sales tax consultant's revised projections, staff proposes adjustments to budgeted revenues and expenditures. During the mid-year budget update, staff did not propose any budget adjustments for the Measure T Fund and purposedly deferred any budget adjustments to the third quarter budget update report to allow staff to gather additional sales tax receipt data. The major factors leading to revenue lower than forecast are primarily due to a softening of the economy as a result of extended federal bank high-interest rates, lower disposable income, and new big box retailers opening later than anticipated.
The proposed adjustments for the third quarter end will include a decrease in Transaction & Use Tax revenue of approximately $2.02 for a total of $28.5 million. The Measure T Fund total operating expenditure budget is roughly $28.7 million, excluding the Capital Outlay contribution. Based on the proposed end-of-third quarter budget request and operational needs, the expenditure budget adjustments are $476,167 reduction for a total of $28.3 million.
The following is a brief overview of the budget adjustments for both revenue and expenditure.
Revenue
• Revenue budget decrease of $2,022,360 in Transaction & Use Tax.
The current adopted budget is $30.5 million, which is approximately $1.9 million less than the actual revenues of the prior year. The Transaction & Use Tax revenue collection through February 2024 equates to approximately 55% of the budget. Murrieta’s receipts from July 2023 through January 2024 were $101,235 lower than the same period last year. Based on the forecast for the remainder of the months, the total Transaction and Use tax revenue is projected to be around $28.5 million.
During the last two quarters, autos & transportation and fuel and services stations had a decline when compared to the same quarter last year. The graph below shows the receipts for the last four fiscal years. The prior year comparison quarter was the start of the pandemic recovery, and this demonstrate strong growth since then.
Expenditures
• Expenditure budget adjustments of $476,167 is a combination of increases and decreases in various expense categories. The proposed budget adjustments includes a decrease in Personnel Cost, Operations & Maintenance, and Capital Outlay of $191,402, $190,481, and $94,284, respectively. The budget requests include increases for unanticipated expenditures. As a result of the decline in revenue budget projections and to ensure the City takes proactive actions to maintain a balanced budget, the City Manager has asked department Directors to reduce their respective budgets by 10%, delay one-time purchases, and hold off on hiring vacancies until the new fiscal year.
Measure T Allocation
Measure T is a general tax revenue source for the purpose of maintaining the City of Murrieta's long-term finances, providing funding for general services, including faster response times to emergencies, improved fire protection/paramedic services, increased police sworn personnel to strengthen crime prevention, reduced gang activity/drug crimes, graffiti removal, parks and recreation, and street maintenance/pothole repair.
Approximately 73% of the Measure T adopted budget is allocated to public safety. Based on the proposed budget adjustments for the third quarter budget update report, staff do not anticipate the allocation percentage will significantly deviate. The table below displays the allocation of Measure T funds to the various City operations for the adopted budget for FY 2023-24.
Measure T Fund Allocation by Department
Operating Reserves and Sustainability Reserves
Consistent with the stated goal of maintaining a high-performing organization that values fiscal sustainability, transparency, accountability, and organizational efficiency, the City Council established an operating reserve policy of 25% of operating budgeted expenditures for the Measure T Fund. The table below summarizes the reserve contributions, uses, and estimated ending balance for the current biennial budget.
Based on the adopted budget, the total operating reserve contribution is approximately $1,120,458 for FY 2023-24. For the most part, contributions serve two purposes. First, contributions to the Fire District, Community Services District, and Library District funds reserves are to conform with the Fund Balance and Reserve Policy to maintain balances at the 25% requirement. Second, contributions to sustainability reserves are to set funding aside for planned future expenses. The list below summarizes these contributions, amounts, and planned expenditures.
Operating Reserves
Use Measure T fund and maintain within the following operating reserves:
• Fire Operating Reserve $1,609,391
• CSD Operating Reserve $491,704
• Library Operating Reserve $246,152
With the proposed third-quarter budget adjustments, staff has again recalculated the Operating Reserves and proposed no changes to the City’s Operating Reserves. Each of the aforementioned funds' operating reserves is at least 25% Operating Reserve maintaining compliance with the Fund Balance and Reserve Policy.
Sustainability Reserves
• Fire Fleet replacement reserve $1,400,000
Funds set aside for the purchase of a Fire engine
• Fire Facility replacement reserve $300,000
Mobile Command Center
• Pension and OPEB Rate Stabilization reserves $3,000,000
Funds set aside towards Pension and Other Post-Employment Benefits. Part of the 3rd Quarter Budget Update will be a request to reappropriate $3,000,000 to allow for a loan towards the Library Expansion project.
• Capital Improvement Projects $6,200,000
Funds are set aside for various facility improvements.
- Community Pool $3.5mm
- Library Expansion $1.0mm
- Modular/Office Expansion $450k
- Fire Station 1 Improvement $150k
- Fire Station 2 Improvement $350k
- Fire Station 3 Improvement $400k
- PD Admin Office Improvement $100k
- PD Traffic Bureau Improvement $250k
As a result of project prioritization and directions given during the City Council Goals workshop in January 2024, staff will also include budget reallocation for the Capital Improvement projects in the third quarter budget update report.