REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Oliver Chi, City Manager
PREPARED BY: Dahle Bulosan, Chief Financial Officer
Subject:
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Public Hearing to Consider Adopting Resolution No. 2020-39 to Adopt a Budget for the City for Fiscal Year 2020/2021; Resolution No. 2020-32 establishing the Gann Appropriation Limit and Financial Policies; and Resolution No. 2020-44 to Grant another Designated Period for Two Years Additional Service Credit
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Statement of Issue:
The City Charter of the City of Huntington Beach requires a Public Hearing prior to the adoption of the City’s annual budget. The City Charter further requires adoption of the annual budget by June 30, 2020 for Fiscal Year (FY) 2020/2021.
Financial Impact:
The Fiscal Year 2020/2021 Proposed Budget is a structurally balanced budget that addresses current financial challenges due to the COVID-19 pandemic, while still funding core public services. The All Funds Proposed Budget equals $359.0 million, including a General Fund Proposed Budget of $216.9 million. Individual departmental and fund-level appropriations are contained in the attachments herein.
Recommended Action:
recommendation
A) Open the Public Hearing on the proposed FY 2020/2021 City budget appropriation of $358,975,051 as outlined in the Proposed Budget document; and,
B) Adopt Resolution No. 2020-39, “A Resolution of the City Council of the City of Huntington Beach Adopting a Budget for the City for Fiscal Year 2020/21;” and,
C) Authorize the Professional Services included in the FY 2020/2021 budget to be representative of the services projected to be utilized by departments in FY 2020/2021; and,
D) Adopt Resolution No. 2020-32, “A Resolution of the City Council of the City of Huntington Beach Establishing the Gann Appropriation Limit for Fiscal Year 2020/2021” of $1,001,044,445; and,
E) Approve budget adjustments to the FY 2020/2021 Proposed Budget in the Funds and by the amounts contained in Attachment 2, Exhibit A-1; and,
F) Adopt Resolution No. 2020-44, “A Resolution of the City Council of the City of Huntington Beach to grant another designated period for two years additional service credit,” authorizing the implementation of the CalPERS early retirement program, and authorizing the City Manager to take all administrative and budgetary actions necessary to implement the CalPERS early retirement program.
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Alternative Action(s):
Continue the Public Hearing until June 29, 2020, for a Special Meeting, and instruct City staff regarding changes to be incorporated into the budget.
Analysis:
As required by the City Charter, the City Manager submitted the FY 2020/2021 Proposed Budget to the City Council on June 1, 2020. The Proposed Budget and the Five-Year Capital Improvement Program (CIP) were also discussed at a City Council Study Session held on June 1, 2020.
The purpose of the budget study session was to provide the City Council an opportunity to discuss the Proposed Budget with staff before proceeding with the formal Public Hearing on June 15, 2020.
Overview
The theme of next year’s budget, “OneHB,” reflects the City’s response to the extraordinary financial and operational challenges due to the global COVID-19 pandemic. The FY 2020/2021 Proposed Budget was carefully prepared to balance City Council and community priorities despite these uncertain times.
The Fiscal Year 2020/2021 Proposed Budget includes $19 million in General Fund revenue reductions from prior Fiscal Year 2018/2019 actuals, and a $1 million revenue reduction from current Fiscal Year 2019/2020 projections, particularly due to a substantial loss of tax revenue. The financial impacts of the pandemic remain volatile due to the closure of local businesses.
The Fiscal Year 2020/2021 Proposed General Fund Budget reflects a 4.4% operating expense reduction across all departments, totaling $1.8 million; a $3.1 million reduction in personnel costs; and a $7.8 million reduction in non-operating transfers. In order to balance the Fiscal Year 2020/21 budget, and to mitigate more significant reductions to core services, we are proposing a staffing reduction of approximately 5% of the City’s work force via an early retirement program, which is estimated to generate ongoing cost savings of no less than $6.2 million. Overall, we continue to protect our essential functions during this unprecedented crisis.
The FY 2020/2021 Proposed Budget is structurally balanced and totals $359.0 million in All Funds, reflecting a 5.8% decrease from the FY 2019/2020 Adopted All Funds Budget of $381.0 million. The General Fund portion of the proposed FY 2020/2021 budget totals $216.9 million, representing a 6.4% decrease from the FY 2019/2020 Adopted Budget of $231.6 million.
The FY 2020/2021 General Fund revenue is projected at $216.9 million, a $13.9 million or 6.04% decrease from the current year’s Adopted Budget. General Fund revenue consists of numerous sources, such as taxes and fees. Major sources of revenue include Property Tax, Sales Tax, Utility Users Tax, and Transient Occupancy Tax, among others.
The FY 2020/2021 Proposed Budget reflects additional funding for 5.0 FTEs in the General Fund for the Homeless Task Force and Code Enforcement Programs. Of note, the City’s Table of Organization reflects an increase of only 2.0 FTEs, which accounts for the two new position in the Community Development Department for additional code enforcement staff. In addition, three previously defunded but authorized Police Department positions are recommended to be restored from the General Fund, which are positions that will be assigned to the City’s Homeless Task Force. The total FTE count in All Funds for FY 2020/2021 is 989.25.
Revisions to the Proposed Budget
The FY 2020/2021 Proposed Budget presented to the City Council on June 1, 2020 totaled $359 million. Based on feedback provided during the study session, the Proposed Budget has been adjusted to address City Council feedback, and the full spending plan is outlined in Exhibit A-1 (Attachment 2).
Professional Services
As established by Administrative Regulation Number 228, each department has submitted a list of professional services that are generally contained in their Proposed Budgets (Attachment #3). Professional services contracts are subject to compliance with Administrative Regulation Number 228 and City Ordinance Chapter 3.03.
Gann Appropriation Limit
In November 1979, the California voters approved Article 13B of the State of California Constitution, which allows the City’s spending of tax proceeds to increase only by factors from the base year of 1978-1979. In June 1990, Proposition 111 was passed, which changed the way the limit is calculated and is outlined as follows.
The City may increase its limit annually in two ways:
• By a percentage equal to the increase from the preceding year in county or city population (whichever is greater).
• By an amount equal to the change in per capita personal income in California or the change in the assessment roll the preceding year due to the addition of local non-residential new construction (whichever is greater).
The proposed appropriation limit for FY 2020/2021 was calculated as follows:
FY 2019/2020 Appropriation Limit $ 964,662,284
Multiplied by percentage grown in State Per Capita Personal Income 1.0373
Multiplied by change in City Population 1.0004
Proposed FY 2020/2021 Appropriation Limit $1,001,044,445
Appropriations of revenues controlled by the Gann Limit are primarily in the General Fund. The General Fund proposed appropriation for FY 2020/2021 of $216.9 million is significantly below this appropriation limit.
Examples of proceeds of taxes governed by the Gann Appropriation Limit are: property taxes, sales taxes, utility taxes, state subventions, fines, forfeitures, interest revenue on regulatory licenses, user charges, and user fees, to the extent that those proceeds exceed the costs reasonably borne by that entity in providing the regulation, product, or service.
Public Hearing
The City Charter requires that a public hearing be conducted on the City budget prior to adoption. Public Hearing notices have been published per City Charter requirements (Attachment #1). At the close of this hearing, all legal requirements for budget adoption will have been met.
Funding A $1M Transfer To The Section 115 Trust
The reduction of the General Liability Fund transfer of $1.0 million from the General Fund, and the restatement of the annual transfer of $1.0 million to the Section 115 Trust Fund, create a net neutral impact to the General Fund and All Funds.
Early Retirement Program
The Fiscal Year 2020/2021 Proposed Budget includes a staffing reduction proposal of approximately 5% of the City’s workforce, with an estimated net savings of $6.2 million. Two retirement program plan options (a CalPERS Plan providing two years of additional service credit, and a self-designed retirement plan) were assessed as part of this budgetary reduction program.
Based on our employee population and the need to shrink the City’s workforce, staff recommends moving forward with the CalPERS Plan. This program is recommended as it would likely attract the highest number of employee participants, yield higher savings long term, and provide the greatest opportunity to strategically restructure the City organization. Of note, staff projects that on-going budgetary cost savings will cover the one-time early retirement program costs within 1-2 years, given the planned reduction in the workforce, coupled with hiring new employees who are enrolled in CalPERS’ PEPRA retirement plan.
Since the enactment of the California Public Employees’ Pension Reform Act (PEPRA) in 2013, an increasing number of full-time employees hired by the City are enrolled in PEPRA, as existing employees retire or separate, resulting in both immediate salary savings and long-term reductions to the City’s pension liability.
Therefore, staff recommends that City Council adopt Resolution Number 2020-44, a resolution of the City Council of the City of Huntington Beach that would authorize the establishment of the CalPERS early retirement program.
Environmental Status:
Not applicable.
Strategic Plan Goal:
Enhance and maintain high quality City services
Enhance and maintain infrastructure
Strengthen long-term financial and economic sustainability
Enhance and modernize public safety service delivery
Improve quality of life
Attachment(s):
1. Public Hearing Notice.
2. Resolution No. 2020-39, “A Resolution of the City Council of the City of Huntington Beach Adopting a Budget for the City for Fiscal Year 2020/2021”
3. Professional Services included in the Fiscal Year 2020/2021 Budget
4. Resolution No. 2020-32, “A Resolution of the City Council of the City of Huntington Beach Establishing the Gann Appropriation Limit for Fiscal Year 2020/2021”
5. Resolution No. 2020-44, “A Resolution of the City Council of the City of Huntington Beach to grant another designated period for two years additional service credit”