Staff is pleased to present this budget workbook (Attachment A) which provides a preview of the FY 2020-21 Budget and an opportunity for comments, input and direction from City Council, including discussion of measures to respond and prepare for budget impacts related to the COVID-19 pandemic which will be explained in more detail at staffs’ budget workshop presentation.
The budget process for FY 2020-21 began back in January and was followed by a City Council offsite meeting on January 17 with Executive staff to identify top priorities and projects for the current and upcoming fiscal year. In February, department budget meetings took place with the Budget Team to review budget requests and needs for the upcoming fiscal year. On February 18, a Budget Update to City Council was presented showing a positive financial position for the City’s General Fund with revenues over expenditures of approximately $2.5 million for the current year and $1.7 million projected for the 2020-21 fiscal year. This was primarily attributed to favorable sales tax projections as a result of an expanding sales tax segment, increasing online sales and the South Dakota vs Wayfair decision that now allows states to collect sales tax on remote sellers over a certain threshold without regard to a physical presence.
As the budget process progressed through March, the City along with the rest of the nation, was amidst an unprecedented health crisis due to the COVID-19 pandemic. On March 17, Governor Newsom issued the Stay-at-Home order requiring all “non-essential” businesses to close and for residents to stay home and go out for essential services only. We as an organization responded; activated our local Emergency Operation Center (EOC) and maintained only essential business services to the community via phone and/or email. However, public and recreational facilities were closed to limit the spread of the virus and safeguard the health of our community.
The COVID-19 pandemic has had a negative impact to the City’s revenue base and overall budget. On April 21, staff provided a Budget Update to City Council and presented some initial financial impacts which included declining sales tax revenues, transient occupancy tax revenues, community service revenues, golf course revenues and rental/lease revenues which had an estimated impact of $3.7 million to the City’s General Fund for the current fiscal year. These preliminary impacts resulted in a projected General Fund budget deficit (gap) of $1.2 million for the current fiscal year. Since April, staff has received further updates and also identified budget savings that will help mitigate the impacts, resulting in a projected General Fund budget gap of $144,468 for the current fiscal year. Over $1.1 million of the budget savings identified for the current year is attributed to vacancy and operating savings identified by departments.
For Fiscal Year 2020-21, the preliminary impacts presented at the April 21 Budget Update projected a General Fund deficit of $646,204 for the coming fiscal year. Since April, additional impacts and opportunities for budget savings have been identified. The following are highlights of changes made to the projected FY 2020-21 General Fund budget, resulting in a projected budget gap of $1.56 million:
- The two (2) percent increase assumption in personnel costs being removed;
- Sales tax projections have been further evaluated resulting in a decline from the current year budget and reflects deeper recessionary rates as a result of the current COVID-19 pandemic for the first and second quarter as businesses will be slower to recover at the start of the fiscal year. Sales tax projections also assume that 30% of eligible businesses will take advantage of the State’s Sales Tax Relief Repayment Plan. This plan allows eligible businesses to defer sales tax remittance and repay over a 12-month period which impacts the City’s cash flow;
- Transient Occupancy tax revenue are projected to decline from the current year budget and reflects a drop in occupancy rates as a result of the current COVID-19 pandemic;
- Community Service revenues and expenditures have been updated to reflect cancelled programs and events through August 14, 2020.
Responding to this rapid loss of revenue is a challenge without impacting service levels to the community. Fortunately, the City currently maintains a reserve balance of 25% of General Fund expenditures of which 15% is identified as a Budget Stabilization Reserve to provide resources in the event of the following:
- Temporary or one-time decrease of revenues, such as state subventions;
- Economic downturn or when one or more of the General Fund's major revenue sources decreases more than 10% while expenditure reductions are implemented;
- Natural (e.g. fire, earthquake, flood) and catastrophic disasters (e.g. civil unrest, acts of terrorism, airplane crashes).
In addition to the above reserves, the City has General Fund reserves in excess of the 25% reserve policy (Excess Reserves). The Excess Reserves are the remainder of favorable revenues over expenditures from Fiscal Year 2018-19 as well as the excess amount above the City’s 25% reserve policy limit. This equates to $3.1 million in Excess Reserves, which prior to the pandemic, $2.5 million was intended to be set aside to pay down the City’s unfunded liability related to the City’s Other Post-Employment Benefits (OPEB).
The Excess Reserves along with the Budget Stabilization Reserve provide the City with an opportunity to temporarily close the budget gap as the City continues to monitor economic impacts of the situation and determines the best approach to address the long-term financial impacts. By using this approach, the City will be able to maintain its current services levels while developing a plan for addressing the long-term financial impacts of the COVID-19 pandemic. For example, the short-term use of this funding will support the following:
- Maintains public safety operations including front line and support services;
- Continues Senior Center services related to home delivered meals and lunch distribution as well as Senior transportation services for approved medical and essential need appointments;
- Maintains wellness calls to Brea Older Adults/Senior Center participants and registrants;
- Continues case management services, counseling services and crisis inquires as well as providing information and resources to the public;
- Continues Veteran services and resources to the public via email or over the phone;
- Continues to provide plan reviews, inspections, permitting, parking permits and code enforcement duties through the use of digital workflow;
- Maintains traffic signal operations, street sweeping and other road maintenance services;
- Maintains park and landscape services.
In conjunction with this approach, staff will continue to closely monitor actual versus projected revenues and opportunities for vacancy savings that will assist in providing more firm estimates in the new fiscal year. Additionally, staff continues to assess and seek reimbursement as available from the Federal CARES Act (Part 4), FEMA, and the County of Orange, as well as other COVID-19 financial opportunities, if eligible. The State, as part of its proposed budget, has also identified funding that might provide economic relief to cities for COVID related costs. For Brea, this could potentially be around $500,000 to $700,000.
In the short-term, the City Council has the option to:
- Use the Excess Reserves to close the General Fund budget gap projected for fiscal years 2019-20 and 2020-21 in the total amount of $1.70 million and set-aside any remainder to pay down the City’s unfunded liability related to the City’s Other Post-Employment Benefits (OPEB). This option would keep the City’s Budget Stabilization Reserve intact and maintain its 25% overall General Fund reserve level; or
- Continue with the action to set-aside $2.5 million toward the City’s unfunded OPEB liability and use the remainder $700,000 along with Budget Stabilization Reserves to temporarily close the budget gap. This option would result in the need to identify funding in future years to replenish the Budget Stabilization Reserve.
The COVID-19 pandemic is an evolving situation and as we gradually transition to normalcy with a phased re-opening in the coming weeks, staff will continue to monitor the financial impacts and commit to providing the City Council with a budget update in October or November 2020. The information presented tonight is based upon staff’s objective assumptions for both revenues and expenditures on information that is known as of May 22, 2020.
The following are key points to consider while reviewing the FY 2020-21 Budget Workbook:
- City Mission Statements and City Council’s Top Priorities and Projects – The City’s mission statements and City Council’s top priorities and projects are provided as a reference and is the foundation for the City’s budget.
- Fiscal Policies Statement – The City’s fiscal policies statement is provided as a reference and sets the financial framework for the City’s budget.
- General Fund Five Year Projections – The Five Year Projections represent staff’s estimate as of May 22, 2020 of where the General Fund will be for each of the next five fiscal years. The projection serves as a tool to identify financial trends, shortfalls, and issues so that the City can proactively address them. The goal of the Five-Year Projections is to assess the City's ability over the next five years to:
- Continue current service levels based upon the City's operational goals;
- Preserve the City's long-term fiscal health by aligning operating revenues and costs; and
- Maintain the City's General Fund reserves based upon the City's fiscal policies.
It is important to stress that projections beyond fiscal year 2020-21 are not a budget and are used to highlight the need to prioritize the allocation of City resources. The purpose of the projection is to provide an overview of the City's fiscal health based on various assumptions over the next five years and provide the City Council, departments and residents of Brea a "snapshot" of the City's financial outlook beyond this budget cycle. The five-year projection is intended to serve as a planning tool to bring a long-term perspective to the budget process. The assumptions used in the preparation of Five-Year Projections are detailed in this section of the workbook and are categorized by fiscal year.
As a reminder, the Fire Deployment Plan that was approved by City Council on June 18, 2019 is included in the Five Year Projection through Fiscal Year 2021-22. Future years beyond Fiscal Year 2021-22 are pending further evaluation. Currently, the Fire Deployment Plan is operating as intended and the addition of one Firefighter position each year for six years enables Engine 1 and Engine 3 to carry four personnel with two licensed Paramedics. This configuration allows the company to split their two Paramedics on any stable, medical emergency response. One Paramedic is able to transport the patient to the hospital while the remaining personnel can remain in service to respond to the next emergency. The previous deployment model of three personnel would not enable the company to split, thus putting the company out of service until transport was completed. From July 1, 2019 through April 30, 2020, Fire personnel responded to 933 medical emergencies required Advanced Life Support provided by our licensed Paramedics. Of the 933 medical emergencies, 363 were transported with one Paramedic. This means that during 39% of the 933 medical emergencies, Fire Engines were able to remain in service to response to another emergency call. This operational strategy decreases response times and the need for either another Brea unit or outside agency to travel further to respond.
Another benefit to this deployment plan is during a structure fire. Prior to Firefighters making entry into a burning building, they are required to have two Firefighters outside the structure. This tactical arrangement is in place to provide a safety back-up to Firefighters whom may become lost, injured, trapped, incapacitated, or disoriented while entering an unknown, dynamic environment. In the previous model, the on-scene unit would need to wait for another unit to arrive to provide that fourth person. This current deployment plan enables the Firefighters to immediately enter the structure and extinguish the fire thus reducing the time for the fire to spread causing more damage to life, property, or the environment.
The Fire Services department continues to evaluate this new deployment model and staff will return prior to the start of Fiscal Year 2022-23 to provide a more comprehensive review of staffing levels and service delivery options to the community.
It is important to note that any projected impacts to our future CalPERS employer rate as a result of the current COVID-19 pandemic have not been included in the preparation of this Five Year Projection. This information is pending and will depend on the rate of return achieved at the close of the current fiscal year. It is the City’s budget practice to update our projections each year when CalPERS provides new rates. CalPERS typically announces this information in July and new rates are usually provided in September/October of each year. The Five Year Projection is then updated as part of the following year’s budget process.
CalPERS amortizes gains/losses over a 20-year horizon with no increase for the first two years; a ramp up over the next five years and then levels off for the remaining 15 years. Therefore, the City would begin to see the first impact of losses due to the COVID-19 pandemic in Fiscal Year 2022-23, two years from now. As part of tonight’s meeting, staff will present various scenarios of how the rate of return for this current fiscal year can potentially impact our future employer rate.
- Decision Packages (On-Hold) – Decision packages are department requests for new programs, personnel, and/or equipment. The decision packages are organized by fund and are not presented in any priority order. There are a total of fourteen (14) decision packages recommended to be reviewed. In light of the current COVID-19 pandemic, staff is recommending not to fund these requests at this time until more financial information is available. Staff anticipates bringing these requests back to City Council during the Mid-Year Budget Update for funding consideration. The decision packages presented are for City Council review and feedback as well as a preview of the needs of the upcoming fiscal year.
- Fund Summaries – This section of the workbook includes the fund summaries of those funds impacted by the proposed decision packages. The fund summaries identify funding availability however do not include any associated costs of the proposed decision packages as staff is recommending to “hold off” on any requests until the Mid-Year Budget Update.
- Fees – Staff has carefully reviewed fees for service, and recommends adding two new user fees in the Administrative Services and Police Services department. These user fees were evaluated independently by departments and include adding a Sidewalk Vendor Permit Fee and a Parking Citation Payment Plan Implementation Fee.
- S.P.O.T. – The City’s proposed Strategic Plan on Technology (S.P.O.T) for FY 2020-21 is outlined in this section of the workbook. All technology related requests are reviewed by the S.P.O.T Committee, and upon their recommendation, are submitted as proposed decision packages.
- Successor Agency – The Successor Agency to the Brea Redevelopment Agency’s expenditure summary is presented in this section of the workbook.
This presentation will also provide an opportunity to review the City’s proposed Seven Year Capital Improvement Program Budget and is provided as Attachment B. |