The City Council has reviewed and given direction on all components which are included in the proposed Fiscal Year 2019-20 Operating Budget at the Budget Workshop held on May 21, 2019.  The Proposed Fiscal Year 2019-20 budget document contains an overview message from the City Manager, summary schedules, the fund balances of each operating fund, a comprehensive review of revenues, and expenditure breakdowns by department (please see attachment).

The budget is the financial plan for the City of Brea for the next fiscal year (July 1, 2019 and ending June 30, 2020).  It does not constitute a mandate to spend, only the authority to do so.  This balanced budget is the result of staff’s objective assumptions for both revenues and expenditures.  We are constantly looking to improve day-to-day processes, enhance customer service and lower the cost of doing business.  More importantly, this budget also conforms to all the City Council’s fiscal policies, which are included in this document for your reference. 

Revenues
Total General Fund revenues in FY 2019-20 are budgeted at $55,457,048.  Sales tax revenue is the City’s single largest revenue source and represents 37% of the FY 2019-20 budget.  Sales tax revenues are projected to decrease by 8.30% over FY 2018-19 estimates.  In FY 2018-19, there was a one-time sales tax boost due to a delay in sales tax receipts from the State for the prior fiscal year as well as a one-time spike in new automobile sales.  These one-time sales tax increases in FY 2018-19 will not continue in FY 2019-20 and therefore will not be budgeted.  This explains the anticipated 8.3% decrease in sales tax estimates.   Overall, FY 2019-20 revenues are projected to decline by 5.83% than estimated revenues for FY 2018-19. 
 
Property taxes continue to grow as the City receives improved housing valuations, as well as new property taxes generated from the Central Park Village development.  Property taxes is the second largest revenue source and represents 21% of the FY 2019-20 budget.  Property tax collections grew approximately 10.86% in FY 2017-18 and it is anticipated to grow an additional 7.01% for FY 2018-19.  Staff made objective growth projections in future years which includes new development underway.  If new development continues as anticipated, the City’s actual property tax numbers will outperform these projections.

Expenditures
Total General Fund expenditures in FY 2019-20 are budgeted at $57,738,363.   This includes a one-time payoff of an energy efficiency loan of $2,453,903 that is reflected in the Public Works department budget for FY 2019-20.  The General Fund expenditures overall represents a 0.49% increase in budgeted expenditures when compared to the FY 2018-19 estimated year-end expenditures.  While acknowledging that cost of materials, supplies and contract services do increase, overall department operating expenditures are relatively minimal and are flat in several areas. 
 
Employees continue to contribute toward their retirement in accordance with the provision of Memorandums of Understanding (MOUs).  All employees contribute 100% of the employee cost of retirement.  The City has met its goal to have all City employees contribute the full cost per the current pension reform legislation.  In addition, most employees are contributing more than the employee portion and are cost sharing the normal employer cost.    For FY 2019-20, a 2% Cost of Living Adjustment (COLA) has been budgeted for employees.
 
The City’s mission is to provide quality services with the resources available.  However, this organization continues to be challenged to maintain the current level of service and additional duties with existing staff.  We understand that the search to reduce expenditures is continuous. 

Five Year Projections
Each year, the City’s General Fund revenues and expenditures are projected for five years.  The five-year projection is a planning tool and reflects staff’s best educated guess-estimates.  It does not represent approved or authorized deficit spending, rather depicts what could occur if the City were to choose not to make the necessary adjustments to operate within a balanced budget. The five-year projections allow us to take a glimpse at potential future budget impacts so that we can make the necessary adjustments to maintain a balanced budget.
 
These five-year projections and budget assumptions, from FY 2019-20 through FY 2023-24, are attached to this budget message.  It is noted, that the assumptions include a two percent (2%) increase in expenditures annually beginning in FY 2020-21 along with the anticipated increase in PERS costs, which result in an average annual increase in costs of approximately three percent (3%).  However, based on current information available, revenues are anticipated to increase slightly by approximately two (2%) percent.
 
The current projections show some challenges to maintain a balanced budget over this five-year period.  Throughout the next fiscal year, staff will continue to explore various options to help close the gap in future budgets. 

Funds
Decision packages are requests for new programs, new personnel and/or new equipment.  The decisions packages for FY 2019-20 were carefully vetted and then presented to City Council at the Budget Workshop on May 21, 2019.  A summary of recommended decision packages are included in the City Manager's Budget Message that is incorporated in the proposed FY 19-20 Proposed Budget (see attachment).  It is noted that staff recommends clarification for the implementation and annual evaluation of the Fire Deployment Proposal as follows:

• Approve Year 1 of the Fire Deployment Proposal which adds one firefighter position at Station No. 1 and corresponding overtime as outlined in the decision package;

• The deployment plan will then be evaluated the following two fiscal years prior to FY 2020-21 and FY 2021-22 to determine if the plan is still effective and if the budget can sustain the additional positions requested.  The projected cost of the deployment plan for these fiscal years included in the Five-Year Projections; 

• Prior to going into FY 2022-23, staff will return to City Council for a comprehensive review of staffing levels and service delivery options for Fire Stations No. 3 and 4.  Among other factors, this evaluation will take into consideration the station call loads and projected development on the east side of Brea. The projected cost of the deployment plan has not been included in the FY 2022-23 Five-Year Projections, pending the outcome of this review; and 

• Staff will continue to provide at least semi-annually emergency response time numbers to the City council and post the response time data on our website.