The City Council has reviewed and given direction on all components which are included in the proposed Fiscal Year 2020-21 Operating Budget at the Budget Workshop held on June 2, 2020. The Proposed Fiscal Year 2020-21 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, 2020 and ending June 30, 2021). It does not constitute a mandate to spend, only the authority to do so. Due to the unprecedented challenges presented by the COVID-19 pandemic, the budget process and approach staff used to develop this budget reflect the uncertainty our economy faces for the foreseeable future. Staff attempted to take objective assumptions for both revenues and expenditures, but again, these assumptions are based on very finite information since the full impact of the current crisis is not known.
Staff will continue with strong communication at all levels of the organization as we work through this crisis and have a better understanding of the longer-term impacts to guide the City Council in making sound financial decisions for the future. Our organization is fostered by innovation and will become as important as ever as we work our way though these uncertain financial times.
Revenues
The COVID-19 pandemic has created an immediate and unforeseen financial impact to the City’s budget resulting in reductions in several General Fund revenue sources. In the short-term, the use of the City’s General Fund Excess Reserves in the amount of $1,560,050 are needed to maintain service levels to the community as well assess the longer-term impacts to the City’s revenue base. The total General Fund revenues are budgeted at $55,446,228 for FY 2020-21.
Sales tax revenue is the City’s single largest revenue source and represents 37% of the FY 2020-21 budget (including funding from excess reserves). Sales tax revenues are projected to decrease by 1.48% over FY 2019-20 estimates and will be closely monitored as we navigate this pandemic and the gradual re-opening of our community. Staff are optimistic that the business community will start to regain momentum as we enter the new fiscal year.
Property taxes are the second largest revenue source and represents 22% of the FY 2020-21 budget (including funding from excess reserves). Property tax revenues are anticipated to grow by 6.63% over FY 2019-20 estimates and is anticipated to keep pace in FY 2020-21. Property taxes are currently holding through this pandemic however staff will continue to keep in touch with the development community regarding projects already under construction and projects that are anticipated to be constructed in the new fiscal year.
Expenditures
Total General Fund expenditures in FY 2020-21 are budgeted at $57,006,278. This budget maintains service levels to the community and represents a 1.80% decrease in budgeted expenditures when compared to the FY 2019-20 estimated year-end expenditures. This is net of any changes from shifting revenues and expenditures for the City’s Golf Courses to a new fund (Fund 465) as well as the shift of revenues and expenditures for the City’s Development Cost Center to a new liability fund.
It is also important to note, that 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 2020-21, no personnel cost assumptions have been budgeted for employees other than personnel retirement benefits.
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 2020-21 through FY 2024-25, are attached to this budget message. It is noted, that the assumptions removes a two percent (2%) personnel cost assumption for FY 2020-21 and includes initial revenue loss as a result of the COVID-19 pandemic.
The current projections shows challenges to maintain a balanced budget over this five-year period. The projections will evolve as more information becomes available regarding the public’s reaction to business limitations resulting from the pandemic and, more importantly, what’s next for the virus. In addition, 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 decision packages for FY 2020-21 were presented to City Council at the Budget Workshop on June 2, 2020 to receive input and identify department needs for the coming fiscal year. In light of the recent COVID-19 pandemic, staff recommended to hold off on these decision packages until more refined financial information is available. However, City Council determined at the Budget Workshop that there are decision package requests that need to be addressed soon rather than later for safety and community benefits. Below is summary of recommended decision packages that are incorporated in the proposed FY 2020-21 budget. It is important to note that there is no General Fund impact.
- The Community Benefit & Economic Development Fund (140) will provide funding to purchase a new police supervisor vehicle as well as convert a current vehicle to a dedicated Homeless Liaison Officer Vehicle.
- Facility and equipment replacements, such as replacing ceiling tiles in the Arts Studio and meeting rooms, replacing classroom chairs in the children activity rooms and kid watch room, replacing security gates and providing additional security enhancements at the Community Center, will be funded by the Community Center Replacement (181) Fund.
- Narcotics Enforcement Asset Seizure Fund (231), which is restricted for Police Services needs, will provide funding to replace existing police gas masks and SWAT helmets.
- The implementation of the DNS Monitoring and Protection Software will be funded from the City’s Information Technology Fund (475) and will provide an additional layer of network security for the organization.
- The Dispatch Impact Fee Fund (543) will provide funding to purchase an online reporting software that will allow citizens to submit police reports electronically.
Following the Budget Workshop, the Fire Services Department has identified three (3) decision package requests that are high priority and are included in the budget and provided as Attachment A. There is no General Fund impact.
Summary
The COVID-19 pandemic has drastically changed the landscape of our community and maintaining service levels to the community despite the rapid loss of revenues has been challenging. Fortunately, through the guidance of the City Council, the organization has positioned itself with healthy General Fund reserves well above the current policy level of 25%. The excess reserves will help maintain current service levels as the organization develops a long-term plan to identify cost saving measures for the future. This will avoid making severe service reductions until the organization has an opportunity to better understand the long-term effects of the pandemic. Staff will also continue to closely monitor actual versus projected revenues and opportunities for vacancy savings that will assist in o providing more firm estimates as we navigate the new fiscal year. Staff commits to providing budget updates to City Council and anticipate having a better financial picture by October or November 2020.
Staff is also continuing efforts 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.
While we weather this pandemic and phase to our new “norm”, it is important to note that Brea is paying all its obligations on time; is setting aside funding for ongoing capital facility and equipment replacement; and is funding a robust Capital Improvement Program to adequately maintain City infrastructure systems.
The organization will make every effort to continue to build prudent reserves and strategic savings programs to insulate the City from a down turn in the economy and minimize organizational disruption. The entire organization continues to work hard to preserve core City services. Staff will continue to be diligent in monitoring long-term economic uncertainties that could impact Brea’s budget picture. These include:
- The effects of the pandemic and the likelihood of a resurgence
- CalPERS projected rate increases that will occur
- Increases in the cost-of-living
City staff uses a variety of tools, such as looking strategically at vacancies and consolidation of functions to structurally close the budget gap. Staff continues to research new and innovative ways of doing business.
Presenting the City Council with the FY 2020-21 budget is only one of the many projects that City staff has completed during FY 2019-20. Working within the City Council priorities and under their direction, City staff was able to complete a substantial list of accomplishments, which are found following this budget message.
I would like to thank the City Council for their patience and leadership during this unprecedented economic situation. Though the development of the FY 2020-21 budget is complete, the work will continue as we enter a new phase of data gathering and forecasting to match our new economic reality. |