Consideration and Approval of Budget Adjustment: Fiscal Year 2023-24  Year End Budget Adjustment for Police and City Manager Divisions and Fiscal Year 2024-35 Budget Adjustments for City Manager Division
 

1. Approve the transfer of FY2023-24 budget appropriations from the General Fund Non-Department account to the Police Department and City Manager Division in the amounts of $1,900,000 and  $9,800, respectively.
2. Approve the transfer of FY2024-25 budget appropriation from the General Fund Non-Department account to City Manager Division in the amount of $65,000.

For fiscal year 2023-24, two divisions are anticipated to be over-budget and need a budget adjustment/transfer to ensure compliance with state statutes.  The Police Department needs a $1.9 million budget adjustment and the City Manager Division needs a $9,800 budget adjustment. The Police Department overage is due to an additional $3.2 million contribution made by the City's General Fund to the City's Public Safety Personnel Retirement System (PSPRS) - Police Plan with expectation that the plan will return to fully funded status as of June 30, 2024.  The small overage within the City Manager's Office budget is due to personnel costs higher than anticipated when adopting the budget.

For fiscal year 2024-25, the City Manager Office's budget is anticipated to be over-budget by $65,000. This is based on City Council direction and approval for salary market increases that were not anticipated when the budget was originally adopted.

A.R.S. § 42-17106  does not allow a city or town to revise its adopted budget to increase total expenditures. The statute does allow cities or towns to revise their budgets to avoid potential over expenditures at the department level. Subsection B of the statute allows budgeted expenditures at the department level to be revised by allowing the city/town council to transfer monies between budget items (departments) if all of the following apply: (1) the monies are available; (2) the transfer is in the public interest and based on a demonstrated need; (3) the transfer does not result in a violation of the limitations prescribed in Arizona Constitution, Article IX, §§19 and 20; and (4) a majority of the members of the city/town council votes affirmatively on the transfer at a public meeting.

These budget adjustments are necessary to ensure compliance with state statutes and meet these criteria with City Council approval.

Per state statutes, the City is not allowed to increase our total budget after adoption, therefore we recommend transferring budget authority for a net zero impact to the total adopted budget to ensure compliance.

FY2023-24 Budget Adjustment:

• Decrease General Fund Non-Departmental Budget  by $1,900,000.
• Increase Police Department Budget by $1,900,000.
• Decrease General Fund Non-Departmental Budget  by $9,800.
• Increase City Manager's Office Budget by $9,800.

The additional $3.2 million contribution to PSPRS- Police Plan was funded with the following resources:

• $600,000 in expected savings with the Police Department operating budget
• $316,000 in savings from public safety radios replacement purchase
• $889,000 from the FY2023-24 pension set aside
• $1,395,000 from the FY2025-26 pension set aside (reserved funding with the General Fund 5-year plan)

The additional contribution to PSPRS - Police is consistent with the City's PSPRS Pension Funding Policy.

FY2024-25 Budget Adjustment:

• Decrease General Fund Non-Departmental Budget  by $65,000
• Increase City Manager's Office Budget by $65,000

City Council has the responsibility to adopt an annual budget and this action would reallocate resources as adopted in June 2023. 

On June 4, 2024, Council approved the City's Public Safety Personnel Retirement System Pension Funding Policy. This Policy calls for the City to assure that PSPRS pension plans are 100% funded.

• Approve the FY 2023-24 and FY2024-25 Budget Adjustments as recommended. 
• Adjust and approve the FY 2023-24 and FY2024-25 Budget Adjustments. 

For the June 30, 2023, actuarial report, the Police plan fell below 100% funded (97.7%).  Therefore, staff made an additional $3.2M contribution in fiscal year 2023-24 to bring the plan back to fully funded.  This contribution is being made with existing total budget capacity as required by state statutes.  As noted earlier, resources will come from our pension savings set aside and savings from police operations.  The set aside funds were part of the initial financing plan to help assure the plans are meeting their funded status.  We will not need to use the PSPRS Contingency Reserve Fund.  That fund remains intact for larger potential impact due to economic and market changes as well as material changes to the pension plan actuarial assumptions in the future. City staff met with Public Safety Personnel Safety Retirement staff to discuss the City's annual progress since our pension financing in August 2020 to better understand possible future changes in funding status and design an improved plan to maintain the 100% funded status of our plans.  The two major factors for the decreasing in funded status are the impacts of higher than anticipated salary growth and actuarial audit adjustment.  

The City Manager Division budget was not provided for a portion of the employee travel allowance and personnel costs were higher than anticipated when adopting the FY 2023-24 budget.  The Division's budget, other than personnel, is only $20,177 and would be very difficult to maintain operations by cutting $9,800 out of this budget. For the $65,000 FY2024-25 budget adjustment, the salary increase was not anticipated and not within division's control. The Division budget outside of personnel is very limited making it impossible for the Division to make the necessary cuts to absorb this increase within that budget.

High Performing Governance: Maintain the organization’s fiscal stability through strong financial policies and best practices.

None.

None.

None.

Maintain Public Safety Personnel Retirement Plans above 100% funded.