| AGENDA ITEM #: 1. DATE: 04/19/2021 |
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CITY COUNCIL ACTION REPORT
| SUBJECT: | CITY MANAGER’S RECOMMENDED FY2022 ANNUAL BUDGET AND FY2022-2026 CAPITAL IMPROVEMENT PLAN |
| STAFF PRESENTER(S): | Doug Sandstrom Finance Director |
SUMMARY:
Staff will present, answer questions, and receive input from the City Council on the FY2022 City Manager’s Recommended Budget and five-year FY2022-2026 Capital Improvement Plan (CIP). Council discussion and feedback will be used to make any required modifications prior to presenting the Tentative Budget and preparing required publications for final adoption of the FY2022 budget. The City Manager’s Recommended Budget for FY2022 is $385.7 million.
As we emerge from the pandemic with many of our revenues performing at unprecedented levels and no indications of economic slowdown, this recommended budget is built around the core financial policies previously adopted by council. The budget maintains current programs and services to an expanding population base, addresses the highest priorities expressed by City Council including public safety, sustainability, prudent financial stewardship, compensating employees fairly, providing capacity to absorb capital cost increases, actively pursuing economic development opportunities and maintaining a focus on investing in infrastructure through our capital improvement plan.
As presented the recommended budget retains all base budget programs and services and adds $13.0 million in ongoing supplementals including 86.75 new full-time equivalent (FTE) positions, plus $7.5 million in one-time supplementals. Of the position additions, 38.25 FTE are public safety positions required due to growth, 13.0 FTE are directly related to expansion of Parks and Recreation programs and are comprised mainly of a block of seasonal PT hours, 9.0 FTE are in Water, Wastewater and Sanitation to support growth and maintenance, with the balance required to continue providing services to our residents or the organization.
The second year of a contract with represented sworn police employees and a tentative agreement with represented fire employees are included in the recommended budget and summarized in the provided materials along with compensation and benefit changes to be provided to non-represented employees.
The five-year CIP is fully funded and deliverable as presented. Major capital projects included in the FY2022 recommended budget include full funding to complete Fire Station 188 for west Goodyear; expansion of the Police Operations Building; a Municipal Operations Complex for our field crews; Design and land acquisition for the Estrella Bridge; Several high demand road projects including Camelback corridor, Yuma and Sarival. Projects programmed in FY2021 which are not complete at the end of the fiscal year are fully funded and will be carried over into FY2022 with the tentative budget adoption, these projects have funding estimated as fully complete in FY2021 and are not included in this Recommended budget. A budget overview is included in the agenda materials for this item which provides a high-level overview of the components of the FY2022 recommended budget along with the detailed information included in the Recommended Budget.
Local population growth and development both continue, generating ongoing and one-time revenues for the city. Assessed valuation growth for new properties again grew more than projections, combined with existing properties assessed valuation increases our total valuation increased by 10.0%. This growth supports both the ongoing General Fund and the city’s ability to pursue critical voter approved general obligation bonding for capital projects. No sales tax rate changes are proposed in this General Fund budget, primary property taxes are proposed at the maximum levy consistent with financial policy, and the secondary property tax levy is set so that combined the total property tax rate remains under $1.74 per $100 of assessed valuation.
As we emerge from the pandemic with many of our revenues performing at unprecedented levels and no indications of economic slowdown, this recommended budget is built around the core financial policies previously adopted by council. The budget maintains current programs and services to an expanding population base, addresses the highest priorities expressed by City Council including public safety, sustainability, prudent financial stewardship, compensating employees fairly, providing capacity to absorb capital cost increases, actively pursuing economic development opportunities and maintaining a focus on investing in infrastructure through our capital improvement plan.
As presented the recommended budget retains all base budget programs and services and adds $13.0 million in ongoing supplementals including 86.75 new full-time equivalent (FTE) positions, plus $7.5 million in one-time supplementals. Of the position additions, 38.25 FTE are public safety positions required due to growth, 13.0 FTE are directly related to expansion of Parks and Recreation programs and are comprised mainly of a block of seasonal PT hours, 9.0 FTE are in Water, Wastewater and Sanitation to support growth and maintenance, with the balance required to continue providing services to our residents or the organization.
The second year of a contract with represented sworn police employees and a tentative agreement with represented fire employees are included in the recommended budget and summarized in the provided materials along with compensation and benefit changes to be provided to non-represented employees.
The five-year CIP is fully funded and deliverable as presented. Major capital projects included in the FY2022 recommended budget include full funding to complete Fire Station 188 for west Goodyear; expansion of the Police Operations Building; a Municipal Operations Complex for our field crews; Design and land acquisition for the Estrella Bridge; Several high demand road projects including Camelback corridor, Yuma and Sarival. Projects programmed in FY2021 which are not complete at the end of the fiscal year are fully funded and will be carried over into FY2022 with the tentative budget adoption, these projects have funding estimated as fully complete in FY2021 and are not included in this Recommended budget. A budget overview is included in the agenda materials for this item which provides a high-level overview of the components of the FY2022 recommended budget along with the detailed information included in the Recommended Budget.
Local population growth and development both continue, generating ongoing and one-time revenues for the city. Assessed valuation growth for new properties again grew more than projections, combined with existing properties assessed valuation increases our total valuation increased by 10.0%. This growth supports both the ongoing General Fund and the city’s ability to pursue critical voter approved general obligation bonding for capital projects. No sales tax rate changes are proposed in this General Fund budget, primary property taxes are proposed at the maximum levy consistent with financial policy, and the secondary property tax levy is set so that combined the total property tax rate remains under $1.74 per $100 of assessed valuation.
Recommendation:
This item is for discussion, reaction and input to guide the City Manager’s final budget preparation for formal adoption. Formal adoption begins with Tentative Budget adoption on May 24, 2021, followed by Truth-In-Taxation and state required budget publications. Final budget adoption along with a public hearing will be on June 7, 2021. The final step in the FY2022 budget adoption process is Property Tax Levy adoption on June 21, 2021. (Doug Sandstrom, Finance Director)
FISCAL IMPACT:
This is an informational step in building the FY2022 budget. As proposed this budget complies with Council adopted financial policies that provide for fiscal conservatism, flexibility, and adherence to legal requirements and professional practices. Property tax levies and rates are within legal limits for the levy and the combined rate is below the maximum established in the adopted financial policies. A citywide user fee study has been completed and will be presented to council in June, no user fee changes are assumed in this recommended budget. The rate changes included in the adopted five-year rate plan for the water, wastewater and solid waste funds are included in those funds. These increases go into effect in January 2022.
American Rescue Plan funds are included in the budget in a separate fund as contingencies. No specific use has been identified as part of the budget – transfers will occur following council discussion and action on these funds. A work session is scheduled on May 3rd following completion of budget discussions.
American Rescue Plan funds are included in the budget in a separate fund as contingencies. No specific use has been identified as part of the budget – transfers will occur following council discussion and action on these funds. A work session is scheduled on May 3rd following completion of budget discussions.
BACKGROUND AND PREVIOUS ACTIONS:
The FY2022 budget process began in the early Fall with departments submitting their initial list of new capital projects, preparing base budget estimates, preparing supplemental addition requests and updating existing CIP project costs and timelines as needed. All of these estimates and requests are reviewed by Budget and Research and with the executive team. In the case of capital projects; Engineering Project Management, Information Technology, and Procurement are highly involved in reviews to ensure that all elements of a project are captured within its scope/budget and that we have the organizational resources to deliver the projects proposed.
In November, the Council discussed FY2021 budget adjustments related to increased revenue collections and the actual impact of COVID on the organization. These discussions led to mid-year budget adjustments in December. Council provided their initial FY2022 budget priorities in discussions at this retreat as well, these discussions were utilized in the development of this recommended budget. The first formal step in this budget process with the City Council, was the presentation of the five-year General Fund forecast. That forecast serves as the basis for this recommended budget with two notable changes: the pending receipt of American Rescue Plan funding from the federal government in the amount of $20.4 million and the inclusion of partner funding for the Camelback Corridor project. That work session was held on February 1, 2021.
On February 8, 2021, the City Council approved the financial and public safety pension policies. The key change in the financial policies was to increase from $5.1 million to $5.6 million, the portion of construction sales tax treated as ongoing revenue. This policy calls for annual review and the $5.6 million was based on the average of the lowest five-years in the prior ten of General Fund construction sales tax collections. Added to the financial policies was the spending hierarchy regarding the use of restricted funds prior to unrestricted funds. The public safety funding policies remained unchanged, but require by state statute annual Council approval including acceptance of the unfunded liabilities.
In November, the Council discussed FY2021 budget adjustments related to increased revenue collections and the actual impact of COVID on the organization. These discussions led to mid-year budget adjustments in December. Council provided their initial FY2022 budget priorities in discussions at this retreat as well, these discussions were utilized in the development of this recommended budget. The first formal step in this budget process with the City Council, was the presentation of the five-year General Fund forecast. That forecast serves as the basis for this recommended budget with two notable changes: the pending receipt of American Rescue Plan funding from the federal government in the amount of $20.4 million and the inclusion of partner funding for the Camelback Corridor project. That work session was held on February 1, 2021.
On February 8, 2021, the City Council approved the financial and public safety pension policies. The key change in the financial policies was to increase from $5.1 million to $5.6 million, the portion of construction sales tax treated as ongoing revenue. This policy calls for annual review and the $5.6 million was based on the average of the lowest five-years in the prior ten of General Fund construction sales tax collections. Added to the financial policies was the spending hierarchy regarding the use of restricted funds prior to unrestricted funds. The public safety funding policies remained unchanged, but require by state statute annual Council approval including acceptance of the unfunded liabilities.
STAFF ANALYSIS
The proposed budget complies with financial policies and the General Fund ongoing resources exceed the proposed ongoing uses by $5.9 million which indicates capacity to take on more ongoing costs than the budget proposes. As presented, the recommended budget allocates $2.5 million of this amount to one-time uses with the remainder to be budgeted as CIP reserves when the tentative budget is presented for adoption. Further, the operating cost set-aside, which is used to step the General Fund budget into future capital project operating costs by using ongoing revenues equal to the set-aside for one-time purposes, is at $1.3 million.