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Item No. 1.

MEETING DATE: 06/19/2023
TO:	HONORABLE MAYOR/CHAIR AND COUNCILMEMBERS/DIRECTORS
FROM:	JIM SADRO, CITY MANAGER/EXECUTIVE DIRECTOR By: Mel Shannon, Director of Finance
SUBJECT:	DULY NOTICED PUBLIC HEARING TO CONSIDER THE FISCAL YEAR 2023-2024 LA HABRA MUNICIPAL BUDGET FOR ADOPTION, AND TO ESTABLISH THE APPROPRIATIONS LIMIT FOR FISCAL YEAR 2023-2024

RECOMMENDATION:

That the City Council:
A. Approve and adopt the City of La Habra Fiscal Year 2023-2024 Municipal Budget;

B. APPROVE AND ADOPT RESOLUTION NO. ____ ENTITLED: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LA HABRA ADOPTING A BUDGET FOR THE FISCAL YEAR COMMENCING JULY 1, 2023 AND ENDING JUNE 30, 2024, MAKING APPROPRIATIONS FOR THE CONDUCT OF CITY OF LA HABRA GOVERNMENT, ESTABLISHING POLICES FOR THE ADMINISTRATION OF THE ADOPTED BUDGET, AND FOR OTHER BUDGET RELATED PURPOSES;

C. APPROVE AND ADOPT RESOLUTION NO. ____ ENTITLED: A RESOLUTION OF THE SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY OF LA HABRA ADOPTING A BUDGET FOR THE FISCAL YEAR COMMENCING JULY 1, 2023 AND ENDING JUNE 30, 2024;

D. APPROVE AND ADOPT RESOLUTION NO. ____ ENTITLED: A RESOLUTION OF THE HOUSING AUTHORITY OF THE CITY OF LA HABRA ADOPTING A BUDGET FOR THE FISCAL YEAR COMMENCING JULY 1, 2023, AND ENDING JUNE 30, 2024;

E. APPROVE AND ADOPT RESOLUTION NO. ____ ENTITLED: A RESOLUTION OF THE UTILITY AUTHORITY OF THE CITY OF LA HABRA ADOPTING A BUDGET FOR THE FISCAL YEAR COMMENCING JULY 1, 2023, AND ENDING JUNE 30, 2024;

F. APPROVE AND ADOPT RESOLUTION NO. ____ ENTITLED: A RESOLUTION OF THE CIVIC IMPROVEMENT AUTHORITY OF THE CITY OF LA HABRA ADOPTING A BUDGET FOR THE FISCAL YEAR COMMENCING JULY 1, 2023, AND ENDING JUNE 30, 2024; and,

G. APPROVE AND ADOPT RESOLUTION NO. ____ ENTITLED: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LA HABRA ESTABLISHING THE APPROPRIATIONS LIMIT IN ACCORDANCE WITH ARTICLE XIIIB OF THE CONSTITUTION OF THE STATE OF CALIFORNIA FOR THE FISCAL YEAR COMMENCING JULY 1, 2023, AND ENDING JUNE 30, 2024, AND AMENDING RESOLUTION NO. 6075.

DISCUSSION:

Each year the City Council adopts a municipal budget that identifies the revenues and allocation of resources from all City funds to achieve the City Council's goals and objectives, and to provide the La Habra community with high-quality programs, projects and services. City Administration and Finance Department staff, in cooperation with Department Directors and their staff, have prepared a proposed municipal budget for City Council consideration that addresses the City Council's goals and objectives, provides resources for public safety and other critical public services, and provides for the upkeep and improvement of City facilities and public infrastructure.

The overall FY23-24 Municipal Budget totals $187.4 million across all funds, of which the City's primary operating fund, the General Fund, comprises $55.4 million. The proposed municipal budget does not yet include additional labor costs that will be incurred once labor agreements between the City and its bargaining units are finalized and approved. The proposed General Fund budget includes approximately $3 million of unencumbered resources set aside for future budget appropriation by the City Council to address pending labor agreements, contractual agreements for fire services, and for potential allocation to capital projects or reserves.

General Fund Budget Overview

On June 5, 2023, staff presented the proposed FY23-24 La Habra municipal budget to the City Council. The budget presentation provided the City Council with an opportunity to review and discuss the City's proposed FY23-24 municipal budget and direct staff regarding any revisions. At the conclusion of the proposed budget presentation staff was not directed to make any revisions to expenditure budgets, and an estimated $3 million in unencumbered General Fund resources remained available for future appropriation by the City Council.

The proposed FY23-24 General Fund budget is balanced and has been developed to help achieve the City Council's goals and objectives for the organization. The proposed allocation of resources for FY23-24 are as follows:

FY23-24 PROPOSED GENERAL FUND EXPENDITURES BY DEPARTMENT

Police	$23,924,742
Fire & Ambulance	$14,204,894
Public Works	$5,909,503
Community Services	$4,477,673
Administration & Support*	$4,142,152
Community Development	$2,785,656
Total	$54,444,620

*Administration & Support consists of the following Departments: City Council, Administration, City Clerk, Legal Services, Finance/IT, and Human Resources

General Fund Expenditures

As can be seen by the table above, public safety (Police, Fire and Ambulance combined) continues to be the single largest spending priority in the proposed General Fund budget, accounting for 69% of resource allocation, with all other departments combining for approximately 31% of resource allocation. A variety of factors have shaped the scope of the proposed FY23-24 General Fund budget as the City resumes normal levels of programs, services, activities, and events, following the COVID-19 impacted years. Some of the more notable cost factors include:

$1,224,000 for increased fire and ambulance contract costs;
$223,000 to address staffing needs in several Departments/Divisions, including Police and Code Enforcement;
$82,000 to fund increases for part-time staffing in Community Services; and
$30,000 to fund a pilot Employee Education Reimbursement Program.

General Fund Revenues

Revenue projections for FY23-24 anticipate that the City’s General Fund property tax and sales/transaction tax revenues, which combine to account for 78% of all General Fund revenues, will increase by 8.2 percent and 4.1 percent respectively over FY22-23 budget estimates. Property taxes account for 40% of the General Fund revenue. In comparison to the FY22-23 Amended Budget, overall property taxes are estimated to increase by $1.7 million, or 8.2%, while secured property taxes (the largest single component of property tax revenue), are expected to grow by $925,065 or 7.5% in FY23-24. Despite the strong growth in this revenue source over the past several years, regional real estate market conditions have changed significantly since last year. While home prices remain close to record highs, the number of homes available for sale have reduced significantly. These factors, when combined with significantly higher mortgage rates, may reduce the amount of growth in the local home buying market. As such, City property taxes could be impacted if home sales or property valuations level off or decline.

Combined sales and transaction taxes represent the City's second largest source of revenue, accounting for 38% of the General Fund (25% from the 1 cent Bradley-Burns sales tax and 13% from the City's local ½ cent Measure T transaction tax). Both sales and transaction tax revenue are expected to grow in FY23-24. Finance staff, and the City's revenue consultants, estimate that sales/transaction tax revenue will increase by approximately $877,000 (4.1 percent) during FY23-24, compared to the prior year FY22-23 Amended Budget. It appears that there remains a strong demand for retail goods, both in online sales and at traditional "brick and mortar" commercial and retail locations in La Habra; however, prior year double-digit growth rates are not expected to continue. While inflation has had an impact on this revenue source in the short term, the largest long term threat to this source of General Fund revenue is the approaching sunset of Measure T in December 2028.

Future Budgetary Challenges

Although the proposed budget provides sufficient resources to restore normal municipal operations and has reserved funding for future appropriation by the City Council, there remain several issues that represent future fiscal challenges that warrant attention and planning. Some of these challenges are "internal" and concern matters that are, at least in part, controlled by the City or the community we serve; other challenges are "external" and are completely beyond the City's or community's control.

By far the most critical future budgetary challenge facing the City is the potential loss of the City's "Measure T" one-half cent voter approved transaction tax, which is scheduled to sunset in December 2028. This key source of locally controlled revenue, which was approved by voters in 2008, is projected to generate approximately $7.7 million, or 13 percent, of the General Fund revenue budget in FY23-24. As a significant part of the General Fund revenue program, Measure T provides a critical source of locally controlled revenue to help fund public safety services, City programs and events, capital projects, and other City Council and community priorities. Its loss, without a new offsetting long term revenue source, would significantly impact the City’s ability to continue providing the types of programs, services and projects that the City Council and La Habra community has come to expect.

Other challenges facing the City include rising costs due to inflation, difficulty filling staffing needs, continued supply chain disruptions, and the looming possibility of a recession. Inflation and labor market are matters of significant concern that have combined to drive up the cost of construction, materials, and supplies to unsustainable levels. Over the past year the City has experienced significantly higher increases in contractor bids for certain capital projects, which exceeded the amount of funding that had been previously programmed for those projects. These increases, when combined with delays in receiving necessary components for equipment and materials for projects, increased fuel costs, and increased labor costs, have required staff to reevaluate the financial viability of certain capital projects. While these impacts have not yet caused the cancelation of any capital improvement projects, the rising costs have caused staff to propose the re-allocation of certain available resources to help fund Council's highest priority projects, while delaying other medium priority projects until additional funding becomes available.

Municipal Budget Summary

The proposed FY23-24 General Fund operating budget is balanced and allows for a return to normal pre-COVID-19 operating conditions. The budget also provides adequate resources to fund anticipated municipal operations, programs and services based on City Council goals and objectives. Non-General Fund operating and capital budgets, including internal service funds, enterprise funds, authority funds, and special revenue funds, reflect expenditures that are within available revenues or which intentionally draw upon fund balances for capital projects and other planned expenditures.

The FY23-24 capital project budget proposes the addition of 25 new projects funded by a number of sources, including the General Fund, totaling approximately $16 million in new spending. When these projects are combined with the prior fiscal year projects that the City Council has already approved and appropriated funding for, City staff and consultants will be working on a total of 90 capital projects (streets, parks, storm drains, public facilities, etc.), totaling nearly $62 million. Currently, the most significant constraints on completing this ambitious capital improvement program include being able to secure sufficient engineering and project management consultants to assist with completing projects, and qualified contractors who have the capacity to bid on and complete projects at reasonable costs.

The proposed budget provides a blueprint to build on the City's successes, to address the City Council's and community's goals, and to provide staff with the resources necessary to continue providing high quality programs, projects, events, services and public safety for the community.

While much has been accomplished in prior years, notable goals for the upcoming fiscal year include:

Expand the City's Community Outreach/Homeless Services Program;
Complete Bishop Storm Drain Channel Improvements;
Begin construction of Vista Grande Park Improvements;
Complete construction of Old Reservoir Park Improvements;
Begin construction of a new park at the former Woman’s Club site;
Implementation of the recently purchased financial management system, to include a new budgeting and human resources management system;
Implementation of the recently purchased Land Management System to streamline the tracking and reporting of approvals for processing of building permits, code enforcement and planning activities, etc.;
Monitor expenditure of federal funding provided to the City through the American Rescue Plan Act (ARPA) to ensure compliance with applicable standards and regulations;
Support the completion of several private commercial projects that are currently under construction or that are in plan review;
Process residential projects that have been approved or that are under construction;
Continue to pursue grant funding for park development/renovation projects;
Complete easement acquisition negotiations and continue efforts to secure funding for the Union Pacific Rail Road Bikeway Trail project;
Maintain and improve the City's street, sidewalk, medians, parks, water, storm drain, and sewer facilities and infrastructure;
Complete design of the Euclid Street Regional Traffic Signal Synchronization Project;
Begin improvements to multiple City facilities, depending on funding availability;
Relocate the Historical Museum;
Renovate the Community Center Grand Ballroom and entryway;
Complete the City's Water Meter Replacement Program; and,
Initiate planning for the City's 100th Anniversary Centennial event to occur in 2025.

The proposed budget has been prepared in accordance with the City Council's goals and objectives while controlling General Fund expenditures within available projected revenues. In keeping with prior City Council direction, the proposed budget has been developed to maintain or enhance City services and improve the quality of life in the community.

FISCAL IMPACT/SOURCE OF FUNDING:

Approval of the City's FY23-24 budget will appropriate funds for the following operating units, special revenue funds, authorities, agencies and enterprise funds.

Summary of Expenditure Budgets
Special Revenue Funds	$ 60,633,625
General Fund	55,444,620
Refuse Fund	9,781,675
Capital Projects Fund	5,484,680
Debt Service Fund	4,823,460
Mobile Home Lease Fund	4,185,304
Children's Museum Fund	871,240
Total - Operating Funds	$ 141,224,604
Total - Utility Authority Funds	$ 34,006,467
Total - Internal Service Funds	$ 9,073,315
Total - Housing Authority	$ 2,285,752
Total - Redevelopment Successor Agency	$ 832,106
Total - Civic Improvement Authority	$ -
Total Municipal Budget	$ 187,422,244

GENERAL PLAN RELEVANCE/CITY COUNCIL GOALS & OBJECTIVES:

The FY23-24 Municipal Budget is consistent with the following area of the General Plan:
ED 9.1 -- Balanced Fiscal Practice

It is also consistent with the following City Council Goals and Objectives:
Goal 2, Objective A: Closely monitor revenues, expenditures, and fiscal trends to ensure the City's long term fiscal stability.

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