That the City Council:
A. Receive and file the Fiscal Year 2022-2023 (FY2022-23) Mid-Year Budget Update; and,

B.  Approve an appropriation in the amount of $80,000 from anticipated year-end General Fund savings to the Human Resources Department's professional services budget account 163101-7739; and,

C.  APPROVE AND ADOPT RESOLUTION NO. ____ ENTITLED:  A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LA HABRA, CALIFORNIA, AMENDING RESOLUTION NO. 6092 PERTAINING TO A COMPENSATION PLAN FOR EXECUTIVE AND MANAGEMENT EMPLOYEES; to approve the classification of the "City Clerk" position on the City's Management Salary Schedule at pay range 304.

The Finance Department has prepared the FY2022-23 Mid-Year Budget Update for City Council review and discussion.  In summary the General Fund, which supports most of the City’s core public services, is projected to end FY2022-23 with revenues over expenditures of approximately $2.6 million, partly due to projected year-end revenues exceeding budget estimates across several major revenue categories, including Property Taxes, Sales/Transaction Taxes, Fines & Forfeitures, and Fees & Charges. Additionally, departments have closely managed expenditures throughout the year and are estimating year-end savings, which include labor cost savings from a number of budgeted positions that currently are, or have been, vacant at times during the fiscal year.
 

  
In the area of recurring revenues:

With regard to budgeted expenditures, departments are estimating that their overall General Fund expenditures will end the fiscal year approximately $1 million below their adopted expenditure budgets, representing a savings of approximately 1.9 percent compared to budget. Most of these savings are the result of a number of budgeted positions that are either currently unfilled or that were vacant for some period of time during the fiscal year. Non-General Fund operating budgets are expected to end the fiscal year at or below their approved expenditure budgets, with associated revenues tracking to budget projections.

Mid-Year Budget Adjustments

After careful review of revenues and expenditures, staff recommends the following mid-year budget adjustments:

Human Resources:  

Staff requests that $80,000 be appropriated from anticipated year-end General Fund savings to the Human Resources Department professional services budget, account 163101-7739, to fund consultant fees associated with labor negotiations.

Administration:

Approve the classification of the "City Clerk" position on the City's Management Salary Schedule at pay range 304 (Attachment #2).  No additional funding appropriation will be necessary as a result of this requested change.

Future Fiscal Challenges

After three years of enduring the impacts from the COVID-19 global pandemic, the City and community has made significant strides to returning to pre-pandemic "normalcy". This can be seen by the large crowds attending City sponsored events and a return of shoppers and diners to local businesses and restaurants. That said, there are still lingering effects of the pandemic on the economy including continuing impacts to the supply chain, shipping backlogs creating delays in receiving certain goods and materials, and persistently high inflation causing the prices of certain goods, supplies, commodities, along with labor costs, to remain stubbornly elevated. 

The result of these continued impacts has caused an increase in certain economic indicators such as higher inflation, higher fuel and commodity costs, higher interest and mortgage rates, and a continued elevated cost of housing. Partially offsetting some of this strain on the economy is historically low unemployment which, while good for the economy, is causing secondary impacts such as limiting the pool of qualified candidates to fill jobs in both the public and private sector. This, as a result, has caused wages to rise in a number of key employment sectors that creates both direct and indirect expense to the City. Due to these and other factors, a number of economists now predict that the national economy may be headed to a recession in 2023, although it should be noted that there may not yet be consensus that a recession will form in the near future or, if one does, how severe or long-lasting it will be. What is likely; however, is that if a recession does occur, it will likely have an immediate and adverse impact on key sources of City revenue, such as sales and transaction taxes. Additionally, if the current housing market continues to cool or if it declines in both valuation and/or sales activity, the City could see its future property tax revenues level off or decline as well.  As these two sources of revenue comprise over 75 percent of the City's General Fund, any long term or persistent impacts could cause significant financial constraint for the City's general operations. 

A secondary and more serious long-term fiscal challenge is the pending loss of the City’s voter-approved transaction tax (Measure T), which is scheduled to sunset in December 2028. This locally controlled half-cent sales tax generates approximately $7.3 million in revenue per year for the City’s General Fund and was approved by La Habra voters in 2008 as a partial replacement for the loss of the City’s previous local Utility User Tax. Currently, Measure T accounts for approximately 13 percent of the total General Fund revenue and is a critical source of revenue helping fund the City's public safety programs and services, as well as its overall operations.