That the Council:

A. Approve and adopt the proposed City of La Habra Fiscal Year 2024-25 Municipal Budget;

B. APPROVE, AND ADOPT RESOLUTION NO. CC 2024-__ ENTITLED: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LA HABRA ADOPTING A BUDGET FOR THE FISCAL YEAR COMMENCING JULY 1, 2024, AND ENDING JUNE 30, 2025, MAKING APPROPRIATIONS FOR THE CONDUCT OF CITY OF LA HABRA GOVERNMENT, ESTABLISHING POLICIES FOR THE ADMINISTRATION OF THE ADOPTED BUDGET, AND FOR OTHER BUDGET RELATED PURPOSES; 

C. APPROVE AND ADOPT RESOLUTION NO. SA 2024-__ ENTITLED: A RESOLUTION OF THE SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY OF LA HABRA ADOPTING THE ANNUAL BUDGET FOR THE FISCAL YEAR COMMENCING JULY 1, 2024, AND ENDING JUNE 30, 2025;
 
D. APPROVE AND ADOPT RESOLUTION NO. HA 2024-__ ENTITLED: A RESOLUTION OF THE HOUSING AUTHORITY OF THE CITY OF LA HABRA ADOPTING THE ANNUAL BUDGET FOR THE FISCAL YEAR COMMENCING JULY 1, 2024, AND ENDING JUNE 30, 2025; 

E. APPROVE AND ADOPT RESOLUTION NO. UA 2024-__ ENTITLED: A RESOLUTION OF THE UTILITY AUTHORITY OF THE CITY OF LA HABRA ADOPTING THE ANNUAL BUDGET FOR THE FISCAL YEAR COMMENCING JULY 1, 2024, AND ENDING JUNE 30, 2025; 

F. APPROVE AND ADOPT RESOLUTION NO. CIA 2024-__ ENTITLED: A RESOLUTION OF THE CIVIC IMPROVEMENT AUTHORITY OF THE CITY OF LA HABRA ADOPTING THE ANNUAL BUDGET FOR THE FISCAL YEAR COMMENCING JULY 1, 2024, AND ENDING JUNE 30, 2025; and,

G. APPROVE AND ADOPT RESOLUTION NO. CC 2024-__ 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, 2024, AND ENDING JUNE 30, 2025, AND AMENDING RESOLUTION NO. 6117.

H. APPROVE AND ADOPT RESOLUTION NO. CC 2024-__ ENTITLED: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LA HABRA AMENDING RESOLUTION NO. 6113 PERTAINING TO A COMPENSATION PLAN FOR THE LA HABRA MUNICIPAL EMPLOYEES ASSOCIATION (FIELD/MAINTENANCE SERVICES EMPLOYEES GROUP); AND,

I. DIRECT STAFF TO PROVIDE A REPORT TO CITY COUNCIL WITHIN 60 DAYS IDENTIFYING ADDITIONAL GENERAL FUND COST OFFSETS, REVENUE OPPORTUNITIES, AND FUTURE BUDGET BALANCING MEASURES FOR COUNCIL CONSIDERATION.

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. The overall FY 24-25 Municipal Budget totals $182.9 million across all funds, of which the City's primary operating fund, the General Fund, comprises $62.1 million. The proposed General Fund budget was balanced using approximately $3.5 million in department line item budget cuts, $1.8 million in deferred internal service fund charges for information technology, risk management liability, and vehicle replacement expenses, and a $984,945 transfer from a Section 115 Trust fund that was established to help fund pension obligation costs. 

General Fund Budget Overview

At the June 3, 2024, City Council meeting, staff presented the proposed FY 24-25 La Habra municipal budget for City Council review. The report and budget presentation (Attachment 1) provided the City Council with:

The report and presentation discussed a proposed plan to keep General Fund expenditures within projected revenues in order to maintain a balanced budget. To accomplish this, staff proposed a combination of line item budget cuts across all departments (except Fire and Ambulance), internal service fund deferrals, and transfers totaling approximately $6.3 million. These recommendations were made in order to offset the $3.2 million increase in the Los Angeles County Fire Department fire services contract, new unfunded pension liabilities caused by an inability by CalPERS to meet their targeted returns, and increasing labor, operating and maintenance costs across all City departments as they continue to provide the services on which the City’s residents and businesses rely.

Staff was able to achieve a proposed balanced budget without utilizing general reserves through a combination of significant department line item budget cuts, including freezing nine full-time positions, freezing one part-time position, deferring internal service fund charges, and utilizing the City’s Section 115 Pension Trust Fund to help offset the new CalPERS unfunded pension liability. The City Council reviewed and discussed the City's proposed FY 24-25 municipal budget and, at the conclusion of the budget presentation, directed staff to make the following revisions to General Fund expenditure budgets:

At the same meeting, the City Council approved the new fee schedule for FY 24-25, resulting in an increase in General Fund revenues estimated at approximately $84,000. This additional revenue, combined with the Council-directed budget offsets, were sufficient to fund one of the two frozen Police Dispatcher positions that had been restored in the budget. The proposed FY 24-25 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 FY 24-25 are as follows:
  General Fund Expenditures
 

Public safety (Police, Fire and Ambulance combined) continues to be the single largest spending priority in the proposed General Fund budget, accounting for 70% of resource allocation, with all other departments combining for approximately 30% of resource allocation.

A variety of factors have shaped the scope of the proposed FY 24-25 General Fund budget, with the more notable including:

• $3,182,000 more per year for the LA County Fire contract for three, instead of the previous four, fire stations
• $985,000 for a new CalPERS unfunded pension liability expense
• $183,000 more for the City’s contract with Falck Ambulance
• $180,000 more for increased plan check and inspection contract services
• $130,000 for the annual land management system (LMS) contract services
• $72,000 more for on-call planning consultant professional services
• $50,000 more for the Inland Valley Humane Society animal sheltering contract
• $26,000 more for the City’s jail services contract

  General Fund Revenues
 
Revenue projections for FY 24-25 anticipate that the General Fund’s two primary revenue sources, property tax and combined sales/transaction taxes, will account for 77% of all General Fund revenues used to fund City programs and services. Property taxes account for 41% of the General Fund revenue and, when compared to the FY 23-24 Amended Budget, are estimated to increase by $1.8 million, or 7.8%. Despite the strong growth in this revenue source over the past several years, regional real estate market conditions have changed significantly since last year. Home prices remain close to record highs; however, the number of homes available for sale has reduced significantly. These factors, when combined with significantly higher mortgage loan 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 36% of the General Fund (23% from the 1 cent Bradley-Burns sales tax and 13% from the City's local ½ cent voter approved Measure T transaction tax). Bradley-Burns sales tax revenues are forecasted to decline by over $400,000, or 3%, in the upcoming fiscal year, while Measure T transaction and use tax revenues are expected to remain relatively stable with nominal growth of approximately $50,000, in FY 24-25. As a result, combined sales/transaction tax revenues are estimated to decrease by approximately $387,000, or 0.6 %, during FY 24-25 compared to the FY 23-24 Amended Budget. Retail sales patterns have indicated a potential shift in consumer retail spending behavior with more shoppers opting for essential household items over more expensive purchases. The City has a significant number of retailers who specialize in general household goods, and this category of spending tends to be less prone to significant swings during turbulent economic times. That said, many cities, including La Habra, have seen an increase in online sales activity which often results in less tax revenue being distributed through Countywide pools to local cities, but rather, sees those online sales and related tax revenues directed to the relatively few municipalities in the region that have the capacity to host large fulfillment centers.

While the City’s sales tax base is fairly broad and diversified, it should also be noted that sales taxes tend to be a more volatile revenue source that can fluctuate more quickly during recessionary periods than property taxes, which typically take longer to adjust to significant changes in a real estate market. But far more impactful than a potential recession on sales tax revenues will be the approaching sunset of Measure T in December 2028, which will result in the loss of approximately $7.8 million of revenue to the General Fund.

Municipal Budget Summary

The FY 24-25 Municipal Budget totals $182.9 million across all funds, with the General Fund comprising $62.1 million. The proposed General Fund budget includes a number of budget and service cuts to keep expenditures within available projected revenues while still prioritizing public safety and other critical public services. While this was accomplished without the need to draw down general reserves, it did result in service impacts described in more detail in the attached budget presentation report.

A summary of the more significant cuts and impacts, by Department, include: 

Community Services

• Cut funding for 5,200 part-time hours, equivalent to approximately five part-time staff in Recreation, Special Events, Social Services
• Eliminate funding for subsidized CPR classes for the public
• Eliminate funding for a private security guard at the Skateboard Park
• Reduce funding for staff training
• Allocate 25% of the Administrative Analyst II personnel costs to grant funds
• Elimination of the Summer Mini Camp program for young children
• Reduction of Movies in the Park from 9 to 6 summer movies
• Eliminate extra Recreation part-time staffing for City-wide graffiti abatement services
• The Skate Park will again be unstaffed with park users expected to follow posted rules
• Reduction in Splash Pad staffing and “Splashtastic” activities
• Reduction in parks and facility staff hours, general Recreation assistance for city-wide special events and activities, and support of senior citizen activities

Community and Economic Development

• Planning Division
  • A greater use of part-time staffing, resulting in potentially higher turnover as those employees consider full-time positions at other agencies, resulting in continual training of new staff
  • Lack of La Habra-specific planning expertise and historical knowledge with contract staff
  • Reduction in customer service hours in the Planning division
  • Difficulty in clearing the backlog of planning applications and plan checks
  • Continued delays in project processing
  • Delays in moving forward with prior Council initiatives, including:
    • Updated La Habra Boulevard Specific Plan
    • Code Streamlining and Improvement program
    • Public Art Ordinance
  • Potential challenges ensuring continued compliance with constantly changing state legislative mandates and new laws
  • Challenging to proactively implement affordable housing goals and objectives
• Building Division
  • Use of a contract Building Inspector will allow service to be scaled if demand is low or picks up, but potentially at a higher overall cost depending on workload
  • Lack of La Habra-specific expertise and historical knowledge with contract staff
• Code Enforcement
  • With only two remaining inspectors, staff will have to reevaluate routine or lower risk complaints/inspections in order to prioritize high-risk or emergency situations
  • Could reduce the City’s ability to enforce codes which may result in more unpermitted work being done
  • Will result in reduced staffing available to provide outreach, education, and assistance
  • Will result in a higher per inspector case load, and will likely result in delays responding to complaints and addressing code violations

Public Works

• Parks Division:
  • Reduced irrigation will save water and related costs, at the potential cost of plants and landscaping being stressed and suffering damage depending on summer heat levels
• Engineering Division:
  • Reduction of contract On-call engineering services will delay project processing and completion
  • May result in delays in response to private development plan checks
• Traffic Division:
  • Reduction in the frequency of traffic signals being maintained
  • May result in delays in response to traffic engineering services
• NPDES Division:
  • Reduced frequency of business inspections to ensure compliance with NPDES regulations
• Street Division:
  • Reduced funding for emergency repairs to curbs, gutters, fencing, etc.
  • Reduced funding for trash cleanup and weed abatement in City-owned alleys and sidewalks
  • Reduced funding and frequency of weed abatement along the private railroad right of way and on open parcels when complaints are received
  • Reduced funding for sidewalk steam cleaning
  • Reduced funding for bus shelter maintenance and repairs resulting from vandalism

Administration and Support

• Tasks and functions in the Finance Department will continue to be redistributed among fewer staff, thereby increasing workloads and decreasing institutional knowledge
• Potential delays in completing financial reporting
• Increase in response time to requests for financial information and analysis from City departments and outside agencies
• Reduction in the number of eligible staff who will be able to participate in the pilot tuition reimbursement program due to a reduction in funding for this program
• Increase in work sharing in Administration due to the elimination of a part-time position
• Reduced funding for training will impact the frequency and efficiency of training staff, especially as new laws and regulations are implemented

Police

Despite a large budget cut to the Police Department, there will not be any impacts to basic police services at this time. The Department will continue maintaining its response goals for emergency calls for service and public safety.

• Due to the reduction of vacant non-sworn staff positions, combined with a significant reduction in funding for overtime for sworn personnel, there will be potential impacts to:
  • Traffic
  • Special Investigations
  • Crime Impact Team
  • School Resource Officers
  • Animal Control
• Decrease in directed traffic enforcement
• Delayed response to non-sworn personnel assisting with traffic collisions
• Delayed investigation times for traffic collisions
• Decrease in parking enforcement
• Delayed response to minor criminal investigations (e.g. vehicle break-ins, vandalism)

Non-General Fund Budgets

The City’s non-General Fund budgets overall remain relatively stable with a few noteworthy changes in a few funds.

The largest budget decrease was in American Rescue Plan Act (ARPA) funding, which declined from $7.7 million in the amended FY 23-24 to approximately $800,000 in the FY 24-25 budget. This decrease is due to the ending of federal ARPA funding to local government agencies, which was allocated during the COVID pandemic and required agencies to appropriate the funds by 2026. Federal Community Development Block Grant (CDBG) funds have also seen a reduction of approximately $400,000 due to the elimination of pandemic related supplemental federal funding. CDBG funding is expected to now return to pre-pandemic levels.

The City’s Utility Authority Water Operations and Sewer Operations funds both had utility rate adjustments in January 2024 and revenues were increased to reflect the new rates. However, there was a $6.8 million decrease in the Water Capital fund budget for FY 24-25 due to the successful completion of several major capital projects, including installing new water mains on Euclid Street, replacing broken water valves, and the design of the Hacienda Pump Station project. The Water fund also purchased additional Cal Domestic Water Company stock to continue providing the City with access to lower cost water resources and to further reduce the City’s reliance on other, more expensive, imported water sources.

The Park Acquisition and Development fund budget declined by $2.2 million due to several capital projects being completed in FY 23-24, including:

• New lighting at Montwood Park
• New playground shade structures at Corona Park
• New security cameras at Portola Park
• Substantial completion of full renovations at Steve Simonian Old Reservoir Park

Capital Improvement Projects Budget

The City’s FY 24-25 capital improvement budget proposes the addition of 18 new projects next year funded by a number of sources, including the General Fund, totaling approximately $5.7 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 52 capital projects (streets, parks, storm drains, public facilities, etc.), totaling nearly $68.3 million. Currently, the most significant constraints to successfully completing many of these projects is the high workload assigned to a limited number of City engineering staff, the high cost and limited availability of qualified contract engineer/project management consultants to assist staff, and the continued high cost and limited capacity of qualified contractors to bid on projects at price points the City can afford.
 
City Goals and Objectives for Fiscal Year 2024-2025

While much has been accomplished by the City in prior years (see Attachment 1), notable goals that City staff will be focused on over the upcoming fiscal year include:

• Plan and present a Centennial Celebration for the community to include memorable events and activities
• Continue to provide high-quality, low-cost programs for the community within the approved budget
• Complete a comprehensive facility assessment of City-owned buildings
• Complete building renovations at 106 E. First Street and 205 Euclid Street and assist with the move of the Art Association, Woman’s Club, and Historical Society to these newly renovated buildings while completing the City’s new Arts & Cultural District Plan on Euclid Street
• Continue to actively address the needs of the unhoused community
• Monitor funding opportunities to facilitate development of affordable and permanent supportive housing
• Identify blighted and underutilized properties and prepare targeted strategies to address the challenge
• Continue fostering a “business friendly” environment and streamline project processing
• Develop a strategy to establish a robust downtown district along La Habra Boulevard
• Repave Euclid Street north of Whittier Blvd
• Repave Macy Street and rehabilitate portions of Monte Vista Street
• Complete Harbor & Arbolita traffic safety improvements
• Begin Euclid Street Regional Traffic Signal Synchronization Project
• Continue the citywide Safety Lighting improvement project
• Present Neighborhood Traffic Mitigation Plan results and recommendations to Council
• Monitor private storm channel repairs at Coyote Village
• Continue project designs for Water Main Line Improvements
• Complete the Vista Grande Park Improvement project
• Complete the Las Reinas Woman’s Club Park Improvement project
• Complete the City’s pre-school facility on Whittier Blvd. playground improvement project
• Implement the new Financial Management System on July 1, 2024
• Update the City’s Purchasing Policy to be consistent with the new financial management system
• Configure a new human resources and payroll management system for implementation on July 1, 2025
• Implement Council policy direction with an emphasis on organizational excellence, values, and customer service
• Advocate the City’s legislative platform and seek grant funding to support City priority projects/programs
• Continue community interaction, education, and outreach efforts across multiple platforms
• Retain a consultant to conduct a comprehensive fee study and bring recommendations to Council for consideration
• Retain a consultant to assess the City’s fire service model and system, and bring recommendations to Council for consideration
• Promote outstanding customer service to the community throughout all levels of the Police Department
• Achieve average Police response time of under 4 minutes to emergency (priority one) calls and under 13 minutes for less urgent calls
• Continue the collaborative effort with other City departments in aggressively enforcing the City’s graffiti ordinance and addressing the issue of homelessness
• Continue to partner with local businesses to combat retail theft

Future Budgetary Challenges

As was discussed in detail at the June 3, 2024, Council meeting, the City was already facing fiscal challenges similar to other cities in the region, including a very competitive labor market, rising operating and maintenance costs, the lingering impacts of high inflation on all aspects of municipal operations, and the possibility of a mild recession. Additionally, City staff have been planning for new costs associated with maintaining two brand-new community parks (Vista Grande and Woman’s Club), along with dealing with emergency storm drain repairs and aging infrastructure.

However, in addition to these expected operating challenges, the City is also facing unanticipated and immediate budget impacts as a result of an unprecedented increase in the LACoFD fire services contract. Due to the core municipal responsibility to provide the community with high quality, responsive fire services and address the annual increase in fire service contract costs that are likely to continue, this is an issue that cannot be solved with one-time measures, such as depleting reserves or by continuing to indefinitely underfund internal service funds.
 
When combined with the impending sunset in 2028 of the City’s Measure T voter approved ½ cent local Transaction and Use (Sales) tax, a significant structural budget deficit will be created with the potential to inflict serious challenges to the City’s ability to continue providing the full complement of services that the community has come to expect. Without a corresponding increase in revenues and/or more substantial structural cuts to the General Fund expenditure budget, the City will be facing severe economic conditions starting as soon as FY 25-26.

While not ideal, it will be necessary to continue evaluating the City’s capacity to provide a variety of quality of life services such as graffiti abatement, code enforcement, and community programs at levels previously established. This may include impacts to the City’s homeless outreach efforts and sheltering services, which had traditionally been the County of Orange’s responsibility, but was transferred to cities several years ago. To date, the City has been fortunate to have access to certain non-General Fund revenue sources dedicated to homeless services, but as these special funding sources continue to be reduced or fully utilized, more costs may need to be shifted to the General Fund in future years to maintain the current level of homeless outreach services being provided, depending on future Council policy direction.

With public safety now making up 70% of the General Fund budget, the net impact from the loss of Measure T, in addition to the increased cost of the City’s fire contract with LA County Fire, will exceed the ability for non-public safety Departments to absorb alone. This will need to lead to future budget discussions and policy decisions by the City Council to determine what other options might be considered for fire service provision for the community other than the Los Angeles County Fire Department, and what changes Council may want to consider regarding certain Police operations and services in order to preserve resources for core Police functions.

In addition to further budget cuts, City Council may also want to consider other ways to increase non-tax revenues, such as reducing or eliminating certain program subsidies and raising or instituting new fees. Currently, the City provides many low-cost or free benefits to residents, businesses, non-profits, and community groups with the City’s General Fund absorbing many of the costs associated with providing these programs. Some examples of subsidies include:

• Providing high quality special events, often at a low cost or free to the community
• Providing certain local community based non-profit organizations with very low cost or free meeting space to rent or use, or City facilities to lease for $1 per year
• Providing high quality in-house animal control services to the community, including full sheltering and veterinary services for injured animals, with dog licensing fees only covering approximately 25% of cost, resulting in a General Fund subsidy of over $400,000 per year.

The City cannot afford to wait until 2028, when Measure T is scheduled to sunset, in order to adjust for the loss of this critical locally controlled funding source. Staff recommends the City Council take a proactive stance and direct staff to continue its planning efforts by reviewing additional potential budget cuts, staffing cuts, expense reductions, changes in subsidies, and identifying potential new revenue streams. By doing so, staff can develop options and recommendations for Council consideration with the goal of continuing to provide an acceptable level of service to the City’s residents, community partners, and businesses in the least disruptive way possible. If future revenue streams can be identified, there is a possibility that certain cuts that have been proposed or approved may be restored by future Council action. To accomplish this, staff recommends that Council direct staff to provide a report to Council within 60 days identifying additional general fund cost offsets, revenue opportunities, and future budget balancing measures for Council consideration.

Two new position titles, Park Coordinator and Street Coordinator, are also being recommended for approval in the compensation plan for the La Habra Municipal Employees Association (Field/Maintenance Service Employees Group). The parks position changes are related to the reorganization of Parks division staffing as part of the Public Works Department's budget cuts and have been incorporated into the budget and salary schedule. The Street Coordinator position is a position title change only and not expected to be filled in the upcoming year.