CITY OF SIGNAL HILL - File #: 24-325

Date	Action By	Action	Result	Action Details	Meeting Details	Video
6/11/2024	City Council	Adopted	Pass	Action details	Meeting details	Video

AGENDA ITEM

TO: HONORABLE MAYOR

AND MEMBERS OF THE CITY COUNCIL

FROM: CARLO TOMAINO

CITY MANAGER

BY: SHARON DEL ROSARIO

ADMINISTRATIVE SERVICES OFFICER/FINANCE DIRECTOR

SUBJECT:

title

RESOLUTION ADOPTING THE ANNUAL OPERATING AND CAPITAL BUDGET FOR FISCAL YEAR 2024-25 (YEAR 1) AND RESOLUTION ESTABLISHING THE ANNUAL APPROPRIATIONS LIMIT FOR FISCAL YEAR 2024-25

summary

Summary:

The City Council will consider adopting the first year of a biennial budget for Fiscal Year (FY) 2024-25. The City Council reviewed the proposed FY 2024-25 (Year 1) Operating and Capital Budget (Operating Budget) at the budget workshop held on May 14, 2024. The Operating Budget, as presented, is structurally balanced per City policy. In addition, the City Council will also consider a resolution adopting the annual appropriations limit for Year 1, known as the Gann limit.

Strategic Plan Goal(s):

Goal No. 1 Financial Stability: Ensure the City’s long-term financial stability and resilience

Goal No. 2 Community Safety: Maintain community safety by supporting public safety services and increasing emergency preparedness.

Goal No. 3 Economic & Downtown Development: Improve the local economy, support local businesses, and create a vibrant downtown core.

Goal No. 4 Infrastructure: Maintain and improve the City’s physical infrastructure, water system, and recreational spaces.

Goal No. 5 High-Functioning Government: Strengthen internal communication, recruitment, retention, systems and processes to increase the effectiveness and efficiency of city services.

recommendation

Recommendations:

1. Adopt a resolution, entitled:

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA, ADOPTING THE ANNUAL OPERATING AND CAPITAL BUDGET FOR FISCAL YEAR 2024-25 (YEAR 1) AND APPROVING THE ANNUAL OPERATING AND CAPITAL BUDGET FOR FISCAL YEAR 2025-26

2. Adopt a resolution, entitled:

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA, APPROVING AND ADOPTING THE ANNUAL APPROPRIATIONS LIMIT FOR FISCAL YEAR 2024-25

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Fiscal Impact:

The City’s Operating Budget provides program expenditure budgets for the General Fund in addition to the Water Fund, the Vehicle Replacement Fund, and Special Revenue Funds. The Operating Budget reflects Year 1 General Fund estimated revenues and transfers-in totaling $38,897,794, comprised of $37,333,355 in operating revenues and $1,564,439 in non-operating revenues; and total appropriations and transfers-out in the amount of $38,897,794 in operating expenses (Attachment A).

The total revenues and proposed expenditures result in a projected balanced General Fund Operating budget. Staff projects the estimated General Fund unassigned fund balance will complete Year 1 at $26,329,436 and the Economic Uncertainties Fund balance will be $5,813,094, with an estimated total of $32,142,530. This amount represents approximately 92% of the General Fund budgeted expenses for Year 1.

Unused appropriations and/or revenues exceeding expenses at the end of every fiscal year revert back to fund balance. This residual fund balance can then be used for one-time expenses (non-operating) or put aside as a reserve for future purposes. Staff proposes the City Council consider any unused appropriations for one-time uses or funding of reserves when the final year-end audited financial results are completed for Year 1, which is anticipated to be presented to the City Council in December 2024.

Background:

A community’s quality of life is rooted in the effective delivery of essential municipal services to residents and businesses. Cities are the frontline in providing leadership and governance; establishing local laws; providing public safety and emergency services; delivering safe, clean, affordable water; providing recreational, social, and learning opportunities; overseeing development activities; building and maintaining public infrastructure; and identifying opportunities for reinvesting in the community. Therefore, how a city is funded, and how well it is funded, is vital to the delivery of these services and ultimately, the quality of life.

Cities are constantly dealing with the challenges associated with balancing limited resources against ongoing costs and demands of delivering essential services. Each year, the City establishes priorities and makes decisions to balance the needs of the community compared to available resources. A city’s budget memorializes and documents those priorities and decisions, serving as a framework throughout the fiscal year. The budget is a guide and financial plan developed to implement community priorities and goals, build upon past experience and performance, while anticipating new opportunities, and support continuous improvement.

Analysis:

Beginning in 2014, the City transitioned to utilizing a two-year budget format to reinforce the City’s commitment to long-term fiscal health. This approach provides a broader overview of the City’s capacity to continue meeting the costs and demands of delivering essential services and promoting long-term strategic planning, while retaining the fiscal control provided by annual budgets. Preparation of the two-year budget is an extensive process that involves a collaborative effort beginning with the City’s documented strategic goals and objectives. The budget is then drafted and reviewed in depth at a public budget workshop. The first year is adopted by resolution and the second year is approved.

In the second year, the previously approved budget is reviewed and presented with recommended updates or as operational needs have changed. This process is similar in concept to a mid-year budget review and affords the opportunity to adjust the second year as needed. Inasmuch as the City Council approves the second-year budget in conjunction with the two-year budget, it is not intended to be a complete re-evaluation of the City’s major goals and plans. Staff presented the proposed Year 1 Operating Budget for review and discussion at a duly noticed budget workshop on May 14, 2024, and is now being presented for adoption.

Fiscal Year 2023-24 Review:

While the budget continued to reflect tempered optimism with the global and local economies facing challenges related to stubborn inflation, high interest rates, and geopolitical pressures, the City maintained a strong fiscal position with its long tradition of fiscal prudence and conservative budgetary management. The City’s FY 2023-24 Operating Budget focused on the continued delivery of quality core municipal services while proactively addressing public safety, deferred maintenance, and operational needs. The City also advanced efforts to create and maintain a work environment conducive to retaining, promoting, and attracting a successful workforce. In developing the budget for the major general fund revenues, the City relied on an analysis of historical performance and trends, as well as industry, economist, and news reports.

The City’s passage of Signal Hill Measure R (SHR), the transaction and use (sales) tax add-on, and the City’s specific mix of retail businesses has placed the City in a good position heading into FY 2024-25. The City is grateful to the community for passing this significant sales tax measure; recommended updates to the budget for the coming fiscal year represent the City’s desire to utilize this funding wisely to provide high-quality services. In addition, the City was the recipient of several state and federal funding programs that will assist in providing funding for several critical capital improvement projects.

The City’s expenditures were developed as a conservative spending plan addressing City Council and community priorities. The City’s continued operations at full capacity include the expansion of current community programs, increased public engagement through communications, committees, leadership academies, and other city events, and includes plans for future economic development. The budget also reflects the utilization of special revenues and grant programs in the City’s capital plan and operational expenditures.

As mentioned, changing economic conditions have impacts on the City’s budget and lead to reevaluating spending strategies; the City’s future economic health will be dependent on maintaining healthy reserves through fiscally conservative budgets and policies, planning for economic development opportunities, and maintaining its strong financial position through prudent, long-range policy decisions and sound fiscal management. The City will continue to monitor key economic indicators, sources of revenue, and spending levels as part of its sound, conservative fiscal approach.

In Fiscal Year 2023-24, staff continued delivering many programs, projects, and services that contribute to the high quality of life enjoyed by residents and businesses. This year, the City began placing a greater emphasis on addressing quality-of-life issues such as addressing code enforcement, enhancing maintenance of public parks and facilities, and addressing homelessness. In addition, the main highlight for 2024 includes the City’s Centennial Celebration as well as many other accomplishments highlighted below:

• City’s 100^th Year Centennial Celebration

o History Makers Dinner

o Centennial Celebration event including color fun run and drone show

o Time Capsule reveal and historical artifacts display

o New City Seal recognizing the 100^th anniversary

o Special Street Pole Banner Program celebrating 100 years

• Infrastructure and Amenities

o Presented the Conceptual Civic Center Master Plan

o Developed plan for the City Hall remodel and office improvement project

o Enhanced landscape maintenance at all City Parks and City Facilities

o Improved bus stop shelters through the community

o Completed Palm Drive Pavement rehabilitation project

o Completed Cherry Avenue and Jessie Nelson Circle street improvements

o Completed repair of 3,400 square feet of sidewalk and filled 30 potholes

• Communications and Community Engagement

o Implemented the City’s first Resident Leadership Academy

o Implemented the 2024 Commemorative Flag Schedule

o Provided ongoing support to the Diversity Coalition Committee

o Presented “Meet the City” to the Chamber of Commerce

o Completed the City’s 2023-2028 Strategic Plan update

o Completed Audio-Visual improvement project for Council Chambers

o Published and distributed City Views magazine to 17,700 households (5,900 households per quarter)

o Published Small Business Spotlights to highlight local community businesses

o Updated the GIS maps for water meters, opportunity study areas, mobile maps for street trees, sidewalks, and water service. Other updates include aerial imagery, sidewalk repair, pavement conditions and zoning and land use

o Issued 1,874 new library cards and provided over 26,410 Wi-Fi connections (up from 11,000 in the prior year)

• Quality of Life Initiatives

o Established the Neighborhood Enhancement Team (NET), an interdisciplinary committee of staff from multiple City Departments working to address community issues related to quality of life, code enforcement, and homeless outreach services

o Worked with the City Attorney’s Office to draft an omnibus code update that revised numerous sections of the Signal Hill Municipal Code to address code enforcement and quality of life issues

o Developed a comprehensive and ongoing homeless outreach program by coordinating services with the Los Angeles Pathway Home Program, Los Angeles Homelessness Services Authority, and People Assisting the Homeless

o Addressed community concerns, including homelessness at Reservoir Park and other City facilities, through the efforts of the NET committee

o Achieved Zero-Functional Homelessness, a NET initiative, that worked with regional service providers to successfully house over 50 people and provide supportive services

o Provided Food Distribution services for 738 seniors and families

• Special Events

o Hosted senior luncheons, weekly In-person activities and excursions for 585 Active Adults

o Co-sponsored various programs with the Signal Hill Community Foundation and Signal Hill Police Foundation

o Developed new events in collaboration with Long Beach Gem & Mineral Society with over 800 Attendees

o Continued collaborated events with Long Beach Animal Care Services, Community Animal Medicine Project, Sustainable Health Empowerment for community Health Fair, Museum of Latin American Art, and Khmer community of Long Beach

o Expanded/New Library Programs including the Photography Club, Open Studio, Virtual Reality Experiences, STEAM lab, Zumba, Yoga at the Reservoir, Author Talks and Spring Courtyard Concert Series

o Served 384 youth in the After School Recreation Club (ARC), 93 youths in sports programs and 150 youths in Day Camp programs

o Hosted Concerts in the Park, Movies in the Park, Paws on the Hill event, Spring Fest, State of the City, and seasonal special events, including the annual Holiday outreach programs

• Public Safety

o Continued partnership with Signal Hill Police Foundation to support the efforts and community programs implemented by the Signal Hill Police Department

o Recruited and hired a Police Captain to provide long-term leadership to the Signal Hill Police Department

o Implemented a lateral incentive program to increase the City’s competitiveness for well-trained Police Officers

o Continued expansion of awareness and messaging on multiple media outlets to highlight City events and programs available to residents and business

o Completed the upgrade of the Police Radio System and upgraded the handheld and patrol car radio systems

o Deployed new body-worn camera equipment with new system technology

o Provided enhanced Community Policing outreach through expanded social media presence, holiday outreach, neighborhood watch, the Signal Hill Police Foundation and the catalytic converter etching event

• Economic Development and Housing

o Received approval from the City Council to initiate economic and land use studies for three Opportunity Study Areas to create opportunities to diversify City revenue sources

o Partnered with Chamber of Commerce to discuss and develop needs for future business development programs

o Released a $10 million Notice of Funding Availability (NOFA) to advance the development of the Walnut Bluff and Orange Bluff workforce housing sites

o Executed an Exclusive Negotiation Agreement with National CORE to advance the workforce housing sites

o Prepared the General Plan annual review and submitted mandated progress report to HCD

o Continued implementing the City’s 6^th Cycle Housing Element

o Participated in public outreach for Environmental Justice and Environmental Resources General Plan Elements

o Completed plan review and building permit issuance for the new Audi dealership

o Completed an update to the conditional use permit and negotiated a development agreement for the EDCO Transfer Station Facility

• Sustainability

o Provided ongoing support to the Sustainable City Committee

o Maintained 100% compliance of the State’s mandatory organics programs for both business and multi-family units

o Maintained 29.5 acres of park space and trimmed 2,140 City trees

o Adopted a comprehensive Street Tree Master Plan that includes planting 250 trees

o Received the Bronze Energy Action award from the Gateway Cities

Fiscal Year 2024-25 (Year 1) and Economic Outlook

As we look forward to Year 1 of the Biennial Budget, staff will continue delivering the quality core municipal services that our residents and business have come to expect and deserve. These services include the continued expansion of recreation programs, communications, city-wide economic development, Civic Center campus improvements, public safety, code enforcement, and addressing deferred maintenance. The proposed efforts also focus on building and maintaining a work environment that is conducive to retaining and promoting a successful workforce.

In keeping with the City’s fiscal sustainability strategy, staff relied on industry forecasts, historical and current data, and applied these principles during the budget development process for FY 2024-26 Biennial Budget. While the economy is still experiencing headwinds that include stubborn inflation and high interest rates, most economists still believe a recession is unlikely as the labor market remains strong with low unemployment. However, as the Federal Reserve considers delaying softening interest rates, consumer spending could likely stagnate having a negative impact on the City’s revenue outlook. Much remains to be seen regarding how these factors could affect the long-term overall economy; therefore, a conservative approach to budgeting remains highly advisable.

As noted earlier, the passage of Measure SHR and the City’s diversified sales tax base have been major contributors to the City’s strong financial position. However, sales tax makes up 72% of total City revenues and the longer these economic headwinds persist, the more likely these may have an effect on overall sales tax revenues. Based on the City’s sales tax expert, HdL, the predicted overall growth for most of the sales tax business sectors will remain flat with low year-over-year grow rates going forward. There is also little growth expected in property tax and other tax revenue sources. Interest Income received from higher interest rates will remain for the short term, but this is not expected to continue in anticipation that the Federal Reserve will lower interest rates for the broader economy in Year 2 and onwards. Staff will continue to provide periodic budget updates to re-evaluate budgetary assumptions and make necessary adjustments.

While the budget continues to reflect tempered optimism, the ongoing economic challenges may lead to reevaluating spending strategies. The City’s future economic health will be dependent on maintaining healthy reserves and planning for long-term fiscal sustainability through fiscally conservative budgets and policies, planning for economic development opportunities, and maintaining its strong financial position through prudent, long-range policy decisions and sound fiscal management.

As noted, the City relies on various funding sources that make up the entirety of its Operating and Capital Budget. The following section provides a summary of revenues, expenditures, reserves, and projects. The City was a recipient of the following available funding and actively seeks additional outside funding sources for many of the future planned programs and capital improvement projects.

Local Funds

Measure (Signal Hill) R (SHR)

On November 3, 2020, the residents of Signal Hill voted in a new three-quarter cent per dollar (0.75%) general transactions and use (sales) tax to take proactive local control of long-term financial planning. Measure SHR will continue to preserve the high quality of life the community expects and deserves, supporting the ongoing provision of essential services while securing a reliable, long-term funding stream that is locally controlled, where revenue is not subject to seizure or elimination by the State. The new tax provided approximately $6.3 million in annual revenues in FY 2022-23 and helps fund programs such as streets, pothole and infrastructure repairs, maintenance of public areas, 9-1-1 emergency response, and crime prevention.

Consolidated Appropriations Act (CAA)

Passed by Congress on March 15, 2022, the CAA provides federal funding to local governments. The City secured $1.8 million through Congressman Alan Lowenthal’s office for the Civic Center Parking Lot Improvement Project, included in the Year 1 Capital Budget

Assembly Bill 178 (Budget Act of 2022)

The City received $5 million in funding through the efforts of Senator Lena Gonzalez’ office to build a new amphitheater. The City is nearing completion of the Civic Center Master Plan that will prioritize the phasing and future development of public facilities at the Civic Center Campus, including the amphitheater, community center, and City Hall. The City Council authorized staff to proceed with Phase 1 improvements for the Civic Center, which includes design and construction of the amphitheater and related site improvements to include a new parking lot.

2025 Congressional Appropriations Grant through Senator Alex Padilla’s Office

The City currently has been approved on a state level for the federal funding towards transportation Housing and Urban development congressionally directed spending for two projects. Pending federal approval, the City will receive funds for the following:

• $1.1 million for a corridor project that will construct a new sidewalk and roadway improvements east of Signal Hill Elementary School.

• $1.4 million for a park rehabilitation project that will provide improvements to the existing park facilities including play equipment, landscaping, irrigation, art and other park elements at Raymond Arbor Park.

The City has also been approved for a 2025 Community Project Funding Grant through Congressman Robert Garcia’s Office, amounting to $1.4 million for improvements at Raymond Arbor Park. This grant is currently awaiting congressional approval.

USDA Urban and Community Forestry Grant (2023 Grant Awards)

The City of Signal Hill was one of 385 grant proposals and was selected as a recipient of a $1 million grant for a project that will incorporate the planting of 1,000 new trees within the City limits. The funding was made possible by the Inflation Reduction act that awarded $1 billion to the U.S. Department of Agriculture’s Forest Service. The City’s project seeks to benefit disadvantaged communities within Signal Hill by increasing the urban forest coverage, increasing shade equity, reducing urban heat island effects, promoting increased overall air quality, aesthetics, and walkability of these neighborhoods.

Safe, Clean Water Program (Measure W) Competitive Grant

Through the LA County Flood Control District , the Safe, Clean Water program is designed to clean and conserve billions of gallons of stormwater to take advantage of natural processes to filter, clean and store water. Through this program the City was awarded $6.8 million to rehabilitate the existing park and install a new underground infiltration (water treatment) system at Reservoir Park.

Long-Term Financial Forecast

Long-term forecasts help to increase transparency, encourage fiscal discipline, identify adverse trends, and promote fiscal sustainability. Financial forecasts help the Council consider the long-term costs of today’s commitments. The Year 1 Operating Budget is part of a greater whole, setting the foundation for future fiscal health. Using the FY 2022-23 actuals, the projections for FY 2023-24 and the Proposed Year 1 and 2 as a base, staff developed a high-level five-year forecast to provide a generalized outlook towards future revenues, expenditures, and changes to the General Fund balance. The General Fund forecast (shown in the following chart) includes the following assumptions:

• Averaged historical annual trends, industry expert estimates, and Consumer Price Index (CPI) actuals.

• Consideration of only General Fund revenues and expenditures.

• Revenues and expenditures providing services at full-capacity including approved decision packages.

• Consideration of one-time expenditures.

• Measure SHR revenue.

• Increases to obligated costs.

o CalPERS Unfunded Accrued Liability (UAL)

§ Based on the CalPERS July 2022 valuation reports and Fresh Start program.

o California Joint Powers Insurance Authority (CJPIA) insurance

§ Based on historical trends

o Retiree medical costs

§ Based on historical trends

• Other financing sources used to pay debt service expenditures, including the early payoff of the 2018 Library Revenue Bonds in 2028. Also included the potential for Civic Center Master Plan future funding.

• Reserve transfers for Capital Outlay based on long-range Capital Improvement Program model.

Using the General Fund balance as a measure of financial resources, the outlook continues to be positive and is predicted to remain healthy over the long-term. However, it is notable that the rising costs of obligated costs could impact future long-term financial strategies. Each year, staff will review and refine the forecast, identifying the impact of one-time costs, analyzing economic changes and re-examining fund balance targets to ensure adequate reserves are maintained.

General Fund Overview of Year 1 Operating Budget

The General Fund is the general operating fund of the City. All general tax revenues and other receipts not allocated by law or contractual agreement to restricted or special funds are accounted for in the General Fund. Expenditures of this fund include the general operating expenses and capital improvement costs which are not paid through other funds. The Year 1 Budget is balanced and reflects estimated revenues and transfers-in totaling $38.9 million comprised of $37,333,335 in operating revenues, and $1,564,439 in non-operating revenues. Total appropriations and transfers-out in the amount of $38,897,794 are included in operating expenditures. Staff would note that during the budget workshop presentation, the City Council approved several decision packages for additional expenditures and transfers-out that are reflected in the budget.

General Fund Revenues

Total Year 1 General Fund revenues, as shown in the chart below, equal $37,832,709 including transfers in from outside funds. This analysis incorporates the economic outlook predicting most of the revenue categories remaining stable. Sales tax is anticipated to increase but at a lower growth rate compared to prior years. The projections for Interest Income included in the Use of Money and Property are predicated on expectations of the Federal Reserve and anticipated interest rate adjustments. These numbers also include updated revenue projections for Signal Hill’s Measure R (SHR).

Transfers-In to the General Fund for Year 1 include:

AQMD $4,453

Prop C $5,000

Gas Tax $250,000

Measure R $33,010

Measure W $84,000

Pipeline Removal $57,409

Planning Grants $65,482

Total $499,354

Sales Tax

For Year 1, sales tax makes up approximately 72% of the City’s General Fund revenues. In preparing the revenue projections, staff relied on an analysis of actual performance and trends, as well as industry and economist reports. The following chart highlights Signal Hill sales tax performance projections for the various business segments that contribute to the City’s sales tax revenues, as provided by the City’s sales tax consultant; this is compared to the total Statewide trend. Overall, the total sales tax is forecasted to remain flat for FY 23-24 with low year-over-year grow rates going forward. Measure SHR is expected to increase in proportion to the Bradley Burns 1% sales tax reflected below.

At a local level, and in line with the City’s philosophy of fiscal prudence and conservative budgeting practices, the following factors were incorporated into the Year 1 estimates:

• Overall slowdown in the economy due to inflation and higher interest rates

• Measure SHR

Property Tax

Property taxes make up approximately 7% of the City’s revenues and are projected to remain stable. The City is considered a no/low property tax city. Property tax revenues are predominately a percentage of secured and unsecured taxable assessed values on the current property tax rolls. A second source of property tax revenue is from Vehicle License in Lieu of Fees (VLF) Adjustment Amount which is based on a percentage of City-wide taxable assessed values. Both increase annually in proportion to the growth in assessed valuation. Signal Hill also receives residual property tax revenues from the Successor Agency (SA) that vary from year to year and are expected to decline as the SA annual loan payments to the General Fund escalate going forward.

Oil Production Barrel Tax

Oil production taxes make up approximately 1.2% of the City’s revenues. The rate per barrel is based on the Producers Price Index. Year 1 includes a conservative estimate as projected revenues are dependent fuel prices and supply and demand.

Use of Property and Money

Interest Income and the net investment results, included in the Use of Money and Property category, is expected to see a boost as near-term interest rates remain high, but the long-term outlook predicts a decrease with anticipation of the Federal Reserve softening interest rates.

General Fund Expenditures

Total Year 1 General Fund expenditures (excluding transfers out) as shown in the following chart equal $34,942,543. This represents continued operations providing full municipal services while also including funding to address deferred maintenance, staffing at full capacity, and operational and infrastructure needs. Year 1 reflects the newly finalized collective bargaining agreement adjustments for both labor groups, Signal Hill Employees Association (SHEA) and the Police Officers Association (POA), as well as Police Management and Management/Administrative classifications. Year 1 also includes increasing obligated costs related to contract services, insurance, pension obligations, and unfunded mandates. Based on anticipated revenues, the Year 1 expenditures are proposed to be $332,210 higher than the prior year’s current budgeted expenditures of $34,610,333, largely due to the increase in salary and benefits as the result of the new labor agreements offset by differences in one-time annual expenditures year to year.

Staff would also note that the City’s conservative budget estimates account for staffing at full capacity, which assumes all positions are fully staffed during the entire fiscal year. Budgeting at full capacity is a best practice that allows the City to provide a true accounting of its ongoing annual personnel costs. Actual personnel expenditures accounted for at the end of the fiscal year will be based on actual staffing levels experienced during the fiscal year. The difference between budgeted personnel costs and actual costs may contribute to an operating surplus in that fiscal year.

Budget Uncertainties

As in any given year, a degree of uncertainty surrounds the actual performance of the economy. The following have been identified for monitoring in Year 1.

• Global and local economies continue to face ongoing challenges, including inflation and raising interest rates. Locally, cities continue to be challenged by unfunded mandates and legislative directives.

• While the 2013 Public Employees’ Pension Reform Act (PEPRA) has already had positive impacts for the City’s overall pension costs, CalPERS continues to face challenges to meet demographic and discount rate actuarial assumptions, as well as shortened amortization schedules for reducing unfunded liabilities. The City recently took actions to mitigate the pension costs by entering a Fresh Start program and making an additional discretionary payment (ADP) to address the CalPERS the City’s Unfunded Accrued Liability (UAL) costs. The Fresh Start program and ADP will help to stabilize the existing UAL annual payment plan and also will provide a number of benefits for the City by providing a level dollar annual payment for more budget flexibility, shorten the UAL amortization schedule by 3 years, and overall saves the City $800K in interest costs.

• Local sales tax reporting for in-state fulfillment centers, and growth of in-state fulfillment centers, will continue to negatively impact the City’s countywide pool allocation which has a direct correlation to the City’s sales tax revenues. However, online sales continue to increase exponentially mitigating some of the impact to the countywide sales tax pools.

• While SB1 and Gas Transportation taxes are budgeted to remain steady, these taxes may be affected by potential legislation to provide relief at the gas pump for consumers which would adversely affect local governments’ annual tax allocations.

• The FY 2024-25 May’s revision of the State’s Budget includes various one-time and on-going spending through FY 2025-26 to render a balanced budget. At this time, it is unknown what effect this may have on local jurisdictions where the State may indirectly shift the burden and financial impact to cities through the reduction of various programs.

Reserves

As noted, unused appropriations and/or revenues exceeding expenses at the end of every fiscal year revert back to fund balance. Each Fund’s fund balance can then be used for one-time expenses (non-operating) or set aside as a reserve for future purposes. All Committed Reserve funds are represented in the table below. Staff would note that the use of reserve funds will often occur in a subsequent year and is presented as operating expenditure appropriation within the General Fund or capital project expenditures within the Capital Improvement Fund. Once the City spends these committed appropriations, a transfer from the reserve fund to the appropriate receiving fund will be reflected within the fiscal year when the actual transactions take place. As summarized in the following table, the City’s Year 1 total committed reserve funds, comprised of funding for various designated purposes, total $30,327,284. The City’s General Fund unassigned balance totals $26,329,436.

The approved Year 1 Budget included reserve transfers to support the delivery of a balanced operating budget. The current proposed transfers from the General Fund Reserves are as follows:

• $1,127,877 transfer from the Land and Building Reserve for the City Hall renovation capital improvement project.

• $2,042,635 transfer from the Capital Improvement Reserve for capital improvement projects.

• $500,000 FY 2023-24 transfer from the CalPERs Reserve for a CalPERs additional discretionary payment (ADP) to enter a Fresh Start program to restructure the City’s unfunded accrued liability (UAL). There was also a planned transfer into the CalPERS reserve approved during the FY 2023-24 budget adoption resulting in a net increase of $47K.

• $1,550,000 transfer from the Civic Center Master Plan (CCMP) Reserve for the City Hall renovation capital improvement project and Civic Center Master Plan - Phase I for the Amphitheater.

• $50,000 transfer from the 100^th Anniversary Reserve for the celebration event.

• $180,000 transfer from the General Plan Reserve for completion of elements within the City’s General Plan for future land use.

• $400,000 transfer from the Economic Development Reserve to be used for studies to support economic and land use studies for the Opportunity Study Areas.

• $403,510 transfer from the Workforce Innovation Reserve for personnel changes approved during the FY 2022-23 budget surplus presentation.

• $200,000 transfer from the Facility Reserve for the Master Maintenance plan for city-wide facilities.

• $300,000 transfer from the Art Reserve for public artwork installations at Hillbrook park, Heritage Point Park, Hilltop Park, and Raymond Arbor Park.

Capital Improvement Program (CIP)

The CIP Fund is used to account for financial resources segregated for the development, construction and improvement of City facilities, streets and roads, parks, and water infrastructure. The Year 1 CIP includes new and existing projects, or project phases, representing an investment of $17.3 million. The City’s CIP plan maximizes the use of one-time and special revenue funds for each project, as detailed in the CIP Schedule. Below is a summary of funding sources for the proposed capital schedule. In Year 1, grant funding accounts for 36% of total CIP funding (see the following special revenue fund section for the breakdown).

Water Fund

The Water Fund is an enterprise fund and is used to account for operations financed and operated in a manner similar to a private business enterprise. Costs (expenses, including depreciation) of providing water utility services to the public should be financed or recovered primarily through user charges. After completing the water rate study and Proposition 218 Hearing, the City implemented new water rates in 2020. The sale of water for Year 1 is estimated at $6,838,561 and the fund balance includes the new General Fund loan proceeds to fund the Gundry Reservoir capital improvement project estimated to be completed by June 30, 2024 (All capital outlay projects are detailed in the CIP schedule). Year 1 also includes the construction phase of the Gundry Reservoir Roof Replacement and the Cast Iron pipe replacement. The Water Fund Budget Summary is as follows:

Special Revenue Funds

Special Revenue Funds are used to account for the revenues derived from specific revenue sources, which are legally restricted and usually required by law or administrative regulation to be accounted for in separate funds. Special Revenue Funds are distinguished from enterprise funds in that the services delivered are financed by a Special Revenue Fund (such as streets) and the user does not pay for the service based on actual use. Special revenues are estimated and included in the annual budget and the City makes every effort to maximize the use of these funds as allowed. These funds are accounted for in Year 1 as a transfer-in to the recipient fund, as detailed in the Transfer and Special Revenue sections and the CIP schedule.

Community Development Block Grant (CDBG) Fund

CDBG, enacted through the Housing and Community Development Act of 1974, receives and disburses CDBG monies for administration, social service programs and capital projects. The Los Angeles Community Development Commission estimates the City will receive approximately $83,560 in Year 1.

Gas Tax

Gas Tax revenues for Year 1 are estimated to be $326,189. Tax Sections 2104-2107 allocations are based on a fixed per gallon rate and are used towards General Fund street maintenance and repair expenditures. The budget has not accounted for any legislative changes to these revenues to ease the burden of rising gas prices, but staff will continue to monitor.

American Rescue Plan Act (ARPA)

With the passage of ARPA on March 11, 2021, the Federal government allocated $350 billion in emergency funding to state, local, territorial and Tribal governments to respond to the COVID-19 public health emergency and its negative economic impacts. The City’s estimated allotment is approximately $2.7 million. Although these funds are included in the proposed budget, the monies are initially shown in a special revenue fund in recognition of their one-time nature and are estimated to be fully expended by June 30, 2024, for the 33^rd Street Water main capital project.

Capital Grant Funds

The Capital Grant fund houses initial grant awards from external agencies to be used towards capital projects. Capital grants provide contribution funding to cover all or part of the cost of the City’s capital improvement projects, such as, streets, parks and infrastructure and it is the City’s priority to pursue and maximize the use of grants on annual basis. Currently, there are several grant funds included in the Year 1 CIP budget.

• CalTrans Active Transportation Program (ATP) Grant to fund the East Burnett Street Historical District Pedestrian and Bike Enhancement Project in the amount $2.9 million.

• Congressional Allocation Grant from Congressman Lowenthal’s office to fund the Civic Center Parking Lot improvement project in the amount of $1.8 million.

• CalTrans Highway Safety Improvement Program (HSIP) to fund the Local Road and Safety Plan projects in the amount of $1.4 million; this grant is pending application approval.

• Congressional Allocation grant from Congressman Garcia’s office to fund the Raymond Arbor Park project in the amount of $1.4 million; this grant was approved on the state level and pending approval by congress/federal level.

Internal Service Fund - Vehicle Replacement (Fleet Fund)

The Fleet Fund is intended to replace City vehicles and provide maintenance and repair services. The following fleet purchases are proposed based on the City’s Vehicle Replacement Policy.

Replacement criteria: Based on annual assessment, vehicles are replaced when these have reached their end of service life or are experiencing mechanical problems requiring costly repairs.

Typical replacement schedule:

• Police: four years or 80,000 miles

• City light duty vehicles: 10 - 12 years of age

• Alternative fuel vehicles will be used for their replacement when available and practical.

Special Vehicle Purchases:

• AQMD funds will be utilized for the purchase of two hybrid vehicles

• Two electric vehicles are included to meet the state mandate to meet electric fleet requirements.

Also included in Year 1 is a CIP program to install charging stations in the anticipation of converting a portion of the City’s fleet to electric vehicles to meet the State mandate requirements regarding City fleet vehicles. The fund is structured on a break-even basis where costs are allocated back to each department’s overhead budget. The Fleet Fund’s cash balance is estimated at just under $1.0 million at the end of Year 2.

Changes after the Budget Workshop

The following items were either identified during or since the Budget Workshop and are included in the final Year 1 and Year 2 Operating Budget:

The following decision package items for Year 1 and Year 2 were discussed and approved during the Budget Workshop summarized and detailed in the charts below:

• One-time expenditures of $39,800.

• On-going expenditures (personnel related) of $277,718 prior to new labor agreements.

• On-going expenditures (non-personnel related) of ($170,000).

• On-going expenditure for the Water fund (personnel related) of $17,502 prior to new labor agreements.

• Usage of Reserves for CIP projects/administration of $407,000.

• Reserve funding increases of $3,410,252, one-time.

• Reserve funding increases of $75,000, on-going.

The following additional items were identified after the workshop and included in the Year 1 and Year 2 operating budgets and CIP fund:

All funds: Increase in budget due to finalization of collective bargaining agreements for both labor groups, Signal Hill Employees Association (SHEA) and Police Officers Association (POA), including Police Management and Management/Administrative classifications for salary and benefits across all funds.

General Fund: Year 2 only - included an increase in capital outlay for the Police Department division 72 for the replacement of police Taser equipment.

CIP fund: Adjusted the CIP project for the Historical District Pedestrian & Bike Enhancement Project for total Grant funds and matching funds required from the CIP Reserve.

FY 2024-25 (Year 1) Appropriations (Gann) Limit

In November 1979, the voters of the State of California approved Proposition 4, commonly known as the Gann Initiative. The Proposition created Article XIIIB of the State Constitution placing limits on the amount of revenue that can be appropriated each year. Proposition 111 amended Proposition 4 in 1990 by allowing cities to choose their annual adjustment factors for inflation and population growth.

The Appropriations Limit is computed annually by applying the greater of two change factors to the limit from the previous year. The adjustment factor for population is determined by either the change in percentage for the City or the County of Los Angeles. For inflation, the factor consists of the percentage change in California Per Capital Income (supplied by the State Department of Finance), or the percentage change in the local assessment roll due to the addition of local non-residential new construction.

The factors used in this year’s calculation were the change in California Per Capita Personal Income and the County’s change in population. The City reserves the right to adjust the Appropriations Limit later in the year. The impact of applying these factors is to increase the City’s appropriations limit to $97,133,946. The City’s tax proceeds are substantially under the established Gann Limit for Year 1.

Conclusion

The City’s fiscal practices, which include consideration of future needs and strategic long-term planning, have enabled our City to achieve and maintain a positive, stable financial condition. We approached the creation of the budget in conjunction with the discussion surrounding the implementation of the Strategic Plan. Staff prepared the City’s budget in a conservative and prudent manner, incorporating current and future economic indicators regarding revenue estimates and expenditures. The City’s long-standing tradition of fiscal prudence and careful stewardship of financial resources has allowed the City to grow and thrive over the years.

As always, the entire Executive Management Team will continue seeking opportunities to improve efficiencies, reduce costs, and respond effectively to external economic forces that impact available resources. Staff will continue building on the accomplishments that have created fiscal stability for the City of Signal Hill and continue to focus on preserving a high quality of life for residents and the business community. Signal Hill has maximized opportunities while meeting challenges and continued to deliver valuable municipal services and important capital projects. The City will continue to embrace the ideals of conservative fiscal policy, forward thinking, and strategic planning as we face the future.

Attachments:

A. Draft Budget Book

B. Annual Operating Budget Resolution

C. Appropriations Limit Resolution

D. Exhibit A to Appropriations Limit Resolution

Legislation Details