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CC210524 Item 4A.Pdf City Council Meeting 05-24-21 Item 4.A. Council Agenda Report To: Mayor Grisanti and the Honorable Members of the City Council Prepared by: Lisa Soghor, Assistant City Manager Reviewed by: Ruth Quinto, City Treasurer Approved by: Steve McClary, Interim City Manager Date prepared: May 13, 2021 Meeting date: May 24, 2021 Subject: Proposed Budget for Fiscal Year 2021-2022 RECOMMENDED ACTION: 1) Conduct the Public Hearing; and 2) Provide direction to staff on the Proposed Budget and Annual Work Plan for Fiscal Year 2021-2022. FISCAL IMPACT: The Proposed Budget totals $81.58 million in revenue and $90.89 million in expenses and includes General Fund annual revenue of $34.56 million and General Fund annual expenditures for ongoing City operations of $39.89 million. The City is required to present a balanced budget each fiscal year whereby annual General Fund expenses do not exceed annual General Fund revenue. In Fiscal Year 2020-2021, the City was able to support ongoing expenses by eliminating multiple projects and using funds received from the SCE Settlement as a one-time fix. The Proposed Budget for Fiscal Year 2021-2022 also relies on a one-time fix by using reserves established by the Council in the prior year. The Council will need to determine an ongoing solution if General Fund expenses continue to exceed annual General Fund revenue. To offset an expected decline in General Fund revenues due to the COVID-19 pandemic, during Fiscal Year 2020-2021, the Council established a Designated Reserve for Fiscal Year 2021-2022 Operating Expenditures in the amount of $6.5 million. The Proposed Budget uses $5.33 million of this reserve to make up the General Fund budget shortfall in Fiscal Year 2021-2022. WORK PLAN: This item was included as item 6.a. in the Adopted Work Plan for Fiscal Year 2020-2021. DISCUSSION: On April 22, 2021, the City Council reviewed the Proposed Budget Page 1 of 23 Agenda Item # 4.A. for Fiscal Year 2021-2021 and made the following recommendations: 1) Maintain Council Work Plan priorities as follows: 1. Public Safety 2. Woolsey Fire Recovery 3. School District Separation 2) Not add any postponed or additional items to the Council Work Plan 3) Directed staff to include funding for two additional Sheriff’s patrol cars 4) Directed staff to include funding in the amount of $50,000 for consultants to address commercial property Dark Sky Ordinance compliance 5) Directed the Administration and Finance Subcommittee (A&F) to discuss potential new revenue sources and provide direction to staff Changes to the Proposed Budget since April 22, 2021 Since the April 22, 2021 Special Budget Workshop, staff has analyzed the current year revenues and expenditures received through April 30, 2021 and refined budget projections. Additionally, staff has evaluated the easing of the COVID-19 restrictions by the State of California and the County of Los Angeles. Many revenue projections for Fiscal Year 2021-2022 have been adjusted as updated information has been obtained. Projections for overall General Fund Revenue have increased by $1.46 million. Based on property tax revenue received through April, the projected amount for Fiscal Year 2020-2021 is now $12.00 million. Staff has increased the estimated revenue in the Proposed Budget by $300,000 to $12.20 million. Expected revenue from Transient Occupancy Tax (TOT) from private rentals for the current fiscal year is now projected to be $4.00 million based on 3 quarters of tax revenue. Balancing this projection with the predicted onset of the “Hosted” short- term rental ordinance in the middle of the next fiscal year, staff has increased the estimated revenue in Fiscal Year 2021-2022 by $600,000 to $2.50 million. With the guidance of the City’s sales tax consultant, HdL Companies, staff has increased the estimate for sales tax revenue by $450,000 to $3.20 million. Based upon the direction from Council, funding in the amount of $1.09 million has been added to the Public Safety budget for two additional Sheriff’s patrol cars. The recommendation from the Administration and Finance Subcommittee and the Public Safety Commission was to make these two 5-day per week cars. This has been included as a separate line item, so it is easy to find. Costs for the Sheriff’s Summer Page 2 of 23 Agenda Item # 4.A. Enforcement Team have been increased by approximately $180,000 to account for starting this service on May 1st instead of on Memorial Day. Per Council direction, $50,000 has been included in Building Safety – Professional Services to fund consultants to assist with Dark Sky compliance on commercial properties. Revised Proposed Budget The City’s annual budget is based on the City Council’s Work Plan that carries out the City’s mission to maintain its rural residential character by establishing programs and policies that avoid suburbanization and commercialization of its natural and cultural resources. On November 9, 2018, the Woolsey Fire burned through Malibu. Since that time, the City Council and City staff have been committed to helping residents recover and rebuild, including waiving fees for residents rebuilding primary homes as a like-for- like or like-for-like plus 10%. On December 19, 2019, the City received a $13.55 million settlement for the Woolsey Fire from Southern California Edison (SCE). These funds have been used to cover costs associated with rebuilding efforts, including replacement of City infrastructure damaged by the fire. The Adopted Budget for Fiscal Year 2020-2021 relied on the one-time use of the SCE Settlement Fund to cover costs related to the rebuilding effort from the Planning Department, Environmental Sustainability Department, Building Safety Division, and the Public Works Department. However, the Proposed Budget for Fiscal Year 2021-2022 no longer uses this one-time funding source, and costs associated with rebuilding are now being funded by the General Fund. Prior to the outbreak of the global COVID-19 pandemic, the City was recovering from the fiscal impact of the Woolsey Fire and subsequent winter storms. Revenues in all categories were strong and had returned to pre-Woolsey Fire amounts, and the City’s General Fund Undesignated Reserves were increasing. A key factor to Malibu’s fiscal recovery has been that, unlike many cities, the City’s main general fund revenue is derived from property tax. Property tax comprises approximately 43% of General Fund revenue that, even in the aftermath of the Woolsey Fire and the loss of 488 single family residences, remains strong and steady. However, in March 2020, in response to the pandemic, the Governor issued a Stay at Home Order, which has since impacted the City’s fiscal strength and stability. Subsequent State and County orders have had an ongoing impact on multiple economic sectors that are reflected in a decline of General Fund revenues. Page 3 of 23 Agenda Item # 4.A. On January 25, 2021, the State announced the end of the Regional Stay at Home Order and reinstated the tier system established in the State’s Blueprint for a Safer Economy. As vaccinations become more widely available, the County and the State are allowing additional restrictions to be lifted. The State recently announced that it aims to fully reopen by June 15, 2021. This opening comes as the State has reached 30 million vaccinations. The State will monitor hospitalization rates, vaccine access, and vaccine efficacy against variants as the June 15 date approaches. The economic effects of the COVID-19 pandemic have negatively impacted many local revenue sources, including sales tax, transient occupancy tax (TOT) for hotels and motels, gas tax, and parking tax during the past year. Dining and travel restrictions imposed by the public health orders have had the greatest impacts as restaurants have historically been the primary contributor to the City’s sales tax revenue. While General Fund revenue is trending higher than previously predicted in the Fiscal Year 2020-2021 Budget, overall revenues are still less than anticipated and are significantly less than the City’s ongoing expenses for Fiscal Year 2021- 2022. The City is mandated to present a balanced budget each fiscal year. A balanced budget is achieved when annual General Fund expenses do not exceed the annual General Fund revenue. One-time expenditures can be made from General Fund reserves; however, it is neither prudent nor practical for the City to pay ongoing expenses out of reserves. In Fiscal Year 2020-2021, the City was able to support ongoing expenses by eliminating multiple projects and using funds received from the SCE Settlement as a one-time fix. The City also used special revenue funds wherever possible to minimize General Fund use. The use of the SCE funds is no longer a viable option for the Proposed budget for Fiscal Year 2021-2022. Likewise, many of the special revenue funds have been depleted. On August 24, 2020, the Council established a designated reserve in the amount of $4 million to be used to make up any budget shortfalls in the Fiscal Year 2021-2022 budget. On February 8, 2021, the Council approved adding an additional $2.5 million to the reserve for a total of $6.5 million. This reserve is being used to make up the difference between ongoing General Fund revenue and General Fund operating expenses, similar to the use of the SCE Settlement funds in the prior fiscal year. The Fiscal Year 2021-2022 Proposed Budget estimates a starting General Fund Undesignated Reserve at July 1, 2021 of $29.04 million. Notwithstanding the negative economic impacts of the COVID-19 pandemic over the past year, the City’s responsible financial practices and conservative budgeting are reflected in this overall higher number.
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