HomeMy WebLinkAbout020323-02.1 Mid-Year 2022-23 Operating Budget UpdateMID -YEAR 2022/23
OPERATING BUDGET UPDATE
INTRODUCTION
The Annual Planning and Goal Setting Workshop provides an opportunity for the
Town Council to review the status of the Town's finances at the mid -point of the
2022/23 fiscal year, including revenues, expenditures, and potential changes that
could affect the operating budget or the ten-year forecasts.
The operating budget is adopted following an extensive preparation and review
process. Once adopted, it is a dynamic plan that can be subject to revenue or
expenditure variations driven by factors as broad as the economy or as narrow as
shifts in a specific service need. As such, all Town finances are closely monitored
throughout the fiscal year.
The mid -year update identifies potentially significant deviations from the adopted
operating budget and recommends mid -year adjustments that may be required to
revenues or expenditures. The formal mid -year financial report will be presented to
the Town Council for consideration at the February 21, 2023, Town Council meeting.
As of December 31, 2022, revenues are tracking ahead of the approved budget
forecast, while expenditures are on track to finish the fiscal year lower than budgeted.
Overall fiscal condition remains strong, and the Town expects to finish the fiscal year
on a positive note.
BACKGROUND
The Town is preparing to end the local State of Emergency that was declared at the
outset of the Coronavirus pandemic in March 2019. Through a series of actions and
outcomes spanning three fiscal years, the Town has successfully navigated the
economic impacts of the pandemic upon Town operations.
Economic recovery has been aided by growth in property values which have yielded
increased property tax revenue; growth in online commerce which has generated new
sales tax revenue; and federal assistance received in the form of the American Rescue
Plan Act (ARPA) of 2021. 2022/23 operating expenditures have restored and resumed
service delivery in most areas.
Ten-year forecasts covering 2022/23 through 2031/32 see the Town continuing to
chart a fiscally sustainable course, while facing minimally reduced service levels in
some areas.
Despite emerging from the pandemic, new fiscal challenges continue to be presented.
Rapid economic expansion occurred during the pandemic, through federal stimulus
funding that reached consumers. However, that growth has proven to be
unsustainable, leading to rising inflation. In an attempt to stabilize the economy,
between Q3 of 2021 and Q3 of 2022 the Federal Reserve raised the federal funds rate
from 0.25% to 3.25%. Inflation remains above the Federal Reserve price stability goal,
further risking a recession in the near future.
For the Town, continuation of this trend into 2023/24 and beyond, will continue to
drive up costs for personnel, contracted services, materials and supplies at rates that
will outpace forecast revenue growth and budgeted costs.
MID -YEAR 2022/23 OPERATING BUDGET STATUS
As of December 31, 2022, overall revenues are tracking ahead of the approved budget,
while expenditures are on track to finish the fiscal year within budget. Overall fiscal
condition remains strong, and the Town expects to finish the year on a positive note.
The 2021/22 fiscal year ended with an unreserved, undesignated fund balance of $4.8
million; and in July 2022, the Town received the second and final tranche of $5.3
million in Coronavirus Local Fiscal Recovery Funds through the American Rescue
Plan Act.
Expenditures are largely tracking within budget. However, as a result of the
unprecedented and severe storms that occurred between December 31 - January 14,
the Town has incurred significant, unanticipated recovery and repair costs. These
costs continue to be incurred as work continues. Total repair and recovery costs are
expected to total $500,000 to $1 million absent additional weather-related damage.
The recent nature of the damage and related recovery efforts is such that additional
time will be required to more fully and accurately account for the Town's storm
related costs.
REVENUES
Town revenues are received in increments that vary from monthly to annually during
the fiscal year. Complete revenue information becomes available only upon close of
the fiscal year and acceptance of the ACFR.
Total revenues of $38.5 million were forecast for 2022/23, a 7.6% increase from $35.8
million for 2021/22.
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Table 1 illustrates revenues received through December 31, 2022, the mid -point of the
2022/23 fiscal year. Exhibit A to this memorandum expands upon this information to
include a comparison for each of the three prior fiscal years (2019/20 - 2021/22).
General Fund
Table 1
Mid -Year Revenue Summary
Budget Mid -Year % of
Forecast Actual Total
Property Tax $16,200,000 $ 6,846,134 42.3%
Sales Tax $ 6,000,000 $ 3,011,151 50.2%
Property Transfer Tax $ 650,000 $ 226,465 34.8%
Transient Occupancy $ 125,000 $ 40,115 32.1%
Business License $ 350,000 $ 311,334 89.0%
Franchise Cable $ 800,000 $ 204,343 25.5%
Franchise Solid Waste $ 863,788 $ 434,402 50.3%
Franchise Gas & Electric $ 575,000 $ - 0.0%
Fines & Forfeitures $ 150,000 $ 32,643 21.8%
Interest Income $ 500,000 $ 155,076 31.0%
Rental Income $ 178,521 $ 91,657 51.3%
Recreation Fees and Charges $ 2,034,067 $ 946,882 46.6%
Special Revenue
Budget Mid -Year % of
Forecast Actual Total
Building and Planning $ 2,153,200 $ 1,752,021 81.4%
Engineering $ 302,205 $ 267,864 88.6%
Gas Tax $ 1,800,000 $ 972,713 54.0%
Measure J - RTS $ 771,781 $ 198,134 25.7%
Clean Water $ 572,700 $ 5,580 1.0%
LLAD - A $ 583,858 $ 332,875 57.0%
LLAD - B $ 746,968 $ 335,223 44.9%
LLAD - C $ 664,183 $ 375,670 56.6%
LLAD - D $ 1,134,741 $ 608,582 53.6%
Solid Waste VIF $ 872,257 $ 434,402 49.8%
General Fund
General Fund revenues are tracking ahead of the budget forecast.
Property Tax - Property tax continues to be the Town's largest revenue source,
accounting for 56.5% of the General Fund. Although the Town receives only 7.5% of
total property taxes paid, Danville property values have continued to appreciate,
generating increased tax revenues for the Town. Higher interest rates have resulted
in valuations levelling off and beginning to decline, and the Town will continue to
monitor this very closely moving forward into the 2023/24 budget cycle.
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Actual 2021/22 revenues totaled $17,805,336. The budget forecast for 2022/23 is
$16,200,00. At mid -year, actual revenues are exceeding the forecast and tracking
ahead of the 2021/22 mid -year receipts. Based upon mid -year information, Property
Tax revenues are expected to exceed the budget forecast by an estimated $1 million.
Sales Tax - Sales tax accounts for 20.9% of the General Fund. Current year forecasts
anticipated sales tax growth of 14.3%. Online transactions now account for a
significant segment of the Town's total sales tax revenue. Sales tax growth which has
been robust over the past two years as part of the economic recovery is expected to
slow in future years as the economy enters more of a recessionary cycle.
Actual 2021/22 revenues totaled $7,315,831. The budget forecast for 2022/23 is
$6,000,000. Mid -year revenues are exceeding the budget forecast and tracking ahead
of the 2021/22 mid -year receipts. Based upon mid -year information, Sales Tax
revenues are expected to exceed the budget forecast by an estimated $1 million.
Property Transfer Tax - Though the real estate market continues to see high values,
sales volumes have slowed due to higher interest rates. Actual 2021/22 revenues
totaled $1,013,688. The budget forecast for 2022/23 is $650,000. Mid -year revenues
represent 34.8% of the annual forecast. Based upon mid -year information, revenues
are expected to meet the budget forecast.
Business License Tax - Business license payments were due by August 1 and mid-
year receipts represent 89.0% of the forecast for the year. Based upon mid -year
information, revenues are expected to meet the budget forecast.
Franchise Fees - Franchise fees for Cable, Solid Waste and Gas and Electric are
received at various times throughout the year (from monthly to annually). Current
year revenues are tracking closely with prior years on a percentage basis. Based upon
mid -year information, revenues are expected to meet the budget forecast.
Recreation Fees and Charges - Recreation fees and charges have been most
significantly impacted by the pandemic. Current revenues were forecast to increase
by 35.6% from the prior year, continuing a gradual recovery. Classes and programs
offered continue to increase as the pandemic has eased up.
Actual revenues for 2021/22 totaled $1,667,350. The budget forecast for 2022/23 is
$2,034,067. This represents approximately 60% of the revenue received in years prior
to the pandemic. Based upon mid -year information, revenues are expected to meet the
budget forecast.
Donations - No donation revenue was budgeted for 2022/23. Subsequently the
Town has received a $10,000 donation to purchase security camera equipment. A
mid -year adjustment of $10,000 is recommended to recognize the receipt of the
$10,000 in donations.
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Special Purpose Revenue
Special Purpose revenues are tracking ahead of the budget forecast.
Building and Planning - The budget forecast for 2022/23 is $2,153,200. Actual 2021/22
revenues totaled $2,932,342. At mid -year, revenues collected represent 81.4% of the
budget forecast. Based upon mid -year information, revenues are expected to exceed
the budget forecast by an estimated $200,000.
Gas Tax - The budget forecast for 2022/23 is $1,800,000. Actual 2021/22 revenues
totaled $1,954,911. At mid -year, revenues collected represent 54.0% of the budget
forecast. Based upon mid -year information, revenues are expected to exceed the
budget forecast by an estimated $100 - $150,000.
Measure J Return to Source (RTS) - RTS revenues come from the countywide half cent
sales tax for transportation and are received as single year end payment. The budget
forecast for 2022/23 is $771,781. Actual 2021/22 revenues totaled $1,111,730. Based
upon mid -year information revenues are expected to meet the budget forecast.
Solid Waste Diversion Incentive Fees - Solid Waste DIF are collected from the Town's
solid waste and recycling haulers to offset wear and tear on Town streets. The budget
forecast for 2022/23 is $872,257. Actual 2021/22 revenues totaled $854,168. Based
upon mid -year information revenue is expected to meet the budget forecast.
Lighting and Landscape Assessment District - LLAD revenues are based upon set
assessment rates collected to help offset costs to maintain Town parks, roadside
landscaping and street lighting. The budget forecast for 2022/23 is $3,129,750. Actual
2021/22 revenue totaled $3,195,658. Mid -year revenues received through mid -year is
comparable to that received in each of the three prior years. Based upon mid -year
information LLAD revenue is expected to meet the budget forecast.
A determination regarding how to proceed with increasing LLAD rates for the first
time in twenty years is timely. Revenues are flat and losing ground to inflation, and
the LLAD has been unable to fund any capital maintenance or capital improvements
for some time. Consideration should be given to what changes would need to be made
in order to revisit the LLAD. The Council may want to identify and consider other
potential funding options as well.
Successor Agency
Real Property Tax Trust Fund (RPTTF) revenues are budgeted at $2,272,250, inclusive
of Town re -payment under the Re -stated Cooperation Loan Agreement with the
former CDA. RPTTF revenues fund debt service payments for the 2001 and 2005
Certificates of Participation, the 2001 Taxable Revenue Bonds, and reimbursement of
allowed administrative costs. Based upon mid -year information, revenues are
expected to meet the budget forecast.
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Revenue Summary
Thus far in 2022/23, the Town Council has approved one budget adjustment:
• Resolution No. 63-2022, increased revenues in the General Fund by $62,906 to
accept SB 1383 Local Assistance Grant program funding received from
CalRecycle.
Recommended Mid -Year Revenue Adjustments
One mid -year adjustment is recommended:
• Increase "Donations" by $10,000 in order to allow the donation received for the
Police Department to be expended.
At mid -year, there are significant positive variances to the budget forecast for
Property Tax, Sales Tax, Building and Planning Fees and Gas Tax. Barring any
significant unforeseen expense, total revenues for 2022/23 will exceed the budget
forecast. Due to the anticipated positive variance, no further mid -year revenue
adjustments are necessary.
Table 2 summarizes the adopted budget forecast, prior amendments and
recommended mid -year adjustments.
TOTAL
General Fund
Special Revenue
ARPA
Successor Agency
EXPENDITURES
Mid -Year
Adopted
Budget
$ 46,089,360
$ 28,665,329
$ 9,827,912
$ 5,323,869
$ 2,272,250
Table 2
Revenue Summary
Prior
Amendments
$ 46,152,266
$ 28,728,235
$ 9,827,912
$ 5,323,869
$ 2,272,250
Mid -Year
Revised
$ 46,152,266
$ 28,728,235
$ 9,837,912
$ 5,323,869
$ 2,272,250
The 2022/23 operating budget includes total operating expenditures of $35.77 million,
a 7.6% increase from the 2021/22 budget of $33.25 million.
General Government - The budget for 2022/23 is $2,197,461. Direct and contract costs
are largely tracking within budget. Outside legal costs resulting from Town initiated
litigation are exceeding what was budgeted in the City Attorney's budget. One mid-
year adjustment is recommended to increase the City Attorney budget by $100,000.
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Police Services - The budget for 2022/23 is $11,378,646. Contract and direct costs are
tracking within budget. One private party donation received will be used to
purchase security camera equipment. One mid -year adjustment is recommended
to increase the Police Services Management budget by $10,000.
Administrative Services - The budget for 2022/23 is $4,238,464. Costs are tracking
within budget and no mid -year adjustments are recommended.
Development Services - The budget for 2022/23 is $5,179,933. Significant efforts such
as the 2023-30 Housing Element and the Downtown Master Plan have been completed
and high development -driven demand continues to occur in Building Services. Costs
are tracking within budget and no mid -year adjustments are recommended.
Maintenance Services - The budget for 2022/23 is $8,516,458. Maintenance costs are
currently tracking within the budget and no mid -year adjustments are recommended.
Recreation, Arts and Community Services - The budget for 2022/23 is $4,256,628.
RACS costs are currently tracking within the budget and no mid -year adjustments
are recommended
Personnel - The 2022/ 23 budget for regular and part-time temporary employees is
$14.6 million, a 9.8% increase from the prior year. At mid -year, 41.5% of the budget
has been expended. No mid -year adjustments are recommended.
Extraordinary Storm Recovery Costs - Severe storms struck the state during the first
two weeks of 2023. The Town experienced widespread flooding, requiring significant
clean up and recovery efforts which continue to be ongoing. This has resulted in
significant, unanticipated recovery and repair costs, which are currently expected to
total $500,000 to $1 million absent additional weather-related damage. The recent
nature of the damage and related recovery efforts is such that additional time will be
required to more fully and accurately account for the Town's storm related costs.
Though no mid -year adjustment is recommended, a significant year end adjustment
will be required to budget for all storm related costs.
Successor Agency
For 2022/ 23, Successor Agency operating expenditures total $1,172,250 for debt
service and administrative costs. Re -payment of the outstanding balance owed under
the former CDA/Town loan funds capital transfers of $1,100,000. Successor Agency
expenditures remain unchanged. No mid -year adjustments are recommended.
Expenditure Summary
Thus far in 2022/23 the Town Council has approved two budget adjustments totaling
$88,006, including:
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• Resolution No. 63-2022, appropriating $62,906 from the General Fund to
support SB 1383 compliance activities, this expense is funded from grant
received from CalRecycle.
• Resolution No. 97-2022, appropriating $25,100 from the Asset Replacement
Fund to purchase for the replacement of one scanner/plotter device for
Development Services.
Recommended Mid -Year Expenditure Adjustments
The following mid -year adjustments are recommended:
• General Government - Increase City Attorney budget for Program Activities by
$100,000 (General Fund)
• Police Services - Increase Management budget by $10,000 (General Fund);
Table 3 illustrates 2022/23 expenditures, including the adopted budget forecast, prior
amendments and recommended mid -year adjustments.
Table 3
Mid -Year Expenditure Summary
Adopted Prior Mid -Year
Budget Amendments Revised
TOTAL $ 36,939,840 $ 37,027,846 $ 37,137,846
General Fund $ 25,336,288 $ 25,399,194 $ 25,499,194
Special Revenue $ 10,431,302 $ 10,456,402 $ 10,466,402
Successor Agency $ 1,172,250 $ 1,172,250 $ 1,172,250
Following are two additional changes that are necessary to include in the mid -year
update in order to address an error or omission:
• Employee Salary Ranges will be updated to include a "Program Specialist"
position for Transportation with a monthly salary range of $5,643-$7,731. The
Budget includes 3.0 FTE for the Transportation Division, including a Manager,
a Traffic Engineering Associate, and a Program Analyst. While all three
positions are currently filled, the Analyst position was underfilled at a
Specialist level which is currently not included in the classification plan.
• Resolution No. 98-2022, accepting the 2021/22 Audited ACFR, was approved
by the Town Council on November 15, 2022. The Resolution contained an error
which indicated that $6,100,000 was to be transferred into the CIP Fund at year.
This number was inadvertently carried over from the prior year resolution.
The correct transfer amount is $3,250,000, which coincides with what was
shown in the Administrative Staff Report.
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Transfers and Designations
The 2022/23 budget includes General Fund transfers of $4,726,594: $1,300,000 for
LLAD operations, $900,000 for CIP - Pavement Management Project, $75,000 for Asset
Replacement, and $2,451,594 for CIP - General Purpose. On November 15, 2021, the
Town Council adopted Resolution No. 98-2022, approving the 2021/22 ACFR and
transferring a total of $4,769,893 from the General Fund to: CIP - General Purpose
Fund - $3,250,000; Asset Replacement Fund - $1,500,000; Compensated
Absences/Personnel - $269,893 and Rental Proceeds - $250,000. This increased the
total 2022/23 transfers and designations to $9,496,487.
Amended ARPA/ General Fund Transfers
At the November 1, 2022 Study Session, the Town Council discussed the need to
revise the allocation of Coronavirus Local Fiscal Recovery Funds received under the
American Rescue Plan Act of 2021 ("ARPA funds") in order to reduce the number of
ARPA-funded capital projects and programs. This is necessary to ensure that the
strict federal timeline requirements attached to the expenditure of ARPA funds can
be met.
At the conclusion of the Study Session, staff was directed to include the following
amended ARPA transfers as part of mid -year budget adjustments:
• Senior Services: Reduce ARPA funding by $500,000, increase General Fund
funding by $500,000.
• Mental Health: Reduce ARPA funding by $350,000, increase General Fund
funding by $350,000.
STATUS OF TEN-YEAR FORECAST
Ten-year forecasts are key to planning for future years, ensuring long term fiscal
stability and continuity of service for Town residents. This report describes factors
and conditions that are likely to affect future ten-year forecasts. Additional time is
required to determine how to factor in this new information toward development of
the forecast as part of the upcoming 2023/24 budget process. There are no changes
recommended to the ten-year forecast at mid -year.
2023/24 OPERATING BUDGET
As staff prepares to move forward with the 2023/24 Operating Budget, following are
considerations that have the potential to affect Town costs or service delivery, beyond
levels anticipated in the current ten-year forecasts.
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• Organizationally, the Business and Economic Development Program will be
included as a part of the General Government Department. This change is
revenue neutral and will be invisible to the community from a service delivery
standpoint. Administrative Services will continue to include Finance,
Information Technology, Human Resources, Risk Management, Internal
Services and Asset Replacement. The Finance Director/Treasurer will have
oversight responsibilities for these areas.
• The Town will need to consider options for adjusting Town -wide LLAD rates
for the first time in twenty years. Necessary preparations need to be made to
position the Town to pursue a potential rate adjustment in 2024/25.
• For various reasons, economic recovery related to Recreation Fees and Charges
is occurring at a slower pace than forecast.
• Contracted Services and Utility costs are expected to increase at rates that
outpace the ten year forecast fueled by higher levels of inflation.
• Personnel expenses are expected to increase more significantly than in prior
years. The high rate of inflation and competition in the marketplace for certain
categories of classifications has generated staff turnover at a higher than
average rate over the past year and the Town will need to make adjustments in
order to continue to retain and attract qualified staff.
RECOMMENDATION
Review and discuss the 2022/23 Mid -Year Financial Overview and provide direction
and feedback to staff regarding any mid -year budget adjustments.
Attachments
Exhibit A - 2022/23 Mid -Year Update Year over Year Comparison
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MID-YEAR REVENUES
2018/19
2019/20
2020/21
2021/22
General Fund
Budget
Mid-Year
%
Budget
Mid-Year
%
Budget
Mid-Year
%
Budget
Mid-Year
Property Tax
13,642,000
5,581,354
40.9%
14,260,222
5,853,303
41.0%
14,505,222
6,083,333
41.9%
15,200,000
6,798,599
44.7%
Sales Tax
5,522,000
2,248,234
40.7%
5,577,220
2,158,204
38.7%
4,339,328
2,394,705
55.2%
5,250,000
2,630,587
50.1%
Transfer Tax
590,270
288,284
48.8%
648,643
239,868
37.0%
494,838
457,186
92.4%
650,000
451,321
69.4%
Transient Occupancy
159,789
49,499
31.0%
163,001
48,393
29.7%
54,597
18,859
34.5%
125,000
33,716
27.0%
Business License
365,150
335,965
92.0%
365,150
336,965
92.3%
146,060
299,113
204.8%
325,150
304,771
93.7%
Franchise Cable
921,858
209,925
22.8%
885,864
207,590
23.4%
899,152
201,342
22.4%
800,000
206,042
25.8%
Franchise Solid Waste
794,669
344,761
43.4%
811,664
401,818
49.5%
752,413
341,125
45.3%
846,851
352,855
41.7%
Franchise Gas & Electric
583,203
0
0.0%
629,404
0
0.0%
629,404
0
0.0%
575,403
0
0.0%
Fines & Forfeitures
175,000
49,837
28.5%
175,000
57,100
32.6%
141,400
32,542
23.0%
150,000
30,803
20.5%
Interest Income
263,000
192,942
73.4%
328,750
206,576
62.8%
197,250
107,766
54.6%
328,750
88,330
26.9%
Rental Income
164,343
170,647
103.8%
163,343
181,262
111.0%
124,490
170,455
136.9%
170,035
72,080
42.4%
Recreation Fees and Charges
2,675,110
1,219,338
45.6%
2,576,145
1,269,668
49.3%
1,351,262
286,465
21.2%
1,500,001
682,566
45.5%
2018/19
2019/20
2020/21
2021/22
Special Revenue
Budget
Mid-Year
%a
Budget
Mid-Year
%o
Budget
Mid-Year
%o
Budget
Mid-Year
%
Building and Planning
2,529,200
1,108,215
43.8%
2,212,200
1,282,981
58.0%
1,787,458
1,357,186
75.9%
2,153,200
1,308,799
60.8%
Engineering
137,850
145,600
105.6%
137,850
206,886
150.1%
260,535
134,581
51.7%
260,535
152,825
58.7%
Gas Tax
1,840,430
740,220
40.2%
1,919,117
994,517
51.8%
969,080
935,848
96.6%
1,664,828
1,006,705
60.5%
Measure J - RTS
742,857
47,921
6.5%
815,217
161,891
19.9%
576,288
5,254
0.9%
710,139
228,826
32.2%
Clean Water
570,793
12,330
2.2%
572,200
14,793
2.6%
572,710
28,657
5.0%
272,700
22,187
8.1%
LLAD - A
582,115
327,191
56.2%
582,115
332,294
57.1%
583,858
328,047
56.2%
583,858
336,915
57.7%
LLAD - B
744,744
412,869
55.4%
744,744
412,600
55.4%
746,968
410,577
55.0%
746,968
411,144
55.0%
LLAD - C
662,204
365,728
55.2%
662,204
369,641
55.8%
664,183
367,566
55.3%
664,183
366,405
55.2%
LLAD - D
1,131,619
601,552
53.2%
1,131,619
603,992
53.4%
1,134,741
601,336
53.0%
1,134,741
603,759
53.2%
Solid Waste VIF
238,401
98,187
41.2%
482,182
241,098
50.0%
585,000
272,900
46.6%
846,851
352,855
41.7%