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REVIEW AND DISCUSS MEASURE A PROPOSED BUDGET FOR FISCAL YEAR 2021-22
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RECOMMENDATION
Review and discuss the City Manager’s Fiscal Year (FY) 2021-22 Proposed Annual Budget for the use of Measure A proceeds and make recommendations to the City Council.
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Summary
The FY 2021-22 Annual Budget assumes Measure A revenues of approximately $36.1 million. The proposed Budget includes Police Department expenditures of approximately $30.2 million and the Office of Violence Prevention expenditures of $1.3 million from Measure A revenues. The revenues projected in the FY 2020-21 Annual Budget were based on a severe economic impact from the COVID-19 pandemic. While sales tax revenues have not experienced a severe decline, there has been a recessionary impact reducing the growth in sales tax revenues. The proposed Budget expects a sales tax revenues recovery in FY 2021-22 and anticipates the Police Department and Office of Violence Prevention expenditures to increase conforming to an expected increase in public service needs.
Background
The Measure A Citizens’ Advisory Committee may make recommendations to City Council regarding the Proposed Budget for Measures A and B before adoption pursuant to the Measure A Ordinance, and the Committee’s Charter and Bylaws.
Ordinance 2013-7-09-1601
“The City Council shall appoint a seven-member Citizens’ Advisory Committee, which shall meet at least annually to review the expenditure of revenues generated by the tax imposed by this Ordinance and to make recommendations to the City Council regarding those expenditures.”
City of Stockton Transactions and Use Tax Ordinance Citizens’ Advisory Committee Charter
“2.2.4-Budget Recommendation. The City will propose a budget for the use of Measure A proceeds to the Committee with sufficient time for it to formulate a recommendation to the City Council before it deliberates on that same Budget in the annual budget adoption process.
(a) The Committee shall present to the City Council, in public session, their recommendation on the proposed Budget.”
Measure A Advisory Committee By-Laws
Section 7 (Informational Materials): “At least quarterly, financial reports - including proposed Budgets and Actuals with detailed supporting schedules will be sent to each Committee member. The reports will show revenue generated by Measure A, detailed line-item expenditures as presented in the Annual Budget relative to Measure B (public safety).”
Section 8b (meetings): “the Committee will meet to review budgets for Measure A revenues and Measure B (public safety) expenditures before the City Council’s public sessions on the upcoming annual budget.”
Section 9 (Authorized Activities): “The City will propose a budget for the Measure A sales tax revenues and related uses of funds for the upcoming fiscal year which will be presented to the Committee members before City Council consideration and approval of the City’s Annual Budget. The Committee will consider the Proposed Budget in accordance with all City rules, regulations and policies and may make recommendations regarding the Proposed Budget for Measures A and B to the City Council in a public session.”
Present Situation
The City Manager released the FY 2021-22 Proposed Annual Budget to City Council and the public on May 15, 2021. The Budget assumes Measure A revenues of approximately $36.1 million. The Measure A funded portion of the proposed Police Department budget is roughly $30.2 million, while the Measure A funded piece of the Office of Violence Prevention is $1.3 million.
Sales tax revenues including the Measure A transaction tax continue to be impacted by protective measures put in place in response to the COVID-19 global pandemic. The economic ramifications of shelter-in-place policies has caused an unexpected shift in consumer spending from storefront to online purchases and a spike in home improvement spending. Since a national emergency was declared in the United States on March 13, 2020, unemployment claims are still at an all-time high. The fallout from COVID-19 has resulted in a sudden contraction of the labor supply, restricted access to many non-essential businesses, and diminished consumer confidence. These factors have led to a shift in consumer spending in industries involving physical interactions such as retail trade, leisure and hospitality, recreation, and transportation services to non-physical interactions industries such as online retail stores, home improvement equipment, and internet platforms (social media, internet games, cloud integration, and more). Recovering from the pandemic, Measure A revenues are expected to be 6% higher in FY 2021-22 then the projected FY 2020-21 year-end revenues of $34.1 million. The revenue budget of $36.1 million is $1.8 million more than actual revenues of $34.3 million received in FY 2019-20.
Measure A continues to fund 120 sworn positions, 33 non-sworn Police positions, and 7 Office of Violence Prevention positions. The most significant increase from the FY 2020-21 budget is in salaries and benefits as a result of bargained wage increases, merit increases, and retirement benefit cost increases. The Police Department budget includes a vacancy savings assumption of 5%; the same rate as other General Fund departments based on normal staff attrition.
Measure A is a general tax and a component of the City’s General Fund. The voter-approved Measure B is an advisory measure that recommends the City to spend at least 65% of Measure A revenues on law enforcement and crime prevention services such as the Marshall Plan. The balance of Measure A revenues can be spent on other services or contribute to the City’s long-term financial sustainability through Plan of Adjustment commitments and General Fund reserves.
In the FY 2021-22 Proposed Annual Budget, Marshall Plan expenses of $31.5 million are 87% of the projected annual Measure A revenues. This percentage is a decrease from the 88% projected for FY 2020-21. The reduction is a factor of the revenues increasing at a greater rate than expenses. Measure A funds not spent on the Marshall Plan in prior years contributed to the General Fund reserves, which will be essential to maintaining services during the current and future economic downturns. The General Fund is budgeted to draw on $5.0 million of reserves to fund one-time capital expenses.
In light of the picture conveyed by the City’s Long-Range Financial Plan (L-RFP), the City has deliberately held the expansion of new ongoing services, particularly those funded by the General Fund, to a minimum. As can be seen below, increasing costs, particularly from the CalPERS retirement system, will begin to exceed General Fund revenues, including Measure A. The L-RFP model predicts the City’s General Fund balance to decrease in FY 2021-22 and will reach the minimum 5% reserve level in FY 2036-37.
Thanks to the prudent and conservative fiscal practices adopted by the City Council, Measure A revenues have contributed to the City’s accumulation of General Fund reserves. The General Fund is projected to end FY 2020-21 with a total fund balance of $82.9 million, of which $42.7 million is required by City Council Reserve policy to be put toward the Working Capital Reserve as a proportion of the FY 2021-22 budgeted expenditures. The City will attempt to maintain its reserves to ensure long-term financial sustainability. These reserves will enable the City to maintain services during the current recessionary period and through the projected CalPERS cost increases, which are all assumed in the City’s L-RFP.
Measure A revenues allow the City to provide strategic service level increases and make essential one-time improvements. In the FY 2021-22 Annual Budget, $264,000 in new ongoing expenses and $675,000 in one-time expenses are identified from General Fund dollars (page A-7). In addition to the 160 Marshall Plan full-time positions, five administrative positions included in the February 2014 Measures A & B Implementation Plan continue to be funded out of the General Fund.
The full FY 2021-22 Proposed Annual Budget can be found on the City’s website at <http://www.stocktonca.gov/government/departments/adminservices/budCurYear.html>
The document includes the Measures A and B budget on page C-7 and more information on the Long-Range Financial Plan starting on page C-9.
Attachment A - Measures A and B FY 2021-22 Proposed Annual Budget
Attachment B - FY 2021-22 Proposed Annual Budget - Budget Message