HomeMy WebLinkAboutFiscal Year 2012/13 Year-End Budget Adjustments and PreliminDept, ID FN 14-003 Page 7 of 3
Meeting Date: 2/18/20 4
CITY OF HUNTINGTON BEACH
REQUEST FOR, CITY COUNCIL ACTION
MEETING DATE: 2/18/2014
SUBMITTED TO: Honorable Mayor and City Council Members.
SUBMITTED BY: Fred A. Wilson, City Manager
PREPARED BY:; Lori Ann Farrell, Director of Finance
SUBJECT: Fiscal Year 201.2/13 Year -.End Budget Adjustments and Preliminary Unaudited
General Fund Designations
Statement of Issue: At the January 31, 2014, Strategic Planning Session, the Finance
Department provided an update regarding the preliminary, unaudited Fiscal Year 2012/13 Year -End
General Fund Budget performance results for the year ended September 30, 2013. City Council
authorization is requested to create a Workers' Compensation Internal Services Fund to properly
track and monitor expenses for a net -neutral impact; implement the recommended year-end
estimated Fund Balance allocation of $1.8 .million; and designate remaining FY 2012/13 General
Fund Balances in order to finalize the City's Comprehensive Annual Financial Report (CAFR),
subject to final certification by the City's independent, external auditors.
Financial Impact: This action will result in an additional $1.0 million deposit into the Infrastructure
Fund to help finance the Senior Center Project, and the transfer of appropriations and expenses
from the General Fund to a new discrete Workers' Compensation Internal Services Fund for a net -
neutral fiscal impact, subject to final approval and certification by the City's independent, external
auditors. In addition, the deposit of an estimated $800,O00 into the Workers' Compensation
Internal Services Fund is recommended to begin a six -year plan to properly fund long-term workers'
compensation liabilities. Lastly, this action also authorizes the reallocation of existing General Fund
Balances to items identified in Attachment 1 for a neutral fiscal impact.
Recommended Action:
A) Approve the creation of a new Workers' Compensation Internal Services Fund and transfer
actual appropriations: and expenses incurred in FY 2012/13, currently totaling $5.8 million,
from the General Fund to the Workers' Compensation Internal 'Services Fund (551) for a.
net -neutral budget ;impact.
B) Approve the assignment of the FY 2012/13 General Fund estimated year-end fund balance.
of $1.8 million as.follows:
1. Transfer $1.0 million to the Infrastructure Fund (Fund 314) for the Senior Center
Project; and,
2. Deposit $800,000 to the Workers' Compensation Internal Services Fund (Fund 551).
C) Approve the allocation of General Fund Balance designations as indicated in Attachment 1.
Item 3. - I FIB --
Dept. ID FN 14-003 Page 2 of 3
Meeting Date: 2/18/2014
Alternative Action(s):
Do not approve staffs recommendation and provide alternative direction.
Analysis:
Workers' Compensation Internal Services Fund
California Workers' Compensation Law provides benefits to employees for work -related illness or
injury. Benefits may include payment for medical treatment, salary continuation, Total Temporary
Disability (TTD) benefits, and permanent disability benefits. The City is self -insured for its workers'
compensation program and is liable for all costs up to $1 million per claim. All costs are paid for by
the City as the employer. These costs are currently paid out of the General Fund budget; however,
all Funds contribute into the General Fund to cover these costs via workers' compensation rates.
As discussed at the January 31, 2014, Strategic Planning Session, actual workers' compensation
expenses have been growing significantly from $4.5 million in FY 2004/05 to the FY 2012/13 actual
cost of $5.8 million — a 24% increase.
As a result, City Council approval is requested to create a separate Workers' Compensation
Internal Services Fund and the transfer of FY 2012/13 appropriations and expenses totaling $5.8
million from the General Fund to the new Fund. This will provide proper tracking, planning, and
transparency of all expenses. Further, this action is fiscally neutral, yet more transparent as all
costs are discretely and separately accounted for within a separate fund in the City's financial
statements.
General Fund Year -End Fund Balance Allocations
For FY 2012/13, which ended on September 30, 2013, preliminary, unaudited figures reflect a total
of approximately $194.8 million in recurring General Fund revenue and $3.9 million in one-time
revenue for a total of $198.7 million. Of this amount, a significant portion is needed to support the
approximate $196.9 million in General Fund expenditures, liabilities and costs incurred through
September 30, 2013. This results in a preliminary, unaudited remaining year-end fund balance of
$1.8 million, or 0.91%, (less than one percent) of the General Fund.
It is recommended that $1.0 million of the available $1.8 million in estimated year-end fund balance
be deposited into the Infrastructure Fund to help finance the Senior Center Project. Construction
costs for the Senior Center are currently estimated at $21.5 million. The FY 2013/14 Adopted
Budget includes an appropriation of $1.5 million in the Infrastructure Fund. A potential bond issue
is a viable option to finance up to $15 million towards this project. This action would increase
funding in the Infrastructure Fund to a total of $2.5 million for the Senior Center project, resulting in
a projected funding gap of $4.0 million. Further, this action assists the City in complying with the
Charter mandate that 15 percent of General Fund revenue be spent on its infrastructure.
While the City has done an extraordinary job of reducing overall expenditures, an area of particular
concern is the City's total workers' compensation claims exposure. The City is self -insured in its
workers' compensation program and has a liability of total outstanding claims (comprised of short -
and long-term claims currently estimated at $10.9 million). While the City budgets for costs that are
likely to be paid out in a single fiscal year, it currently does not have a concrete plan for funding the
remaining outstanding long-term claims. As one of the Strategic Planning Goals is to "Improve the
City's Long -Term Financial Sustainability," it is strongly recommended that the City begin a six -year
plan to address the outstanding, unfunded workers' compensation liabilities and deposit the
remaining $800,000 of remaining year-end fund balance into the Workers' Compensation Internal
Services Fund to begin addressing this cost.
H.B - 3 - Item 3. - 2
Dept. ID FN 14-003 Page 3 of 3
Meeting Date: 2/18/2014
FY 2012/13 General Fund Balance Designations
In FY 2012/13, the City was able to pay off the PARS liabilities associated with the City's Early
Retirement Incentive Program two years ahead of schedule. This payment was made from a
combination of one-time revenue and citywide vacancy savings in FY 2012/13. As such, a PARS
Obligation Reserve of $4.7 million that was previously set aside for this purpose is now available for
redistribution to other high -priority needs. As these funds are one-time in nature, it is strongly
recommended that these funds be reallocated to fund other one-time needs, such as capital needs.
Staff recommends the allocation of $2.0 million for the Senior Center Project bringing total hard
dollars identified for the project to $4.5 million; $1.0 million for the Countywide 800 MHz
Interoperability Project currently estimated to cost the City $11.0 million; an additional $1,160,000
into the Capital Improvement Reserve to help finance the acquisition of open space/parks; and
$500,000 to partially fund the proposed CalPERS "One Equals Five Plan" in order to reduce the
City's unfunded pension liabilities.
Environmental Status:
Not Applicable.
Strategic Plan Goal:
improve Long -Term Financial Sustainability
Improve the City's Infrastructure
Enhance Economic Development
Enhance and Maintain Public Safety
Develop, Retain and Attract Quality Staff
Enhance Quality of Life
Attachment(s):
1. Recommended FY 2012/13 General Fund Balance Designations
Item 3. - 3 14B -34-
Attachment No. 1
Recommended FY 2012/13 General Fund Balance Designation
(in thousands)
Fund Balance Category
Economic Uncertainties
Litigation Reserve
Budget Stabilization
PARS Obligation's
Equipment Replacement
Retiree Medical Unfunded
General Plan Maintenance
Capital Improvement Reserve (CIR)
Senior Center
CalPERS "One Equals Five Plan"
Other Fund Balance"
Total Fund Balance:
FY 2011/12
Audited
24,011
900
3,100
4,701
6,913
698
323
5,970
7.819
`The PARS Obligation expense was paid from a combination of one-time revenue and vacancy savings
in FY 2012113.
"Includes Pre -paid Insurance, Encumbrances, Non -Spendable and Other Restricted Items.
Please note these recommended fund balance designations may be subject to change upon
further review and certification by the City's external independent auditors.
H -35- Item 3. - 4