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Home My WebLink AboutApprove FY 2022/23 Budget Adjustment for the City's Various (2)T 2000 Main Street, ,> Huntington Beach, CA 92648 City of Huntington Beach APPROVED 7-0 File #: 23-957 MEETING DATE: 11/7/2023 REQUEST FOR CITY COUNCIL ACTION SUBMITTED TO: Honorable Mayor and City Council Members SUBMITTED BY: Al Zelinka, City Manager VIA: Sunny Han, Chief Financial Officer PREPARED BY: Sunny Han, Chief Financial Officer Subject: Approve FY 2022/23 Budget Adjustment for the City's Various Unfunded Liabilities and Year - End Audit Entries Statement of Issue: The Finance Department is completing the year-end closing process for Fiscal Year 2022/23, which began on July 1, 2022, and ended on June 30, 2023. Certain budgetary transfers are needed to reconcile the budget with actual expenditures incurred; to comply with auditing, actuarial, accounting, and legal requirements; and to align with the City Council's strategic goal of fiscal stability. City Council authorization is requested to perform these reconciliations in order to officially close FY 2022/23. Financial Impact: 1. Appropriation Increases (various funds): Appropriation increases of $119,243 are requested to reconcile the budget with actual expenditures incurred in various funds (Attachment 1). 2. Appropriation and Inter -Fund Transfers (various funds): Appropriation increases and inter - fund transfer authority of $280,412 are requested to reconcile the budget with actual expenditures incurred in various funds (Attachment 1). 3. Appropriation and Inter -Fund Transfers (General Fund): Authorization is requested for appropriation and inter -fund transfers totaling $12,620,000 from the General Fund in the following amounts: • Transfer of $1,500,000 to the Workers' Compensation Fund; • Transfer of $4,500,000 to the General Liability Fund; • Transfer of $4,620,000 to the Retirement Supplemental Fund; and • Transfer of $2,000,000 to the Infrastructure Fund There is sufficient General Fund year-end fund balance available to cover the inter -fund transfers primarily due to higher than anticipated Gas and Electric Utility Tax and Franchise Fee revenue received in FY 2022/23. City of Huntington Beach Page 1 of 5 Printed on 11/1/2023 powere164, LegistarTM File #: 23-957 MEETING DATE: 11/7/2023 Recommended Action: A) Increase appropriations for the FY 2022/23 Revised Budget by $119,243 in the funds and amounts contained in Attachment 1 to reconcile the budget with actual expenses incurred; and, B) Approve the appropriation and transfers for the FY 2022/23 Revised Budget in the funds and by the amounts contained in Attachment 1; and, C) Approve the appropriation and transfer of $12,620,000 into the Workers' Compensation, General Liability, Retirement Supplemental, and Infrastructure Funds from the General Fund year-end balances (see Attachment 1). Alternative Action(s): Do not approve the recommended action, and direct staff accordingly. Analysis: The FY 2022/23 Budget was adopted by City Council on June 7, 2022, for the fiscal year beginning July 1, 2022. The Finance Department has compiled recommended budget adjustments to cover additional costs and/or provide appropriations necessary to expend funds that have been received for specific purposes. The requested adjustments will be funded by available revenue or fund balances within each distinct Fund. The Finance Department is projecting to end FY 2022/23 with a $16.2M available General Fund surplus. This is primarily due to one-time spikes in natural gas prices during Winter 2022-23 and increased natural gas and electricity rates, resulting in $10.1 M additional utility tax and franchise fee revenue above the adopted budget. Additionally, Transient Occupancy Tax (TOT) remained strong, mainly due to higher average daily rates and a full fiscal year of TOT from the City's Short -Term Vacation Rentals, resulting in an additional $2.8M in TOT revenue. The demand for emergency medical services (EMS) continued to increase, bringing in an additional $2.2M above the adopted budget amount. In order to align with the City Council's Strategic Goal 2 - Fiscal Stability, staff is recommending additional funding to the City's various unfunded liabilities. The City's workers' compensation and general liability costs increased in FY 2022/23. In addition, the City's CalPERS retirement plan assets declined in value due to unfavorable market conditions. The City's unfunded liabilities are summarized below: Workers' Compensation $24.4M 45/ General Liability $7.2M 65% Retiree Supplemental $8.8M 88% CalPERS UAL $168.3M 89% Total $208.7M City of Huntington Beach Page 2 of 5 Printed on 11/1/2023 powerelk§, LegistarT'' File #: 23-957 MEETING DATE: 11/7/2023 Sufficient funding in the City's General Fund in FY 2022/23 is available for the recommended funding detailed below. Workers' Compensation: California Workers' Compensation Law provides state mandated benefits to employees for work - related illness or injury. Benefits may include payments 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 dollars per claim. The costs related to claims are paid for by the City as the Employer. As of the most recent actuarial valuation for the period ending June 30, 2023, the City's total workers' compensation liability is $44.1 million, or $1.3 million higher than the previous year. The increase was primarily driven by rising medical costs and an expanded list of injuries that are presumed to be work related under California law, including post -traumatic stress. The requested appropriation and transfer of $1.5M will fund the increase in the City's liability identified in the June 30, 2023 actuarial valuation and increase the funded status from 45% to 48%. General Liability. The City is self -insured for combined liability and cost of defense up to $1 million per claim. Costs up to that amount are paid from the General Liability Fund Budget. The City purchased liability insurance in the open marketplace, which provides insurance for claims costs exceeding the City's self -insured retention of $1 million. The maximum coverage limit is $25 million, which is inclusive of the self -insured retention. Claims that exceed the maximum limit of liability are covered by the City's Self -Insurance General Liability Internal Service Fund. As of the period ending June 30, 2023, the City's total general liability is $20.6 million, or $7.1 million higher than the previous year. The increase is primarily due to liability adjustments made to two large claims incurred during FY 2022/23. The requested appropriation and transfer of $4.5M will partially fund the increase in the City's liability and increase the funded status from 65% to 87%. Retirement Supplemental: The City administers a supplemental single -employer defined benefit retirement plan for all employees hired prior to 1997. The plan pays a supplemental retirement benefit in addition to benefits from CaIPERS. Investments of the Supplemental Plan are held separately from those of other City funds by investment custodians. The City's actuary assists City staff in determining the annual contributions or planned use of funds to ensure long-term sustainability of the program. A transfer of $4.62M is needed from the General Fund to the Retirement Supplemental Fund to align with actual required retirement supplemental benefit payments and to avoid drawing from the trust. The funded status is estimated to increase from 87.9% to 94.3% with the recommended transfer. Maintaining a high funded percentage will City of Huntington Beach Page 3 of 5 Printed on 11/1/2023 powerelOALegistarT'" File #: 23-957 MEETING DATE: 11/7/2023 allow the trust to be largely self-sustaining in the future and provide budgetary flexibility in future years. Central Library Transformer Replacement (Infrastructure Fund): The electrical equipment at the Central Library failed as of April 14, 2023 resulting in the Library's closure to staff and patrons. Temporary rental equipment provided by the City's electrical contractor, Snowden Electric is being utilized while the permanent repairs are designed, ordered, and installed. The cost to replace the electrical equipment was not included in the FY 2022/23 Adopted Budget. The preliminary cost for the replacement and installation of the new transformer is estimated to be $2M. Due to the increased cost of labor and materials, the final cost may be higher. During FY 2022/23, Council authorized the use of $3.2M in HB Recovery funding for the rental and installation of a temporary power source at the Central Library, infrastructure project cost increases, and unscheduled replacement of park equipment. In order to preserve the remaining $10.9M HB Recovery balance for City Council projects included in the recently adopted 2023-2027 Strategic Plan, a transfer of $2M to the Infrastructure Fund is recommended to fund the library transformer replacement. Inter -Fund Transfers and Budget Adjustments (Other Funds): Technical year-end budget adjustments to the FY 2022/23 Revised Budget are requested to align appropriations in certain funds with actual expenditures incurred through June 30, 2023, as actual expenditures cannot exceed the appropriation amounts contained in the Revised Budget. Adjustments are also required to ensure compliance with Generally Accepted Accounting Principles (GAAP), Governmental Accounting Standards Board (GASB), and other regulatory, contractual or legal requirements. Please note any appropriation increases are fully offset by commensurate amounts of revenues, available cash, or fund balances in each Fund. Hotel/Motel Business Improvement District (Hotel/Motel BID) Fund (709): An appropriation increase of $102,050.44 is requested to align the budget with actual FY 2022/23 revenues and expenditures. The Hotel/Motel BID Fund is a pass-thru fund in which the City collects self -assessed revenues of 4% from the participating hotels and motels and submits them to Visit Huntington Beach per the BID's agreement. Downtown Business Improvement District (Downtown BID) Fund (710): An appropriation increase of $8,938.56 is requested to align the budget with actual FY 2022/23 revenues and expenditures. All Downtown merchants have a self -assessment through the Business Improvement District (BID) that the City Council approves annually. The City collects the fees and redistributes them back to the District. Bella Terra Parkinq Structure Fund (71 U An appropriation increase of $8,254.02 is requested to align the budget with actual FY 2022/23 revenues and expenditures. The City collects a maintenance fee from the owners of the center which is used to fund maintenance and operations costs for the structure. City of Huntington Beach Page 4 of 5 Printed on 11/1/2023 powere'6 y LegistarTM11 File #: 23-957 MEETING DATE: 11/7/2023 Revolving Loan and CDBG Funds (215 and 239): An appropriation increase of $63,731.46 is requested to increase transfers out of the Revolving Loan Fund (215) into the Community Development Block Grant (CDBG) Fund (239) to reconcile funding with the Integrated Disbursement and Information Systems (IDIS) for the CDBG Program and show use of program income. HOME Funds (240 and 854): An appropriation increase of $216,680.70 is requested to increase transfers out of the HOME Program 06 Fund (854) into the HOME Fund (240) to reconcile funding with the Integrated Disbursement and Information Systems (IDIS) for the HOME Program and show use of program income. Environmental Status: Not applicable. Strategic Plan Goal: Goal 2 - Fiscal Stability, Strategy A - Consider new revenue sources and opportunities to support the City's priority initiatives and projects. For details, visit www.huntingtonbeachca.gov/strategicplan <http://«fNvw.Iiuntingtonbeaclica.,gov/strategicl)lan>. Attachment(s): 1. FY 2022/23 Year -End Appropriations and Inter -Fund Transfers 2. Presentation City of Huntington Beach Page 5 of 5 Printed on 11/1/2023 powereW, LegistarTM ATTACHMENT 1 Fiscal Year 2022/23 Appropriation Increases APPROPRIATION INCREASE: Dept Fund Name Amount Non -Departmental 709 Hotel/Motel BID Fund 102,050.44 Non -Departmental 710 Downtown BID Fund 8,938.56 Non -Departmental 711 Bella Terra Parking Structure Fund 8,254.02 TOTAL 119,243.02 Fiscal Year 2022/23 Interfund Transfers APPROPRIATION AND TRANSFER INCREASE - OTHER FUNDS: Dept From Name Amount To Fund Name Community Development 215 Revolving Loan Fund 63,731.46 239 CDBG Fund Community Development 854 HOME Program 06 Fund 216,680.70 240 HOME Fund TOTAL 280,412.16 APPROPRIATION AND TRANSFER INCREASE - GENERAL FUND: Dept From Name Amount To Fund Name Non -Departmental 100 General Fund 1,500,000.00 551 Workers' Compensation Fund Non -Departmental 100 General Fund 4,500,000.00 552 General Liability Fund Non -Departmental 100 General Fund 4,620,000.00 703 Retirement Supplemental Fund Non -Departmental 100 General Fund 2,000,000.00 314 Infrastructure Fund TOTAL 12,620,000.00 169 TING = 40""A„r 0 :, .••-c pRPORq j'••• � Fo •.%0 \ FY 2022/23 Year-End Budget - -- -- - -:--7- -- - •• 00 Adjustments for City's Unfunded %%ri- • \ Liabilities and Year-End Audit Entries • ' '- W/77. CityCouncil Meeting • L , . . = v. •' November 7, 2023 F ° •' O •. .• CO v NT \/## 1 ... ,,i .ri4►//F'/ 1 170 Background ➢ Finance Department is working on the year-end closing process ➢ Year-End Budget adjustments for FY 2022/23 are required to close FY 2022/23 ➢ FY 2022/23 is projected to end with a $16.2M General Fund surplus primarily due to one- time spikes in natural gas prices during Winter 2022-23 and increased Natural Gas and Electric rates resulting in higher Utility Tax and Franchise Fees, as well as Transient Occupancy Tax and Emergency Management Services (EMS) revenues performing better than anticipated ➢ Opportunity to fund the City's unfunded liabilities —aligning with the City Council's Strategic goal of Fiscal Stability Description Unfunded Liabilities Funded Status as of_ has of 6/30/2023 ... 6/30/2023 Workers' Compensation $24.4M 45% General Liability $7.2M 65% Retiree Supplemental $8.8M 88% CaIPERS UAL $168.3M 89% Total i $208.7M 2 171 • Strategic Plan Goals ➢ FY 2023-27 Strategic Plan adopted by City Council on October 3, 2023 ➢ Eight Overarching Goals to achieve over the next four years ➢ Additional financial resources are required to successfully implement unfunded Plan Goals • One Stop Shop • LA28 as Host City/Olympic Village • World-Class Beach Facilities • Public Safety Infrastructure • Fleet Capital Replacement Plan Improvements • Mobility Master Plan • Comprehensive Homeless Response • 311 System Implementation Plan • Community-wide Risk Reduction • Infrastructure Report Card Program • PCH Relinquishment ---= .. I. lige FISCAL STABILITY Success Indicator:Available funding to support a high-quality level of programs,services 3 and capital investments and to build a structural surplus. 172 Workers' Compensation ➢ California Workers' Compensation law provides state mandated benefits to employees for work-related illness or injury ➢ City is self-insured up to $1 million per claim. ➢ Benefits may include payments for medical treatment, salary continuation, Total Temporary Disability (TTD) benefits, and permanent disability benefits. ➢ $1 .3 million increase in Worker's Compensation liability primarily due to claims driven by rising medical costs and an expanded list of injuries that are presumed to be work related under California law, such as post-traumatic stress. ➢ Recommended Transfer: $1 .5M '171:7* % Total WC Liability 6/30/2023 I $44.1M Increase in WC Liability FY2022/23 $1.3M Funded Status without Transfer ($19.7M) 45% Funded Status with Transfer ($21.0M) 48% Recommended Transfer $1 5M 173 General Liability ➢ City is self-insured up to $1 million per claim with $25M in excess coverage per claim/occurrence ➢ $7.1 million increase in General Liability primarily due to liability adjustments made to two large claims ➢ Recommended Transfer: $4.5M Descr'ion Total General Liability 6/30/2023 $20.6M Increase in Liability FY2022/23 $7.1M Funded Status without Transfer ($13.4M) `; 65% Funded Status with Transfer ($17.9M) 87% Recommended Transfer $4.5M 174 Retiree Supplemental ➢ The City administers a supplemental single-employer defined benefit retirement plan for employees hired prior to 1997 ➢ The plan pays a supplemental retirement benefit in addition to benefits from CaIPERS ➢ Investment held separately in the Supplemental Retirement Trust (SRT) and is managed by the City's Investment Custodian and subject to Investment Policy set by the SRT board ➢ Recommended Transfer: $4.62M —minimum required to avoid drawing funds from Trust Date Funded SRT SRT Asset rt= Net SRT`Liab 'Status Liao (Asset) ....... �.,� .,.W_.__..._ ... .. 6/30 2022 , 79.6% ± $74.2M � ° $59.0M $1_5.2M 6/30/2023 w/o Transfer 87.9% $72.6M $63.8M $8.8M 6/30/2023 w/Transfer 94.3% it ��--�- ��-�- __ - �- - � '$72.6M $68.4M $4.2M 175 Central Library Transformer Replacement ➢ The electrical equipment at the Central Library failed as of April 14, 2023 resulting in the Library's closure to staff and patrons. ➢ Temporary power is being supplied through rental equipment while design for custom built switchgear and permanent replacement equipment is ordered and delivered. ➢ The preliminary cost for the replacement and installation of the new transformer is estimated to be $2M. Due to increased cost of labor and materials, the final cost may be higher. ➢ During FY 2022/23, Council authorized the use of $3.2M in HB Recovery funding for emergency repairs, infrastructure cost increases, and unscheduled replacement of park equipment. ➢ To preserve the remaining HB Recovery balance of $10.9M, a transfer of $2M from the General Fund to the Infrastructure Fund is recommended to fund the library transformer replacement. 176 General Fund Adjustments Summary Recommended transfers totaling $12.62M from the General Fund in FY 2022/23 to fund the City's unfunded liabilities as listed below — aligning with the City Council Strategic goal of Fiscal Stability. Estimated FY 2022/23 surplus after appropriation $3.6M (subject to change) Fund moun Worker's Compensation $1,500,000 tk General Liability 4,500,000 Retiree Supplemental 4,620,000 Infrastructure Fund 2,000,000 Total I $12,620,000 177 Other Fund Adjustments Hotel/Motel Business Improvement District Fund (709) ➢ $102k to align budget with actual FY 2022/23 revenues and expenditures. The Hotel/Motel BID Fund is a pass-thru fund in which the City collects self-assessed revenues of 4% from the participating hotels and motels and submits them to Visit Huntington Beach per the BID's agreement. Downtown Business Improvement District Fund (710) ➢ $9k to align budget with actual FY 2022/23 revenues and expenditures. The Downtown BID Fund is a pass-thru fund in which the City collects self-assessed revenues from all Downtown merchants and remits the funds back to the District per the BID's agreement. 9 178 Other Fund Adjustments Bella Terra Parking Structure (711) ➢ $8k to align budget with actual FY 2022/23 expenditures. The City owns the parking structure in the Bella Terra retail center. The City collects a maintenance fee from the owners of the center through a special assessment which is used to fund maintenance and operation expenditures for the structure. Community Development ➢ $64k Revolving Loan Fund transfer to CDBG Fund to properly code funding & $217K HOME Fund transfer to the proper grant year 10 179 B ti 1t' nG't' - e ilk m z s • f` „ �Questions ? ' ..,°c a',.,-..!.-;«,likr•.4.•"•;,,,,a• ''''•-1'7°‘-'"••• "A ''' .`.11 JILL., it 1 ) r" e ;t,�, Th e .yam >F 'h - 180