Morro Bay’s Fiscal Year 2023-24 budget tops $56 million overall and increases spending in several ways including selected infrastructure repairs and addressing looming employee pension liabilities.
Interim City Manager Greg Carpenter and Assistant City Manager/Administrative Services Director, Sarah Johnson-Rios, presented the budget to the City Council in May when they held special council meetings, and it was finalized at the Council’s June 13 meeting, well before the June 30 deadline to have a budget passed by July 1, the start of the fiscal year.
The $56 million is an increase of 3.5% increase over last year’s budget, due mostly to rising personnel costs and inflation.
Bottom line though, is the budget is balanced and every fund has a healthy surplus.
“The budget,” Johnson-Rios said, “makes key investments in operations, City staff, capital improvements, and paying down pension liabilities, while also preserving healthy financial reserves to weather future emergencies and economic downturns.”
Those healthy reserves collectively in the various funds top $14.5 million, which sets the City in a good place to weather the coming economic storms and the weather-related ones, too.
Though each reserve fund is built up differently and intended for specific needs, the City Council on a four-fifths vote can expend any of it on whatever it wants.
And it’s last winter’s fierce storms that caused so much damage in town that’s helping to drive the infrastructure spending, with 31 projects on the City’s menu.
The $56 million budget includes $36.6 million for operations and $19.5 million for capital improvements, Johnson-Rios said in a news release. The general rule of thumb in Morro Bay is that about 79%-80% of spending is for employee salaries and benefits.
Indeed, the City Council also approved a new salary schedule for its various employee job categories and also allocated money to hire a full time Public Works Inspector after a June 2022 experiment with the position was deemed successful.
“The position’s primary goal,” the report said, “is to ensure that projects in the public right of way and public infrastructure projects were safe, high quality, and consistent with specifications and regulations.”
The trial program wherein the Consolidated Maintenance Field Supervisor assumed the inspector’s role, “demonstrated both the employee’s competence as a Public Works Inspector and the City’s need for the role,” reads a budget staff report from June 13. The new inspector job pays from $76,100 on the low end to a high of $92,500, according to the Council’s Resolution approving the creation of the position.
The inspector’s job was created at the same salary as the maintenance supervisor, so the City said there’s no net increase to its personnel costs.
The budget predicts revenues next year from taxes, which are the main sources of money for the City’s General Fund, will top $17.5 million and comes in under limits placed on spending by Prop. 4, aka the Gann Initiative Limits, which are calculated using cost of living and population figures.
The City’s Gann Limit is more than $32 million, so the $17.5 million in “taxes” is less that 50% of what it could be.
As far as revenues go, highlights include: $5.3 million in property taxes; $7.2 million in sales taxes; $4.4 million in bed taxes; $674,000 in franchise fees; $577,000 in licenses and permit fees; $1.5 million in “intergovernmental revenues;” $119,000 in fines and forfeitures; $22 million from City-provided services; and $25.6 million in “interfund revenue transfers,” much of that to pay for the City’s Water Reclamation Facility or WRF project.
All told, the City’s is predicting total revenues to top $71.5 million. According to the budget document, “The City’s major revenue sources, particularly those tied to discretionary spending and tourism, had shown strong signs of recovery to pre-pandemic levels but are now flattening.”
While revenues are flattening out, expenditures jumped by 5.1% over last year, according to the budget document and will hit $81.5 million. But cut out the WRF transfers and the net expenditures are $56.1 million (a 3.5% increase), which means the budget is balanced, provided the revenue projections are spot on.
And while it appears there’s a $10 million gap between revenues and expenditures, the budget covers that. “The portion of the expenditure budget that is not covered by current-year revenues reflects the use of available fund balances to cover the costs of one-time capital improvement projects in FY 2023-24.”
So while the money for such CIPs may have been budgeted in a prior year or years, they don’t go into the balance sheet until the project is actually done.
Of the major fund expenditures, the General Funds makes up 28.9% of the total; the sewer operating fund is 17.8%; the water operating fund 11.5%; and Measures Q and E sales taxes is 7%.
Big ticket items with expenditures are the General Fund at $23.4 million; risk management at $1.6 million; American Rescue Plan at $1.6M; IT Fund at $1M; Measures Q&E at $5.7M; government impact fees at $1M; sewer operating fund at $14.4M; the Harbor Fund at $2.5M; and the CIP Fund at $5.2M.
With individual departmental budgets, Public Works at $13.5M; $5.6M for police; $3.9M fire department; $2.2M for Administration services; %2M for Community Development (planning); $1.2M for the City Manager’s Office; $26.6M for “non-departmental” which are the interfund transfers within the City; and $19.7M for CIP.
To further explain this accounting and dispel thoughts of a shell game being played, the budget explains that “Since City Council must approve all City budgets by fund, the transfers must be budgeted for and approved in each annual budget. Interfund transfers appear in the “Nondepartmental” category of the budget.
“Most annual transfers occur for the following purposes: Capital Improvement Project contributions; Emergency Reserve Contributions; Cost Allocation Plan transfers to compensate the General Fund for support to the Enterprise Funds; IT and Risk Fund contributions for city-wide internal services and program support; and other revenue and expenditures that occur to support the operations of the City.
Since the mid-1990s, the City (and all local governments in California) have been allowed to charge for services rendered like Human Resources, accounting/payroll, legal and administration, hence the interfund transfers.
Of note the Measure E sales tax increase (at 1%) was predicted to raise $2M a year when the City analyzed the measure for the 2020 ballot. And Measure Q had been raking in about $1M a year (at one-half percent) since it was passed in 2006, but combined the two are predicted to bring in over $4.5M in the next budget.
They’ve budgeted $2.1 million for street repairs, she said, adding that it was more than the usual million or so the City has available for that work. The main revenue sources for street repairs are the Measure Q and E sales taxes (1.5%) and State and Federal allocations out of the gas taxes.
The CIP projects list includes $13.8 million in water and sewer capital infrastructure projects,” Johnson-Rios said, “with $6.8 million for the final components of the Water Reclamation Facility Project and the remainder for crucial sewer main replacement work and other priority utilities projects.”
Back in 2005, the City Council approved a series of five annual sewer rate increases that was supposed to begin tackling the many needs for the City’s aging collection system. Evidence of the system’s issues surfaced when a sewer line running from the Cloisters under Hwy 1 broke and spilled raw sewage onto the ground.
The CIP budget includes money for repairing sidewalks in the Downtown district, replacing street trees that were taken out or knocked down in storms, work on the Vet’s Hall that has needed a new roof for several years, repairs to storm drains (also a priority with Measure Q), and remodeling the living quarters at the Fire Department’s Bonita Street Station. She also noted the City plans to replace trash and recycling cans out along the streets.
“The budget also funds action items to achieve the Strategic Planning goals established by the City Council,” Johnson-Rios said, “including: Improving public infrastructure, Achieving economic vitality, Addressing housing needs and homelessness response, and Improving community engagement.”
Speaking about the homeless, the City and County are going in on a County hatched idea to put up a group of tiny homes on vacant lot on Quintana Road to get people living in an around Willow Camp Creek into some sort of housing, albeit one that is just 100 square feet.
The County applied for a $5 million State grant for that temporary housing project.
After the Coronavirus Pandemic, the City has recovered from any revenue drop offs but that’s it. “The City,” Johnson-Rios said, “has largely recovered from the economic impacts of the pandemic although recent events related to storm damage and national economic cooling have negatively impacted our financial situation.
“The City’s major revenue sources, particularly those tied to discretionary spending and tourism, had recovered to pre-pandemic levels but are now flattening.”
Measure E, approved in 2020 by voters, adding a 1% local sales tax to pay for police and fire services, continues to be a wise investment.
“Measure E,” Johnson-Rios said, “continues to support the City’s ability to deliver core public safety services and make progress toward addressing infrastructure needs, though infrastructure needs continue to exceed funds available.”
She added that the budget also has $1 million for, “a pension trust fund to help lower the City’s pension liability.”
The budget is available online to the public and Johnson-Rios said is in an interactive format, see: www.morrobayca.gov/827/Budget.