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Council Conference Room Thursday, February 9, 2023 | 4:00 p.m. FY 2023-24 Budget Workshop #1 • Feedback/Financial Considerations • FY 2023-24 Resident Budget Survey • Foundations • FY 2023-24 Preliminary Budget • General Fund Forecast Inflows and Outflows • Major Revenues/Expenditures • Public Safety Personnel Retirement System (PSPRS) • Capital Improvement Plan (CIP) overview • Property Tax Discussion • Key Budget Dates • Closing remarks Agenda Chandler Budget Process Timeline 7/1/2023 Ready to start FY 2023-24. Another exciting year in Chandler’s history! Feedback and Financial Considerations • The survey ran from November 28, 2022, through January 13, 2023, with Council outreach videos • CAPA assisted with an ad campaign to encourage participation • Expanded the outreach on social media • Weekly poll questions were added to Twitter, Instagram, Nextdoor, Ocotillo Friends, and Facebook • 5 total polls- one for each focus area • The shortened survey consisted of 15 total questions and was offered in English, Spanish, and Mandarin • Each focus area was allotted 1-2 questions on the full survey, each with a comment box for written responses FY 2023-24 Resident Budget Survey 1,310 (214 prior yr) Total Survey Responses 1,629 Survey Comments 4,303 Poll Responses Council Outreach Videos Added Budget Survey Results Quality of Life Provides residents a convenient way to share feedback regarding City services, amenities and infrastructure that are important to their quality of life in Chandler Good Tax Dollar Return Overall City Services Very Good 44% Good 48% Neutral 1.4% Strongly Agree 23% Agree 47% Neutral 24% Very Satisfied 26% Satisfied 54% Neutral 15% 98% 94% 94% Budget Survey Results I Feel Safe in Chandler Chandler Fire Would Provide Quality Care Strongly Agree 22% Agree 54% Neutral 16% Strongly Agree 46% Agree 40% Neutral 13% 92% 99% Poll Question Results Economic Vitality The City has a focus on assisting in the revitalization of existing retail centers. How important to you are these efforts to reduce vacant property and create alternative uses for that property? Innovation & Technology Technology Innovation is a key component of City Services. How important to you are the external partnerships the City has entered into, especially in the technology field, with companies like Waymo, ASU, and U of A? Very Important, 59% Important, 31% Neutral, 7% Very Important, 62% Important, 20% Neutral, 11% 97% 93% Poll Question Results Neighborhoods How important is it to you for the City to offer services and amenities that preserve and enhance the quality of neighborhoods while maintaining each neighborhood’s distinct character? Mobility Share with us how much you agree with the following statement: I feel like there are excellent options for mobility to get around the City, and getting where I need to go isn’t an issue. Very Important, 64% Important, 25% Neutral, 8% Strongly Agree, 19% Agree, 22% Neutral, 27% 97% 68% Poll Question Results Quality of Life Please share with us how much you agree with this statement: The City provides a variety of entertainment offerings, from concerts to sports and classes and even senior programing, and these meet my family’s needs. Strongly Agree, 25% Agree, 37% Neutral, 24% 86% FY 2023-24 Budget Theme Innovation at Work Our Brand A safe, diverse, equitable and inclusive community that connects people, chooses innovation and inspires excellence Strategic Framework Guides Our Decision Making •Being the Most Connected City •Being a Leader in Trust and Transparency •Maintaining Fiscal Sustainability •Attracting a Range of Private Sector Businesses •Fostering a Contemporary Culture that Embraces Unity •Being Safe and Beautiful Strategic Policy Goals Focus Areas •Economic Vitality •Innovation and Technology •Mobility •Neighborhoods •Quality of Life •Good Governance • Operating Management • Capital Management • Reserves (Jan. 26, 2017) (Mar. 22, 2018) • Debt Management • Long-Range Financial Planning • Grant Management • Investment • Accounting, Auditing, and Financial Reporting • Pension Funding (annual update; June 9, 2022) Financial Policies (Revised and updated by Council January 14, 2016) FY 2023-24 Financial Considerations Economy has seen inflation and supply chain issues for many months now with slight easing on the inflationary front. Continued Federal Reserve monetary policy changes will affect future growth. Possible recession or self- inflicted downturn is in most economist’s predictions due to consumer confidence, interest rates rising, fuel pricing and a potential drop in home values. Potential State legislative and/or Federal actions may threaten City revenues, with large Infrastructure projects to support Intel and federal grants continuing to drive projected expenditures up (ARPA, ERA, etc.). Growth of sustainable (ongoing) revenue was reset in FY 2022-23 following 2 years of artificially reduced projections from COVID, then the Intel development’s additional increase in FY 2023- 24. Unemployment still low, but we have seen additional personnel rightsizing, especially in the technology sector. Development revenues continue contributing one- time dollars to General Fund, but much lower on single family residential (only 23 permits issued in last 6 months) but higher in commercial. Inflation Now Trending Lower Source: Bloomberg, as of December 2022 Recession Gauge Flashing Yellow GDP Expected to Grow by End of Year Source: Bloomberg, Economist Forecasts. Recession risk based on most recent economic data as of 2/1/2023 • Chandler maintained AAA Bond Ratings from Moody’s, Fitch, and S&P rating agencies • Continue adherence to all fiscal policies • Continue pay-down of pension obligations • Re-affirmed end of 2021 • Chandler is structurally balanced • Ongoing revenues support ongoing expenditures • One-time revenues support one-time expenditures • Chandler maintains strong reserves • 15% General Fund contingency reserve • Budget Stabilization Reserve at a minimum of $10M • Will review and right size to Council Goals • Chandler manages expenditures to meet service demands • Maximize grant opportunities • Weigh positions vs. contracting • Ensure service continuity through various staffing solutions • Bond election passing also drives spending totals/projections • Control Primary Property Tax • Provide options to match expenditure needs or right size Sound Budgeting Practices Support Financially Sustainable Goals General Fund Inflows and Outflows Annual General Fund Revenues and Expenditures Annual Inflows Annual Outflows 86% Local taxes and licenses and State shared revenues 6% Charges for services (i.e., parks, rec., building, planning, library) 6% Primary Property tax and Indirect costs 2% Misc. Receipts (i.e., Interest Inc., fines, leases, surplus sales) 61% Personnel (Wages/Benefits) 18% Ongoing Base Budget (i.e., Ops./maint., supplies, utilities) 20% One-time decision package needs (i.e., PSPRS, consultants, pilot programs) 1% Transfers to replacement funds If Revenues exceed Expenditures, General Fund Balance increases Based on FY 2022-23 Adopted Budget (reflects 80% of revenues as ongoing with the rest supporting one-time) Ongoing/One-Time Local Sales Tax (TPT) Revenues 57% of General Fund revenue Current revised revenues include inflationary impacts to revenues (Phoenix area about 10% impact) Sales tax revenues fluctuate due to economic volatility, including increased development Potential Legislative Cuts of $25M threaten 2 categories of ongoing TPT Key Local Sales Tax Revenues by Category Higher fluctuations (increased one-time) experienced during Intel expansions State Shared Revenues (in Millions) 29% of General Fund Potential Ongoing & Other Legislative Impacts to FY 2023-24 Revenues Legislative Item: Financial Impact Food for Home Consumption (Grocery) Tax $14,000,000 Residential Rental Tax $11,000,000 Exempt hygiene products (Governor’s Budget) $2,000,000 Corporate Flat Tax Two Year Delay $5M future Impact Failure of Proposition 400 Extension $12,000,000 Operating $101,800,000 Capital Preliminary FY 2023-24 Revenue Takeaways • Positive Indicators: • Continued significant commercial development • Revenue collections still higher • Low unemployment • Negative Indicators: • Supply chain and Inflation impacts continue • Stagnating home sales and significant drop in single family permits issued • Significant potential legislative revenue impacts • Consumer confidence continues to drop Requests just to maintain service levels are higher again this year due to inflation New Decision Package Requests Expenditures “Outflows” Prioritize Ongoing Demands (Maintain > Enhance > New) $20.1M $11.0M $3.4M All Funds Ongoing Requests One-time Requests General Fund $11.1M Total of All Funds $15.8M General Fund $17.1M Total of All Funds $18.5M Total Decision Package Requests Net of Offsets: $34.5M Focus on Chandler’s Workforce *1,727 FTE Class and Comp Recruitment Health Care Costs Professional Development Succession Planning Wellness Work Flexibility - Balance Mental Health Workers Comp & Safety Contract vs. Employee Mentoring Population has increased 11.2% since 2017 and FTE has grown 8.3% Contract labor used to sustain services *Excludes 40 grant funded and early funded positions Updated Technology Citywide Inflationary Impacts Operating • Certain contracts, chemicals (+44%) and utilities has seen significant increases • Budget Inflationary Changes (BICs) were identified and added in FY 2022-23 do not fully offset costs but has helped Capital • Projections increased +8.5% 1st year, then +5%, then +3.5% thereafter, and 12% contingency • Materials experiencing hyperinflation are asphalt, steel, pipes, data fiber, anything cement-based, and anything with a computer chip • Projects with those materials are being costed based on market December National Inflation +6.5% & Local +9.5% Effect of Strong Revenue Growth on One-Time Fund Balance Recommended Priorities for One-Time Dollars 1. Continue Reduction of PSPRS Pension Debt to generate ongoing savings 4. Maintain Reserves sufficient to meet financial policies 3. Operating & Capital spending to move strategic goals 2. Reinvest in existing aging infrastructure, neighborhoods & systems 5. New initiatives and Capital Including Sustainability Public Safety Personnel Retirement System Update PSPRS Unfunded Liability Pay-Down Benefits • Beginning FY 2022-23, Chandler rates and unfunded liability are decreasing • Started with 20-year amortization, and now have 14 years remaining • Continuing additional payments has reduced liability and rates for FY 2023-24 PSPRS Actuarial Report Results 6/30/22 Unfunded Liability decreased $17.5M from Prior Year’s total of $154M Employer contribution rate reductions translates to about $900K in ongoing savings based on FY 2022-23 personnel levels. Note: $50M payment not yet reflected Normal portion of contribution 37% Unfunded liability portion of contribution 63% Police $92.8M Fire $43.7M Total $136.5M PSPRS Net Unfunded Liability Balances Update June 2021 June 2022 Difference % Change Chandler $154M $136M* -$18M -12.8% Gilbert $27M $32M $5M 15.1% Glendale $284M $59M** -$225M -381.7% Mesa $696M $720M $24M 3.4% Peoria $104M $73M -$31M -41.2% Phoenix $3.39B $3.5B $103M 3.0% Scottsdale $211M $182M -$29M -16.0% Tempe $338M $30M** -$307M -1029.8% *Excludes $50M overpayment made in July 2023 **Sold Pension Obligation Bonds and converted ongoing to a debt service payment PSPRS Employee/Employer Rates Comparison |Fire 41.67% 21.20% 53.70% 56.17% 36.86% 63.29% 21.35% 83.35% 39.68% 21.70% 55.77% 58.05% 34.50% 63.38% 23.41% 83.87% 38.55% 24.47% 27.30% 60.95% 34.94% 68.68% 25.30% 25.08% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Chandler Gilbert Glendale Mesa Peoria Phoenix Scottsdale Tempe Employer- FY 21-22 Employee- FY 21-22 Employer- FY 22-23 Employee- FY 22-23 Employer- FY 23-24 Employee- FY 23-24 PSPRS Employee/Employer Rates Comparison | Police 49.12% 24.21% 58.95% 56.89% 47.23% 67.32% 59.02% 75.95% 47.61% 19.55% 63.67% 60.24% 48.44% 73.34% 63.27% 83.38% 45.28% 20.67% 26.40% 61.12% 36.16% 82.43% 58.95% 23.32% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Chandler Gilbert Glendale Mesa Peoria Phoenix Scottsdale Tempe Employer- FY 21-22 Employee- FY 21-22 Employer- FY 22-23 Employee- FY 22-23 Employer- FY 23-24 Employee- FY 23-24 PSPRS Contributions in FY 2022-23 One-Time Forecast Recommend continuing planned commitment of additional annual one-time payments to reduce PSPRS pension liability Anticipate update using increased one- time funds available when setting FY 2023-24 budget $50.0 $20.0 $10.0 $2.0 $3.5 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 Planned One-Time Funding (in millions) Early paydown of PSPRS unfunded liability allows for estimated ongoing savings of $8-10M Preliminary Discussion: Capital Improvement Plan (CIP) Fiscal Foundations – Staying Connected Current 10-Year CIP Council Guidelines • Minimize increase in property taxes • Maintain, enhance, or re-imagine existing infrastructure • Finish planned construction of streets, parks, fiber and utility systems • Prior to adding capital, ensure related ongoing O&M can be supported • Utilize master plans to guide long-term capital investment • Deliver on commitments made to residents through 2021 bond election • Balance inflation, workload, and timely completion of high-visibility and grant- funded projects Continued Focus on Chandler’s Aging Infrastructure Maintaining high quality of life for our 284,475 residents 65 square miles 2,090 miles of streets 29,800 Street lights 238 signalized intersections 1,228 miles of potable water lines 958 miles of sanitary sewer 69 developed parks (1,316.67 acres) 51 lighted fields 71 municipal buildings 821 fleet vehicles/ trucks 31 operating wells Capital Projects Under Review in the 10-Year Plan • Various community/regional park improvements, including Multi-Generational Center addition • Remaining arterial street projects such as Alma School, Ocotillo and Chandler Heights roads • Address aging street, park, facility and utility infrastructure through revitalization • Technology and fiber projects • Public Safety projects and maintenance or replacement of capitalized equipment • Airport needs and enhancements, including Cooper Road collector (under design) • Utility infrastructure rehab/replacements Leaving secondary tax rate flat at $0.87 with a 4% estimated increase in assessed value, generates $1.3M for debt service on bonds A successful bond election was held to support all the projects in the current year CIP Preliminary Property Tax Discussion Assessed Values Not Yet Received Property Tax Rate Comparison FY 2022-23 (per $100 of Assessed Valuation) Dollars 43 Impact of FY 2022-23 Tax Rate Reduction on Median Value Homeowner Anticipate Assessed Values for FY 2023-24 by 2nd week in February Breakdown of $1 of Typical Chandler Property Tax Bill City of Chandler 11 cents Public Schools and Community College Districts 70 cents Maricopa County & Special Districts 19 cents *Based on 2022 Tax Bill information. Exact split will vary depending on the school district and any other special taxing districts on the bill. 45 • Maintain Secondary Rate since bond election anticipated an increase in assessed values • Evaluate Primary Rate options • Offset appreciation in assessed values • Offset entire increase for primary rate, if expenditure levels allow • Primary Rate will be continuously evaluated until Tentative Budget adoption and can be revisited if revenue needs change Property Tax Policy Recommendation 46 • There are mixed signals when looking at economic indicators that should be weighed when looking at any significant changes to revenue or expenditure projections or policy changes • Legislative Revenue Impacts could cause significant adjustments late in the budget process • There continue to be needs City-wide, both from ongoing and one- time perspectives, to provide the services residents expect • Chandler continues to provide its residents with an award-winning City in which to live, work and play Budget Year 2023-24 Recap Key Budget Dates Budget Event Date Council Budget Kickoff Completed 10/27/22 Citizen Budget Survey and Poll Questions, with Council Outreach Videos 11/28/22 - 1/13/2023 Council Workshop #1 Tonight 2/9/2023 Council Workshop #2 03/23/2023 All Day Budget Briefing 04/28/2023 Council Meetings Amendment Discussion 05/11/2023 Tentative Adoption 05/25/2023 Public Hearing and Final Adoption 06/15/2023 Adoption of Tax Levy 06/29/2023 Questions?