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Council Conference Room Thursday, February 8, 2024 | 4:00 p.m. FY 2024-25 Budget Workshop #1 1. Resident Budget Survey Feedback FY 2024-25 Resident Budget Survey Foundations Agenda 3. FY 2024-25 Preliminary Budget General Fund Forecast Inflows and Outflows Major Revenues/Expenditures and Drivers Public Safety Personnel Retirement System (PSPRS) Preliminary Capital Improvement Plan (CIP) Overview Preliminary Property Tax Discussion 4. Key Budget Dates & Closing remarks 2. Financial Policies and Considerations FY 2024-25 Economic Updates FY 2024-25 Budget Theme Making it Happen Our Vision We are a world class city that provides an exceptional quality of life Chandler Budget Process Timeline New Fiscal Year 2024-25 beings 7/1/2024 This year’s theme: Making it Happen Council/Resident Process Staff Process Resident Budget Survey Feedback • The survey ran from November 27, 2023, through January 12, 2024 • CAPA assisted with a video ad campaign to encourage participation • Continued expanded the outreach on social media • Additional facilities provided paper copies, signage and survey QR codes • Emailed working lists of residents to encourage participation with Boards & Commissions, Recreation and Library users • The survey consisted of 17 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 • Tested a custom survey engine that provided an additional 633 FY 2024-25 Resident Budget Survey 1,768 Total Survey Responses 1,350 (1,629 prior yr) Original Survey Comments responses for a total participation level of 1,768 Original Survey Responses 1,135 (1,310 prior yr) 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, 48% Good, 44% Neutral, 7.0% Strongly Agree, 24% Agree, 47% Neutral, 23% Very Satisfied 29% Satisfied 51% Neutral 15% 99% 94% 96% Budget Survey Results I Feel Safe in Chandler Chandler Fire Would Provide Quality Care Strongly Agree 28% Agree 53% Neutral 11% Strongly Agree 54% Agree 36% Neutral 8% 92% 98% Original Budget Survey Comment Themes Community Safety Neighborhoods Connectivity Economic Vitality Theme # of Comments General Police Support/Positive Experiences 76 Requests for Increased Police Presence 34 Improvements Needed on Training/Resident Interactions/Diversity 30 Feeling Unsafe/Crime Rate Concern 28 Theme # of Comments Doing a Good Job in this Area 32 Enhanced or More Safe Non-motorized Transit Options 27 More Transit Options and/or Locations 26 Would Like to see Continued Improvements and Maintenance 12 Theme # of Comments Taxes/Cost of Living too High 30 Increase Contemporary/Diverse Businesses 27 Decrease Empty/Unused Lots/Industrial Development 22 Good Improvements in Downtown/Chandler 19 Theme # of Comments Need Additional Lower Cost Housing Options 46 Better or More Code Enforcement 40 Doing a Good Job in this Area 33 Could use some Additional Work or Funding in this Area 15 Original Budget Survey Comment Themes Quality of Life Sustainability & Technology Theme # of Comments Expansion of/More Access to City Facilities 68 Positive Park/Recreation Feedback 45 Updates/Improvements Needed- Facilities/Parks 39 Poor City Image/Aesthetics 29 Theme # of Comments Support Water Conservation Efforts 35 Sustainability/Environmental Support 27 Positive Feedback on City Efforts 14 Increase Solar Efforts 13 Custom Survey Comment Themes Based on which focus area respondents felt could use additional emphasis or funding 37 38 39 41 Police resources and public safety Reduced apartment complex development Education, schools, and teachers wages Affordable housing, rent control, and tenant protections Financial Policies and Considerations Strategic Framework Guides Decision Making Our Brand: A safe, diverse, equitable and inclusive community that connects people, chooses innovation and inspires excellence. Focus Areas: Community Safety Neighborhoods Connectivity Economic Vitality Quality of Life Sustainability & Technology Strategic Framework Guides Our Decision Making Operating Management * Capital Management Reserves (Apr. 27, 2023) Debt Management * Long-Range Financial Planning Grant Management * Investment (May 28, 2020) * Accounting, Auditing, and Financial Reporting * Pension Funding (annual update; April 27, 2023) * Financial Policies (Revised and updated by Council January 14, 2016) *Recommended updates included on February 8, 2024 Council agenda, Res. #5768 Chandler’s 9 Financial Policies Institutionalize Strong Financial Management Practices FY 2024-25 Financial Considerations Continue finalizing large infrastructure projects and spending on federal grants (ARPA, ERA, etc.). Decisions on related ongoing levels continue. Growth of sustainable (ongoing) revenue was reset in FY 2023-24 to reflect forecasted development increases but is being reviewed for additional growth. Residential Rental legislation impact will start January 2025, with full $11M ongoing impact realized in FY 2025-26. Also, anticipate Intel development through 2026. Development revenues lower on single family residential but increasing again with 197 permits issued in last 6 months. Economy has seen inflation and supply chain issues easing. Federal Reserve monetary policy is being closely watched. Possible recession or self- inflicted downturn remains in most economists’ predictions due to consumer confidence, interest rates, fuel pricing and a potential drop in home values. National Economic Indicators Economy reflects healthy spending after increased wages & inflation vs. federal stimulus National Inflation Now Trending Lower Source: Investing.com as of January 2024 Source: U.S. Bureau of Labor Statistics as of January 2024 Inflation is still up, just not as much. Feeling it in certain commodities, chemicals, & contracts Lower Inflation means prior year high spending remains, but new increases are lower Arizona Phoenix Metro 2020 to Dec 2023 Maintaining services levels requires higher spending Citywide Inflationary Impacts Operating • Many contracts, chemicals and utilities have continued to see increases Capital • Projections again increased +8.5% 1st year, then +5%, then +3.5% thereafter • Materials still showing effects of inflation are asphalt, steel, pipes, data fiber, anything cement-based, and anything with a computer chip • Projects are being costed based on market causing faster use of existing bond authorization Year over Year December National Inflation +3.4% & Local +2.7% National Recession Gauge showing mixed results Source: St Louis Fed and Y Charts.com Currently not including recession in forecast, although monitoring Local Growth still projected Source: University of Arizona’s azeconomy.org as of November 2023 Ready to issue Permits numbers as of February 1, 2024 (109) Total Building Value in permits ready to issue: $124.4M • Chandler maintained AAA Bond Ratings from Moody’s, Fitch, and S&P rating agencies and increased ETRO rating from Moody’s • Continued adherence to all fiscal policies & strong reserves • Planned pay-off of pension obligation • Re-affirmed ratings at end of 2023 • 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 • Recommend Budget Stabilization Reserve at $10M • Chandler manages expenditures to meet service demands • Maximize grant opportunities • Weigh positions vs. contracting • Ensure service continuity – Temp vs Employee • Start Modified Zero Based Budgeting to verify funding requirements to provide services • Control Primary Property Tax • Provide options to match expenditure needs or right size Sound Budgeting Practices Support Financially Sustainable Goals FY 2024-25 Preliminary Budget FY 2023-24 General Fund Operating Revenues and Expenditures Annual Inflows Annual Outflows 82% Local taxes and licenses and State shared revenues 10.7% Primary Property taxes 7.3% Other Charges for services (i.e., parks, rec., building, planning, library) 57.5% Ongoing Personnel (Wages/Benefits) 17.2% Ongoing Base Budget (i.e., Ops./maint., supplies, utilities) 25.3% One-time & other needs (i.e., PSPRS, consultants, pilot programs) If Revenues exceed Expenditures, General Fund Balance increases Based on FY 2023-24 Adopted Budget (reflects 74% of revenues as ongoing with the rest supporting one-time needs) Ongoing/One-Time Local Sales Tax (TPT) Preliminary Revenues 55% of FY 2023-24 General Fund revenue Sales tax revenues fluctuate due to economic volatility, including increased development, inflation and consumer confidence Prior year legislative reduction of Residential Rental TPT beginning Jan. 2025 Sources: ESRI Business Analyst (2019) New & Expanding Employers R&D/Manufacturing 147,000 SF facility 400 jobs Manufacturing 104,000 SF facility 233 jobs Manufacturing 75,000 SF facility 100 jobs Manufacturing $20B investment 3,000 jobs Chandler Update Manufacturing 200,000 SF 200 jobs Manufacturing Multi-facility project 400 jobs Manufacturing Expansion in campus 100 jobs Manufacturing 104,000 SF 280 jobs chandleraz.gov/ed Sources: ESRI Business Analyst (2019) New & Expanding Employers Semiconductor/Dist. 50,000 SF expansion 25 jobs Recreation Products 130,000 SF U.S. HQ 150 jobs Semiconductor Svcs. 38,000 SF expansion 100 new jobs Manufacturing 76,000 SF facility 140 jobs Manufacturing 617,000 SF campus 500 new jobs IT Solutions HQ Relocation 1,500 jobs Chandler Update Adv. Business Svcs. 30,000 SF office 150 jobs Manufacturing 123,000 SF facility 100 jobs chandleraz.gov/ed Sources: ESRI Business Analyst (2019) New & Expanding Employers Manufacturing 70,000 SF new HQ 85 jobs Manufacturing 118,000 SF new HQ 90 jobs Chandler Update Manufacturing 222,000 SF facility 150 jobs Autonomous Vehicles 66,000 SF testing & maintenance facility R&D/Manufacturing 29,000 SF facility 40 jobs Healthcare 100,000 SF office 500 jobs chandleraz.gov/ed Showroom/Logis. 74,000 SF facility 40 jobs Financial Services 63,000 SF office 300 jobs Key Local Sales Tax Revenues by Category Higher fluctuations (increased one-time) experienced during Intel expansions Sources: ESRI Business Analyst (2019) Expanding Resident Base Population has increased 12.3% since 2017 State Shared Revenues (in Millions) 34.7% of General Fund in FY 2023-24 Requests just to maintain service levels are higher again this year due to high use of amenities, contract increases, and inflation Prioritize Ongoing Demands (Maintain > Enhance > New) $39.4M $4.7M $3.1M All Funds net of offsets Ongoing Requests Net of Offsets One-time Requests Net of Offsets General Fund $16.8M Total of All Funds $26.9M General Fund $17.5M Total of All Funds $20.3M Total Decision Package Requests Net of Offsets: $47.2 New Decision Package Requests Expenditures “Outflows” Optional Priorities for Ongoing Dollars 1. Maintain existing service levels within core programs and strategic focus areas 4. Continue to honor pension and other labor and personnel commitments to remain an employer of choice 3. Execute Strategic Framework priorities 2. Continue converting successful one- time-funded programs and personnel to ongoing, sustainable sources 5. Service enhancements or additions, considering the option of one-time pilot programs first Effect of Strong Revenue Growth on One-Time Fund Balance Includes additional $60M over 5 years for Street program Priorities for One-Time Dollars 1. Reinvest in existing aging infrastructure, neighborhoods & systems 4. New initiatives and capital, including sustainability 3. Maintain reserves sufficient to meet financial policies 2. Operating and capital spending to advance Strategic Framework goals Paid down large unfunded PSPRS liability to generate ongoing savings Public Safety Personnel Retirement System Update PSPRS Unfunded Liability Pay-Down Benefits • Generates ongoing savings by reducing annual contribution (est. cumulative $8-10M over next three years; already built into forecast to fund projected public safety wage needs) • June 30, 2023 Actuarial Valuation Report reflects $50M • $73M payment not reflected until June 2024 • Annual unfunded liability now managed through smaller one-time payments • Market conditions and public safety salary growth will impact annual projections • Secured future of public safety personnel PSPRS Actuarial Report Results 6/30/23 Unfunded Liability decreased $36.4M from Prior Year’s total of $136.5M Tier 1 & 2 funded status increased to 83.3% combined: 78.8% to 85.9% for Fire 73.1% to 81.7% for Police Tier 3 funded status still over 100%: 110.6% to 109.7% for Fire 106.9% to 109.8% for Police Note: $73M payment not yet reflected Normal portion of contribution 48% Unfunded liability portion of contribution 58% Police $68.4M Fire $31.7M Total $100.1M Based on current wages/counts, reduction for FY 2024-25 is $3.1M PSPRS Net Unfunded Liability Balances Update June 2022 June 2023 Difference % Change Chandler $136M $100M* -$36.4M -26.7% Gilbert $32M $49M $17M 54.5% Glendale $59M** $95M $36M 60.8% Mesa $720M $748M $28M 3.8% Peoria $73M $63M -$10M -13.9% Phoenix $3.5B $3.7B $215M 6.2% Scottsdale $182M $183M $1M 0.8% Tempe $30M** $61M $31M 105.6% Chandler % Funded 2023- 83.3% 2022- 75.2% *Excludes $73M overpayment made in July 2023 **Sold Pension Obligation Bonds and converted ongoing to a debt service payment PSPRS Employee/Employer Rates Comparison |Fire 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% 32.77% 26.52% 32.36% 61.07% 31.03% 70.00% 28.07% 30.13% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Chandler Gilbert Glendale Mesa Peoria Phoenix Scottsdale Tempe Employer- FY 22-23 Employee- FY 22-23 Employer- FY 23-24 Employee- FY 23-24 Employer- FY 24-25 Employee- FY 24-25 PSPRS Employee/Employer Rates Comparison | Police 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% 36.85% 22.79% 30.48% 62.72% 34.59% 81.17% 56.73% 27.87% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Chandler Gilbert Glendale Mesa Peoria Phoenix Scottsdale Tempe Employer- FY 22-23 Employee- FY 22-23 Employer- FY 23-24 Employee- FY 23-24 Employer- FY 24-25 Employee- FY 24-25 Preliminary Discussion: Capital Improvement Plan (CIP) Current 10-Year CIP Council Guidelines • Minimize increase in property taxes • Re-imagine resident amenities scheduled for replacement • Prioritize aging 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 Fiscal Foundations – “Making it Happen” Continued Focus on Chandler’s Aging Infrastructure Maintaining high quality of life for our 285,554 residents 65.7 square miles 2,090 miles of streets 28,515 Street lights 238 signalized intersections 1,238 miles of potable water lines 958 miles of sanitary sewer 69 developed parks (1,317 acres) 51 lighted fields 61 municipal buildings 821 fleet vehicles/ trucks 31 operating wells New Year CIP Considerations • Inflation continues to cause project cost increases • Bond authorization being utilized at faster pace. Additional authorization will be needed sooner • Studies completed which may cause some CIP adjustments • Some scope creep on projects needs addressed • Prop 400 extension is crucial funding stream for many transportation projects • Financial Impact if referendum fails is $12M Operating and $101.8M Capital in current CIP Capital Project Review in Workshop #3 Preliminary Property Tax Discussion Assessed Values Not Yet Received Property Tax Rate Comparison FY 2023-24 (per $100 of Assessed Valuation) 0.8582 0.9800 0.9841 1.0926 1.4400 1.4698 2.0992 2.4065 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Dollars * Do not have a primary property tax rate, only secondary rate 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 2023 Tax Bill information. Exact split will vary depending on the school district and any other special taxing districts on the bill. 49 • Maintain Secondary Rate since bond election anticipated an increase in assessed values • Evaluate Primary Rate options • Offset appreciation in assessed values, if expenditure levels allow • Offset entire increase for primary rate, if expenditure levels allow • Keep rate flat to capture the increased valuation • Primary Rate will be continuously evaluated until Tentative Budget adoption and can be revisited if revenue needs change Property Tax Policy Recommendation Key Budget Dates Budget Event Date Council Budget Kickoff Completed 10/19/23 Citizen Budget Survey 11/27/23 - 1/12/2024 Council Workshop #1 Tonight 2/8/2024 Council Workshop #2 03/18/2024 Council Workshop #3 CIP Focused 03/21/2024 All Day Budget Briefing 04/26/2024 Council Meetings Tentative Adoption 05/23/2024 Public Hearing and Final Adoption 06/13/2024 Adoption of Tax Levy 06/27/2024 Questions?