2021-22 Year-End General Fund Budget Results and 2023-24 Budget Calendar

This report provides an overview of the 2021-22 General Fund (GF) budget results.
Overall, actual resources of $1,694.7 million exceeded estimates by $31.7 million
representing a variance of 1.9 percent. Total actual expenditures of $1,470.3 million
were $7.3 million under the estimate representing a variance of only 0.5 percent. As a
result, the GF ending balance of $224.4 million was approximately $39 million higher
than estimated. This report also requests adoption of the 2023-24 budget calendar.

THIS ITEM IS FOR DISCUSSION AND POSSIBLE ACTION.

Summary
The GF ending balance of $224.4 million exceeded the estimate of $185.4 million by
$39.0 million, primarily due to higher than anticipated revenue collections discussed
further in this report. The fund balance carries forward to the current fiscal year and will
be factored into the development of the 2023-24 GF Budget Status.

Two components make up the GF ending balance: resources and expenditures. GF
2021-22 actual resources were $1,694.7 million and exceeded the estimate of
$1,663.0 million by $31.7 million, or a variance of 1.9 percent. Higher than anticipated
revenue collections contributed to the GF ending balance. GF revenues were $1,495.7
million, representing a variance to the revised revenue estimate of $45.8 million. The
increased revenue collections were partially offset by increased transfers, primarily to
City trust funds including the Worker's Compensation Trust and the Self-Insurance
Reserve Trust. These trust funds are statutorily and actuarially required to be
adequately funded and additional resources are needed due to increases in the cost of
insurance and required reserve amounts. It is anticipated increased funding
requirements for these trust accounts will continue for the near future. GF expenditures
ended the fiscal year at $1,470.3 million, and $7.3 million less than the revised
estimate of $1,477.6 million. The GF expenditure variance is primarily due to more
than estimated vacancy savings. City departments are having a very difficult time
recruiting and retaining employees due to the competitive labor market. Attachment A
provides graphical illustrations of the GF budget results and Attachment B provides a
department by department comparison of GF expenditure actuals to the revised
estimate.


Page 5


Over the coming months staff will develop revised resource and expenditure forecasts
to prepare a 2023-24 GF Budget Status and Five-Year Forecast scheduled to be
presented to the City Council on Feb. 21, 2023.

2021-22 General Fund Results

Resources
Total resources include:

· Beginning fund balance;
· Annual revenue;
· Recoveries of prior year encumbrances that were not spent; and
· Interfund transfers to/from other City funds.

As mentioned above, GF resources were $1,694.7 million for the 2021-22 fiscal year
and include a beginning balance of $283.0 million, revenues of $1,495.7 million,
recoveries of $3.8 million, and net transfers out of $87.8 million. Total GF resources
exceeded estimates by $31.7 million representing a variance of only 1.9 percent. The
reason for the variance was higher than anticipated revenue collections primarily in city
and state sales taxes, offset by lower than anticipated net transfers.

Revenue forecasting over the past two years has been extremely difficult in part due to
the COVID-19 pandemic and more recently increased economic uncertainty. Several
factors have influenced revenue collections and are uncharacteristic compared to past
economic cycles. This includes the infusion of one-time funds from the federal
government via the Coronavirus Aid, Relief, and Economic Security (CARES) and the
American Rescue Plan (ARPA) acts into state and local economies. This is
remarkable, unprecedented and has certainly influenced economic conditions.
Additionally, high inflation has positively impacted sales tax collections. However, this
positive trend should not be expected to continue as consumer purchasing power is
diminished by the higher cost of goods and services which are not taxable. The recent
geopolitical crisis in Europe, market volatility and concerns of recession by economic
professionals have all contributed to uncertainty about the direction of the economy.
Budget and Research staff worked diligently over the past two years since the
pandemic started, to analyze revenue data and economic indicators, utilize our
econometric model developed in partnership with the University of Arizona's Economic
and Business Research Center for sales taxes, and listen to our trusted economic
sources to project revenues. It is for these reasons staff has taken a cautious
approach to estimating revenue and will continue to do so in order to ensure revenues


Page 6

are not projected too aggressively in an uncertain economy. The 2021-22 Year End GF
revenue report is available online at phoenix.gov/budget and provides further details
on revenue collections by category.

Expenditures
Total GF expenditures were estimated at $1,477.6 million, and actual expenditures
were $1,470.3 million, or $7.3 million (0.5 percent) less than estimated. The variance is
due to savings in department operating expenditures of $6.3 million (Attachment B)
and GF capital pay-as-you-go savings of $1.0 million. As indicted above, savings in
operating expenditures were primarily the result of City departments achieving more
salary savings than expected. Staff built into the expenditure forecasts additional
salary savings based on recent data trends, however the number of vacancies grew
more than anticipated.

Budget and Research staff are underway with the annual salary and benefits
projection review process and will soon start on the technical expenditure review
process, which is a tried and true method of working with all City departments to
evaluate spending at the line item level. This deep dive into department budgets will
enable us to identify savings and establish realistic estimates necessary to continue
existing programs and services. The process runs through November and is followed
by the central review process, which involves estimating costs for various commodities
such as fuel and electricity and personnel services line items, particularly pension.
These processes are critical steps in development of the GF Budget Status.

Looking Ahead
The 2021-22 GF ending fund balance variance of $39.0 million is in "reserve" until the
budget status for 2023-24 is developed over the next several months. The higher than
anticipated ending fund balance is good news and will be beneficial as we move
forward. However, the City faces many fiscal challenges in the years ahead which will
require strategic decision making to optimize resources. These challenges include:

· Need to offer competitive and fair compensation packages to City employees;
· Rising employee benefit costs, particularly for Public Safety pension and health
care;
· Additional resources to adequately fund City trust accounts;
· Deferred maintenance and aging infrastructure such as vehicles, equipment, and
City facilities;
· Increases in expenses for replacing and protecting City information technology
assets;
· Demand for additional or expanded GF services;


Page 7

· Potential budgetary impacts from the Department of Justice investigation of the
Police Department;
· Challenges estimating revenue collections in the current economic climate;
· Reductions to state shared revenues due to the decrease in Phoenix's relative
population; and
· Potential reduction in state and federal funding or new unfunded state or federal
mandates, including environmental requirements and attempts by the legislature to
reduce taxes.

The items above add significant pressure and uncertainty to the GF operating budget
and creates challenges estimating City revenues and expenditures. Staff will be
working over the next few months to study data trends, gather updated economic
information, and complete our necessary budget development steps in order to
construct the GF 2023-24 Budget Status and Five-Year Forecast.

It is important to mention Phoenix's relative population share used to calculate state
shared revenues has decreased again this year. Staff has estimated the negative
impact to GF revenue could range from $6 million to $7 million per year. Pension costs
will also continue for the foreseeable future based on information we received from the
Public Safety Personnel Retirement System (PSPRS) actuary. Updated pension rates
from the June 30, 2022 actuarial valuation will be provided to the City in December
and will be used to develop the GF 2023-24 Budget Status and Five-Year Forecast.
Attachment C includes historical and forecasted GF public safety pension costs
based on the most recent estimates from the PSPRS actuary.

2023-24 Budget Calendar
The City Charter and Code include legal deadlines and actions that must be followed
in adopting the budget. In cases where the deadlines conflict, the City meets the
earlier of the two dates or a date designated by the City Council. Adoption of the
budget calendar ensures compliance with the City Charter and Code, and also allows
staff to properly plan the budget development process and all legally required
advertising. Staff requests City Council approval of the 2023-24 budget calendar
reflected in Attachment D.

Responsible Department
This item is submitted by City Manager Jeffrey Barton and the Budget and Research
Department.




Page 8
ATTACHMENT A

Total 2021-22 General Fund (GF) resources were $1,694.7 million and $31.7 million more than
estimated representing a variance of 1.9%. GF spending was $1,470.3 million and $7.3 million under
the estimate representing a variance of -0.5%. As a result, the year-end fund balance was $224.4
million and $39.0 million more than estimated.

Actual Estimate Variance Variance
Amount Percent
GF Resources 1,694.7 1,663.0 31.7 1.9%
GF Revenues 1,495.7 1,449.9 45.8 3.2%
GF Expenditures 1,470.3 1,477.6 -7.3 -0.5%
GF Fund Balance 224.4 185.4 39.0 21.1%

2021-22 General Fund Resources and Expenditures
Millions
$1,700

$1,600 Resources were $31.7M, or 1.9% more than the
estimate.
$1,500

$1,400
Spending was
$1,300 $7.3M, or 0.5%
under the
$1,200 Estimate

$1,100

$1,000
Resources Expenditures
Estimate Actual

2021-22 Ending General Fund Balance
Millions
$250

The GF ending
$200 balance was
$39.0M higher
$150 than the Estimate.


$100


$50


$0
Estimate Actual


Page 9
ATTACHMENT B
2021-22 COMPARISON OF GENERAL FUND OPERATING EXPENDITURES
REVISED ESTIMATE TO PRE-AUDIT ACTUALS
(In Thousands of Dollars)

Variance
Program Estimate Pre-Audit Actuals Amount Percentage

General Government
Mayor $ 2,447 $ 2,200 $ (247) -10.1%
City Manager 8,087 6,143 (1,944) -24.0%
Government Relations 1,256 1,288 32 2.5%
Communications Office 3,430 3,360 (70) -2.0%
City Auditor 2,953 2,743 (210) -7.1%
Equal Opportunity 2,898 2,789 (109) -3.8%
Human Resources 23,787 20,630 (3,157) -13.3%
Phoenix Employment Relations Board 117 104 (13) -11.1%
Regional Wireless Cooperative - - - -
Retirement Systems - 39 39 100.0%
Law 7,758 8,104 346 4.5%
Information Technology 62,776 63,048 272 0.4%
City Clerk and Elections 5,407 4,331 (1,076) -19.9%
Finance 23,384 21,798 (1,586) -6.8%
Budget and Research 4,272 4,008 (264) -6.2%

Total General Government $ 154,747 $ 145,368 $ (9,379) -6.1%

Public Safety
Police $ 610,728 $ 610,288 $ (440) -0.1%
Fire 387,810 382,352 (5,458) -1.4%
Emergency Management 8 8 - 0.0%

Total Public Safety $ 998,546 $ 992,648 $ (5,898) -0.6%

Criminal Justice
Municipal Court $ 33,350 $ 32,433 $ (917) -2.7%
City Prosecutor 16,868 16,539 (329) -2.0%
Public Defender 7,470 7,575 105 1.4%

Total Criminal Justice $ 57,688 $ 56,547 $ (1,141) -2.0%

Transportation
Street Transportation $ 22,994 $ 22,399 $ (595) -2.6%
Aviation - - - -
Public Transit 1,642 767 (875) -53.3%

Total Transportation $ 24,636 $ 23,166 $ (1,470) -6.0%




Page 10
ATTACHMENT B
2021-22 COMPARISON OF GENERAL FUND OPERATING EXPENDITURES
REVISED ESTIMATE TO PRE-AUDIT ACTUALS
(In Thousands of Dollars)

Variance
Program Estimate Pre-Audit Actuals Amount Percentage

Community Development
Planning and Development Services $ 4,827 $ 4,414 $ (413) -8.6%
Housing 1,576 1,578 2 0.2%
Community and Economic Development 8,341 7,680 (661) -7.9%
Neighborhood Services 15,408 14,554 (854) -5.5%

Total Community Development $ 30,151 $ 28,225 $ (1,926) -6.4%

Community Enrichment
Parks and Recreation $ 105,591 $ 103,306 $ (2,285) -2.2%
Library 43,154 41,683 (1,471) -3.4%
Phoenix Convention Center 3,082 2,445 (637) -20.7%
Human Services 22,648 21,708 (940) -4.2%
Office of Arts and Culture 4,680 4,489 (191) -4.1%

Total Community Enrichment $ 179,155 $ 173,631 $ (5,524) -3.1%

Environmental Services
Water Services $ - $ - $ - -
Solid Waste Management - - - -
Public Works 25,747 24,930 (817) -3.2%
Environmental Programs 1,272 1,112 (160) -12.6%
Office of Sustainability 494 465 (29) -5.9%

Total Environmental Services $ 27,512 $ 26,508 $ (1,004) -3.6%

Non-Departmental Operating
Contingencies $ - $ - $ - -
Unassigned Vacancy Savings (20,000) - 20,000 -100.0%
Total Non-Departmental Operating $ (20,000) $ - $ 20,000 -100.0%

GRAND TOTAL $ 1,452,435 $ 1,446,093 $ (6,343) -0.4%




Page 11
ATTACHMENT C
The below chart illustrates the rise in General Fund (GF) costs for public safety pension. The
forecast for fiscal years 2023-24 through 2026-27 is based on information from the Public
Safety Personnel Retirement System (PSPRS) Actuary based on the valuation dated June 30,
2021, and included in the most recent GF Five-Year Forecast presented to City Council on
February 22, 2022. Projected amounts account for changes made by the PSPRS Board to
lower the payroll growth assumption from 3.5% to 2.0% by a factor of 0.5% each fiscal year,
which causes upward pressure on employer contribution rates. Actual amounts may differ
from the forecast. The forecast will be updated based on the June 30, 2022 valuation to be
issued in December 2022 and will be included in the 2023-24 GF Budget Status and Five-
Year Forecast scheduled to be presented to City Council on February 21, 2023.



GF Public Safety Pension Costs
$200,000,000

$180,000,000

$160,000,000

$140,000,000

$120,000,000

$100,000,000

$80,000,000

$60,000,000

$40,000,000

$20,000,000

$0
16-17 17-18 18-19 19-20 20-21 21-22 22-23 23-24 24-25 25-26 26-27
Actuals Actuals Actuals Actuals Actuals Actuals Budget Forecast Forecast Forecast Forecast

GF Fire GF Police




Page 12
ATTACHMENT D

2023-24 BUDGET ADOPTION CALENDAR

Date Budget Items
November 2022 FundPHX (available to the public)
February 2, 2023 2023-24 Inventory of Programs

Preliminary 2023-24 Budget Status and 5-Year General Fund
February 21, 2023
Forecast
March 21, 2023 City Manager’s Trial Budget and Preliminary CIP
April 2023 Community Budget Hearings (tentative)
May 2, 2023 City Manager’s Proposed Budget
May 16, 2023 Council Budget Decision
May 31, 2023 2023-24 Tentative Budget Ordinance Adoption
June 14, 2023 2023-24 Funding Plan and Final Budget Ordinance Adoption
July 3, 2023 2023-24 Property Tax Levy Ordinance Adoption




Page 13