Item 32 - Provide Direction for FY 2021-22 Budget

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The City has $40 million of capitalized storm drains, at historical costs. Assuming an average age of 32 years and annual inflation of 3%, the current cost to replace storm drains maybe $104 million. In the case of storm drains, the City may receive some federal and state emergency aid, but it will be more limited than with streets. Assuming a 10% failure rate and a City contribution rate of 30%, the City may pay $3 million out of pocket; which is approximately 1% of annual General Fund revenue. Other major infrastructure facilities include water and sewer pipelines. The City operates Water and Sewer Enterprises with separate reserve balances for emergencies. In summary, a catastrophic event resulting in a 10% infrastructure failure rate could result in a need for the City to contribute 6% of annual General Fund revenue for repairs. Cash Flow Needs With two notable exceptions, the City receives its General Fund revenue somewhat evenly over the fiscal year. The two exceptions follow. Property Tax 26% of annual General Fund revenue 50% received in December& January, and 42% received in April & May Business Tax 4% of annual General Fund revenue 79% collected January through June Using the weighted relationship and timing of these revenues, the General Fund must cash flow approximately 16% of its annual revenue. Maintaining at least 16% of annual revenue in the General Fund Reserve will satisfy the requirements of Charter Section 610 requiring a Stabilization Fund sufficient to meet the first five months of demands prior to receipt of tax revenues based on assessed value (ad valorem taxes). The City spends its General Fund expenditure budget somewhat evenly over the fiscal year. The City currently pays its annual contribution for the unfunded pension liability in July to obtain a discount, which is approximately 13% of annual General Fund revenue. However, the City is not required to pay in July, and can choose to spread the contribution evenly over twelve monthly installments. Furthermore, debt payment requirements will change if the City completes a pension debt refinancing. The only notable General Fund expenditure requiring cash flow is the contract for fire service. The Orange County Fire Authority requires a one -month advance payment, equivalent to 1% of annual General Fund revenue. In summary, a review of General Fund revenue and expenditures indicates the General Fund must cash flow approximately 17% of its annual revenue (16% for delayed revenue and 1% for advance expenditures).