Title
2023-24 City Manager's Trial Budget
Description
This report transmits a balanced Fiscal Year (FY) 2023-24 City Manager's Trial Budget for community review and comment.
THIS ITEM IS FOR INFORMATION AND DISCUSSION.
Report
The Trial Budget is an important step in the City's Zero-Based Budget development process. It provides the Mayor, City Council and the community an opportunity to review a proposed, balanced budget months in advance of final budget adoption in June. The proposed FY 2023-24 General Fund (GF) Trial Budget includes new and expanded programs and services for the community, and needed market-driven employee compensation increases to ensure we can competitively pay our employees in order to attract and retain a highly skilled workforce to deliver services to residents.
The City of Phoenix is committed to engaging residents in the budget process, and unlike other cities, Phoenix offers many opportunities and ways for residents to provide feedback outside of regularly scheduled City Council meetings. Between April 3 and April 15, the FY 2023-24 Trial Budget will be presented to Phoenix residents for input at 11 community budget hearings. A complete list of hearing dates and times is included in Attachment D and is available on our website at phoenix.gov/budget/hearings. The website also includes the City's FundPHX interactive budget tool and information on how to provide feedback directly to the Budget and Research Department. All resident feedback received will be communicated to the City Council routinely so it may be used in budget decision making. As a result of public input, changes could be made to the Trial Budget when a proposed City Manager's Budget is presented to City Council on May 2.
Proposed GF and Non-GF additions for FY 2023-24 are detailed in this report and in Attachment A and Attachment B.
Summary
The GF projected surplus for FY 2023-24 is $134 million, which includes one-time resources of $65 million and ongoing resources of $69 million. The surplus is a reflection of responsible decision-making by the City Council and a strong local and state economy. The surplus is primarily due to revenue growth impacted by high inflation and a one-time increase in state shared income tax revenues, significant vacancy savings due to the competitive labor market, and the carry-forward of fund balance including unspent contingency funds.
The GF long-term outlook is positive at this time, as presented to the City Council on Feb. 21, in the Five-Year Forecast report. However, economic uncertainty still exists with many economists predicting either a recession or slow down in the coming year, primarily caused by historic high inflation leading to unknown impacts from future Federal Reserve actions. As a result, staff is not recommending changes to the GF status and will be closely monitoring City revenues, the economy, and the City's trusted experts over the next several weeks. It is possible revenue adjustments could be made with the City Manager's Proposed Budget scheduled to be presented on May 2 as more data and information becomes available.
The FY 2023-24 Trial Budget is focused on ensuring that the City can deliver quality, timely and efficient services to the community. Over the last three years, the City has made strategic decisions throughout the COVID-19 pandemic and has expanded services to residents. The proposed allocation of the $134 million GF surplus ensures that those vital services, and most importantly the people who provide them, can be sustained for years to come. Included in this report are recommendations to invest $114 million, or 85 percent of the GF surplus, to address employee compensation so we can provide the highest level of service ensuring that the City's most valuable assets are paid competitively and that positions can be filled with the best talent available. Included is also $14 million for critical service additions in key City Council and community priority areas such as: public safety and criminal justice, including adding sworn Fire personnel to staff a new fire station which will help to improve emergency response times, further efforts to civilianize positions in the Police Department using existing budget capacity to allow sworn officers to respond to higher-level public safety calls for services; resources to continue important programs that relied on expiring grant funds, which support low-income residents and victims of crime; resources to add park rangers for overnight patrol at City parks; and increases for community arts grant funding. Additionally, $1 million is reserved for community input and recommendations reflecting resident comments gathered over the next several weeks. Based on available funds some of the suggestions could be incorporated into the final City Manager's Budget scheduled to be presented to City Council on May 2. The remaining $5 million would be allocated to the GF contingency fund, or rainy-day fund to account for proposed ongoing spending initiatives.
The proposed FY 2023-24 GF supplementals totaling $134 million are discussed further in this report and detailed in Attachment A. Also, included are proposed Non-GF supplementals totaling $1.4 million detailed below and in Attachment B.
Resources
FY 2023-24 GF resources, which include the beginning fund balance, net transfers and revenues, are projected at $2.022 billion. GF revenues make up the majority of resources and are projected at $1.831 billion representing growth of 10.3 percent over FY 2022-23. As detailed in the GF Five Year Forecast report presented to City Council on Feb. 21, a conservative approach was used to project revenue given the uncertain economic climate. The projected increase in GF revenue is primarily a result of known increased state shared income tax collections, which are based on collections from FY 2021-22, and are artificially higher due to the State's decision to increase the percentage share with cities and towns from 15 to 18 percent, to mitigate impacts from lowering the individual income tax rate. Revenue increases are also attributable to positive city and state sales taxes. Revenue estimates assume no fee increases and no new sources of revenue. The FY 2023-24 GF estimates for each major revenue category are highlighted below, and additional information about assumptions and methodologies used to estimate revenue is provided in Attachment E:
- Local Sales Tax - $699 million;
- State Shared Revenue - $770 million;
- Primary Property Tax - $207 million; and
- User Fees - $155 million
Expenditures
FY 2023-24 GF expenditures are projected to be $1.888 billion. This compares to the adopted GF expenditure budget of $1.779 billion for FY 2022-23, representing an increase of $109 million or 6.1 percent. The increase accounts primarily for higher costs associated with employee salaries and fringe benefits including health insurance and pension, increased costs for vehicle replacements and Fire apparatus, cost increases in capital equipment and expected pay-as-you-go projects, and a higher contingency amount to achieve 4.5 percent of operating costs. Inflation has also dramatically impacted several expenditure categories including commodities and contractuals such as fuel, compressed natural gas, electricity, motor vehicle parts, plumbing supplies, custodial and security services, machinery and equipment repair, and facility maintenance costs. The increase also accounts for higher costs for public safety pension (discussed further below). Expenditure amounts may change over the coming weeks as staff continues to refine final estimates prior to the presentation of the City Manager's Proposed Budget on May 2.
Since FY 2007-08, employee pension costs have consumed a growing share of the City's GF resources. GF pension costs are anticipated to increase $99 million between FY 2022-23 and 2027-28. This increase is primarily caused by rising costs in public safety pension. The City is committed and legally required to pay 100 percent of our actuarially required contribution every year. Also, under the leadership of the City Council, a pension funding policy has been adopted each year as required by state statute. Additionally, pension reform for the City of Phoenix Employees' Retirement System (COPERS) is helping to stabilize civilian pension costs. While reform efforts have been successful for the Public Safety Personnel Retirement System (PSPRS), there still exists a significant unfunded sworn pension liability of approximately $3.5 billion.
Proposed Budget Additions
As presented, the FY 2023-24 Trial Budget includes several strategic recommendations that represent investments for the future of Phoenix by addressing community priorities, and provides resources needed to offer competitive employee compensation next year and for the future. Proposed use of the available $134 million GF surplus includes supplemental additions to programs and services totaling $14 million for next fiscal year, and $114 million for employee compensation increases, both are discussed below and detailed in Attachment A.
Recommendations for GF supplemental additions in FY 2023-24 total $134 million and focus on City Council and critical community priorities including:
- Employee Compensation Increases - $114 million
- Continuity of Services for Vulnerable Populations - $7.4 million
- Enhanced Public Safety Responsiveness and Criminal Justice Support - $3.8 million
- Healthy Neighborhoods and Community Enrichment - $2.8 million
- Community Input - $1 million
- Contingency Funds - $5 million
Proposed 2023-24 General Fund Additions - $134 million and 171.0 positions
Below is a summary highlighting proposed GF additions by City Council priority area. Detailed information about each supplemental, including the number of positions and dollar amount by department, is provided in Attachment A.
Employee Compensation - $114 million
The City is experiencing significant vacancies across all departments due to a combination of the competitive labor market and below-market salaries for many job classifications. The current vacancy rate as of March 2023 for all City funds is 17 percent. Vacancies can impact service delivery to residents and cause existing employees to carry the burden for unfilled positions. It is for this reason, that the proposed GF budget allocates 85 percent of the surplus, or $114 million, to increase employee compensation. This amount includes $20 million to be set-aside for employee compensation increases in FY 2024-25 and beyond. Additionally, the Human Resources Department will be implementing the results from the Class and Compensatiion study in FY 2023-24 in an effort to fill vacant positions and retain existing employees.
Continuity of Services for Vulnerable Populations - $7.4 million and 0.0 positions
To ensure vulnerable populations can continue receiving vital services at risk due to expiring or reduced grant funding, $7.4 million is proposed to support the Low-Income Home Energy Assistance Program, the Victims of Crime Act, and to expand the Behavioral Health Engagement Teams contract. These programs are essential in the continuation of outreach to areas of the City experiencing high instances of substance abuse, behavioral health issues and homelessness, as well as managing domestic violence and sexual assault referrals while maintaining acceptable response times. The funds proposed would also expand the PHX Community Action Response Engagement Services (C.A.R.E.S.) Outreach Program and continue operations at several shelters across the City. Additional funding and partnerships with the state, county and non-profit organizations are being actively pursued to increase collaboration and resources to help individuals experiencing homelessness.
Enhanced Public Safety Responsiveness and Criminal Justice Support - $3.8 million and 88.0 positions
The services, programs and positions reflected in this area are dedicated to ensure public safety response is appropriate, efficient and seamless. To help improve emergency response times across the City, an investment of $3.5 million is proposed for the Phoenix Fire Department to add 31 new sworn positions to fully staff a new Fire Station 74 to be located at 19th Avenue and Chandler Boulevard, and to hire additional firefighters and support staff. In addition, as part of the Phoenix Police Department’s focus on civilization efforts, new positions are included for civilian investigators and police assistants within the department. Additional positions are also included for crime scene specialists, police research analysts, criminal intelligence analysts, and civilian law enforcement training specialists. These additions will provide support to the investigative process, training and civilian response. All new positions for the Police Department will be absorbed within the existing Police operating budget using sworn position savings and therefore require no additional costs for FY 2023-24. However, over time as vacancies are filled, additional budget capacity will be required in a future fiscal year. This category also includes additional positions for the Law Department to facilitate and coordinate immediate and ongoing needs related to the Department of Justice (DOJ) investigation, and to convert expiring grant funded positions to the General Fund that assist victims of crime with navigating the judicial system.
Healthy Neighborhoods and Community Enrichment - $2.8 million and 26.0 positions
The services, programs and positions reflected in this area will enhance the City’s ability to develop and maintain healthy, vibrant and safe neighborhoods throughout the city. A proposed $571,000 for the Neighborhood Services Department would add funding to expand the Gated Alley Program providing for a total of 77 gated alley segments each fiscal year, and restore two grant-funded Neighborhood Inspector positions. By restoring these two positions, the department can provide more grant-funded opportunities to low and moderate income residents. In addition, to increase the City’s efforts toward equity in arts, $125,000 is proposed to the Arts Grants Program that supports renters at Herberger Theater Center and other local venues such as Black Theatre Troupe, Phoenix Center for the Arts’ Third Street Theater, Phoenix Theatre, and Valley Youth Theatre. A Project Manager position is also included to help manage and coordinate the Office of Arts and Culture’s model for involving artists in designing and building a better city. The cost of this position will be offset by charging various Capital Improvement Projects. Also, in an effort to increase park security and resident safety, $2 million is proposed for the Parks and Recreation Department to hire 14 Park Rangers and one Park Manager position to create a third-shift for Park Rangers. The addition of a third-shift will provide coverage 24 hours per day, seven days per week at City parks. The proposed funds will also add five staff to expand tree planting and shade canopy efforts Citywide and hire a Volunteer Coordinator to assist in the coordination of volunteer efforts throughout City parks. Finally, two new Municipal Security Guards are proposed for the Library Department to provide additional security at City libraries at a cost of $130,000.
Proposed 2023-24 Non-General Fund Additions - $1.5 million and 8.0 positions
The City budget is made up of three fund sources: the General Fund, Enterprise Funds, and Special Revenue Funds. Recommendations for the General Fund were discussed above. Enterprise Funds include Aviation, Water, Wastewater, Solid Waste and the Convention Center. These funds, with the exception of the Convention Center, are funded with user fees. The Convention Center includes fees paid by those who use the facility and Convention Center parking garages, and certain earmarked sales tax categories. Enterprise funds can only be used for costs directly associated with delivering enterprise services. The Special Revenue Funds category includes federal and state grants, gas taxes (Arizona Highway User Revenues or AHUR), debt service, the Development Services Fund, the Public Safety Specialty Funds, the Phoenix Parks and Preserve Initiative (PPPI) and the voter-approved Transportation 2050 Fund. These funds can only be used in accordance with grant and other statutory rules.
Total Non-GF proposed additions are summarized below by department. Detailed information about each supplemental, including the number of positions and dollar amount by department, is provided in Attachment B. Below, is a summary of the Non-GF additions:
Aviation (Enterprise Funds) - $0.9 million and 2.0 positions
Additions for the Aviation Department include $917,000 for two new Airport Security Access Agents to provide security badging services and funding to purchase 10 new vehicles for the Airport Police Bureau.
Planning and Development (Special Revenue Funds) - $0.5 million and 5.0 positions
To support the growing online presence of SHAPE PHX and administrative needs, $489,000 is proposed for the Planning and Development Department. The funds would add three positions needed to manage SHAPE PHX, a transformative technology that replaces numerous, highly customized legacy software systems with a consolidated, secure, transparent and modern, land-based planning application. Funds would also add a Chief Engineering Technician and Senior Human Resources Aide to assist the department.
Regional Wireless Cooperative (Special Revenue Funds) - $0.1 million and 1.0 position
Add one full-time equivalent Accountant I position to the Regional Wireless Cooperative (RWC) office to support the administrative and accounting responsibilities of the VHF (Conventional) Radio Network. This position was approved by the RWC Board of Directors on Dec. 1, 2022.
GF and Non-GF Position Conversions to Maintain Services - $0.0 and 60.8 positions
The Trial Budget includes converting 57.0 GF and 3.8 Non-GF existing temporary positions to ongoing status. These positions provide critical and sometimes legally or statutorily required administrative support for City departments. Funding for these positions has been identified and programmed in each respective department's operating budget and therefore represent a no-cost conversion.
FY 2021-22 and FY 2022-23 Supplementals Status Update
A status update for each GF and Non-GF supplemental included in the budget for FY 2021-22 and FY 2022-23 is provided in Attachment C. The status update includes progress made on filling new positions and implementing each item. As mentioned earlier in this report, hiring continues to be a challenge due to the competitive labor market, and a significant number of vacancies. For example, of the 632.7 new positions added in the budget over the past two fiscal years, 292.0 positions (46 percent) remain vacant.
Next Steps
In order to engage the community in the budget development process, staff will be holding 11 community budget hearings between April 3 and April 15. Budget and Research staff will also make available the FundPHX tool which will be updated with the FY 2023-24 Trial Budget additions. Residents are also welcome to contact the Budget and Research Department directly to provide input or ask questions about the budget. The schedule of budget hearings, the FundPHX tool, and contact information is available at phoenix.gov/budget.
The remaining key dates in this year's budget process are as follows:
Date Event
May 2, 2023 City Manager's 2023-24 Proposed Budget
May 16, 2023 City 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
Department
Responsible Department
This item is submitted by City Manager Jeffrey Barton and the Budget and Research Department.