HomeMy WebLinkAbout10 - NB-2 - Proposed Plan for Use of Federal Americ - 4/6/20211
CITY COUNCIL AGENDA REPORT
MEETING DATE: April 6, 2021 ITEM NUMBER: NB-2
SUBJECT: PROPOSED PLAN FOR USE OF FEDERAL AMERICAN RESCUE PLAN
FUNDS DUE TO THE CITY IN FISCAL YEAR 2020-2021 AND RELATED
BUDGET ADJUSTMENTS
DATE: April 6, 2021
FROM: LORI ANN FARRELL HARRISON, CITY MANAGER
CAROL MOLINA, FINANCE DIRECTOR
FOR FURTHER INFORMATION CONTACT: CAROL MOLINA, FINANCE DIRECTOR
(714) 754-5243
RECOMMENDATION:
The American Rescue Plan of 2021 passed by the United States Congress and signed into
law by President Joe Biden on March 11, 2021, is a $1.9 trillion economic stimulus bill
providing for a wide variety of funding efforts to offset the economic losses resulting from
the worldwide pandemic, COVID-19. The American Rescue Plan includes $360 billion in
direct funding to states, counties and cities to offset economic losses and increased
expenses resulting from the pandemic.
1. Approve the proposed use of the City’s first 50 percent allocation of $14.2 million of the
$28.3 million American Rescue Plan multi-year allocation to Costa Mesa and authorize
the budget appropriations accordingly (Attachment 1).
2. Authorize the City Manager, or her designee, to negotiate the elimination of the five
percent (5%) pay furloughs prospectively with all employee associations and
unrepresented groups, reimburse employees for the 5% paycuts incurred since July 1,
2020, and reinstate the personnel adopted budget accordingly. Revised Side Letters will
be submitted to the City Council in a subsequent meeting for final approval upon final
negotiation and ratification by the associations.
BACKGROUND:
The worldwide coronavirus pandemic (COVID-19) is unprecedented in its size, scope and
impact. With over 30 million people infected and 548,013 deaths in the United States as
of March 16, 2021, the impact of this infectious and potentially deadly disease is
unmatched. The increase in COVID-19 cases in November and December of 2020 led to
renewed measures to control the virus, including additional restrictions imposed.
Additionally, the impact of COVID-19 on the global economy continues and has impacted
over 10 million Americans resulting in an unemployment rate of 6.2 percent.
A second Regional Stay at Home Order was issued in California on December 3, 2020,
triggered by regions having less than 15 percent Intensive Care Unit (ICU) capacity. All
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Southern California regions were affected by the Stay At Home Order, including areas
that fell to zero percent capacity, including Orange County. This Order was lifted on
January 25, 2021 as projected ICU availability over four weeks in all regions rose to over
15 percent, triggering the State to announce the return to a color-tiered system of county-
by-county restrictions. As of March 14, 2021, Orange County moved into the Red Tier,
allowing for partial re-openings of certain businesses.
Last year, on March 27, 2020, the U.S. Congress passed the CARES Act which allotted
$2.2 trillion to provide fast and direct economic aid across the country. However, the
funding was restricted to certain emergency expenditures, and only provided direct
allocations to governmental entities with populations over 500,000. As a result,
municipalities under the 500,000 threshold had to coordinate with and lobby State and
County governments to receive a share of the CARES Act funding.
Approximately a year later, on March 11, 2021, the American Relief Plan signed by
President Biden included a $1.9 trillion Economic Relief Plan that contains $360 billion in
direct aid to state, local, territorial, and Tribal governments. Of this amount, local
governments including both counties and municipalities were provided $130 billion in
emergency funding. The State and Local Fiscal Recovery Fund was designed to assist
with the budget gaps created by the crisis and its economic shutdowns.
In the recently approved American Relief Plan, the allocations for entities over 50,000 in
population will be receiving funding based on the Federal CDBG (Community
Development Block Grant) allocation methodology. Based on the CDBG methodology,
the City of Costa Mesa is estimated to receive $28.3 million; half of that amount within 60
days of the Bill’s passage and the balance in 12 months, in Fiscal Year 2021-22. As of
today, the U.S. Treasury Department is still finalizing the procedures and processes to
claim the funding and the reporting requirements. Although the bill specifically allows for
the recovery of revenue losses and the reduction of expenditures governments incurred
to address the pandemic, the bill is very clear that pension costs are not eligible.
To address fiscal challenges resulting from COVID-19 in the last quarter of FY 2019-20, the
City immediately implemented cost containment measures and developed a multi-faceted
approach to address the estimated deficit due to the reduction of revenues, including but
not limited to sales tax, transient occupancy tax (hotel tax), fees and fines. City staff identified
$6.0 million in capital project deferrals, reduced non-essential expenditures, such as
training, captured vacancy savings and implemented multiple other cost containment
strategies. As a result, the FY 2019-20 audited financial statements resulted in a balanced,
albeit small positive year-end result of approximately $170,000, without the use of reserves.
Moreover, the current FY 2020-21 Adopted Budget utilized a multifaceted approach to
address the projected revenue shortfall due to the fiscal impacts of the pandemic, and was
adopted by the City Council on June 9, 2020, for the fiscal year beginning July 1, 2020. The
expenditure reductions included, but were not limited to, negotiated across-the-board five
percent (5%) employee pay furloughs, the continued $6.0 million of capital project deferrals,
waiving the five percent CAN (Capital Assets Needs) allocation in the City’s infrastructure
for one year, 54 part time employee layoffs, defunding multiple part time and full time
positions, reducing departments’ operating budgets, and drawing down an estimated $4
million from the Declared Disasters Reserves to ensure public services could still be
provided during the pandemic.
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ANALYSIS:
As stated above, the American Rescue Plan includes economic relief to local, state and
tribal governments that have experienced a significant revenue loss and/or increased
expenditures resulting from this pandemic. The City of Costa Mesa is estimated to receive
$28.3 million from the Treasury Department over the next two fiscal years. It is anticipated
the first half, approximately $14.2 million will be available to the City within sixty days of
certification from the United States Treasury Department, and the remaining balance in
twelve months, in the FY 2021-22 budget.
The use of these funds is more flexible than the previous CARES Act funding to cover
expenditures related to the pandemic. Expenditure reductions due to revenue losses
incurred due to the pandemic are eligible expenses, as long as they do not cover pension
costs. Therefore, staff is requesting the restoration of cuts made to departments’ budgets
resulting from the revenue losses created by the pandemic ($0.4 million), to eliminate the
current deficit in the Disaster Fund which contains additional City costs incurred to address
the pandemic and the Small Business Bridge Grant ($4.5 million), reallocate funding towards
capital projects that were deferred due to the economic impacts of the pandemic ($2.4
million), realign the use of fund balance ($4.0 million), and the full restoration of employee
compensation to pre-furlough amounts ($2.8 million), for the $14.2 million in American
Rescue Funds anticipated in the current fiscal year.
Table 1
Due to the ongoing fiscal impacts of the pandemic, and the fact that the funds can be used
for increased expenditures and revenue losses through December 31, 2024, it is prudent
for the City to strategize on the best use of these Federal funds over a multi-year period.
This staff reports addresses the proposed use of the first phase of funding to make the City
whole for the cuts taken and the additional costs incurred up to this point.
GENERAL FUND
Revenues
The American Rescue Plan is the first piece of legislation that allows for Federal funding to
backfill the loss of revenues due to the pandemic. The revenue loss calculation accepted is
the difference of the revenues received in the fiscal year prior to the pandemic versus the
fiscal years impacted by the pandemic. For Costa Mesa, FY 2018/19 will be compared
against the subsequent fiscal years (Table 2). Based on this methodology, the City
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experienced significant revenue losses in sales tax, transient occupancy tax (hotel tax),
parks and recreational fees, and fines and forfeitures.
Table 2
Expenditures
The American Rescue Plan allows for cities to be made whole for cuts they had to take in
due to the pandemic. The Adopted General Fund Budget for FY 2020-21 reflects total
expenditures of $136.6 million. This amount represents a decrease of $5.5 million from the
prior fiscal year adopted budget of $142.2 million.
During the budget preparation process of FY 2020-21, Council approved a multi-faceted
approach to reduce the General Fund expenditures to offset the estimated revenue loss. In
an effort to address the estimated budget shortfall, City departments reduced operating
budgets, cut overtime, defunded positions, transferred eligible expenses to other funds, and
reduced capital improvement projects totaling $10.8 million in solutions.
COVID-19 DISASTER FUND
Address Disaster Fund Deficit
In March 2020, the City of Costa Mesa proclaimed a local emergency due to the COVID-19
pandemic. Upon the declaration of the local emergency, City staff created and implemented
the Disaster Fund to properly account for and track all reimbursements and expenditures
related to the coronavirus pandemic. This included proper documentation protocols,
submissions to FEMA for reimbursement, the tracking of CARES Act funding for Costa
Mesa received via the State and County and the Council approved use of $2.0 million from
General Fund reserves for the Small Business Bridge Grant Program in December 2020.
To date, the Disaster Fund, excluding the Small Business Bridge Grant and reimbursable
expenses related to homeless and ambulance services, contains expenditures of $4.9
million, and has received $2.4 million in CARES Act funding, thereby resulting in a deficit of
$2.5 million. To date the City has received zero dollars from FEMA.
Reimburse General Fund Reserves for the Small Business Bridge Grant
City Council authority is requested to restore the General Fund reserves in the amount of
$2.0 million used for the Small Business Bridge Grant as approved by the City Council in
December 2020. The American Rescue Plan allows for the restoration of the use of General
Fund reserves incurred by governments. Additionally, the Plan provides emergency grants,
lending, and investments to hard-hit small businesses so they can rehire and retain workers.
This includes a Small Business Opportunity Fund to provide growth capital to main street
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small businesses in economically disadvantaged areas, including minority-owned
businesses. Staff is reviewing the various funding opportunities within the Plan that the City
can apply for to cover all the expenditures incurred due to the pandemic, including the Small
Business Bridge Grant Program.
STAFF FURLOUGHS
The General Fund Budget for Fiscal Year 2020-21 reflects a multi-faceted approach to
address the revenue reductions including cuts of $10.8 million across departments citywide,
defunded 13.75 full time and 3.7 part time vacant positions citywide for all or a portion of the
fiscal year, reductions in certain non-essential services, and a five percent (5%) pay furlough
or equivalent for all employee groups.
Eliminate Staff Furloughs and Reimburse Pay cuts
At the June 25, 2020 and July 21, 2020 City Council meetings, Side Letter Agreements were
approved to achieve a five percent (5%) furlough. The Side Letter Agreements included
language stating that a one-time payment would be made by the City to the employees
equivalent to the pay cuts taken should the City receive Federal stimulus funds in excess of
$40.5 million. To date, the City of Costa Mesa has received CARES Act funding from the
State of $1.4 million and the County of Orange of $1.0 million totaling $2.4 million, and finally,
the recently approved American Rescue Plan allocating $28.3 million to the City of Costa
Mesa. Between CARES Act and the American Rescue Plan, the City is expected to receive
an estimated amount of $30.7 million. Pro-rated to the nine months into the current fiscal
year, the stimulus funding equates to an estimated $30.4 million. As a result, staff is
requesting to end the five percent (5%) furloughs and provide staff with the one-time
reimbursement for the pay cuts implemented since July 1, 2020 this fiscal year.
Further, staff will reinstitute a 9/80 schedule that will open City Hall every other Friday.
Currently, due to the staff furloughs, City Hall is closed every Friday. This reinstatement of
a 9/80 schedule will provide additional productivity and enhance staff’s ability to manage the
current workload.
City Council authorization is requested to authorize the City Manager, or her designee, to
enter into side letter negotiations for the sole purpose of eliminating the five (5%) percent
furlough across all labor groups for an estimated impact of $0.8 million for the period of April
through June 2021, and for the one-time reimbursement to employees of the salary cuts
already incurred from July 1, 2020 through March 31, 2021 estimated at $2.4 million, for a
total of $3.2 million. The estimated fiscal impact of ending the staff pay cuts by labor group
is outlined in Attachment 2. A sample of the side letter language necessary to effectuate
this sole change in the existing Side Letter Agreements is contained in Attachment 3.
FY 2020-21 PLANNED USE OF GENERAL FUND EMERGENCY RESERVES
The FY 2020-21 General Fund Adopted Budget includes the approved use of General Fund
Emergency Reserves to assist with the estimated loss of revenues resulting from the
pandemic. The estimated $10 million in use of fund balance is comprised of $6 million from
capital projects set aside in FY 2019/20, and $4 million from the emergency reserves. Staff
recommends utilizing the $14.2 million of the American Rescue Plan allocation instead.
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RESTORE THE CAPITAL ASSET NEEDS FUNDING
Rescind the CAN Waiver Request for FY 2020/21
There is a need to continue to fund the City’s aging infrastructure. As a result, staff is
requesting to rescind the City Council waiver of the 5% of the annual General Fund revenue
requirement to the capital assets account as per the CAN requirement. An appropriation
adjustment transfer of $1.4 million from the General Fund to the Capital Fund will fully satisfy
the CAN requirement for FY 2020-21.
Apply 6.5% of the CAN to the FY 2020/21 American Rescue Plan Funds
Staff is recommending to set aside 6.5% of American Rescue Plan Fund of $14.2 million
towards the CAN (5% to capital and 1.5% towards technology) of $1.0 million.
The transfer of these capital funds will assist in funding much needed capital projects
throughout the City and will keep the City from falling too far behind in its investments in
infrastructure as required through the CAN. Staff recommends City Council further
deliberate regarding the use of these funds during the FY 2021/2022 Proposed Budget
process in May and June 2021. Detailed reporting requirements and approved use of
funding outside of the reductions taken are still pending the US Department of Treasury. As
such, it is recommended to strategize the most efficient and approved use of the funds upon
the final policies and procedures from the US Treasury Department for the second 50
percent allocation. Finally, the American Rescue Plan provides additional funding outside of
the direct allocations to cities, to cover other City expenses, such as infrastructure for $10
billion, and small business grants funding.
RESTORE DEPARTMENTAL BUDGET REDUCTIONS
Landscaping, Streets, and Overtime
In order to balance the FY 2020/21 General Fund Adopted Budget, departments reduced
operating costs by $10.2 million. A slight portion amount, $435,497 is being requested
towards landscaping, street and overtime efforts to assist in enhancing City services and
improving streets and public areas.
ALTERNATIVES CONSIDERED:
Do not approve the recommended action(s) and direct staff accordingly.
FISCAL REVIEW:
The City of Costa Mesa has been allocated $28.3 million from the 2021 American Rescue
Plan. Within 60 days, the City is expected to receive $14.2 million, or 50% of the $28.3
million allotment. The balance of the funds, $14.2 million, is anticipated to be received in
twelve months and can be expended through December 2024.
LEGAL REVIEW:
The City Attorney has reviewed and approved this report as to form.
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CITY COUNCIL GOALS AND PRIORITIES
This item supports the following multiple City Council goals: 1) recruit and retain high quality
staff, 2) achieve long-term fiscal sustainability, and 3) strengthen public safety and keep the
community safe.
CONCLUSION:
The first 50 percent allotment of the 2021 American Rescue Plan funds provides for
sufficient funding to restore cuts to the budget that were required to address the projected
deficit resulting from the pandemic, and to pay for increased costs incurred to address
COVID-19. It is recommended that discussions regarding the use of the remaining 50
percent allocation occur within the context of the development of the FY 2021-22 Proposed
Budget during May and June 2021, and in concert with the discussion of the City’s Five Year
Financial Plan.
CAROL MOLINA
Finance Director
LORI ANN FARRELL HARRISON
City Manager
KIMBERLY HALL BARLOW
City Attorney
Attachments:
1. 2021 American Rescue Plan
2. FY 2020-21 Staff Furloughs by Labor Unit
3. Sample Side Letter
2021 American Rescue Plan Attachment 1
City of Costa Mesa
As of April 6, 2021
City of Costa Mesa Allocation Amount 28,334,392$
50% allocation in 60 days, and the other 50% in twelve months 14,167,196
Description Amount
Address the Disaster Fund Deficit 2,500,000
Reimburse GF Reserves for the Small Business Bridge Grant 2,000,000
Eliminate 5% Employee Furloughs: April to June 2021 Estimate*707,925
Reimburse Employee Paycuts: July 2020 to March 2021*2,123,774
Restore FY 20/21 funding of planned use of GF Emergency Reserves 4,000,000
Fully restore the FY 20/21 CAN: rescind the waiver request 1,400,000
Apply 6.5% CAN to $14.2 million of the American Rescue Plan Funds 1,000,000
Restore departmental budget reductions:
Landscaping, streets, and overtime 435,497
GRAND TOTAL 14,167,196
* These items are subject to negotiations.
City of Costa Mesa Attachment 2
Transparency in Negotiations
Fiscal Impact Analysis Estimate
5% Furlough for One Year Only
UNIT
July 2020 -
March 31,
April 1, 2021
- June 30,
Total
Estimated
CMPA 678,270 226,090 904,360
CMFMA 25,253 8,418 33,670
CMDMA 119,358 39,786 159,144
CMPMA 76,244 25,415 101,658
CMFA 261,752 87,251 349,003
CMCEA 872,746 290,915 1,163,661
Executives 78,524 26,175 104,699
City Manager 11,628 3,876 15,504
TOTAL 2,123,774 707,925 2,831,699
Page 1 of 1
SAMPLE SIDE LETTER OF AGREEMENT
CITY OF COSTA
AND
THE COSTA MESA [TO BE DETERMINED] ASSOCIATION
This Side Letter of Agreement (Agreement) between the City of Costa Mesa (City) and the Costa
Mesa [TO BE DETERMINED] Association (Association) (collectively “Parties”) is entered into with
respect to the following:
WHEREAS, the Parties are currently parties to a Memorandum of Understanding (MOU) with a
term that expires TBD; and
WHEREAS, as a result of the impacts of COVID-19 on the City, the Parties have met and
conferred for the purpose of achieving cost savings. This has resulted in the Parties agreeing to some
modifications to their MOU; and
WHEREAS, the following memorializes the parties’ agreement.
The Parties agree to the following modifications to their MOU effective the pay period including
July 1, 2020 (i.e., June 21, 2020), as reflected by the track changes to each of the articles below.
3.4 FURLOUGHS
Each member of the Association is required to take a total of one hundred and four (104) hours of
unpaid furlough during the twenty-six (26) consecutive pay periods between June 21, 2020 and
June 19, 2021.
The method/manner in which furlough hours are taken are to be determined by mutual agreement
of the parties.
If the City receives notification of financial relief from the County of Orange, State of California, or
the Federal Government for any issues related to the impact of COVID-19 in excess of $40.5 28.3
million in Fiscal Year 2020/2021, each member of the Association will receive a payment
equivalent to the dollar savings of the furlough hours already taken (base rate including specialty
pays x furlough hours).
REPRESENTATIVES OF THE COSTA MESA REPRESENTATIVES OF THE CITY OF
TBD ASSOCIATION COSTA MESA
President LORI ANN FARRELL HARRISON
City Manager
SUSAN PRICE
Negotiations Team Member Assistant City Manager
______________________________ KASAMA LEE
Negotiations Team Member Human Resources Manager
______________________________ ITZIA CARVAJAL
Negotiations Team Member Acting Human Resources Administrator