Fountain Valley adopts 2024-25 budget, dips into reserves for capital improvements

Fountain Valley projects to spend beyond its revenue in the upcoming fiscal year, but city officials maintain that the operating budget for the year ahead is balanced.

The City Council adopted the annual budget on Tuesday. Budget figures show the city will take in approximately $137.2 million in revenue, while its expected expenditures will total $161.6 million.

The difference of $24.4 million can largely be attributed to a full slate of capital improvement projects, Finance Director Ryan Smith said.

“We have a number of projects that we’re still trying to catch up on,” Smith told the City Council. “During the pandemic, a number of projects were put on hold, and during that time, the city was realizing some pretty large surpluses. I think we had almost $24 million over two years that the city realized, and so really, it’s taking some of those funds from those prior years and applying them towards the projects that we’re doing now.

“This is also citywide, so this includes $4.8 million in special revenue funds, which is legally restricted to the purposes we’re using it for, as well as $8.3 million of it in enterprise funds, which is the water, sewer and trash funds for projects within those funds, as well. The $24-million surplus that we had over two years, that was general fund, so we’re only projecting to use about $6 million of those funds in the current year for projects.”

The general fund, which supports administration, community development, community services, fire and police, is the primary operating fund for the city. Property tax, sales tax (including Measure HH) and transient occupancy tax help support the general fund. The proposed budget shows a planned $80.2 in general fund revenue, and the expenses would come in at $78.6 million.

The expenditures for capital projects include $1.5 million for the police station locker room, $3.6 million for residential roadway improvements and $5 million for two large arterial roadway rehabilitation projects — at Ellis Avenue and Warner Avenue and at Talbert Avenue and Euclid Street.

A city consultant projects sales tax revenue will stagnate, leading Smith to warn the council of a slowing economy. While the coronavirus pandemic had led to economic uncertainty, Smith said the city benefited from an increase in online sales and an infusion of federal funding in that period. In the pandemic years, the city was seeing significant annual increases in sales tax of up to 10%, Smith added.

“We could have entered the year with a stance of ‘We don’t know what’s happening economically, we’re seeing sales tax slow down, so we’re going to keep deferring those [projects],’” Smith said. “But it’s something that if you just keep kicking the can down the road, it’s going to catch up at some point. We need to keep maintaining and staying on schedule with that and catching up with the stuff that we’ve deferred in the past.”

The city’s total appropriations increased by 11.7% over the adopted budget for fiscal year 2023-24, while the anticipated revenues will go up by 4.9%. The new fiscal year begins July 1.

“When you look at the growth in revenues versus the growth in expenses, it’s clear that our expenses are growing faster than our revenues, and that’s a concern from my standpoint,” Councilman Patrick Harper said. “I think as we go forward this year, next year, we need to do two things — look for additional revenue opportunities and really hold the line a little tighter on expenses.

“We certainly want to provide all the services that the residents expect of us, but at the same time, maybe there’s some nice-to-haves that we can do without to keep control of expenses.”

The proposed budget showed a general fund balance of $67.1 million, which reflects a decrease of about 8.4% from the revised budget of the current fiscal year. The projected all-funds balance is $137.9 million, per city staff.