Significant Factors Affecting Budget Development

The development of the budget is driven by the Key Initiatives and current and projected growth of the City of Palm Beach Gardens. This growth is a result of several factors, including new development, annexations, the implementation of a County-wide one-cent infrastructure sales surtax, and a new Series 2021 public improvement bond for golf course expansion. In addition to growth, there are several other considerations that are main drivers of every budget, including repair and maintenance costs, personnel costs, and use of reserves. This year, there is one overarching issue affecting all of these factors: the current inflationary environment. A discussion of each of these items, beginning with inflation, follows.

Inflation

The most significant factor affecting next year's budget is the current historic levels of global inflation the entire country is struggling with. This permeates throughout the entire budget, as it has impacted all types of expenditures, including labor, fuel and energy, construction costs, and recurring operating supplies.

The current state of the economy and inflationary environment is not only difficult for employers, but has also exacerbated the financial difficulties being faced by many of our employees as the cost of rent and homeowners' insurance has risen by historic levels in Palm Beach County and across the entire state.

In response to these unprecedented times, the City is proposing salary adjustments that will raise general employee wages commensurate with the current CPI and fully funding all current collective bargaining agreements.

These adjustments are discussed in more detail in the Personnel Costs discussion later in this section.

We are proposing to reduce the millage from 5.55 to 5.32 mills. This will ensure that most homesteaded properties will see a reduction in their property taxes. A further, discussion of this proposed changed can be found in the Significant Factors and the Property Value and Tax Rate sections of the Transmittal Letter.

New Development

The City's ability to weather the current economic environment is made possible by its strong financial position, due in large part to the continued growth and new development ongoing throughout the City. Some of the significant development projects currently underway or recently approved include the following:

Florida Power & Light (fka PGA Office Center)

This project was approved on June 11, 2019, via Resolution 46, 2019, and consists of a 270,000 square foot office building and three-story parking facility on Parcel A. Construction began in 2020.

Artistry Neighborhood (fka Alton Parcel G)

This development on 206 acre of the Alton parcel was approved on February 9, 2017, and consists of 469 single-family units, a 3,290 square foot clubhouse, and 61 acres of upland preserve.

Downtown Palm Beach Gardens - Life Time Fitness Center

Approved via Resolutions 26 and 27, 2019, on June 6, 2019, this project consists of the construction of a 116,862 square foot fitness center and 425-space parking garage at Downtown Palm Beach Gardens. This project is currently under construction.

Avenir

Construction and sales continue at the Avenir development on the western fringes of the City. This project will consist of 3,250 homes, 2 million square feet of office space, 400,000 square feet of retail space, and 300 hotel rooms. Two of the most recent neighborhoods approved are Pods 13 and 14 in the 391-acre Panther National development. This area consists of 27 single-family lots on 26.82 acreas in Pod 13 and 52-single family lots on 41.68 acreas in Pod 14. The lots will be luxury homes ranging in price from $3 million to $12 million.

PGA Station

This project consists of the construction of an 8-story multi-use building with 200,000 square feet of office space, 7,049 square feet of retail space, and 396 multi-family units. This project was approved via Resolution 62, 2021, on November 4, 2021.

Downtown Palm Beach Gardens

This project consists of realiging the entry drive aisle from Alternate A1A, modifying building elevations, hardscape and landscape plans, relocating the carousel to the lakeside, providing a master signage plan, and updating building square footage and use allocations. This was project was approved via Resolution 43, 2020, on June 25, 2020.

While the above development projects bode well for the future property valuation of the City, there will also be additional demand for services that must be met. Most noticeably will be the need for fire/rescue services at the western boundary of the City where the Avenir development is underway. This factor has been taken into account in the formulation of the FY 2023 budget with the proposed addition of 21 firefighter/medics to begin training while the new Fire Station 6 is being designed and constructed. The anticipated date to begin operations at Station 6 is the summer of 2024.

Repair and Maintenance

Seven years ago, staff began developing various Repair and Maintenance plans to address the concerns of additional wear on the City's parks, facilities, storm water, and canal systems caused by increased usage and aging. To address these issues, staff prepared an analysis of all City property to identify, prioritize and calculate the estimated costs of items that needed to be addressed. Using the results of this analysis, a funding plan was developed.

City Parks and Facilities Plan

The areas identified as a part of this plan include major repairs such as roofing, interior and exterior painting of buildings, median maintenance, and parking lot resurfacing. Other areas include replacement of carpeting/flooring, turf replacement, irrigation repairs, playground equipment repairs, plumbing and bathroom repairs.

Some of the significant items contained in the FY 2023 plan are summarized in the table below.

Storm Water System Plan

In FY 2015, staff began the process of developing a storm water repair and renovation plan. Staff identified areas of deterioration in several storm water pipes and anticipated that more deterioration would occur as the system ages. A consultant was hired in FY 2015 to conduct a complete mapping, inspection, and report of the City's storm water system.

The report identified approximately $1,500,000 of renovations that needed immediate attention and have been completed. In addition, the report recommended a ten-year maintenance plan to pump down the system, clean, and video all structures for inspection. The proposed budget includes $250,000 in the Storm Water division's repair and maintenance expenditure account.

Canal System Plan

The City's system of canals collect the water runoff from the storm water system. The canal system underwent a major refurbishment almost 20 years ago with the issuance of $5 million public improvement bonds. To prevent the system from requiring similar substantial refurbishment, staff formulated an annual canal dredging and maintenance plan. The first year of this plan was implemented in FY 2017. The proposed budget contain an allocation of $250,000 in the Storm Water division's repair and maintenance expenditure account.

Personnel Costs

Personnel costs comprise the majority (67.8%) of the City's General Fund total expenditures, excluding transfers and reserves. Therefore, the factors that influence personnel costs are by far the most significant drivers of the entire budget.

Salaries

The City is divided into two different Employee categories: Bargaining and Non-bargaining. Under the Bargaining category, there are three employee bargaining units that govern various employee contracts:

International Association of Fire Fighters (IAFF)
Police Benevolent Association (PBA)
Service Employees International Union (SEIU)/ Florida Public Services

Union (FPSU)

The current agreement between the City and the IAFF expires September 30, 2024. Per the current collective bargaining agreement, all bargaining unit members will receive a 5% increase in base pay in FY 2023.

The City and the PBA are in the final year of the current agreement for FY2020 - FY 2022 and are currently negotiating a new contract. For initial budgeting purposes, an 8% increase in base salaries has been projected for FY 2023.

The City and the SEIU/FPSU recently entered a three-year agreement for FY 2021 - FY 2023. Effective October 1, 2022, all bargaining unit memebers will receive a 6% increase in base salary.

In the non-bargaining category there is one group: General Employees. Based on the most recent Consumer Price Index, the Budget contains an adjustment for general employees of 8%.

New Positions

There are 596 budgeted full-time positions for FY 2023, which is an increase of 39 from the FY 2022 Budget of 557. Below is a summary of the new full-time positions requested in order to keep pace with growth and demand for services.

Legal

One Executive Legal Assistant

Public Communications

One Multi-media Communications Manager

Planning and Zoning

One Planner
One Development Compliance Technician

Police

One Captain
Two Police Services Specialists

Fire

Twenty-one Firefighters/Fire Medics will be hired in a phased approach next fiscal year to be trained for staffing of the new Fire Station #6 in Avenir. This approach is the most cost-effective method of ensuring fully trained and outfitted staffing is available and ready to begin providing service when the new station goes into service. In addition, two Logistics Coordinators and an Administrative Chief are recommended to keep pace with increased growth and demand for services.

Public Services

One Administrative Specialist III

Recreation

One Recreation Supervisor
One Lead Lifeguard
One Operations Manager

*It is important to note that all positions for Recreation are funded by revenues generated from user fees; no tax dollars will be used.

Golf

One Operations Coordinator
One Tournament and Events Coordinator
One Food and Beverage Manager
One Chef

*As with the Recreation Fund requests, all positions for Golf are funded by revenues generated from user fees; no tax dollars will be used.

Pensions

The City has three pension plans; Police, Fire, and Florida Retirement System (FRS).

Contributions for the Police pension plan for FY 2023 total $4,719,149. This amount is based on the actuarial valuation performed as of October 1, 2021, and reflects a contriubtion equal to 45.94% of covered payroll, down from the previous year's percentage of 46.06%. The decrease is primarily due to investment return that exceeded the assumed rate of 6.3%. Total return on market value of assets was 22.3% and 10.3% based on actuarial value of assets.The required contribution has been discounted for interest on the basis that the contribution is made in full at the beginning of the year. As of October 1, 2021, the funded ratio of the plan was 83.6%, up from 79.8%.

Contributions for the Fire pension plan for FY 2023 are estimated at $6,082,474. This amount is based on the actuarial valuation performed as of October 1, 2021, and reflects a contribution equal to 52.96% of covered payroll, down from the previous year's percentage of 55.12%. The decrease is primarily due to investment return that exceeded the assumed rate of 7.05%. Total return on market value of assets was 19.86% and 9.64% based on actuarial value of assets. Per the plan's actuarial valuation, which does not provide a fixed dollar contribution, the payment to the plan has been estimated by multipling the City's contribution percentage by the projected covered payroll. Although the contribution percentage has decreased slightly, the total estimated dollar contribution has increased due to the addition of 21 firefighters/medics to staff Fire Station #6. As of October 1, 2021, the funded ratio of the plan was 85.3%, up from 84.1% last year.

Contributions to the FRS are established by the Florida Legislature. FRS contributions changed July 1, 2022. Regular class increased to 11.91% from 10.82%, senior management increased to 31.57% from 29.01%, and elected officials increased to 57.0% from 51.42%. The total projected FRS contribution for all funds is $3,302,906. As of July 1, 2021, the funded ratio of the plan was 85.3%, up from 82%. The increase was due to actual plan year investement return of 29.46% and 11.2% on actuarial value of assets, which exceeded the assumed investment return of 7.0%. At the Florida Retirement System Actuarial Estimating Conference held October 7, 2021, the conference principals agreed to lower the investment return assumption to 6.8%, noting that while last year's exceptionally good return was helpful in building reserves of the plan, it was atypical and did not represent a reasonable long-term expected rate of return.

Insurance

A significant positive factor affecting next year's Budget is the very modest increase in Health Insurance premiums associated with the Self-Insured Medical Insurance Fund. This fund is used to accumulate resources to pay for claims, premiums, and the cost of operating the onsite employee health-care clinic. Funding for FY 2023 has been increased 5%. This is in line with projections prepared by the City's actuary, considering the claims trend of the plan. With this change to the funding formula, the projected end of year balance in the Fund is estimated at $7.9 million, which is approximately ten months of claims.

The City is in the process of renewing its property and casualty insurance coverage for next year. As of the date of this writing, the renewal has not been received. For initial budgeting purposes, a total of $2,163,153 has been estimated for workers compensation and property/liability for FY 2023. This increase is based upon an estimated 10% increase in rates, plus an additional 19% adjustment to workers compensation premiums to reflect an increase in our experience modification rating due to several large claims last year. These projections will be modified as the renewal numbers become available.

Reserves

The proposed Budget projects an increase of approximately $6 thousand in reserves at the proposed operating millage of 5.32. For FY 2023, the unassigned reserve balance of $26 million represents 22.6% of total expenditures and complies with Council's policy of maintaining a minimum reserve balance of 17% of expenditures. Looking to the future, the ten-year financial forecast projects a stable financial picture through FY 2032. This projection reflects the substantial increase in property valuations for FY 2023, which has a compounding effect in future years, as well as new development in Avenir coming onto the tax rolls. Unassigned reserves and budget stabilization reserves in FY 2032 are projected at $26.8 million and $8 million, respectively. The $700 thousand increase in unassigned reserves in FY 2032 reflects a required adjustment to maintain a balance of 17% of expenditures. A more detailed discussion and analysis of the City's current and projected reserves can be found in the Ten-Year Financial Forecast section.