MID-YEAR BUDGET REVIEW SHOWS PROMISE FOR LEMON GROVE

By Jessyka Heredia 

View video: Regular CityCouncil Meeting 3/21/2023

March 25,2023 (Lemon Grove) On Tuesday, Lemon Grove Finance Manager Joseph Ware presented the Mid-Year Budget Review, which projects a substantial surplus.

 “Sales tax is exceeding our expectations,” he informed the City Council, adding that as of January, the projected increae is $500,000. "Sales tax is “by far our biggest revenue,” he said, noting that 35% of the city’s revenue comes from sales tax .

Ware listed the top three business sectors for sales tax generation. “First is auto, the second is building and construction, and the third is the county pool.” The county pool, Ware explained, is dependent on the internet sales in an area and while many of our coastal neighbors rely on tourism, Lemon Grove is considered a retail city and relies heavily on retail and restaurant dining for  tax funds. “Coastal cities saw a decline in tourism during COVID-19 and Lemon Grove saw an increase because people stayed local,” Ware said, but he warned that this trend is expected to change now that COVID-19 restrictions have been lifted. So it would greatly benefit Lemon Grove as a whole if residents continue to eat, shop and spend their money in their city.

According to the staff report, “The current FY 22-23 budget estimates $6,277,110 in sales tax revenue.” The report goes on to say that “Lemon Grove’s point-of-sale business types remained relatively stable. Based on this, staff is recommending that the budget be increased by $500,000, for a total revenue projection of $6,777,110.” Ware noted that despite growth this fiscal year, “We are going to remain conservative” and that the city is expecting a bit of a slowdown.

Property tax is the second largest source bringing revenue into the city’s general fund and it remains stable. Ware said. He explained that “our new home sales and existing home sales have softened a little bit” and that “legacy homes” sales are slow. The good news, Ware said, is that the “property tax rate is going to change because all those homes that were sold, the tax base now jumps up” to the new value, so Lemon Grove “should see an increase next year.”

In the staff report,  Ware expressed that in 2022, “the median price of a detached single-family home in Lemon Grove grew 11.3%.”  Due to Prop 13, the growth in property values will only impact the property taxes on homes that sold during this period. All other homes will have an increase of 2% or current CPI (Consumer Price Index), whichever is less. Staff is recommending increasing the property transfer tax budget by $20,000, from $62,000 to $82,000 for FY 22-23.

The Property Tax in Lieu of VLF (vehicle license fees) is assessed by the DMV for the ” privilege of operating a vehicle on the public highways of California. The tax is imposed in-lieu of a local personal property tax on automobiles.” The fee is paid annually.  Ware stated , “The City has received the first payment, which saw an increase over the adopted budget amount. Staff is recommending increasing the budget by $66,925 for FY 22-23.”

Back in November 2020, voters in Lemon Grove overwhelming passed Measure J with over 70% approval. It sets the retail sales tax rate of cannabis at 5% and the tax rates for all other cannabis activity at the maximum tax rates included in Measure J. Ware said that staff is now anticipating receiving a higher level of revenue for these dispensaries and is requesting an adjustment of $200,000 from $525,000 to $725,000 for fiscal year FY 2022-23. In the presentation, Ware explained that the Ccnbabis taxes are what made the food and drug category rise on the power point chart for the sales tax major business groups the city provided. 

Franchise fees, on the other hand, “are declining” according to Ware. He continued, people are “cancelling their [cable] services and going to streaming, so franchise fees are dropping.” In the staff report, Ware indicated that “staff overestimated this revenue source by $24,400 and that the budget should be adjusted downward accordingly.”

Interestingly, the city did receive a one-time legal settlement for the Lemon Grove Realignment Project of $482,000. This Project broke ground in fall of 2016 and still has blinking red lights at all traffic signals despite several attempts over the years to get the timing coordinated correctly. This project ended up over budget and took over a decade to complete. The original budget was $6.3 million when the project got underway but ended above $7.5 million.

Heartland Fire Department serving Lemon Grove had $90,000 in unscheduled overtime because of temporary staffing vacancies and paid leave, so overtime was paid to back-fill those vacant positions. Public works also saw an increase in estimates by $95,000 due to an open position for a new Public Works Director as well as an “Interim employee covering the administrative requirements of Public Works and Engineering divisions, including performing a transition of duties when the new Director was hired,” according to Ware.

Additionally, installation of pedestrian crossing signs and flashing beacons exceeded the original allocation by $4,000 at Monterey Heights STEAM Academy; traffic signal repairs at San Miguel and Lemon Grove due to trenching and conduit installation resulted in $49,600 in additional costs that was not in the original budget for the project. The new street sweeping contract was renewed mid-year and the vendor significantly increased costs, creating a shortfall of $14,500, while most recently a sink hold has been discovered in the Public Works Yard with repairs estimated at $60,000.

The city was able to report an anticipated budget surplus of $196, 108, despite some deficits due to the increased revenue projections, the carry forward of capital projects, with all current expenditures projected through the rest of the fiscal year. 

Ware asked staff to also approve a resolution to approve new Administrative Classifications to the Salary and Classification plan for FY 2022/2023 with the following staff positions: Administrative Office Coordinator to range from  $3,552.02 - $5,128.94 per month, Office Specialist II to range from $2,756.42 - $3,610.04 per month and Office Specialist I to range from $2,625.48 - $3,437.66 per month. 

Councilmember Alysson Snow asked Ware about the firefighter budget and filling the available firefighter positions. “You mentioned a $122,000 price tag for a new firefighter but that’s not what they get in their salary, right?” Ware responded, “That is what I call a fully loaded, fully burdened cost.” Ware explained that a first-year firefighter starts at $75,000 per year, which includes medical benefits, uniform allowance, educational allowance, paramedic training allowance and pension rates, ultimately costing the city  $122,000 for the new hire as a whole. 

Councilmember Liana LeBaron asked Ware for more financial information on the Realignment Project.  “This slide says, `other revenue changes of a positive $482,000 for a one settlement for the Lemon Grove Realignment Project,’” said LeBaron, who asked, “That begs the question of how much money did the city spend in costs and legal fees in the realignment lawsuit?” Ware replied, “That particular lawsuit was prior to my arrival and I do not have those figures with me at this point.” ECM has reached out via Public Record Request the City Clerk in order to follow up with our readers on this question and will update this story once a reply is received.