Resolution No. 2025-005
RESOLUTION NO. 2025-005
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF VERNON
AUTHORIZING AND APPROVING MID-YEAR BUDGET
APPROPRIATIONS AND AMENDING THE ANNUAL OPERATING AND
CAPITAL BUDGET FOR FISCAL YEAR 2024-25
SECTION 1. Recitals.
A. On June 4, 2024, the City Council of the City of Vernon adopted Resolution No.
2024-08, approving the annual operating and capital budget for Fiscal Year 2024-25.
B. Changes in anticipated expenditures of the City require a revision of the
appropriations for Fiscal Year 2024-25 and amendment of the budget by the affirmative
vote of a majority of the members of the City Council, pursuant to Vernon Charter Chapter
8.5.
C. There are sufficient funds in anticipated revenues and City-wide fund balance to
cover the proposed budget adjustments.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF VERNON AS FOLLOWS:
SECTION 2. The City Council of the City of Vernon finds and determines that the
above recitals are true and correct.
SECTION 3. Pursuant to Chapter 8.5 of the Charter of the City of Vernon, a
majority of the members of the City Council hereby approves the mid-year budget
appropriations in the table below.
Fund Department/
Division
Revenue/
Expense GL Account Description Adjustment
Amount
011
General
Fund
Balance
011-000-000-301005
Economic
Uncertainties
Reserve
Allocation to committed
reserves from Unassigned
Fund Balance
7,300,000
Committed Reserves
$7,300,000
011
General
415 -
Facilities
Maintenance
Expense 011-040-415-660000
Capital Outlay
Repair cooling problem in
City Hall data/Fiber rooms
450,000
General Fund Subtotal
$7,750,000
Resolution No. 2025-005
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_______________________
Fund Department/
Division
Revenue/
Expense GL Account Description
Adjustment
Amount
055
Electric
575 -
Customer
Service
Revenue 055-450-575-450010
Sale of Electricity
Decrease due to lower
electric load
9,990,000
055
Electric
590 -
Resource
Management
Revenue
055-450-590-450011
Sale of Electricity
Wholesale
Increase due to increased
RA Capacity sales
(5,892,500)
055
Electric
555 -
System
Dispatch
Expense 055-050-555-526000
Utilities
Dark Fiber interfund
charges
51,000
055
Electric
570 -
Building
Maintenance
Expense
055-050-570-529000
Repairs &
Maintenance
Budget transfer for
janitorial services
134,000
055
Electric
570 -
Building
Maintenance
Expense
055-050-570-529215
Professional Services
- Other
Budget transfer for
janitorial services
(134,000)
055
Electric
586 -
Malburg
Generation
Station
Expense
055-050-586-529000
Repairs &
Maintenance
Unforeseen plant
maintenance expenditures
1,000,000
055
Electric
586 -
Malburg
Generation
Station
Expense
055-050-586-529001
Long-Term Plant
Maintenance
Siemens LTSA taxes and
escalation
259,000
055
Electric
586 -
Malburg
Generation
Station
Expense 055-050-586-529005
Gas Turbine
Siemens blanket change
order
65,000
055
Electric
590 -
Resource
Management
Expense 055-050-590-520150
Energy Other
Lower than expected
energy market prices
(7,000,000)
055
Electric
590 -
Resource
Management
Expense
055-050-590-520154
Renewable Energy
Credit
Higher than budgeted
Renewable Energy Credit
charges
5,000,000
055
Electric
590 -
Resource
Management
Expense 055-050-590-520160
Natural Gas Expense
Lower natural gas market
prices
(3,000,000)
055
Electric
590 -
Resource
Management
Expense 055-050-590-520240
FERC Filing Charges
Increased FERC filing
charges
120,000
Electric Fund Subtotal
$592,500
Resolution No. 2025-005
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_______________________
Fund Department/
Division
Revenue/
Expense GL Account Description
Adjustment
Amount
058
Water 700 - Water Expense
058-070-700-529225
Professional Services
- Technical
Water Seismic
Assessment Study
150,000
058
Water 700 - Water Expense 058-070-700-660000
Capital Outlay
Fire/Emergency
Preparedness: Generator
for Well 21 and Well 21
Assessment/Repair
500,000
058
Water 700 - Water Expense
058-070-700-660010
Capital Equipment -
Auto
Replace Water Vehicle
W112
85,000
Water Fund Subtotal
$735,000
059
Fiber
Optics
800 - Fiber
Optics Expense
059-080-800-529000
Repairs &
Maintenance
Increased repair and
maintenance expenses
82,000
Fiber Optic Fund
Subtotal
$82,000
Grand Total
$9,159,500
SECTION 4. The Annual Operating and Capital Budget for Fiscal Year 2024-25,
adopted by Resolution No. 2024-08, is hereby amended to include the mid-year budget
appropriations.
SECTION 5. The City Clerk or Deputy City Clerk shall certify the passage and
adoption of this resolution and enter it into the book of original resolutions.
APPROVED AND ADOPTED March 4, 2025.
________________________
JUDITH MERLO, Mayor
ATTEST:
YONNIE PARKER, Deputy City Clerk
(seal)
APPROVED AS TO FORM:
ZAYNAH N. MOUSSA, City Attorney
Resolution No. 2025-005
Page 4 of 4
_______________________
I CERTIFY THAT RESOLUTION NO. 2025-005 was passed and adopted by the City
Council of the City of Vernon at the Regular Meeting on March 4, 2025, by the following
vote:
AYES: 4 Council Members: Lopez, Rivera, Ybarra, Merlo
NOES: 0
ABSENT: 1 Council Member: Larios
ABSTAIN: 0
________________________________
YONNIE PARKER, Deputy City Clerk
(seal)
City Council Agenda Report
Meeting Date:March 4, 2025
From:Gigi Decavalles-Hughes, Interim Director of Finance
Department:Finance
Submitted by:Angela Melgar, Finance Manager
Subject
Fiscal Year 2024-25 Mid-Year Financial Update
Recommendation
Adopt Resolution No. 2025-005 authorizing and approving mid-year budget appropriations and
amending the Annual Operating and Capital Budget for Fiscal Year 2024-25.
Background
The Mid-Year Financial Update reflects continued efforts to provide timely and accurate financial
information to assist the City Council with decision-making and achievement of the City’s goals.
As of December 31, 2024, the midpoint of the current fiscal year, one would expect to be at the
50% mark for revenues and expenditures. However, certain factors may influence the timing,
rate, or recognition of such. At mid-year, actual Citywide expenses, including non-operating, for
General Fund and Vernon Public Utilities (VPU) combined were at 32% and revenues were at
46.5% of budgeted amounts. Viewing the General Fund as a whole, approximately 52% of
budgeted revenues were received as opposed to approximately 41% of budgeted expenditures.
VPU revenues were at 45% and expenses measured at 28.5% at the mid-year mark. Staff
evaluated the trajectory of actual versus budgeted results and are providing recommendations
to appropriate additional funds for unforeseen circumstances that have arisen since the normal
course of budget setting during the prior fiscal year. Pursuant to City Charter Chapter 8.5, Council
may amend or supplement the budget by the affirmative vote of a majority of the members of the
Council.
Proposed Changes to General Fund Committed Reserves
A year-end surplus occurs when there is an excess of revenues over expenditures in a particular
year, generally a result of higher than budgeted revenues, and/or lower than budgeted
expenditures. Surpluses build a fund’s reserves, bolstering its fiscal resilience and health. The
General Fund concluded FY 2023-24 with an operating surplus of approximately $7.3 million.
This surplus elevated the General Fund’s fund balance by 17% to $49.3 million. However, $19.8
million of this amount is classified as nonspendable, restricted, or committed, leaving $29.5 in
unassigned reserves.
In previous years, the Council has approved the allocation of unassigned General Fund reserves,
including year-end surplus, to committed reserve fund balances as shown in the table below
under Current Amount. This year, in keeping with the City’s Budget Policies related to Use of
Financial Reserves and Surplus, staff recommends that the $7.3 million surplus be added to the
Economic Uncertainty committed reserve. Raising the reserve amount to $13.3 million brings the
Economic Uncertainty fund closer to the 60 days of operating costs that is a best practice for
organizations. Committed reserves may be accessed as necessary but require Council action to
be made available for programming.
Committed Reserve Funds
Commitment
Current
Amount
Proposed
Amount
Economic Uncertainty $6M $13.3M
Capital $2M $2M
Post-Retirement $2M $2M
Technology Replacement $1M $1M
Fleet Replacement $1M $1M
Paving $1M $1M
Total $13M $20.3M
Once this amount is committed, the General Fund balance will still have approximately $22
million in unassigned reserves. However, the discussion of the General Fund five-year forecast
below demonstrates the possibility that, if current conditions persist, the available fund balance
and potentially a large portion of the Economic Uncertainly balance would be drawn down within
the next 4 years.
Proposed Budget Adjustments
Department staff has analyzed their line-item budgets and identified amendments needed for
additional expenditures through the end of FY 2024-25 in addition to the recommendation to
allocate additional funds to committed reserve fund balances from the General Fund Unassigned
Fund Balance. Due to the rising costs of materials, supply chain constraints, and expenditures
not known or expected at the adoption of the FY 2024-25 Budget, adjustments are being
presented to Council to appropriate and reallocate funds in the General and VPU Funds that are
in line with strategic goals and objectives of the City. The proposed adjustments are included in
the attached Resolution. General Fund proposed adjustments are included in the Five-Year
Forecast amounts below.
General Fund Five-Year Forecast
It is a best practice to project revenues and expenditures over a period of at least five years to
inform staff, the Council, and the community of the City’s current and projected fiscal status as
the City enters its annual budget preparation process. The five-year forecast reflects known and
potential economic and operational factors that will have an impact on the City’s financial position.
Projections, which are developed alongside tax consultants and staff with expert knowledge of
the local market and community needs, take into consideration the condition of the national, state,
and local economies. This tool allows Council to understand the level to which revenues can
adequately cover new ongoing initiatives, or, more critically, to make course corrections if
necessary to avoid shortfalls. Staff has included both the Adopted Budget amounts for FY 2024-
25, as well as an updated mid-year projection of the year’s revenues and expenditures.
National economic growth as measured by Gross Domestic Product (GDP) grew by 2.4% over
2024. Inflation increased to 3% in January. As the rate is still higher than the Federal Reserve’s
2% target, the Fed is expected to hold interest rates steady for at least the upcoming quarter.
There is a strong sense of uncertainty given unprecedented policy shifts in regulation,
immigration and trade (tariffs) already being implemented by the new presidential administration,
and many of these shifts could impact both the City and the businesses located here. Economists
project that, while economic momentum entering 2025 was strong, GDP growth will ease to 2.2%
in 2025 and 1.7% in 2026.
California’s economy continues to expand but challenges persist. Based on the most recent
available data, third quarter GDP growth for the State, at 3.1%, was at the same level as the
national third quarter growth. This shows improvement over 2nd quarter data, where California’s
GDP growth rate was two percentage points lower than the national growth rate. As of December
2024, the State’s unemployment rate was 5.5%, which is the third highest of any state and higher
than the national average of 4.1% for the same period. Job growth within California also appears
to be slowing, partly due to the State’s labor shortage, negative population growth, and high
housing costs. If these conditions continue to persist, this may further impede the State’s long-
term economic growth by causing consumers to make tradeoffs in household spending budgets.
While Governor Newsom recently proposed the first State budget in two years that will not have
a deficit, the recent natural disasters in Los Angeles County, threat of funding cuts from the new
presidential administration, and changes in trade policy could erase these positive estimates and
would likely continue economic uncertainty for local governments where they must continue to
implement unfunded State mandates. Economists are forecasting stronger but still limited growth
at the State level in 2025 and 2026.
The City’s General Fund revenue forecast is a reflection of the local economy and is informed by
projections provided by the City’s tax revenue consultants as well as prudent projections of future
electric and water usage, which impacts the amount of Utility Users Tax (UUT) and, in the case
of the Electric utility, the In-Lieu Tax revenue the General Fund receives. Where appropriate,
staff applied a growth rate equal to the projected Consumer Price Index (CPI). CPI is estimated
within a range 2.0%-2.7% over the term of the forecast. Forecasted operating expenditures
reflect the impact of CPI and labor cost increases based on existing Memorandum of
Understanding (MOUs) with the City’s collective bargaining units and other contracted services.
Forecasted non-grant-funded capital improvements include the bare minimum in expenditures
given the limited funding available.
Over the past two years, the City’s revenues have been significantly impacted by the loss of
several large businesses. Sales tax and UUT revenue growth is slow while new businesses go
through the process to construct space and prepare to begin operations or while spaces remain
unutilized. Staff continues to focus on economic development to ensure that available sites attain
their highest and best use. Included in the projections are the results of a recently completed
comprehensive analysis of user fees to ensure full cost recovery for services benefitting
individuals. Due to these challenges, revenue growth through FY 2027-28 averages
approximately 2.4%. During this time, non-capital expenditures are growing at an average rate
of 5.7% (more than double the revenue growth amount). Expenditure growth reflects common
cost drivers for California cities - pension contributions, particularly funding the unfunded liability,
healthcare, rising worker’s compensation costs for an aging workforce, and property insurance.
Expenditures do not currently include any increases resulting from this year’s ongoing labor
negotiations. They also do not include potential increases in contracted services beyond currently
ratified contracts.
It is important to note the City’s extraordinary challenge in FY 2028-29, when revenues reflect a
loss of approximately $16 million due to the expiration of the Special Safety Parcel Tax and the
UUT, measures approved by voters in 2018 for a ten-year extension that ends on June 20, 2028.
The decrease is slightly offset by an increase in annual Property Tax revenues once the
Redevelopment Successor Agency expires in 2028. The Special Safety Parcel Tax and the UUT
generate revenues that support general services, including public safety, health services, street
maintenance and community services. Extension of these two measures is imperative for the
City’s future financial well-being. City staff will be working to present a ballot measure in 2026 to
address this need.
The forecast summary shown below is structured to first show whether the City’s annual
revenues are sufficient to cover annual ongoing expenditures. The result is shown in the Net
Operating Surplus or Deficit line (Line A). Line A reflects the effects of a prolonged period of
expenditure growth that is more than double the revenue growth amount by shifting to a deficit
in FY 2026-27.
Capital projects funded by the General Fund are then added to this balance. The resulting new
balance is the City’s projected Budget Surplus or Deficit (Line B). Line B shows a continuous
deficit throughout the forecast term. While this is a concern, capital projects are one-time costs
and often experience delays, so the actual expenditures may be lower. For example, in FY 2024-
25, projected operating budget savings will cover a good portion of the capital project costs,
thereby decreasing the deficit from $7.2 million to $2.8 million.
Because the City’s operating and capital needs exceed revenue growth, the current and future
budget may rely on available fund balance to cover urgent projects. Within the General Fund
reserves, there are two account balances that would cover these overages if necessary: the
Unassigned Fund Balance, and the Economic Uncertainty Reserve. Section C shows how
projected budget deficits would first draw down the Unassigned Fund Balance and then, in the
event that the Special Safety Parcel Tax and the UUT measures are not extended, all but $1
million of the Economic Uncertainty fund would be drawn down. This is clearly unsustainable.
Section D, on the other hand, shows an alternative scenario where the two revenue measures
would be extended. This would maintain a small Unassigned Fund Balance and preserve the
Economic Uncertainty reserve.
FY 24-25
Adopted
Budget
FY 24-25
Proj
FY 25-26
Proj
FY 26-27
Proj
FY 27-28
Proj
FY 28-29
Proj
Revenue 74.7 75.6 76.8 77.9 80.3 69.5*
Labor Costs 40.8 35.5 40.8 42.6 44.2 45.9
Maintenance & Ops 32.9 34.3 34.9 35.9 37.4 39.3
A Operating Surplus (Deficit)$1.0 $5.8 $1.2 $(0.6)$(1.2)$(15.7)
Capital Improvements (non-grant-
funded)8.2 8.5 2.9 3.8 4.3 4.3
B Budget Surplus (Deficit)$(7.2)$(2.8)$(1.8)$(4.4)$(5.5)$(20.0)
C
GF Unassigned Balance After
Covering Deficit $19.4 $17.6 $13.2 $7.7 $0
Balance of Economic Uncertainty
Reserve $13.3 $13.3 $13.3 $13.3 $1.0
Assuming Utility Users Tax and Special Safety Parcel Tax are extended in 2028:
Net Budget Surplus (Deficit)$(3.1)
D
GF Unassigned Fund Balance
After Covering Deficit Same as balances above $4.5
Balance of Economic
Uncertainty Reserve $13.3
* Reflects end of UUT and Safety Parcel Tax term June 2028
Adopting budgets that continuously rely on the use of fund balance is fiscally unsustainable and
should be avoided at all costs. Reserves exist and should be used for one-time needs and only
as a last resort. This forecast projects a status quo view and serves to inform staff, the Council
and the community that efforts to increase and diversify revenues must take priority in the next
year.
Vernon Public Utilities Forecast
Vernon Public Utilities (VPU) is committed to dependable, high-quality electric, water, natural
gas, and fiber services at competitive rates and the highest standards for reliability, while also
achieving California's clean energy goals. As a publicly owned utility, VPU is focused on its
customers, responsible operations, and a sustainable future. VPU regularly updates its forecast
to plan for customer demands, revenues, operating expenses, and capital expenditures. To that
end, in Fiscal Year 2024-25, VPU continues to manage its operating expenses and its capital
investment to ensure a reliable system infrastructure. Moreover, VPU continues to focus on
revenue growth in its transition to clean commerce, including data centers, green hydrogen, and
electrification to ensure that VPU is able to maintain utility services and infrastructure into the
future as well as being self-sufficient. VPU is initiating a Water Cost of Service and Rate Design
study in March 2025 with an expected completion date in July 2025. An Electric Cost of Service
and Rate Design Study will begin in August 2025 with an expectation that it will be presented to
City Council during the Fiscal Year 2026-27 budget process.
Fiscal Impact
Approval of this action would require a commitment of $7,300,000 from Unassigned Fund
Balance to the Economic Uncertainty Reserves and an appropriation of $450,000 in the General
Fund, $592,500 in the Electric Fund, $735,000 in the Water Fund and $82,000 in the Fiber Fund
from their respective Fund Balances as detailed in Resolution 2025-005.
Attachments
1. Resolution No. 2025-005