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Item 7AITEM 7A M E M O R A N D U M March 30, 2022 TO: Shana K. Yelverton, City Manager FROM: Stacey Black, Director of Human Resources Sharen Jackson, Chief Financial Officer SUBJECT: Approve Ordinance 1245A, Revising the Budget Figures for Fiscal Year 2022, Beginning October 1, 2021 and Terminating September 30, 2022. Action Requested: City Council approval of Ordinance No. 1245A, revising the budget figures for Fiscal Year 2022, beginning October 1, 2021 and terminating September 30, 2022. The purpose of this item is to request City Council's consideration of a budget amendment to provide for mid-year employer of choice employee compensation adjustments. In addition, the budget amendment will update the sales tax revenue to reflect current collection and trends. Background Information: The City of Southlake is a service-oriented organization, with approximately 70% of the general fund allocated to personnel costs. In order to deliver exceptional service, one of the City's guiding budget principles is to be an Employer of Choice to attract and retain top talent. We do this by having a strong organizational culture focused on employee experience and employee engagement, by offering a comprehensive benefits package, and by providing a competitive, fair, and equitable compensation program. At the 2022 Winter Workshop, staff briefed City Council on the challenges the organization is facing with retaining and recruiting talent. As a result, Council directed staff to study the issue further and to make a recommendation to specifically address employee compensation. As discussed at the Winter Workshop, four external forces have begun to impact the City's ability to attract and retain talent; they are as follows: • The Great Resignation. The Great Resignation is a phenomenon that describes the record number of people leaving their jobs. This has impacted many employers, and Southlake is not immune. We have seen our turnover rate increase, especially for regrettable turnover. Shana K. Yelverton, City Manager ITEM March 30, 2022 Page 2 The City's full-time voluntary turnover rate year-to-date is 5.1% and is projected to be around 15% for FY 2022. The five-year trend is below: Voluntary Full-time Employee Turnover: FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 11.6% 10.8% 13.2% 12.1% 5.1%* *As of 2/28/2022 According to the Surviving the Great Resignation Report from the Society of Human Resource Management (SHRM), 53% of workers are leaving for better compensation and 42% for better work/life balance. In Southlake, exit interview data revealed that 59% of full-time employees indicated they would recommend Southlake as a great place to work, while only 38% indicated they believe their pay and incentives were fair in comparison to the job market for people doing similar work. In addition, dissatisfaction with compensation has become a common theme in exit interviews. • Competitive Labor Market. The labor market has become increasingly competitive in the DFW Metroplex. The City currently has 28 vacant full-time positions, and the time-to-fill average for vacant positions is 123 days. The other factor is the limited number of applications the City receives for vacancies. In the last five years, the average number of applications per opening has dropped from 106 to 28 This has significantly impacted our ability to fill open positions. Average Number of Applications per Civilian Opening: 2018 2018 2020 2021 106 75 87 28 • Competitive Wages. The competitive labor market has driven wages in both the public and private sectors. A review of market data reveals that the City has already fallen behind its desired market position, despite recently making market adjustments. At the Winter Workshop, City Council directed staff to strive to pay public safety at the 85th percentile and civilian positions at the 70th percentile, in an attempt to stay ahead of the market. Shana K. Yelverton, City Manager ITEM March 30, 2022 Page 3 Current Market Position: Public Safety Non-Exempt Exempt -7.7% -5.6% -5.9% • Consumer Price Index. The CPI has continued to increase, and the average Dallas-Fort Worth CPI (excluding food/energy) in January 2022 was 5.9% and continues to increase each reporting period. All of these factors have made it increasingly difficult to retain talent and recruit high-quality candidates. In an effort to mitigate these challenges and maintain strong service delivery, staff recommends implementing mid-year compensation adjustments to address increasing market wages and cost-of-living changes. This includes a 3.4% cost-of-living adjustment for all employees and market adjustments as appropriate. The average market increase for eligible employees is 2.3%. In addition, staff recommends making changes to the compensation system to right size for talent density. This includes creating a pay plan specific to information technology positions, modifying the wage floors for part-time and full-time non-exempt positions, modernizing job titles, and making a number of changes to address talent density among staff. Finally, staff conservatively projected sales tax revenue; however, the year-to-date collections are trending higher than original projections. Staff recommends amending the sales tax revenue to include the additional revenue collections. Financial Considerations: The estimated general fund costs for the employer of choice compensation adjustments are indicated below. In addition, the estimated impact on salary-driven benefits is approximately $85,062. FY 2022 Impact Ongoing Annual Impact COLA Pay Adjustments $380,348 $760,697 Market Pay Adjustments $210,491 $420,982 System Adjustments $13,370 $26,741 Talent Density Adjustments $94,954 $189,908 Total: $699,164 $1,398,328 The proposed amendment increases general fund personnel expenditures by $784,226 and sales tax revenue by $1,750,000 resulting in estimated ending fund balance of $11,978,236 (26.87%). Shana K. Yelverton, City Manager ITEM March 30, 2022 Page 4 Strategic Link: • Focus Area: Performance Management and Service Delivery • Corporate Objective: L3 Attract, develop, and retain a skilled workforce Citizen Input/ Board Review: N/A Legal Review: N/A Alternatives: Changes as may be desired by the City Council. Deny the proposed amendment. Supporting Documents: Ordinance No. 1245A Staff Recommendation: City Council approval of Ordinance No. 1245A, revising the budget figures for Fiscal Year 2022, beginning October 1, 2021, and terminating September 30, 2022, and making appropriations for each department, project, and account; repealing conflicting ordinances; providing a savings and severability clause; and declaring an effective date. CITY OF SOUTHLAKE ORDINANCE NO. 1245A AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SOUTHLAKE, TEXAS, REVISING THE BUDGET FIGURES FOR FISCAL YEAR 2022; BEGINNING OCTOBER 1, 2021, AND TERMINATING SEPTEMBER 30, 2022, AND MAKING APPROPRIATIONS FOR EACH DEPARTMENT, PROJECT, AND ACCOUNT; REPEALING CONFLICTING ORDINANCES; PROVIDING A SAVINGS AND SEVERABILITY CLAUSE; AND DECLARING AN EFFECTIVE DATE. WHEREAS, the City Manager has prepared a revision of certain figures in the 2022 budget which was approved by City Council with Ordinance No. 1245 on September 21, 2021, and submitted same to the City Council; and, WHEREAS, a copy said amendment is attached hereto as Exhibit “A” and incorporated herein for all purposes; and WHEREAS, the City Council has studied the Budget Amendment and has determined that the Budget Amendment attached hereto is in the best interest of the city. NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SOUTHLAKE, TEXAS: Section 1. That all the above premises are found to be true and correct and are incorporated into the body of this Ordinance as if copied in their entirety. Section 2. That the revised figures, prepared and submitted by the City Manager for the 2022 budget, be, and the same are hereby, in all things, approved and appropriated, and any necessary transfers between accounts and departments are hereby authorized, approved, and appropriated. Section 3. That the Budget Amendment attached hereto as Exhibit “A” and incorporated herein for all purposes is adopted for the Fiscal Year beginning October 1, 2021, and ending September 30, 2022; and there is hereby appropriated from the funds indicated such projects, operations, activities, purchases and other expenditures as proposed in the Budget Amendment. Section 4. That the City Manager has determined that there are necessary revenue and expenditure adjustments to those estimated in 2022 approved budget. Section 5. That all ordinances, resolutions, rules, regulations, policies, or provisions in conflict with the provisions of this Ordinance are hereby repealed and rescinded to the extent of conflict herewith. Section 6. If any section, article, paragraph, sentence, clause, phrase or word in this Ordinance, or application thereto any person or circumstances is held invalid or unconstitutional by a Court of competent jurisdiction, such holding shall not affect the validity of the remaining portions of this Ordinance; and the City Council hereby declares it would have passed such remaining portions of this Ordinance despite such invalidity, which remaining portions shall remain in full force and effect. Section 7. That the necessity of adopting and approving a budget for the fiscal year as required by the laws of the State of Texas requires that this Ordinance shall take effect immediately from and after its passage, and it is accordingly so ordained. PASSED AND APPROVED on first reading this _____ day of _________________, 2022. __________________________ John Huffman, Mayor ATTEST: __________________________ Amy Shelley City Secretary PASSED AND APPROVED ON second reading this _____ day of _________________, 2022. __________________________ John Huffman, Mayor ATTEST: __________________________ Amy Shelley City Secretary APPROVED AS TO FORM: __________________________ City Attorney Date: _____________________ Adopted: __________________ Effective: ________________