CC SR 20160301 04 - FY15-16 Midyear Financial ReportRANCHO PALOS VERDES CITY COUNCIL MEETING DATE: 03/01/2016
AGENDA REPORT AGENDA HEADING: Regular Business
AGENDA DESCRIPTION:
Consideration of and possible action regarding the Fiscal Year 2015-16 Mid -year
Financial Report and year-end estimates.
RECOMMENDED COUNCIL ACTION:
1) Receive and File the FY2015-2016 Mid -year Financial Report; and
2) Approve related budget adjustments as reported.
FISCAL IMPACT: $789,313 (This amount includes a projected increase in revenues of
$477,659 and a decrease in expenditures of $311,654).
Current Budget: Revenues: $27,882,208
Expenditures: $21,918,625
Additional Appropriation: $477,659 (increase in budgeted revenues)
No net increase to budgeted expenditures.
Revised Budget: Revenues: $28,359,867
Expenditures: $21,606,971
Account Number(s): Various
ORIGINATED BY: Allan Kaufman, Senior Administrative Analyst
REVIEWED BY: Deborah Cullen, Director of Finance tt
APPROVED BY: Doug Willmore, City Manager YAA %*,L
BACKGROUND AND DISCUSSION:
The Rancho Palos Verdes Municipal Code (RPVMC) requires that a mid -year review of
the annual budget be presented to the City Council. Staff has reviewed all revenues
and expenditures for mid -year Fiscal Year 2015-16, with an emphasis on the General
Fund and major capital programs, to determine if all sources and uses are on target with
the originally adopted budget, and to highlight any areas that may end the fiscal year
significantly above or below budget. Preliminary year-end estimates are included in this
review and the adopted budget will be updated to reflect these changes. At the end of
the third quarter, Staff will perform another review the revenues and expenditures and
update the yearend estimates, if necessary.
Currently, the excess General Fund Reserves at June 30, 2016 are estimated to be
$656,254. A summary of the FY15-16 Fund Balance calculation is illustrated below:
1
PY Expenditure Variance
(Transferred to CIP)
Original
Current
Proposed
FY15-16
Budget
Budget
Revised
Beginning Fund Balance
15,133,238
15,133,238
15,133,238
Revenues
27, 882, 208
27, 882, 208
28, 359, 867
Expenditures
(20,936,748)
(21,918,625)
(21,606,971)
Net Transfers
(8,209,303)
(8,209,303)
(8,209,303)
PY Expenditure Variance
(Transferred to CIP)
(2,214,942)
Ending Fund Balance
13,869,395 12,887,518 11,461,889
Reserve Policy (50% of
budgeted expenditures)
10,468,374 10,959,313 10,805,636
Excess Reserve
3,401,021 1,928,206 656,254
General Fund Revenue
The Summary Schedule of General Fund Revenue is presented below. It is important
to understand that these revenue estimates are based upon Staff's analysis using trend
comparisons with previous years, and reports provided by state, county and local
agencies. It should be noted that future economic activity, legislation and policy
decisions, as well as any other unforeseen circumstances could affect the City's
revenue stream for the remainder of FY15-16. The mid -year financial report also
includes discussion and analysis of anticipated expenditure variances and other
relevant developments related to the FY15-16 budget.
Some revenue sources are difficult to estimate, such as franchise taxes and permit
fees. These types of revenues are predicated on conditions outside the City's control.
As an example, planning and building permit revenues will fluctuate with the economy
and housing activity, as well as other conditions such as the weather. Additionally,
several significant franchise tax revenues are received annually after preparation of the
mid -year report. For these revenues, Staff has either reported FY15-16 estimated
revenues as the budgeted amount or a conservative figure based on the amount of
information currently available. The following is a list of major General Fund revenues,
along with year-end estimates:
2
Revenue Type
FY14-15
Actual
FY15-16
Budget
FY15-16
Estimated
Estimate vs.
Budget
Variance
Property tax
$ 7,007,128
$ 7,281,261
$ 7,536,105
$ 254,844
Property tax in lieu of vehicle license fees
4,061,473
4,195,096
4,252,416
57,320
Property tax in lieu of sales tax
540,611
279,198
177,820
101,378
Property transfer tax
344,357
395,000
406,934
11,934
Sales tax
1,757,889
2,068,936
2,068,936
-
Transient occupancy tax
4,812,130
5,026,400
5,150,982
124,582
Franchise taxes
Utility user taxes
2,044,398
1,972,671
2,101,000
1,862,000
2,154,231
1,916,509
53,231
54,509
Business license tax
808,668
777,490
777,490
-
Golf tax
411,362
447,900
340,278
107, 622
Planning, building & safety, and other permits
2,514,572
2,160,100
2,409,058
248,958
Fines and forfeitures
135,056
120,000
122,000
2,000
Interest earnings
43,053
121,220
51,214
70,006
Other use of money and property (rents & leases
542,073
742,500
680,313
62,187
Charges for services
369,608
228,800
260,100
31,300
Intergovernmental rants & vehicle license fees
36,212
-
17,174
17,174
Other revenue
683,592
75,307
38,307
37,000
Total General Fund revenues
$28,084,853
$27,882,208
$28,359,867
$ 477,659
The General Fund revenue is expected to exceed the current FY15-16 budget by
approximately $500,000. Discussion and analysis regarding General Fund revenues is
presented below. Staff does not recommend budget adjustments for immaterial
anticipated variances. If a particular revenue source is not discussed, there is nothing
significant to report, and anticipated revenues are not expected to materially deviate
from the FY15-16 budget.
Property Tax
Total secured property tax valuations are 4.77% higher than in FY14-15. The year -
over -year Consumer Price Index (CPI) for January 2016 was 3.1 % higher than the prior
year. Based on this data, Staff is projecting a 3.5% increase in property tax collection
for FY15-16. Staff believes it prudent to make a more conservative projection at this
time. If actual property tax exceeds projections during the third quarter, Staff will
recommend budget adjustments accordingly.
Property Tax in lieu of Sales Tax
As part of the state's solutions to its budget problems in 2004, it developed a
mechanism referred to as the "triple -flip" whereby the City began receiving an additional
share of property tax in lieu of 25% of the City's sales tax apportionment. The additional
property tax collected in lieu of Sales Tax year to date, is tracking below the budgeted
amount. The "triple -flip" officially ended on January 1, 2016 but the City will receive the
final "True -Up" (reimbursement adjusted) payment for July -December 2015 from the
9
California Department of Finance during the third quarter. This payment should bring
actual revenues collected closer to budget at year-end.
Transient Occupancy Tax (TOT)
In the FY15-16 budget, Staff proposed a 5% increase in TOT revenue from the prior
year. Currently, TOT is performing better than expected and is currently estimated to
end the year 2.5% or $124,582 higher than budget. We have received positive
guidance from the Terranea Resort, where the majority of TOT revenue is generated,
that room rentals will remain strong through year-end and FY16-17.
Permit Revenue
Permit revenue is on track to exceed budget by 12% or $248,958. Although activity
levels are consistent with last year, there are some larger -than -normal projects
generating higher permit fees.
Interest Revenue
Staff is projecting interest revenues to more closely align with FY14-15 actuals than the
FY15-16 budgeted amount. This will result in a projected negative variance of 58% to
adopted budget. Staff based its budgeted investment earnings on the 3 -month U.S.
Treasury Bill rate as projected by the Congressional Budget Office (CBO); however, a
majority of the City's cash is invested in the Local Agency Investment Fund (LAIF),
which has been tracking below the 3 -month Treasury Bill rate.
Golf Tax
Golf tax is tracking below estimated budget by 24% or $107,662, primarily due to a
slowdown in the industry.
Revenue Adjustment Summary
Staff recommends positive revenue adjustments totaling $477,659 as illustrated in the
table above, which would increase the General Fund revenue budget to $28.4 million (a
1.7% increase to the current budget, and 1.0% from FY14-15 actuals).
General Fund Expenditures
Per the RPVMC Section 3.32.080, budgetary compliance is determined by program.
There are 37 expenditure programs in the General Fund budget. As there are a number
of programs with expenditures that fluctuate with unforeseen circumstances (e.g.,
weather, claims and litigation), there has been a long-standing practice to prepare
conservative expenditure budgets, which generally results in overall favorable budget
variances each year.
During the midyear and third quarter reviews, Staff will be providing year-end estimates
to aid in planning and preparing the next year's budget, as well as track realistic
expectations to year-end.
11
Mid -year Expenditures
The General Fund mid -year expenditures (through December 31, 2015) are illustrated
in the following table:
Summary Schedule of Mid -year General Fund Expenditures
Department
FY14-15
Mid -year
Actual
FY15-16
Mid -year
Actual
FY 2015 vs. FY 2016
Mid -year
Variance $
%change
City Council
$13,185
$9,650
-$3,535
-26.8%
City Administration
1,966,735
2,165,480
198,745
10.1%
Public Safety
1,598,899
1,690,503
91,604
5.7%
Public Works
1,474,145
1,260,092
-214,053
-14.5%
Community Development
803,034
871,914
68,880
8.6%
Recreation & Parks
542,130
663,078
120,948
22.3%
Non -Department
35,000
144,185
109,185
312.0%
Total General Fund
Expenditures
$6,433,128
$6,804,902
$371,774
5.78%
Some of the Mid -year variances are due to the following:
• The variance in Administration is primarily due to filled vacancies. During FY 14-15
several key positions were vacant and duties were assumed by existing Staff.
• There were two (2) additional Sheriff's Patrol Deputies funded in FY 15-16.
• Public Works experienced an expenditure savings due to water conservation efforts.
• Building and Safety reported higher than expected plan checks and geological
investigations.
• Recreation and Parks increased part-time Staff personnel and hours to provide
additional coverage at the City's parks. This personnel request was approved by the
City Council on December 15, 2015.
• The Non -Department variance is due to the payment of Utility User Tax refunds.
Year -year Projected Expenditures
The projected General Fund expenditures at year-end are currently estimated to come
under budget by $300,000. Staff will continue monitoring expenditures, and will report
any changes to the year-end estimates during the third quarter review. If the activity of
a department below is not discussed, there is nothing significant to report and
expenditures are not expected to materially deviate from the amounts budgeted.
Staff has analyzed FY15-16 General Fund expenditures to date, and has determined
that a number expenditure budgets warrant adjustment. A discussion of proposed
adjustments follows.
5
General Fund: FY15-16 Budget vs. Projected Year-end Expenditures
Department
Mid -year Actual
1213112015
FY15-16
Budget
%of
Budget Spent
Year -End
Estimate $
$ Variance
to Budget
City Council
City Administration
$13,185
1,966,735
$129,590
6,331,128
10.2%
31.1%
$129,600
$10
6,235,072
-$96,056
Public Safety
1,598,899
5,529,649
28.9%
5,765,564
$235,915
Public Works
Community Development
Recreation & Parks
1,474,145
803,034
542,130
4,774,795
2,898,432
2,255,031
30.9%
27.7%
24.0%
4,272,927
-$501,868
2,873,145
-$25,287
2,181,663
-$73,368
Non -Department
144,185
0
0.0%
149,000
$149,000
Total General Fund
Expenditures
$6,542,313
$21,918,625
29.8%
$21,606,971
-$311,654
Public Safety
Per City Council action on January 19, 2016, $173,000 in additional Sheriff Services
was approved and allocated for the Surveillance and Apprehension Team (SAT)
Detective and the Community -Oriented Response and Enforcement (CORE) Team.
Public Works
The Parks, Trails, and Open Space Maintenance program is projecting expenditure
savings at year-end due to active water conservation efforts. In addition, the
department has received lower-than-expected Traffic Calming Study requests from City
neighborhoods; and experienced a delay in executing the MS4 permit due to
coordination challenges with participating cities.
Expenditure Adiustment Summa
Staff recommends expenditure adjustments totaling $311,654, as illustrated in the table
above, which would decrease the General Fund expenditure budget to $21.6 million (a
1.4% decrease to the FY15-16 budget).
Al
•
Major Capital Programs
Capital projects are a major component of the City's annual budget. Below is a list of
the City's major capital programs and their respective financial status.
Capital Programs
Mid -year Actual
12/31/2015
FY15-16
Budget
%of
Budget Spent
Year -End
Estimate $
%of Year -End
Estimate
Infrastructure Administration
$27,032
$297,500
9.1%
$297,500
100.0%
Street Improvements
435,121
10,259,119
4.2%
1,832,900
17.9%
Parks/Trails/Open Space
Improvements
Building Improvements
63,635
0
2,077,733
1,359,174
3.1%
0.0%
448,000
21.6%
207,000
15.2%
Storm Water Quality Improvements
0
150,000
0.0%
100,000
66.7%
Landslide Improvements
0
955,000
0.0%
955,000
100.0%
Water Quality Flood Protection
WQFP
121,978
4,457,021
2.7%
2,020,663
45.3%
Total Capital Expenditures
$647,766
$19,555,547
3.3%
$5,861,063
30.0%
Mid -Year and Year -End Variance
Street Improvements
Although only $1.8 million is anticipated to be expended during FY15-16, Public Works
has brought on outside consultants to ensure continuity of engineering workload/project
management, as well as to ensure that contracts will be awarded and the majority of the
unspent budgeted amount encumbered by the end of the year.
Parks, Trails, and Open Space Improvements
While only $450,000 is expected to be expended during FY15-16, Public Works is
confident the vast majority of the unspent budgeted balance will be encumbered by the
end of the fiscal year as contracts are awarded.
Building Improvements
While only $200,000 is expected to be expended during FY15-16, Public Works is
confident the vast majority of the unspent budgeted balance will be encumbered by the
end of the fiscal year as contracts are awarded.
Stormwater Quality Improvements
Funding has been identified for the City's share of the cost of Torrance's Airport
Infiltration Project if the Council approves participating in that project, which will be
discussed at this meeting. If approved, it is possible that $100,000 will be expended by
the end of FY15-16; however, this depends largely on how quickly Torrance moves
forward on the project and how quickly they bill the City for its share of the costs.
Water Quality Flood Protection (WQFP)
While only $2.0 million is expected to be expended during FY15-16, Public Works is
confident the vast majority of the unspent budgeted balance will be encumbered by the
end of the fiscal year as contracts are awarded.
7
Change in funding method of Capital Projects
The City has a long history of appropriating the full funding amount to capital projects
and carrying over the unspent appropriation from year to year. As a result of this
funding method, large variances are created, as illustrated in the table above. To
address this issue, Finance is recommending changing the way that funds are annually
committed for capital projects, starting with the FY16-17 budget process. A staff report
on Continuing Appropriations was presented to the City Council on September 15,
2015, introducing this change in funding method. By taking this step during the annual
budget process, the City Council would have the opportunity to review the committed
projects and determine if funding priorities has changed. This step should be able to
reduce the number of continuing appropriations each year; and the annually adopted
budget will more closely approximate the true annual expenditures for the City.
CONCLUSION
Staff has reviewed all revenues and expenditures for mid -year Fiscal Year 2015-16,
with an emphasis on the General Fund and major capital programs, to determine if all
sources and uses are on target with the originally adopted budget and to highlight any
areas that may end the fiscal year significantly above or below budget.
In summary, projected year-end General Fund revenues are tracking $477,000 higher
than last year. Mid -year expenditures are tracking approximately 6% higher than same
period last year; however, year-end figures are estimated to be $300,000 below their
budgeted amount. Capital program expenditures are tracking below estimates;
however, as contracts are awarded, the majority of the unspent budgeted amount is
expected to be encumbered by the end of the year. At mid -year, all other funds are
tracking to budget, but will be reviewed again at the end of the third quarter.
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative actions are available
for the City Council's consideration:
Discuss and take other action related to this item.