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CC SR 20180306 02 - FY17-18 Midyear ReviewRANCHO PALOS VERDES CITY COUNCIL MEETING DATE: 03/06/2018 AGENDA REPORT AGENDA HEADING: Regular Business AGENDA DESCRIPTION: Consideration regarding the FY 2017-18 Mid -year Financial Report and year-end estimates. RECOMMENDED COUNCIL ACTION: 1) Receive and file the FY 2017-18 Mid -year Financial Report. FISCAL IMPACT: Year-end estimates will be updated at the close of the third-quarter and budget adjustments will be recommended in that report. Current Budget: Revenues: $30,437,300 Expenditures: $27,370,775 Transfers Out: $4,813,500 ORIGINATED BY: Allan Kaufman, Senior Administrative Analyst REVIEWED BY: Deborah Cullen, Director of Finance APPROVED BY: Doug Willmore, City Manager,,',`''-, BACKGROUND AND DISCUSSION: The Mid -Year financial report serves two purposes. First, it compares revenue and expenditures for the first half of the fiscal year relative to the same point in time last year while at the same time identifies any variances that may require adjustments in the future. Second, the report offers a first look at where the City projects its revenues and expenditures will end the year compared to the current budget amount. For this report, Staff has reviewed all revenues and expenditures at mid -year for FY 2017-18 (July 1st thru December 31 st), with an emphasis on the General Fund. At the end of the third- quarter (March 31St), Staff will perform another review of revenues and expenditures and update the year-end estimates, if necessary. At this time, year-end estimated fund balance for General Fund Reserves at June 30, 2018, is targeted at $15.2 million and excess reserve is approximately $1.8 million. Detailed analysis highlighting the major changes are presented later in this report. A summary of the FY17-18 Fund Balance calculation is illustrated below: 1 FY 2017-18 General Fund Balance Summary General Fund Revenue The Summary Schedules for General Fund Revenue are presented below. These revenue estimates are based on Staff and consultants' 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 FY 2017-18. Mid -Year Revenues Current Year vs. Prior Year 17-18 Adopted Additional 17-18 Revised Year-end $ 5,295,640 $ Budget Appropriation Budget Estimates Beginning Fund Balance 16,852,403 - 16,852,403 16,852,403 Add: Revenues 30,207,300 - 30,207,300 29,722,217 Add: Transfers In 230,000 - 230,000 230,000 Subtotal 47, 289, 703 - 47, 289, 703 46, 804, 620 Less: Expenditures (25,604,300) (1,766,475) (27,370,775) (26,791,456) Less: Transfers Out (4,813,500) - (4,813,500) (4,813,500) Variance (Transferred to CIP) - - - - Subtotal (30,417,800) (1,766,475) (32,184,275) (31,604,956) Ending Fund Balance 16,871,903 - 15,105,428 15,199,664 Reserve Policy (50% of 12,802,150 - 13,685,388 13,395,728 budgeted expenditures) Excess Reserve 4,069,753 - 1,420,040 1,803,936 General Fund Revenue The Summary Schedules for General Fund Revenue are presented below. These revenue estimates are based on Staff and consultants' 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 FY 2017-18. Mid -Year Revenues Current Year vs. Prior Year 2 FY16-17 Mid -Year FY17-18 Mid -Year Variance $ Property Tax $ 5,295,640 $ 5,574,952 $ 279,312 Sales Tax 1,035,716 1,043,749 8,033 TOT UUT 2,884,345 880,983 2,891,640 928,281 7,295 47,298 Licenses and Permits 1,107,110 1,094,109 13,001 Other Revenue 815,573 981,079 165,506 Total Revenues $ 12,019,367 $ 12,513,810 $ 494,443 2 At mid -year, General Fund revenues are approximately $494,400 higher than at the same time, last fiscal year. Driven primarily by the increase in Property Tax and Other Revenue. Though revenues are tracking higher at this point in the year, revenues are currently estimated to end the year approximately $485,100 under budget as shown below. The year-end estimates were determined through Staff analysis, input from various departments, and City consultants. FY 2017-18 Budget vs. Projected Year-end Revenues Revenue Type M 6-17 Actual M 7-18 Budget M 7-18 Estimate Estimate vs. Budget Property Tax Sales Tax $12,345,821 2,462,448 $12,746,100 2,580,200 $12,770,541 2,580,200 $ 24,441 - Transient Occupancy Tax 5,600,866 6,040,000 5,816,000 (224,000) Utility User Taxes 1,775,433 1,871,100 1,856,562 14,538 Permits 3,044,614 2,321,100 2,136,987 184,113 Other Revenue 4,030,484 4,648,800 4,561,927 (86,873) Subtotal 29,259,666 30,207,300 29,722,217 (485,083) Transfers In 190,000 230,000 230,000 - Total Revenues $29,449,666 $30,437,300 $29,952,217 $ 485,083 Discussion and analysis regarding General Fund major revenues is presented below. Property Tax Staff is projecting a 0.2% or $24,400 increase in property tax revenue. This represents a 3.4% increase compared to the prior year. This is based on the recent analysis performed by City's property tax consultant. If actual property tax remittances exceeds year-end projections during the coming months, Staff will bring back updated at third- quarter review. Sales Tax Sales Tax is currently tracking at budget of $2.6 million. This represents an increase of 4.8% from the previous year. Strong showing from the food product sales category is the main driver for the projected increase in this revenue category. Transient Occupancy Tax (TOT) During the adoption of the FY17-18 budget, Staff built its TOT estimate on the most current industry information. Currently, based on the remittances collected through December, TOT is expected to end the year 3.7% or $224,000 under budget. Even with this decrease, TOT is still on track to end the year 3.8% higher than last year. Utility Users Tax (UUT) 9 Utility Users Tax is projected to come in 0.8% under budget or $14,500. However, UUT is expected to increase by 4.6% compared to last year. Most of this revenue type is driven by weather conditions, utility rates and consumption. This year, smaller gas remittances received through December is the primary reason for this revenue estimate falling below the budgeted amount. If gas remittance amounts pick up in the second half of the fiscal year, Staff will revise its year-end projection accordingly. Permit Revenue Permit revenue is estimated to come in under budget by 7.9% or $184,100. Although the number of permits issued and plan checks received was slightly higher than for the same period last year, the size and scope of the projects overall were smaller, resulting in lower overall revenues to the City. Based on information from the Community Development Department, the City is not expecting any substantial change in the scope of projects in the second half of this fiscal year to change the year-end estimates at this time. Other Revenue Other revenues are projected to come in under budget by 1.9% or $86,900. The items that make up this decrease include: Decline in citations issued and revenues collected at Del Cerro Park; possibly due to the change in parking signage. ($73,800). Decline in parking lot revenue at Ab Cove Park ($5,400). Nominal decline in other miscellaneous revenue items ($7,700). Revenue Summ Overall, revenues are expected to end the year slightly less than budget as illustrated in the table above. General Fund Expenditures The Summary Schedules for General Fund Expenditures are presented below. With the implementation of Munis, the City's new financial system, Staff now performs a monthly hard -close of the City's financials as well as recording accruals (expenditures being recorded based on when services are performed and/or materials delivered. Since this was not possible in the previous financial system, comparing mid -year expenditures to the prior period does not yield a valuable analysis this fiscal year but will next year and in future years. Therefore, expenditures compared to budget is the best indicator for performance at mid -year. The General Fund has nine (9) major operating expenditure categories: salaries, benefits, legal services, Sheriff's contract, professional/technical, maintenance/repairs, supplies/materials, trainings /conferences and miscellaneous expenses. Overall, the General Fund expenditures are currently estimated to end the year approximately $579,300 less than budget. Salaries and benefits are estimated to end the year approximately $903,200 under budget due to nine (9) unfilled vacancies in various City departments. Non -Personnel El costs (excluding legal services and Sheriff's contract), cumulatively are estimated to end the year under budget by approximately $206,100. Legal Services is projected to end the year $530,000 over budget. All year-end estimates provided in the chart below include actual expenses paid and accruals recognized through December. FY 2017-18 Budget vs. Projected Year-end Expenditures by Major Expenditure Categories Expenditure Categories Revised Budget Mid -year Actuals Year-end Estimates $ Variance to Budget Salaries Benefits $7,852,750 2,588,000 $4,239,022 1,726,214 $7,037,461 2,500,055 $815,289 87,945 Legal Services 925,000 758,092 1,455,000 530,000 Sheriff Contract 6,135,200 2,801,406 6,135,200 0 Professional/Technical 4,371,102 1,151,039 4,317,018 (54,084) Maintenance/Repairs 1,862,100 878,425 1,997,147 135,047 Supplies/Materials 1,147,514 354,512 1,038,149 109,365 Trainin s/Meetin s/Conferences 265,800 59,474 194,110 71,690 Misc. Expenses 2,223,310 571,540 2,117,316 (105,994) Operating Expenditures 27,370,776 12,539,724 26,791,456 (579,320) Transfers Out 4,813,500 2,406,750 4,813,500 0 Total General Fund Expenditures $32,184,276 $14,946,474 $31,604,956 $579,320 Salaries & Benefits Overall, expenditures are expected to end the year with a savings of approximately $903,200 this is attributed to vacancies in various department throughout the fiscal year. Below is a summary of the vacancies during the first half of the fiscal year: 1. Two (2) Senior Planners — savings of $195,100 in salaries and $22,000 in benefits. This is approximately for five (5) months of savings. Positions were filled in late December 2017. 2. Two (2) Associate Planners — savings of $125,300 in salaries and $25,300 in benefits. The savings are calculated based on approximately seven (7) months vacancy. Positions became vacant in late December 2017. 3. Director of Public Works — savings of approximately $45,000 in salaries and $9,000 in benefits. Position was filled in October of 2017. 4. Maintenance Supervisor — savings of $71,700 in salaries and $22,700 in benefits. 5. Two (2) Administrative Assistant — savings of $83,500 in salaries and $31,600 in benefits. 5 6. Two (2) Senior Engineer — savings of $110,800 in salaries and $27,400 in benefits. The savings are for unfilled positions for six (6) months. Positions were filled in January 2018. 7. Two (2) Associate Engineer — savings of $108,600 in salaries and $27,000 in benefits. Positions became vacant in January of 2018. 8. Deputy Director of Public Works - $66,000 in salaries and $25,900 in benefits. Position became vacant in January of 2018. Savings is calculated at 6 months of savings. 9. Maintenance Superintendent - $77,000 in salaries and $9,700 in benefits. The savings are calculated based on eight (8) months. Position became vacant in October of 2017. Salaries Benefits Total savings from vacancies $883,000 $200,600 Savings used for outside consultants to fill vacancies -67,800 -112,600 Revised Personnel Savings 815,200 88,000 Non -Personnel • Legal Services is expected to end the year at around $1.455 million or $530,000 over budget. • Professional/Technical Services is expected to end the year approximately $54,100 under budget. The savings are from professional contracts no longer needed at City Administration. • Maintenance and Repair Services is expected to end the year over budget by approximately $135,000 due to increase in emergency repairs and maintenance caused by the winter storm last year. • Supplies and Materials are expected to end the year approximately $109,300 under budget. Most of this decline is attributed to lower expected use in City-wide postage and printing as well as a decline in supply and material purchases in the Building Maintenance and Parks, Trails and Open Space Maintenance programs. • Training and Meetings are expected to end the year almost $71,700 under budget due to vacancies and increased workload, resulting in cancelling or postponing trainings. • Other miscellaneous non -personnel expenses is expected to end the year under budget by about $106,000. In total, the projected overrun in Legal Services and Maintenance and Repairs is offset with projected savings in salaries and benefits and non -personnel costs. Staff will Al • continue monitoring performance to budget and report any changes in year-end estimates at the third-quarter review. Year -End expenditures by Department Below is a chart showing General Fund expenditures by Department. A key indicator at mid -year is the % of budget spent. With 50% of the year concluded the General Fund has only expended 46.4% of budget. FY 2017-18 Budget vs. Projected Year-end Expenditures by Departments Department FY17-18 Current Budget Mid -Year Actuals %of Budget Spent Year -End Estimate $ $ Variance to Budget City Council $128,600 1 $69,969 54.4% $113,205 $15,395 City Attorney 925,000 758,092 82.0% $1,455,000 530,000 City Administration 3,703,113 1,974,796 53.3% 3,633,641 69,472 Finance 1,420,901 814,807 57.3% 1,442,652 21,751 Public Safety 8,002,624 3,026,893 37.8% 8,012,425 9,801 Public Works 5,521,766 2,252,425 40.8% 5,047,073 474,693 Community Development 3,682,792 1,576,817 42.8% 3,210,931 471,861 Recreation & Parks 2,722,970 1,457,816 53.5% 2,607,727 115,243 Non -Department 1,263,010 608,108 48.1% 1,268,802 5,792 Operating Expenditures 27,370,776 12,539,723 45.8% 26,791,456 (579,320) Transfer Out 4,813,500 2,406,750 50.0% 4,813,500 0 Total Expenditures $32,184,276 $14,946,473 46.4% $31,604,956 $579,320 Expenditure Summary The projected year-end expenditures are approximately $579,300 less than budget. A majority of the under -run is due to unfilled positions which is helping to offset the over run in the City Attorney and Maintenance and Repair categories. Staff will continue monitoring performance to budget and report any changes in year-end estimates at the third-quarter review. CONCLUSION Staff has reviewed all revenues and expenditures for mid -year FY 2017-18, with an emphasis on the General Fund to determine if all sources and uses are on target with the 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 $485,100 lower than budget. Expenditures are tracking approximately $579,300 below budget. Staff will recommend budget adjustments when the year-end estimates are updated at the close of the third-quarter. ALTERNATIVES: 7 In addition to the Staff recommendation, the following alternative action is available for the City Council's consideration: Discuss and take other action related to this item.