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CC SR 20220323 01 - FY2021-22 Midyear Financial Report CITY COUNCIL MEETING DATE: 03/23/2022 AGENDA REPORT AGENDA HEADING: Regular Business AGENDA TITLE: Consideration and possible action to receive and file the Fiscal Year 2021-22 Mid-Year Financial Report and year-end estimates. RECOMMENDED COUNCIL ACTION: 1) Receive and file the FY 2021-22 Mid-Year Financial Report and year-end estimates. FISCAL IMPACT: None Current Budget: Revenues: $30,075,700 Transfers In: $ 350,000 Expenditures: $28,680,921 Transfers Out: $ 3,278,000 ORIGINATED BY: Christopher Browning, Senior Administrative Analyst Vina Ramos, Deputy Director of Finance REVIEWED BY: Trang Nguyen, Director of Finance APPROVED BY: Ara Mihranian, AICP, City Manager ATTACHED SUPPORTING DOCUMENTS: A. None BACKGROUND: The financial report for the General Fund as of December 31, 2022 is presented tonight for the City Council. Overall, the mid-year report compares revenues and expenditures for the first six months of the fiscal year (July-December) relative to the same point in time last year. Based on the mid-year results, Staff also prepared an analysis to project the year-end estimates for FY 2021-22. On March 14, 2022, Staff presented the same report and analysis to the Finance Advisory Committee (FAC). At this meeting, FAC moved to receive and file the report as presented. Based on the first six months of the fiscal year, Staff estimates the fund balance for General Fund is almost $28.6 million, including transfers out. This is an increase of $4.3 million or 17.7% over the estimated ending fund balance from the revised budget. A fter 1 applying the City Council Reserve Policy of 50% of the operating budget, the estimated unrestricted excess reserve is $15.4 million, which is an increase of approximately $4.9 million or 46% of the estimated unrestricted excess reserve on June 30, 2022 . The revenues are estimated to end the year at approximately $2.9 million or 9% higher than budget. The expenditures are estimated to end the year about $1.4 million or 4% lower than budget. A detailed analysis highlighting the major changes will be presen ted in this report. DISCUSSION: General Fund Revenue During the first six months of the fiscal year, the General Fund received just under $15.6 million or 51% of budgeted revenue, approximately $1.9 million or 14% more than what was received at the same point last year, including transfers in. The largest contributing factor to this change is the increase in transient occupancy tax (TOT) revenue. A comparison of FY 2020-21 and FY 2021-22 General Fund revenues at mid-year, including transfers in, are presented in Table 1 below. Table 1: Mid-Year General Fund Revenues - Current Year vs. Prior Year Table 2 on the next page provides a view of the mid-year revenues by category, along with the total received compared to budget. Additionally, Chart 1 compares the General Fund’s mid-year of FY 2020-21 and FY 2021-22 by category. It should be noted that future economic activity, legislation, and policy decisions, and any other unfo reseen circumstances could affect the City's revenue streams for the remainder of FY 202 1-22. Property Tax $6,612,500 $7,002,600 $390,100 6% Transient Occupancy Tax 1,489,500 2,777,000 $1,287,500 86% Sales Tax 982,900 1,084,200 $101,300 10% Permits & Fees 1,020,200 1,422,200 $402,000 39% Franchise Tax 519,000 711,600 $192,600 37% Utility Users Tax 1,041,900 1,167,800 $125,900 12% Other Taxes & Misc. Revenues 1,870,900 1,246,900 ($624,000) -33% Subtotal 13,536,900 15,412,300 1,875,400 14% Transfers In 115,000 175,000 60,000 52% Total Revenues $13,651,900 $15,587,300 $1,935,400 14% Revenue Type FY 2020-21 Mid-Year FY 2021-22 Mid-Year Variance 2 Table 2: FY 2021-22 Mid-Year Revenue Status Chart 1: Mid-Year General Fund Revenues - Budget vs. Mid-Year As more data has become available, Staff has prepared updated year-end revenue projections to reflect new trends and analysis. Revenue was initially budgeted to reach $30.4 million by the end of the year, including transfers in. Staff now projects revenue of Property Tax $14,960,300 $7,002,600 47% Transient Occupancy Tax 3,978,400 2,777,000 70% Sales Tax 2,163,400 1,084,200 50% Permits & Fees 2,083,100 1,422,200 68% Franchise Tax 2,150,000 711,600 33% Utility Users Tax 1,915,000 1,167,800 61% Other Taxes & Misc. Revenues 2,825,500 1,246,900 44% Subtotal 30,075,700 15,412,300 51% Transfers In 350,000 175,000 50% Total Revenues $30,425,700 $15,587,300 51% Revenue Type FY 2021-22 Budget FY 2021-22 Mid-Year % Received 3 $33.3 million, an increase of $2.9 million or 9%. The bulk of this increase to projections comes from property tax, TOT, and permits & fees revenue, as shown in Table 3. Table 3: FY 21-22 Budget vs. Projected Year-end Revenues Staff has provided a detailed discussion and analysis of the General Fund’s major revenues sources below. Property Tax As of the end of the second quarter, the total property tax revenue received reached $7 million, outpacing FY 2020-21 by $390,100 or 6%. Revenue is estimated to end the year at $16.1 million, an increase of roughly $1.1 million or 7% over the budgeted amount of $15 million. During the preparation of the FY 2021-22 budget during early 2021, revenue estimates were created using slightly more conservatives forecasts due to the ever- changing economic conditions caused by the pandemic. However, over the course of the year, property tax revenue data has shown that this revenue source has not only avoided any negative effects, but has also experienced consistent growth. Transient Occupancy Tax (TOT) At the end of the second quarter, the City has received just under $2.8 million in TOT revenue, 86% more than the $1.5 million received at this point last fiscal year. TOT was one of the revenue sources hit the hardest by the economic downturn caused by the pandemic dropping $1.7 million or 31% from $5.4 million during FY 2018-19 to $3.8 million in FY 2019-20. Revenue fell an additional $800,000 or 20% during FY 2020 -21 to just under $3 million. However, TOT revenue is showing strong signs of recovery this fiscal year. At mid-year, the City has received 70% of the $4 million budgeted at the start of the Property Tax $14,960,300 $7,002,600 $16,062,200 $1,101,900 7% Transient Occupancy Tax 3,978,400 2,777,000 4,955,300 976,900 25% Sales Tax 2,163,400 1,084,200 2,363,400 200,000 9% Permits & Fees 2,083,100 1,422,200 2,582,700 499,600 24% Franchise Tax 2,150,000 711,600 2,150,000 0 0% Utility Users Tax 1,915,000 1,167,800 2,025,000 110,000 6% Other Taxes & Misc. Revenues 2,825,500 1,246,900 2,807,500 (18,000) -1% Subtotal 30,075,700 15,412,300 32,946,100 2,870,400 10% Transfers In 350,000 175,000 350,000 0 0% Total Revenues $30,425,700 $15,587,300 $33,296,100 $2,870,400 9% Revenue Type FY 2021-22 Budget FY 2021-22 Mid-Year FY 2021-22 YE Estimates Variance 4 fiscal year. Because of the strong performance at this point in the y ear and indications that it will continue throughout the remainder of the fiscal year, Staff estimated TOT to end the year just under $5 million, a $1 million or 25% increase to budget. Sales Tax Sales tax revenue has experienced a modest increase from this same point in time last fiscal year. As of the end of the second quarter, revenue has reached just under $1.1 million, a $101,000 or 10% increase over the $1 million received at this same point in time last year. Through December, the City has received 50% of the $2.2 million budgeted at the start of the fiscal year. Staff estimates sales tax to end the year approximately $2.4 million, a $200,000 or 9% increase to budget based on new analysis conducted by staff and projections received from the City’s sales tax consultant HdL. Permits and Fees Revenue is up over $400,000 or 39% when compared to this same point in time last fiscal year. The City has received $1.4 million through FY 2021-22 mid-year compared to $1 million last year. This revenue amount represents 68% of the amount budgeted at the start of the year. There has been a steady upward trend in permits & fees revenues after the decline experienced during FY 2019-20. Staff estimates that revenue will climb even higher than expected which will likely end the year at about $2.6 million, a $500,000 or 24% increase to budget. This increase is due in part to the update to the City’s Master Fee Schedule that went in to effect on July 1, 2021. Franchise Tax Franchise tax is levied on the providers of utility, refuse, and cable services in exchange for using the City’s rights-of-way. As of the second quarter, the City has received $712,000 in revenue, $193,000 or 37% more than the $519,000 received at this same point last fiscal year. This variance is primarily due to the timing of payments received. At this time Staff do not anticipate any material changes to the budgeted amount of $2.2 million. Utility Users Tax (UUT) At mid-year, the City has received just under $1.2 million in UUT revenue, $126,000 or 12% more than the $1 million received at this same point last fiscal year. UUT revenue experienced very little negative impact from the pandemic overall. This revenue source is driven primarily by weather conditions, utility rates, and consumption. At midyear, the City has received 61% of the $1.9 million in budgeted revenue. Staff estimates to end the year just over $2 million, an increase of $110,000 or 6% to budget. Staff will continue to monitor revenue trends for the remainder of the fiscal year and modify the year -end estimate, if necessary, during our third quarter review. Other Taxes and Miscellaneous Revenue 5 This revenue category is comprised of over 20 unique revenue sources, the largest being business license tax, golf tax, interest earnings, and rentals/leases. This is a revenue source that can be challenging to predict due to the wide variety of sources in this category and may include a one-time revenue stream. This revenue category has reached just over $1.2 million at mid-year, 33% or $624,000 less than this same period last fiscal year. The majority of this variance is the result of the one-time Coronavirus Relief Fund of $515,000 from the state. These funds were used to offset costs associated with the City’s response to the pandemic and covered expenses such as personnel costs, cleaning supplies, plexiglass barriers, and additional cleaning and sanitation throughout the City. Overall Staff is only making a slight change to the budget of $2.8 million, decreasing projections by $18,000 or 1%. Summary of General Fund Revenues At the mid-year point of FY 2021-22, the General Fund has received just under $15.6 million in revenue, approximately $1.9 million or 14% more than what was received at this same point last fiscal year. Staff’s estimate for year-end total revenue is $33.3 million, a $2.9 million or 9% increase over the original revenue budget of $30.4 million. Staff will continue to monitor revenues throughout the third quarter and will provide any revisions, if necessary, in the preliminary budget. General Fund Expenditures As of December 31, 2021, the total for the General Fund expenditures is approximately $12.9 million or 40% of total budget, including transfers out. Compared to the same period last year, total expenditures are higher by $349,700 million or 3%. The net increase amount is a combination of the following: ➢ Increase in personnel costs due to re-opening of parks and increase from employee benefit rates such as health premiums and CalPERS annual unfunded liability payment. ➢ Timing of disbursements mainly invoices from the Los Angeles County Sheriff 's Department. ➢ Increase in professional and technical supplies, repairs, and in accordance with the FY 2021-22 anticipated budget activities. ➢ Increase in transfers-out to Capital Infrastructure Program Fund (CIP) based on adopted budget. Personnel Costs At the end of the second quarter, salaries ended at approximately $3.6 million or 41% of the FY 2021-22 revised budget. Compared to the prior year, this category is approximately $51,300 or 1% higher. The variance is in line with the budget in FY 2021- 22, mainly due to the re-opening of City parks and facilities. The benefits ended at approximately $1.2 million or 35% of the FY 2021-22 revised budget. Compared to the prior year, as anticipated, the benefits are about $201,300 or 6 22% higher due to the new rates for health benefits and increased payment for the CalPERS annual unfunded liability payment. Non-Personnel Costs At the end of the second quarter, the non-personnel category ended at approximately $6.5 million or 39% of the FY 2021-22 revised budget. This category includes legal services, the Sheriff’s Department contract, repairs and maintenance, professional and technical, supplies, training and conferences, and miscellaneous expenses. Overall, non - personnel costs decreased by about $353,500 or 5% compared to the same period as last year. This change is a combination of delayed timing of disbursements and offset by increased activities mainly in professional technical services and maintenance services. Transfers-Out This category accounts for the General Fund transfers to CIP, Subregion One, and the Portuguese Bend Improvement Authority for a total of $1.2 million. At the end of the second quarter, transfers-out is $1.6 million or 50% of the FY 2021-22 revised budget. Compared to the prior year, transfers out increased by $450,500 or 38%, mainly due to an increase in transfers from TOT based on projected revenues and budgeted transfers for the Employee Pension Service Fund. In summary, Table 4 below provides a view of the mid-year expenditures by category, along with the total spent to budget. Additionally, Chart 2 compares the General Fund’s second quarter of FY 2020-21 and FY 2021-22 by category. Table 4: FY 2021-22 General Fund Status Report – Expenditures by Category Expenditure Type FY 2020-21 Mid-year FY 2021-22 Mid-year Salaries 3,511,664$ 3,562,978$ 51,314$ 1% Benefits 1,047,445 1,248,756 201,311 19% Legal Services 478,790 430,085 (48,705) -10% Sheriff Contract 3,524,646 2,879,410 (645,236) -18% Supplies 168,374 217,743 49,369 29% Professional/Technical 813,597 1,164,050 350,453 43% Repairs and Maintenance 1,175,714 1,184,434 8,720 1% Training/Conference 57,333 94,070 36,737 64% Misc. Expense 586,839 482,041 (104,798) -18% Subtotal 11,364,402 11,263,567 (100,835) -1% Transfers Out 1,188,500 1,639,000 450,500 38% Total Expenditures 12,552,902$ 12,902,567$ 349,665$ 3% Variance 7 Chart 2: Mid-Year General Fund Expenditures – Revised Budget vs. Mid-Year Year-End Outlook for Expenditures As illustrated in Table 5, overall, at the end of the second quarter, the General Fund is trending to end the year lower than estimated by $1.4 million or 4.5% over FY 2021-22 revised budget, after transfers out. Similar to the same process as the previous years, Staff recommends continuing to monitor the third quarter expenses and submit any proposed budget adjustments, if needed, in the preliminary budget report. 8 Table 5: Second Quarter General Fund Expenditures: Year-End Estimates The following highlights the expenditure year-end assumptions. Personnel Costs As illustrated in Table 5, the salaries, and benefits accounts for $12 million or 38% of the total revised budget, including transfers. At the end of the second quarter, Staff projects to end the year at approximately $10.3 million or 14% lower than the revised budget. The savings of $1.7 million are primarily from vacant positions and partially from the park and facility closures in the first half of the fiscal year. The following are a summary of the savings of approximately $1,738,900: ➢ Administration estimated savings of $145,800: • Vacant - Deputy City Clerk • Portion of the salaries were allocated in Emergency Operations Center based on tasks related to the COVID-19 pandemic ➢ Community Development Department estimated savings of $641,800: • Vacant - Building Official • Vacant - Permit Technician • Vacant – GIS Coordinator • Vacant – Associate Planner • Vacant – Assistant Planner ➢ Finance Department estimated saving of $52,500 • Savings from lower salary rate and benefits Expenditure Type FY 2021-22 Revised Budget FY 2021-22 Mid-year FY 2021-22 YE Estimates Salaries 8,652,400$ 3,562,978$ 7,284,500$ (1,367,900)$ -16% Benefits 3,377,800 1,248,756 3,006,800 (371,000)$ -11% Legal Services 940,000 430,085$ 933,100 (6,900)$ -1% Sheriff Contract 7,150,200 2,879,410$ 7,150,200 -$ 0% Supplies 605,586 217,743$ 611,586 6,000$ 1% Professional/Technical 3,357,671 1,164,050$ 2,870,589 (487,082)$ -15% Repairs and Maintenance 2,698,174 1,184,434$ 2,676,259 (21,915)$ -1% Training/Conference 346,405 94,070$ 268,119 (78,286)$ -23% Misc. Expense 1,552,685 482,041$ 1,479,985 (72,700)$ -5% Subtotal 28,680,921 11,263,567$ 26,281,138 (2,399,783)$ -8.4% Transfers Out 3,278,000 1,639,000$ 4,253,300 975,300$ 30% Total Expenditures 31,958,921$ 12,902,567$ 30,534,438$ (1,424,483)$ -4.5% Variance 9 ➢ Public Works Department estimated savings of $793,700: • Vacant – Deputy Director • Vacant – 2 Associate Engineers • Vacant – Senior Engineer • Vacant – Permit Technician ➢ Recreation and Parks estimated savings of $ 307,000: • Vacant - Recreation Supervisor I • Vacant - Park Ranger • Vacant – part-time positions from various parks and facilities • Savings from part-time salaries from partial park and facility closures • Portion of the salaries were allocated in Emergency Operations Center based on tasks related to the COVID-19 pandemic Moreover, the savings above were offset by approximately $202,000, a combination of vacation buyout, funding for part-time salaries that are needed to temporarily fill the vacancies, and temporary help utilizing professional and technical services. Non-Personnel Costs Non-personnel accounts for $16.7 million or 58% of the total revised budget, excluding transfers. At the end of second quarter, Staff projects to end the year at approximately $16 million or 4% under than the revised budgeted. The estimated year-end savings of approximately $661,000 is a combination of the following: • Overall reduced activities due to the closures of city facilities and parks earlier in the fiscal year. • Savings from training and conference. • Change in completion schedule for budgeted projects due to Citywide vacancies. • Ending the year lower than expected in traffic management and fuel modification programs. • City’s ongoing effort to save when possible. Transfers-Out Transfers-out to CIP and other funds accounts for $3.3 million or 11% of the total revised budget. At the end of the year, Staff projects the transfers out at $4.3 million, an increase of $975,300 or 38% over the revised budget. This amount is based on the anticipated increase in revenues in TOT minus the cumulative public safety increases. The remaining transfers out of $725,000 are estimated to end the year as budgeted. These transfers are: • $640,000 for the Employee Service Pension Fund in the amount, • $55,000 for Improvement Authority Portuguese Bend, and • $30,000 for the Subregion One Maintenance Fund . 10 FY 2021-22 General Fund – Fund Balance Overall, as shown in Table 6 on the next page, Staff estimates the fund balance for the General Fund on June 30, 2022 to be almost $28.6 million, including transfers out. The estimated fund balance is projected to increase by $4.3 million or 17.7% from the revised budget. After applying the City Council Reserve Policy of 50% of the operating budget, the estimated unrestricted excess reserve is $15.4 million, which is an increase of approximately $4.9 million or 46% from the revised budget. Table 6: FY 2021-22 General Fund – Fund Balance Summary ADDITIONAL INFORMATION: FY 2021-22 City Council Goals and Action Plan During the FY 2021-22 Budget Workshop, the City Council appropriated a budget of $315,000 to support five City Council Goals and Action Plan. As illustrated in Table 7 on the next page, to date, the City has spent over $116,000 or 37% of the $315,00 budget. Of this amount, $57,800 was for the completion of the SWOT Analysis and $58,400 for the six City Sponsored Events. Due to limited resources in the Public Works Department, the following City Council Goals have not started: • Utility Resilient Advancement Master Plan • Alternative Energy Resources • Arterial Fences and Walls Master Plan - the project will be included in the FY 2022-23 CIP and to be led by the Community Development Department General Fund FY 2021-22 Revised Budget FY 2021-22 Year-End Estimates Beginning Fund Balance - 7/1/2021 25,798,773 25,798,773 Add: Revenues 30,075,700 32,946,100 2,870,400 10% Add: Transfers-In 350,000 350,000 - 0% Total Revenues 30,425,700 33,296,100 2,870,400 9% Less: Expenditures (28,680,921) (26,281,138) (2,399,783)-8% Less: Transfers to CIP (2,553,000) (3,528,300) 975,300 38% Less: Transfers to Pension (640,000) (640,000) - 0% Less: Other Transfers-Out (85,000) (85,000) - 0% Total Expenditures (31,958,921) (30,534,438) (1,424,483)-4% Unaudited Ending Fund Balance - 6/30/2022 24,265,552 28,560,435 4,294,883 17.7% 50% Reserve Policy 13,709,200 13,140,569 (568,631) -4% Unrestricted Excess/(Deficit) Reserve - 06/30/22 10,556,352 15,419,866 4,863,514 46% FY 2021-22 Variances 11 Table 7: FY 2021-22 Project Status Update (City Council Goals) CONCLUSION: Staff has reviewed all revenues and expenditures at mid-year for FY 2021-22, with an emphasis on the General Fund, to determine if the current budget is on target with the actuals at mid-year and the year-end estimates. At the close of the first six months of the fiscal year, Staff projects General Fund revenues at $33.3 million, an increase of $2.9 million or 9% from the revised budget, including transfers. The largest contributor to the increased revenues is the City’s Property Tax with an estimated increase of $1.1 million over the revised budget. Additionally, TOT revenues are estimated to have a strong year- end, with an estimated increase of almost $1 million. For expenditures, Staff estimates expenditures to end the year at $30.5 million, after transfers. Compared to the FY 2021- 22 revised budget, the expenditures are ending the year lower by $1.4 million or 4%. The Department Goal Goal Description Amount Status Community Development SWOT Analysis Develop a SWOT analysis of commercial properties along Western Avenue to identify economic development opportunities to enhance retail establishments and create mixed-use projects. $50,000 The report for this goal is complete. The total cost was $57,800. Staff anticipates presenting final documents to the City Council and Planning Commission in conjunction with the Housing Element public hearings in the Spring. Recreation and Parks City Sponsored Events Host five City sponsored events or activities at the Civic Center throughout the fiscal year. $75,000 The City hosted six events at the Civic Center for a total of $58,400. In July and August, there were two movies and two concerts in the Park for a total of approximately $21,000. In October, the Trunk or Treat event cost was about $3,500. And in December, the City had the first annual Skating by the Sea and tree lighting event. The cost for this event was approximately $75,700. However, the City collected over $19,200 in ice skating fees and over $22,600 in donation so the next impact Public Works Utility Resilient Advancement Master Plan In coordination with SCE, develop a Utility Resilient Advancement Master Plan to harden above-ground utility lines including a tentative timeline to potentially underground utilities; and continue to lobby the California Public Utilities Commission to modify the requirements for Rule 20A undergrounding funds to include high fire risk areas. $100,000 Project has not started due to staff vacancies. Public Works Alternative Energy Resources Identify alternative energy resources with the capability to store energy or sell it back to the grid system, which could power the City. The first phase is to identify potential alternative energy and the cost associated with this plan. $50,000 Project has not started due to staff vacancies. Public Works Arterial Fences and Walls Master Plan Develop an Arterial Fences and Walls Master Plan for the City Council’s consideration that retains neighborhood identity and describes the type (material and height) of fence or wall, if any, to be placed along major arterial streets in the City. $40,000 Project has not started due to staff vacancies. TOTAL $315,000 12 majority of the expenditures ending lower than budgeted are from unfilled vacant positions and for services that are not projected to start by year-end due to Citywide vacancies. Therefore, as a result of the strong recovery of revenues and ending the year with lower expenditures than estimated, the fund balance for General Fund is almost $28.6 million, an increase of $4.3 million or 17.7% over the revised budget. After applying the City Council Reserve Policy of 50% of the operating budget, the estimated unrestricted excess reserve for General Fund on June 30, 2022, would be $15.4 million, an increase of approximately $4.9 million or 46% over the revised budget. In closing, similar to the same process as the previous years, Staff recommends continuing to monitor the revenues and expenses and submit any proposed budget adjustments, if needed, in the preliminary budget report in May 2022. 13