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CC SR 20240418 01 - Midyear Report CITY COUNCIL MEETING DATE: 04/18/2024 AGENDA REPORT AGENDA HEADING: Regular Business AGENDA TITLE: Consideration and possible action to receive the Fiscal Year (FY) 2023-24 Mid-Year Financial Report and year-end estimates. RECOMMENDED COUNCIL ACTION: 1) Receive and file the FY 2023-24 Mid-Year Financial Report and year-end estimates. FISCAL IMPACT: N/A Current Budget: Revenues: $38,524,800 Transfers In: $ 270,000 Expenditures: $34,378,400 Transfers Out: $ 5,746,800 ORIGINATED BY: Jason Loya, Senior Administrative Analyst REVIEWED BY: Vina Ramos, Director of Finance VR APPROVED BY: Ara Mihranian, AICP, City Manager ATTACHED SUPPORTING DOCUMENTS: A. None BACKGROUND: The mid-year financial report for the General Fund as of December 31, 2023, is presented tonight for the City Council. This report compares revenues and expenditures for the first six months of the fiscal year (July-December 2023) relative to the same point in time last year. Additionally, Staff examines the mid-year results to develop the projected year-end estimates for FY 2023-24 also presented this evening under a separate staff report. As of December, Staff estimates the General Fund's fund balance to be nearly $34.5 million, including transfers out. This marks an increase of almost $1.4 million or 4% over the estimated ending balance from the revised budget. Applying the City Council Reserve Policy, the estimated unrestricted fund balance stands at $16.7 million, up approximately $1.5 million or 10% from June 30, 2023. 1 General Fund revenues are projected to exceed the revised budget by approximately $66,000 million, or 0.2%, while expenditures are estimated to be approximately $1.1 million, or 3%, lower than budgeted. A summary of the details is provided in the Discussion below. DISCUSSION: General Fund Revenue Overview – Revenues The General Fund has received nearly $18.9 million, amounting to approximately 50% of budgeted revenues through mid-year FY 2023-24, including transfers. Compared annually, total General Fund revenues increased by close to $0.8 million, or 4%, for the month ending December. Table 1 presents an overview of annual changes for each major revenue source between FY 2022-23 and FY 2023-24. Table 1: Annual Percent Change – Dec. 2022 vs Dec. 2023 Analysis – Revenues Table 2 on the following page highlights the percentage of revenues received through mid-year relative to the FY 2023-24 revised budget. While cash inflows vary by month due to the timing of disbursements, the overall proportion of revenues received aligns with historical trends. Nevertheless, ongoing economic activity, legislation, policy changes, and unforeseen circumstances may impact current projections and will be monitored by Staff. CONTINUED NEXT PAGE FY 2022-23 FY 2023-24 Revenue Source Mid-Year Actuals Mid-Year Actuals Property Tax 7,241,635$ 7,601,706$ 360,071$ 5% Transient Occupancy Tax 3,627,478 3,290,606$ (336,873) -9% Sales Tax 1,531,135 1,479,678$ (51,457) -3% Permits & Fees 1,750,406 1,675,974$ (74,432) -4% Franchise Tax 671,911 654,233$ (17,678) -3% Utility Users Tax 1,369,522 1,358,125$ (11,397) -1% Other Taxes & Misc. Revenues 1,762,646 2,674,073$ 911,427 52% Subtotal 17,954,734 18,734,396 779,662 4% Transfers In 150,000 135,000 (15,000) -10% Total Revenues $ 18,104,734 $ 18,869,396 $ 764,662 4% Annual Percent Change 2 Table 2: FY 2023-24 Mid-Year Revenues Received Chart 1 compares monthly cumulative totals for the FY 2023-24 mid-year report, showing revenues exceeding the budget by roughly $50,000, or 0.1%. Projections from January through June are on track to surpass the revised budget but are likely to fall short of the prior year actuals. Revenues in FY 2022-23 were the highest on record, however, the rate of revenue growth has slowed down due to the recent trend of disinflation. Overall, General Fund revenues are currently estimated to reach $38.8 million by year-end. Chart 1: Monthly Cumulative GF Revenue Comparison Revenue Source Revised Budget Mid-Year Actuals % Received Property Tax 17,149,500$ 7,601,706$ 44% Transient Occupancy Tax 6,927,900 3,290,606 47% Sales Tax 2,855,800 1,479,678 52% Permits & Fees 3,171,500 1,675,974 53% Franchise Tax 2,200,000 654,233 30% Utility Users Tax 2,482,200 1,358,125 55% Other Taxes & Misc. Revenues 3,737,900 2,674,073 72% Subtotal 38,524,800 18,734,396 49% Transfers In 270,000 135,000 50% Total Revenues $ 38,794,800 $ 18,869,396 49% FY 2023-24 3 Table 3 summarizes the major General Fund revenue sources. Year-end estimates, based on current assumptions, will undergo review in the remaining fiscal months, with any material changes presented to the City Council in June. Key highlights for major revenue sources follow below. Table 3: FY 2023-24 Revised Budget vs. Year-End Estimate Property Tax: Mid-year property tax revenues hit $7.6 million, up slightly by $360,000, or 5%, from last December. FY 2023-24 year-end revenues are projected slightly below budget by roughly $17,000, or 0.1% based on notable decreases in property transfer taxes. Staff will continue to monitor key revenues and report any material changes. Transient Occupancy Tax (TOT): revenues at mid-year reached $3.3 million, with about 99% generated by Terranea Resort. Total TOT revenues are down by $0.3 million or 9% compared to December 2022. Occupancy rates have declined leading to reduced revenues because of the decrease in consumer demand. Following back -to-back years of the highest TOT revenues on record, year-end expectations shifted to account for this decline. To date, year-end total TOT revenues are estimated at $6.5 million, coming in below last year’s budget by $0.4 million, or 5.8%, and adjust to the current trend. Sales and Use Tax: Sales tax revenues totaled nearly $1.5 million, down $51,000, or 3%, over December 2022. Sale tax receipts have declined statewide according to the latest reports, illustrating the impact of sustained higher prices on consumers. Revenue assumptions were adjusted to align with industry trends, leading to year-end estimates of $2.8 million, a decrease from the revised budget by roughly $28,000, or 1%. Permits and Fees: Permits and fees revenues amounted to nearly $1.7 million by December, down by $74,000, or 23%, compared to the prior year. FY 2023-24 year-end Revenue Source Revised Budget Mid-Year Actuals Year-End Estimates Property Tax 17,149,500$ 7,601,706$ 17,132,100$ (17,400)$ -0.1% Transient Occupancy Tax 6,927,900 3,290,606 6,525,000 (402,900) -5.8% Sales Tax 2,855,800 1,479,678 2,828,000 (27,800) -1.0% Permits & Fees 3,171,500 1,675,974 3,197,400 25,900 0.8% Franchise Tax 2,200,000 654,233 2,200,000 - 0.0% Utility Users Tax 2,482,200 1,358,125 2,585,000 102,800 4.1% Other Taxes & Misc. Revenues 3,737,900 2,674,073 4,110,000 372,100 10.0% Subtotal 38,524,800 18,734,396 38,577,500 52,700 0.1% Transfers In 270,000 135,000 270,000 - 0.0% Total Revenues $ 38,794,800 $ 18,869,396 $ 38,847,500 $ 52,700 0.1% FY 2023-24 Variance to YE Estimate 4 estimates anticipate a rise of about $26,000, or 0.8%, above the revised budget. Revenues in this category are contingent upon permit activities in the Community Development department and will be monitored as the year-end approaches. Franchise Tax: Franchise tax revenues totaled just over $650,000, down $39,689, or 3% compared to FY 2022-23 at mid-year. Despite the slight decrease through December, Staff expects year-end revenues to meet budgeted amounts. Utility Users Tax (UUT): UUT revenue rose to just under $1.4 million, down $11,000 or 1% compared to December 2022. This revenue source is volatile and dependent on changes to consumption rates as well as weather. Year-end expectations account for the latest trends and are slightly above budget at just over $2.6 million, up $103,000 or 4%. Other Taxes and Miscellaneous Revenue: Other revenue totaled approximately $2.6 million, rising by $0.9 million, or 52% through December. Growth in this revenue source is supported by strong interest earnings, stable golf taxes, and increases in rental/lease revenues. Year-end projections rise above budget to $4 million, an increase of $372,000. General Fund Expenditures Overview – Expenditures As of December 31, 2023, General Fund expenditures are approximately $17.9 million or 45% of the total budget, including transfers out. Compared to the same period last year, total expenditures rose by about $0.8 million, or 4%. The major increases are summarized below. Analysis – Expenditures Personnel Costs At the end of the second quarter, salaries totaled approximately $3.8 million, or 40% of the FY 2023-24 revised budget. Compared to the prior year, this category is approximately $228,000, or 6% higher. The variance aligns with the revised budget, primarily due to vacant positions in Public Works, Community Development, and Recreation and Parks that have been filled, along with cost-of-living adjustments in accordance with the City’s labor employee agreements. Next, benefits costs at mid-year came in at approximately $1.6 million, or 41%, of the FY 2023-24 revised budget. As anticipated, benefits are about $48,000, or 3% higher due to the new rates for health benefits and an increase in payment for CalPERS’ annual unfunded liability payment. Incorporating the midyear data, Staff projects total personnel costs to end the year at approximately $13 million. Total costs are roughly $0.2 million, or 2%, lower than the revised budget, primarily from vacant positions that resulted in unspent salaries and benefits. This amount is a net of the projected year-end salaries minus vacation buyout 5 from employees that separated from the City, employee incentive awards, and estimated amount needed for temporary help utilizing professional and technical services. Additionally, the year-end projection accounts for the fiscal impact of approximately $520,000 from the newly formed American Federation of State, County and Municipal Employees District Council 36 (AFSCME DC36), and the organizational changes resulting from the Classification and Compensation Study. The purpose of the newly established MOU and the study is to address the workforce compensation based on the level and scope of work performed by Staff, internal eq uity, and ensuring that the City’s workforce maintains a competitive edge by recruiting and retaining qualified employees. The following is a status update of vacant positions: • Administration: • Deputy City Manager – vacant since November 2023 • Deputy City Clerk – vacant in July 2022; filled in January 2024 • Human Resources Manager – vacant since September 2023 • Internship Program – vacant; estimated to start in May 2024 • Administrative Analyst – vacant in January 2024 • Community Development Department: • Director of Community Development – vacant in July 2023; filled in September 2023 • Permit Technician – vacant February 2024; estimated to be filled in April 2024 • Code Enforcement – vacant in October 2023; filled in January 2024 • Associate Planner – vacant • Finance Department: • Deputy Director – vacant in November 2023; to be filled in May 2024 • Accounting Technician – vacant in March 2024 • Public Works Department: • Deputy Director – filled in December 2023 • Senior Engineer (2 positions) – one vacant; one filled in November 2023 • Associate Engineer (2 positions) – filled in October and December 2023 • Administrative Assistant – filled in July 2023 • Principal Engineer (2) – vacant • Assistant Engineer – vacant • Recreation and Parks: • Various part-time Recreation Leader positions in the Recreation and Parks Department – vacant 6 Non-Personnel Costs Through December 2023, the non-personnel category ended at approximately $9 million, or 43%, of the FY 2023-24 revised budget. This category includes legal services, the Los Angele Sheriff’s Department (LASD) contract, repairs, and maintenance, professional and technical, supplies, training and conferences, and miscellaneous expenses. Overall, non-personnel costs increased by approximately $0.3 million, or 4%, compared to the same period last year. While some costs were lower than anticipated, the net increase is attributed to the key areas highlighted below. • A total increase of nearly $0.6 million, or 48%, in professional and technical services. This includes year-over-year increases in recruitment activities and consultant services to support services such as Public Works inspections and plan check reviews in the Community Development Department. • The LASD contract costs for rose by approximately $0.3 million, or 7%, over the prior year based on the increased rates for public safety services. As noted in last year’s General Fund budget workshop, the increase included current Cost of Living Adjustments (COLA) and COLAs from prior years. • An increase of roughly $0.3 million, or 28%, in repairs and maintenance expenditures. Major costs include citywide landscaping services and fuel modification, in addition to emergency storm drain repairs and debris removal in response to the winter storms this past February. In summary, non-personnel expenditures are estimated to end the year at $20.2 million, a decrease of about $0.9 million, or 4%, compared to the revised budget. Additional details regarding the variances between year-end estimates and the FY 2023-24 revised budget are illustrated in table 5 of this report. Transfers-Out This category accounts for General Fund transfers to the Capital Infrastructure Program (CIP), Subregion One, Habitat Restoration, Abalone Cover Sewer, and the Portuguese Bend Improvement Authority funds, for a year-end estimated total of $4.3 million in FY 2023-24. The transfers out for Sub-region One and the Improvement Authority are intended to cover annual maintenance charges and to maintain endowment requirements. Additional transfers out to the Habitat Restoration and Abalone Cove Sewer funds are also needed to maintain adequate reserves and support operations. Through the second quarter, transfers out were $2.9 million or 63% of the revised budget. Compared to the prior year, transfers out increased by $0.2 million or 8%. The increase is attributed to Transfers-Out to the CIP Fund based on projected revenues from TOT. Transfers-Out to CIP and other funds account for $5.7 million or 14% of the total revised budget. At the end of the year, Staff projects the transfers out at $5.5 million, a decrease of $0.2 million, or 4%, below the revised budget. Of this amount, $4.1 million of Transfers - Out to CIP is based on the anticipated decrease in revenues in TOT minus the cumulative public safety increases. The remaining Transfers-Out are estimated to end the year as budgeted except for the Habitat Restoration Fund. A transfer from the General Fund will 7 be necessary to ensure compliance with the Preserve Management Agreement between the City and the Palos Verdes Peninsula Land Conservancy for habitat and trail maintenance. In total, these transfers-out include: • $889,500 for the CIP as additional transfers to supplement the annual loan payment for the Ladera Linda Community Park; • $291,300 for the Employee Service Pension Fund in accordance with the Pension Guidelines to help mitigate the rising costs of unfunded actuarial liability; • $15,000 for Improvement Authority Portuguese Bend; • $60,000 for the Subregion One Maintenance Fund; • $70,000 for Abalone Cover Sewer; and • $100,000 for the Habitat Restoration Fund Overall, Table 4 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 2022-23 and FY 2023-24 by category. Table 4: Annual Percent Change – Dec. 2022 vs Dec. 2023 FY 2022-23 FY 2023-24 Expenditure Type Mid-Year Actuals Mid-Year Actuals Salaries 3,608,279 3,836,549 228,269 6% Benefits 1,501,953 1,550,198 48,245 3% Sheriff's Contract 3,548,646 3,808,875 260,229 7% Legal Services 460,239 553,735 93,495 20% Supplies 222,743 267,116 44,373 20% Professional and Technical 1,218,656 1,808,915 590,259 48% Repairs and Maintenance 1,006,187 1,283,286 277,099 28% Training/Conference 124,824 71,751 -53,073 -43% Capital Outlay 1,061,394 213 -1,061,181 -100% Equipment Replacement Charges 146,100 123,450 -22,650 -16% General Liabilities Insurance 351,521 427,064 75,544 21% Utilities 365,806 361,856 -3,950 -1% Other 203,945 326,156 122,211 60% Subtotal 13,820,293 14,419,166 598,872 4% Transfers-Out 2,649,700 2,873,400 223,700 8% Total Expenditures 16,469,993 17,292,566 822,572 5% Transfers-Out to CIP (Ladera Linda)444,750 444,750 0 0% Transfers-Out to Pension 200,000 145,650 -54,350 -27% Total Expenditures (after prior year surplus transfers per CC's policy)17,114,743 17,882,966 768,222 4% Annual Percent Change 8 Chart 2: Mid-Year General Fund Expenditures – Revised Budget vs. Mid-Year As illustrated in Table 5 below, General Fund expenditures are trending to end the year lower than estimated by $1.3 million, or 3%, over the FY 2023-24 revised budget, including transfers. Similar to the same process as the previous years, Staff will continue to monitor the third quarter expenses and submit any proposed budget adjustments, if needed, in the preliminary budget report. Table 5: FY 2023-24 Revised Budget vs. Year-End Estimate FY 2023-24 Expenditure Type Revised Budget Mid-Year Actuals Year-End Estimates Salaries 9,474,300 3,836,549 9,408,476 -65,824 -1% Benefits 3,740,000 1,550,198 3,605,413 -134,587 -4% Sheriff Contract 7,872,000 3,808,875 7,742,750 -129,250 -2% Legal Services 950,000 553,735 950,000 0 0% Repairs/Maint 3,733,007 1,283,286 3,519,092 -213,915 -6% Supplies 696,312 267,116 671,100 -25,212 -4% Training/Conference/Meetings 302,443 71,751 230,963 -71,480 -24% Capital Outlay 61,000 213 7,000 -54,000 -89% Utilities 995,800 361,856 856,300 -139,500 General Liabilities Premium 675,000 427,064 700,000 25,000 4% Equipment Replacement Savings 246,900 123,450 246,900 0 0% Professional/Tech 4,969,438 1,808,915 4,675,260 -294,178 -6% Misc. 662,200 326,156 633,970 -28,230 -4% Subtotal 34,378,400 14,419,166 33,247,224 -1,131,176 -3% Transfers-Out 4,566,000 2,873,400 4,366,000 -200,000 -4% Total Expenditures 38,944,400 17,292,566 37,613,224 -1,331,176 -3% Transfers-Out to CIP (Ladera Linda)889,500 444,750 889,500 0 0% Transfers-Out to Pension 291,300 145,650 291,300 0 0% Total Expenditures (after prior year surplus transfers per CC's policy)40,125,200 17,882,966 38,794,024 -1,331,176 -3% Variance to YE Estimates 9 FY 2023-24 General Fund – Fund Balance Overall, as shown in Table 6 below, Staff estimates the fund balance for the General Fund on June 30, 2024 to be almost $34.5 million, including transfers out. The estimated fund balance is projected to increase by almost $1.4 million or 4% from the revised budget. After applying the City Council Reserve Policy of 50% of the operating budget, the estimated unrestricted excess reserve is $16.7 million, which is an increase of approximately $1.5 million or 10% compared to the revised budget. Table 6: FY 2023-24 General Fund – Fund Balance Summary CONCLUSION: Staff has assessed FY 2023-24 revenues and expenditures, focusing on the General Fund’s alignment with current budget projections. At mid-year, General Fund revenues are projected to reach $38.8 million, up 0.1% from the revised budget, primarily due to the stable but slowing trend in revenue growth . Year-end expenditures are estimated at $37.6 million, illustrated by notable transfers out to the CIP and pension funds, increases from the new labor agreement with AFSCME and class and compensation study, and offset by unspent salaries and benefits created by vacant positions. Given these year- end projections, the General Fund balance is expected to grow to $34.5 million, exceeding the revised budget by $1.4 million, or 4%. These figures resulted in an unallocated fund balance of $16.7 million, up by $1.5 million, or 10%, based on current estimates. Staff recommends ongoing monitoring and will present potential budget adjustments, if any, at the June 2024 preliminary budget meeting. General Fund FY 2023-24 Revised Budget FY 2023-24 Year-End Estimates Beginning Fund Balance 33,260,494 33,260,494 - 0% Add: Revenues 38,511,800 38,577,500 65,700 0.2% Add: Transfers-In 270,000 270,000 - 0.0% Total Revenues 38,781,800 38,847,500 65,700 0.2% Less: Expenditures (34,378,400) (33,247,200) (1,131,200)-3.3% Less: Transfers to CIP (TOT) (4,421,000) (4,121,000) (300,000)-7% Less: Other Transfers-Out (145,000) (245,000) 100,000 69% Total Expenditures (38,944,400) (37,613,200) (1,331,200) -3% Projected Ending Fund Balance 06/30/2024 33,097,894 34,494,794 1,396,900 4% City Council Restricted Fund Balance Less: Additional Transfers - CIP Ladera (PY Surplus) (889,500) (889,500) - 0.0% Less: Transfers to Pension (PY Surplus) (291,300) (291,300) - 0.0% 50% Reserve Policy (16,756,750) (16,623,600) 133,150 -0.8% Projected Unallocated Fund Balance - 06/30/24 15,160,344 16,690,394 1,530,050 10% Increase/(Decrease) from Revised Budget 10