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CC SR 20250304 F - FY 2024-25 Midyear Report CITY COUNCIL MEETING DATE: 03/04/2025 AGENDA REPORT AGENDA HEADING: Consent Calendar AGENDA TITLE: Consideration and possible action regarding the Fiscal Year 2024-25 Mid-Year Financial Report for General Fund. RECOMMENDED COUNCIL ACTION: (1) Receive and file the FY 2024-25 Mid-Year Quarter Financial Report for the General Fund. FISCAL IMPACT: N/A Adopted Budget: Revenues: $39,454,300 Transfers In: $ 250,000 Expenditures: $35,777,150 Transfers Out: $ 4,147,500 Transfers Out: $ 2,468,150 (Prior Year’s General Fund Unallocated Fund Balance) Revised Budget: Revenues: $42,454,300 Transfers In: $ 250,000 Expenditures: $37,735,892 Transfers Out: $ 4,147,500 Transfers Out: $ 2,468,150 (Prior Year’s General Fund Unallocated Fund Balance) VR ORIGINATED BY: Robert Moya, Deputy Director of Finance RM REVIEWED BY: Vina Ramos, Director of Finance VR APPROVED BY: Ara Mihranian, AICP, City Manager ATTACHED SUPPORTING DOCUMENTS: None BACKGROUND: As part of the regular quarterly financial reporting on general City operations, the mid- year report for the General Fund, as of December 31, 2024, is presented to the City 1 Council, providing a comparison of revenues and expenditures for the first six months of the fiscal year (July-December 2024) relative to the same period last year. As of December 31, 2024, the total revenues have reached $22.2 million, representing 52% of the revised budget of $42.7 million. Expenditures totaled $20.9 million, or 47.1% of the revised budget and infrastructure-related Transfers-Out. The change in revenues from the adopted budget of $39.9 million to $42.7 million is from the $2.8 million of the one-time $5 million grant received from Los Angeles County Supervisor Hahn’s Social Program Grant. Accordingly, the expenditures will also increase to meet the grant requirements of allocating the $2.8 million for the $10,000 grant for the approximately 280 property owners affected by the landslide. The remaining $2.2 million is recorded in the Capital Infrastructure Program (CIP) fund allocated for the emergency response and mitigation efforts for the Portuguese Bend Landslide Complex. Overall, General Fund revenues and expenditures are progressing as expected based on the current operating activities. Staff will continue to monitor operational activities and provide an update at the City Council’s budget workshop in April for the third quarter. Further details and changes in all categories are provided below. DISCUSSION: 1. Fiscal Year 2024-25 Mid-Year Financial Report General Fund Revenues Overview The City received over $22.2 million in General Fund revenues through the mid -year of FY 2024-25, including transfers. As of December 2024, total revenues have increased by $3.3 million, or 17.7% (Table 1), compared to the same period in FY 2023-24. Table 1: Mid-Year General Fund Revenues – Current Year vs. Prior Year Revenue Source FY 2023-24 Mid-Year Actuals FY 2024-25 Mid-Year Actuals Property Tax 7,601,706$ 7,917,435 315,729$ 4.2% Transit Occupancy Tax 3,290,606 3,423,811 133,205 4.0% Sales Tax 1,479,678 1,345,155 (134,523) -9.1% Permit & Fees 1,675,974 1,696,210 20,236 1.2% Franchise Tax 654,233 673,291 19,058 2.9% Utility Users Tax 1,358,125 1,572,508 214,383 15.8% Other Taxes & Misc. Revenues 2,674,073 5,460,236 2,786,163 104.2% Subtotal 18,734,395 22,088,646 3,354,251 17.9% Transfers In 135,000 125,000 (10,000) -7.4% Total Revenues 18,869,395$ 22,213,646$ 3,344,251$ 17.7% Variance 2 Additionally, Table 2 below details the percentage of revenues received through the mid- year. As of December 2024, the $22.2 million received accounts for 52% of the $42.7 million in revised revenues, indicating that collections are progressing as expected at the mid-year mark. Table 2: FY 2024-25 Mid-Year Revenue Status As shown above, the annual change in mid -year revenues is impacted by the performance of each revenue source. In certain cases, the timing of when revenues are received influences mid-year results, in addition to changes in economic activity and price fluctuations throughout the year. Overall, some sources are exceeding expectations while others remain subject to timing variances. Further insights into the specific variances for each revenue category are described in greater detail below. Property Tax Property tax revenues total $7.9 million, accounting for 45.1% of the revised budget of $17.6 million. This represents a 4.2% increase compared to mid -year FY 2023-24, when property tax revenues totaled $7.6 million. Secured property taxes, the largest component, have reached $4.5 million (41.9%) of their $10.7 million revised budget, reflecting a year-over-year increase of $315,729. Property taxes in lieu of vehicle license fees (VLF) stand at $3.2 million (50.5%) of the $6.4 million revised budget. This revenue replaces the Vehicle License Fee that was reduced by the state, providing local governments with an equivalent share of property tax revenue to maintain funding levels. As a result, this allocation helps ensure a stable revenue stream for essential municipal services such as public safety, road maintenance, and community programs. Additionally, property transfer taxes, which are tied to real estate transactions, have generated $211,699 (52.9%) of the $400,000 revised budget. Compared to mid-year FY 2023-24, overall property tax collections have increased, primarily due to growth in secured property taxes and property taxes in lieu of VLF. Property transfer tax revenues remain relatively stable year-over-year, reflecting steady real estate activity. Secured property tax revenue collections remain on schedule, with Revenue Source FY 2024-25 Revised Budget FY 2024-25 Mid-Year Actuals % of Budget Received Property Tax 17,545,000$ 7,917,435$ 45.1% Transit Occupancy Tax 6,580,000 3,423,811 52.0% Sales Tax 2,850,000 1,345,155 47.2% Permit & Fees 4,091,500 1,696,210 41.5% Franchise Tax 2,250,000 673,291 29.9% Utility Users Tax 2,545,000 1,572,508 61.8% Other Taxes & Misc. Revenues 6,592,800 5,460,236 82.8% Subtotal 42,454,300 22,088,646 52.0% Transfers In 250,000 125,000 50.0% Total Revenues 42,704,300$ 22,213,646$ 52.0% 3 the majority of receipts typically received in December and June, resulting in a lower percentage of collections at mid-year. The increase in property transfer taxes suggests stable real estate activity, though potential fluctuations in the housing market may impact future collections. Potential impacts to property taxes for homes in landslide area and the Voluntary Buyout Program has not be realized at this time. The impact is expected to materialize approximately two years after the buyout is completed. Property tax collections are progressing as expected, with a year-over-year increase and over 45% of the budget realized. No budget adjustments are recommended at this time. Staff will continue to monitor property tax receipts closely to ensure revenues ali gn with projections and will provide updates as necessary. Transient Occupancy Tax (TOT) TOT revenues have reached $3.4 million (52.0%) of the revised $6.6 million budget. Terranea Resort continues to be the primary contributor, generating $3.4 million (52%) of its $6.4 million allocation. Meanwhile, miscellaneous TOT sources (short-term rental for villas at Terranea and Best Value Inn ) have added $28,651 (19.1%) of the $150,000 budget. While mid-year revenues are trending higher than the same period last year, it is important to note that in 2024, mid-year revenues for the miscellaneous TOT totaled $23,161, but the year ultimately ended at $84,048 —significantly lower than the original appropriation of $227,900. This fiscal year, the budget was lowered to $150,000. Staff continues to work with Terranea and Hotel Aqua Mar (also known as Americas Best Value Inn Rancho Palos Verdes, located at 29601 South Western Aven ue) to track the miscellaneous TOT revenue source and provide an update during the third quarter report in April. Year-over-year, TOT revenues have continued to stabilize, reflecting sustained demand in the hospitality sector. Despite concerns regarding the landslide near Terranea, at this time, there continues to be no material impact on occupancy rates or revenue collections. The resort continues to perform well, maintaining strong room rates and steady visitor traffic. At 52% of the budget collected at mid-year, TOT revenues are on track to meet or exceed year-end projections. No budget adjustments are recommended at this time. Updates will be provided at the April budget workshop to ensure fiscal alignment with budget expectations. Sales Tax Sales tax revenues total $1.3 million (47.2%) of the revised $2.9 million budget. General sales tax accounts for $1.3 million (47.1%) of its $2.8 million budget, while Public Safety Augmentation Fund (PSAF) revenues total $49,600, reaching 49.6% of the $100,000 budget. The Public Safety Augmentation Fund (PSAF) is the Proposition 172 fund specified for the receipt of half cent State sales tax for local public safety services. Year-over-year, sales tax revenues have declined by $134,523 (-9.1%) compared to mid- year FY 2023-24, reflecting a slowdown in consumer spending and stabilization of taxable 4 goods prices. The previous fiscal year saw higher collections as spending patterns adjusted post-pandemic, contributing to a stronger tax base. Despite a slight year-over-year decline from 51.8% to 47.2% at mid-year, sales tax revenues remain on pace with budget expectations and are trending as anticipated at this point in the year. No budget adjustments are recommended at this time. Staff will continue to monitor this closely and provide an update during the April budget workshop, making any necessary adjustments, if needed. Permits and Fees Permits and Fees revenues total $1.7 million, representing 41.5% of the revised $4.1 million budget. Building and safety permits remain the largest contributor, generating $919,520, or 47.2% of its $2 million budget. Plan check permits have reached $271,930, accounting for 54.4% of the $500,000 budget. Year-over-year, total revenues in this category have increased slightly by $20,236 (1.2%), suggesting steady permitting activity despite earlier declines in the first quarter. However, some individual permit categories, such as building and safety permits, remain below prior-year levels, reflecting a potential slowdown in construction and development activity. Business license tax collections are notably low at $115,532, or 13.6% of the $850,000 budget. This is expected as the majority of the taxes are collected in February. Staff anticipates this revenue source to meet projections by the end of third quarter. At 41.5% of the budget collected at mid -year, permit and fee revenues are generally tracking as expected, with no immediate budget adjustments recommended. Permit activities are typically higher in the third quarter and fourth quarter. Staff will continue to monitor this revenue source closely, particularly considering ongoing development trends, and provide updates at the April budget workshop. Franchise Tax Franchise taxes are levied on utility, refuse, and cable service providers in exchange for the use of the City's public rights-of-way. As of mid-year, franchise tax revenues total $673,291, representing 29.9% of the revised $2.3 million budget, closely aligning with last year’s mid-year collection of 29.7%. Year-over-year, franchise tax revenues have increased by $19,058 (2.9%) compared to mid-year FY 2023-24, reflecting steady demand for utility and service-related activities within the City. Revenue collections remain consistent with historical trends, with the bulk of receipts typically received in the second half of the fiscal year. While this category is notably below the 50% mark, revenues have historically been collected later in the year. In 2024, despite a similar mid -year trend, final collections reached 99% of the allocation, indicating that revenues are progressing as expected with no adjustments recommended at this time. Utility Users Tax (UUT) 5 UUT revenues are influenced by weather conditions, utility consumption rates, and the prices of electricity, gas, and water. As of mid-year, UUT revenues total $1.6 million (61.8%) of the revised $2.6 million budget. Electricity UUT collections lead the category, generating $776,757 (62.1%) of the $1.2 million budget. Water UUT revenues stand at $652,554 (75.9%) of the $860,000 budget, while gas UUT collections total $143,197 (32.9%) of the $435,000 budget. Year-over-year, UUT revenues have increased by $214,383 (15.8%), driven by higher electricity and water usage, likely influenced by seasonal demand and pricing adjustments. Gas-related UUT collections remain lower than other categories, but overall, mid-year revenues are exceeding historical averages. However, utility shutoffs for over 270 properties in the landslide-affected area may impact future UUT revenues, particularly in electricity, gas, and water usage. Due to billing cycles, the full extent of this impact will be reported in the third and fourth quarters of the financial reports. At this time, gas-related UUT collections are already reflecting the effects of these disruptions, with mid-year revenues declining approximately $7,000 year-over-year. This early decrease suggests that the financial impact of the utility shutoffs is materializing, particularly in gas usage. At 61.8% of the budget realized at mid-year, UUT revenues are performing ahead of expectations, with no adjustments recommended at this time. Other Taxes and Miscellaneous Revenue Revenues in this category total $5.5 million, representing 82.8% of the revised $6.7 million budget. This reflects a significant year-over-year increase of $2.8 million (104.2%) compared to mid-year FY 2023-24, when revenues totaled $2.7 million. This substantial variance is primarily attributed to the $5.0 million grant from Los Angeles County Supervisor Hahn’s Social Program Grant, awarded earlier in the fiscal year to assist with landslide-related impacts in the Portuguese Bend area. Of this amo unt, $2.8 million is allocated to the Financial Assistance Grant Program, providing relief to homeowners affected by land movement and utility disruptions, while the remaining $2.2 million is recorded in the CIP Fund, supporting the City’s stabilization efforts, public safety measures, and long-term mitigation planning. Excluding this one-time grant, mid-year revenues in this category total approximately $2.7 million, which is more in line with prior-year trends. Key revenue sources such as golf taxes, rental and lease income, and interest earnings continue to contribute significantly to collections. However, certain revenue streams, including administrative overhead reimbursements and program/event fees, remain below expected levels. Interest earnings continue to be a strong performer, totaling $730,684 at mid -year, exceeding prior-year levels due to higher interest rates and improved investment performance. A fair value adjustment to the City's investments has resulted in an unrealized gain of $982,000, reflecting compliance with Governmental Accounting Standards Board (GASB) requirements. 6 With the inclusion of the one-time grant and investment adjustments, mid-year revenues account for 82.8% of the revised budget. However, when excluding these factors, revenues represent approximately 48% of budgeted expectations . Based on the information presented, at this time, no budget adjustments are recommended. Updates will be provided as needed should additional one-time revenues be received or if revenue deviates significantly from projections. General Fund Expenditures As of December 31, 2024, the total General Fund expenditures were approximately $20.9 million. Compared to the same period last year, the mid -year actuals increased by $3 million (16.9%). Table 3 provides a comparison of mid-year expenditures for FY 2024-25 and FY 2023-24, highlighting overall spending trends and key changes. Table 3: Annual Percent Change – Mid-Year 2024 vs Mid-Year 2025 Table 4 below provides the General Fund expenditures representing 47.1% of the total revised budget FY 2024-25 at mid-year. The increase from the $39.9 million adopted budget to the $44.4 million revised budget is primarily due to the Los Angeles County Supervisor Hahn Social Grant program , purchase order carryovers from the prior year, and additional appropriations for legal and public safety costs related to landslide response efforts. continued on next page Expenditure Type FY 2023-24 Mid-Year Actuals FY 2024-25 Mid-Year Actuals Salaries 3,836,549$ 4,741,066$ 904,517$ 23.6% Benefits 1,550,198 1,717,645$ 167,447$ 10.8% Sheriff Contract 3,808,875 3,969,364$ 160,489$ 4.2% Legal Services 553,735 632,553$ 78,818$ 14.2% Supplies 267,116 243,480$ (23,636)$ -8.8% Professional and Technical 1,808,915 1,610,591$ (198,324)$ -11.0% Repairs 1,283,286 1,496,005$ 212,719$ 16.6% Training and Conference 71,751 95,158$ 23,407$ 32.6% Capital 213 32,378$ 32,165$ 100.0% Misc. Expense 1,238,526 3,064,915$ 1,826,389$ 147.5% Subtotal 14,419,164 17,603,155 3,183,991 22.1% Transfers-Out 3,463,800 3,307,825$ (155,975)$ -4.5% Grand Total 17,882,964 20,910,980 3,028,016 16.9% Variance 7 Table 4: FY 2024-25 Mid-Year Expenditures Status Further details on the specific variances for each revenue category are provided in the following sections. Personnel Costs In total, mid-year personnel costs reached approximately $6.5 million, an increase of approximately $1.1 million (20%), compared to last year. This category consists of salaries and benefits for all full-time, part-time, elected officials, commissioners, and temporary employees. At the end of mid-year, salaries totaled approximately $4.7 million (43.5%) of the FY 2024- 25 revised budget. This represents an increase of $904,517 (23.6%), compared to the same period last year. The increase aligns with continued hiring efforts to fill citywide vacancies, along with agreed-upon cost-of-living adjustments and merit-based performance evaluations for all full-time and part-time employees. Next, benefits at mid-year totaled approximately $1.7 million (47.7%) of the revised budget, representing approximately $167,447 increase (10.8%), compared to the prior year. The increase is primarily due to new rates for health benefits and the City's annual payment for CalPERS unfunded liability, in accordance with employee agreements. Expenditure Type FY 2024-25 Adopted Budget FY 2024-25 Revised Budget* FY 2024-25 Mid-Year Actuals % Expenditures Salaries 11,029,500 10,910,500 4,741,066 43.5% Benefits 3,601,100 3,601,100 1,717,645 47.7% Sheriff Contract 8,171,600 8,171,600 3,969,364 48.6% Legal Services 965,000 1,465,000 632,553 43.2% Supplies 725,000 735,838 243,480 33.1% Professional & Technical 4,679,500 5,690,664 1,610,591 28.3% Repairs 4,307,000 4,822,600 1,496,005 31.0% Training & Conference 439,750 442,889 95,158 21.5% Capital 78,000 113,000 32,378 28.7% Misc. Expense 1,780,700 1,782,700 3,064,915 171.9% Subtotal 35,777,150 37,735,892 17,603,155 49.2% Transfers-Out 4,147,500 6,615,650 3,307,825 50.0% Grand Total $39,924,650 $44,351,542 $20,910,980 47.1% *FY 2024-25 Revised Budget includes PO Carryover from FY 2023-24 8 Non-Personnel Costs At the end of mid-year, non-personnel expenditures totaled approximately $11.1 million (37%) of the FY 2024-25 revised budget. This category includes legal services, the Sheriff’s Department contract, repairs and maintenance, professional and technical services, capital expenditures, supplies, and miscellaneous expenses. Miscellaneous expenses include equipment replacement charges, grant disbursement, tax assessments from the Abalone Cove Landslide Hazard Abatement District (ACLAD) and Klondike Canyon Landslide Abatement District (KCLAD), and general liability insurance premiums. Overall, non-personnel costs increased by approximately $2.1 million (23.8%), compared to the same period last year. Key contributing factors include: • Sheriff’s Contract Costs accounted for $4.0 million in expenditures, reflecting an increase of $160,489 (10.8%) mainly from the standard rate adjustments for public safety services. • Legal Services rose by $78,818 (14.2%), in response to ongoing litigation and landslide related legal services. • Repair & Maintenance Services increased by about $212,719 (16.6%), driven by citywide landscaping services, emergency infrastructure repairs, and debris removal. • Miscellaneous Expense category accounted for $3.1 million and experienced a significant increase of $1.8 million from the prior year. This increase was from expenditures related to the Los Angeles County Supervisor Hahn Social Grant program, which the City disbursed approximately $2.1 million to 211 property owners impacted by land movement and utility shutoffs. Each eligible property owner received $10,000. Additionally, tax assessments for ACLAD and KCLAD increased by approximately $490,000 from the prior year. Mid-year trends indicate that non-personnel costs are expected to remain within the revised budget for FY 2024-25, with fluctuations primarily attributed to new programs, ongoing maintenance, and contractual labor and service agreements. With the exception of the landslide expenditures, this year’s budget includes approximately $500,000 of additional appropriations for legal and $500,000 in public safety services for the Portuguese Bend Landslide Complex emergency response . At the end of December, the total invoices paid for legal invoices are approximately $84,000. For public safety, the expenditures are lower than anticipated due to overtime being eligible for other funding sources. For example, the Los Angeles County Sheriff’s Department is temporarily billing the State for overtime hours spent to secure the landslide areas, as those hours are eligible under the State’s emergency declaration. Staff continues to track these expenditures and will provide an update to the City Council to request any necessary adjustments during the City Council budget workshop in April. Transfers-Out At the end of mid-year, Transfers-Out totaled approximately $3.3 million (50%) of the FY 2024-25 revised budget. This category includes General Fund transfers to the CIP Fund, 9 the Employee Service Pension Fund, Habitat Restoration, Abalone Cove Sewer, and Subregion One Maintenance Fund. Overall, Transfers-Out decreased by approximately $156,000 (-4.5%), compared to the same period last year, primarily due to additional transfers to the CIP Fund approved by the City Council based on prior year’s operating favorable variance. Hence, the decrease is consistent with the adopted budget and reflects planned allocations to support citywide initiatives and infrastructure needs. Key transfers include: • Approximately $3.0 million for the CIP Fund, supporting infrastructure maintenance and capital projects. • $200,000 transferred to the Employee Service Pension Fund, in accordance with pension guidelines, to mitigate the rising costs of unfunded actuarial liability. • $75,000 allocated for Habitat Restoration, ensuring compliance with the Preserve Management Agreement between the City and the Palos Verdes Peninsula Land Conservancy for habitat and trail maintenance. • $35,000 transferred to the Abalone Cove Sewer Fund, supporting operational and maintenance needs. • $30,000 for Subregion One Maintenance, covering annual maintenance costs and endowment requirements. Mid-year trends indicate Transfers-Out are projected to remain within budget for FY 2024- 25, with allocations aligning with anticipated funding requirements and citywide financial planning efforts. Looking ahead, this category is expected to increase by approximately $6.4 million in the third quarter, based on the City Council’s approval to use the General Fund’s unallocated fund balance to support the ongoing emergency response and mitigation efforts for the Portuguese Bend Landslide Complex. This amount is estimated to be transferred to the CIP Fund by the end of third quarter. CONCLUSION: At mid-year, General Fund revenues totaled $22.2 million (52.0%) of the revised budget, reflecting a $3.3 million (17.7%) increase compared to the same period last year. This growth is largely attributed to Other Taxes and Miscellaneous Revenues, primarily driven by the $5.0 million landslide grant received in the first quarter. While certain revenue sources, such as Sales Tax, have slightly declined, Property Tax, Utility Users Tax, and Transient Occupancy Tax continue to perform steadily, keeping overall collections on track with budget expectations. On the expenditure side, General Fund spending reached $20.9 million (47.1%) of the FY 2024-25 revised budget, marking a 16.9% increase from the prior year, as expected based on projected operational activities for the year. Personnel costs totaled $6.5 million, with increases in salaries and benefits aligning with continued hiring efforts for vacancies and agreed-upon labor agreements. Non-personnel costs have risen by $2.1 million 10 (23.8%), primarily due to payments disbursed related to the financial assistance through grants, increased tax assessments, and scheduled repairs and maintenance. Additionally, Transfers-Out totaled $3.3 million (50%), supporting the CIP Fund and setting aside funding for pension obligations. Despite some expenditure fluctuations, the City’s overall General Fund position remains stable, with revenues and expenditures generally aligning with budget expectations. The major change that will be reported in the third quarter financial report is the City Council’s approval of $6.4 million from the General Fund’s unallocated fund balance to support the ongoing landslide emergency response and mitigation efforts. These funds will reflect in the third quarter financials as transfers out to the CIP Fund and will be reported at the April City Council budget workshop. Staff seeks City Council approval to receive and file the General Fund’s FY 2024-25 mid- year report. ALTERNATIVES: In addition to the Staff recommendation, the following alternative action is available for the City Council’s consideration: 1. Take other action, as deemed appropriate. 11