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ACCEPT THE FISCAL YEAR 2023-24 FIRST AND SECOND QUARTER BUDGET STATUS UPDATE AND AUTHORIZE BUDGET AMENDMENTS
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RECOMMENDATION
It is recommended that the City Council adopt a resolution to:
1. Accept this budget status report on the unaudited results through the second quarter of Fiscal Year (FY) 2023-24.
2. Authorize a budget amendment to increase expenditure appropriation by $363,979 from the Development Services Fund (220) balance to cover the Information Technology Internal Services Fund expense.
3. Authorize a budget amendment to increase expenditure appropriation by $110,508 from the Development Services Fund (220) balance and $208,727 from the Measure K Fund (250) balance to cover Indirect Costs.
4. Authorize a budget amendment of $145,000 in the Public Works Department to reflect a transfer of Measure K funds between two capital projects.
It is further recommended that the City Manager be authorized to take appropriate and necessary actions to carry out the purpose and intent of the resolution.
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Summary
City staff analyzes the City’s expenditures and revenues quarterly and provides reports to the City Council and the public to increase transparency, make financial recommendations in response to financial activities, and perform routine financial operations that require Council’s authority to complete.
At the end of the second quarter, it would be expected that actuals would be at around 50% of the budget, or halfway utilized. As of December 31, 2023, General Fund revenues are at approximately 25% of the anticipated budget. This is due to the timing of receipts. Tax remittances are usually remitted from the collection agencies to the City any time from 60 - 90 days after the period closes.
Expenditures are largely at 38% utilization, with $129.0 million of the $340.0 million General Fund budget being spent down. The main factors driving this level of underutilizations are salary savings from vacant positions and project expenditures not yet being fully allocated to the funding source - project expenditures for the year are usually fully allocated by the fourth quarter.
DISCUSSION
Background
One of the strategic initiatives developed to support the City’s long-term fiscal sustainability was to provide regular analysis and reporting of the City’s financial status. As a result, the Council and the public should anticipate quarterly reports. The mid-year quarters are not fully closed or audited, so it is expected that these numbers may change in future reports as departments reconcile their books and complete closing entries.
Present Situation
General Fund Revenues
The General Fund Revenues are detailed in Attachment B. Overall, Revenues are coming in at approximately 25% of revenues, which is generally consistent with previous second quarter results due to the timing of receipt of certain revenue streams.
General Tax Revenues make up 91% of the budgeted revenues in the General Fund. Staff expect that remittances from the collection agencies can take up to 90 days to post to the General Fund; as such, only first quarter sales tax revenues are reflected in this report. Taking this into consideration, the sales tax appears to be coming in slightly over budget, at 28.5% utilization. Property taxes are remitted to the City each year by San Joaquin County in January and April. Receipts for the first six months are about 1.7% of the annual estimate. These timing issues are normal and expected and will be adjusted by the fourth quarter report.
The other revenues are largely proceeding as expected or slightly lower due to anticipated market cooling and similar timing issues. These amounts generally do not contribute to the low utilization, as they make up only 9% of General Fund revenues. Overall, revenues are coming in as expected. After higher-than-expected revenues in the past several years, the City, under the advice of its tax consultants, is anticipating some cooling in tax revenue.
General Fund Expenditures
The General Fund Expenditures are detailed in Attachment A, with summary revenue amounts populated from Attachment B, for an estimated ending fund balance based on staff’s understanding of the City’s current fiscal climate. Expenditures are currently at 38% budget utilization; this is due to several factors.
Salary Savings Across the Board have resulted in mild-to-moderate savings in most program expenditures. Several departments continue to experience staff vacancies. At December 31, 2023, 1,450 out of 1,794 authorized positions had been filled Citywide, with 156 sworn and 59 civilian public safety positions vacant. The city has made comprehensive efforts to recruit and retain positions in a highly competitive environment, including expanding benefits and wellness efforts for employees. The City’s Office of Performance and Data Analytics is also collecting data and advising on data-driven solutions to hiring and retention.
Timing with Multi-Year Program and Capital Improvement Expenditures has resulted in those items being understated in the first and second quarters. Economic Development and Capital improvement lines both show underutilization due to new contracts that have not been fully spent down yet. For instance, approximately $2.0 million in budget in the economic development fund will be reprogrammed in a future period for use in the land acquisition and redevelopment fund. Likewise, Capital Improvement expenditures will not be allocated to the funding sources until year-end close, resulting in what appears to be only a 6% utilization. In addition, much of the Capital Improvement budget of approximately $41.8 million is reserved for future years’ expenditures.
Other Major Funds
Attachment C summarizes the FY 2023-24 unaudited second quarter ending results for other significant City funds. Funds are coming in at around 50% budget utilization, with some exceptions - such as Measure W tax revenue, which has understated revenue due to similar reasons to the General Fund taxes described above. Likewise, debt service transactions are not expended in any regular pattern but instead by the scheduled due dates to bondholders. In addition, other transactions have not yet been posted through the second quarter.
In most cases, the other funds all experienced revenue at or greater than expected and expenditures below what was expected budget - this is largely attributable to salary savings. No action is required to balance these funds currently.
FINANCIAL SUMMARY
This report provides an analysis of FY 2023-24 first and second quarter budget status results. The unaudited 6-month period review indicates General Fund revenue increases and expenditure savings are estimated to result in a year-end balance that can fully fund the Working Capital Reserve and mostly fund the Known Contingency Reserve.
Following are the budget amendments and transactions needed to complete the recommended actions:
1. Accept this budget status report on the unaudited results of the first and second quarter of FY 2023-24.
2. Increase FY 2023-24 expenditure appropriation in the Development Services Fund (220) by $363,979 from fund balance to cover the Information Technologies (IT) ISF calculated expenditure amount omitted in the FY 2023-24 Adopted Budget. This administrative budget amendment is necessary to reimburse the IT ISF for the service it provides to City Departments.
3. Increase FY 2023-24 expenditure appropriation in the Development Services Fund (220) by $110,508 from fund balance and in the Measure K Fund (250) by $208,727 from fund balance to cover the Indirect Costs expenditure amounts omitted in the FY 2023-24 Adopted Budget. This administrative budget amendment is necessary to reimburse the General Fund for indirect costs incurred by City Departments.
4. Authorize a budget amendment transferring $145,000 in Measure K funding from a traffic signal modification project to a lighted crosswalk upgrades project. Project No. WT15026 Lighted Crosswalk Upgrades will upgrade the existing pedestrian-actuated warning system in three locations. The three sites are on El Dorado Street, at the intersections of Main, Channel, and Lindsay Streets. The project was advertised for construction, and the construction bids received exceeded the available funding for the project. Staff is requesting to transfer $145,000 from project no. WT15029 Traffic Signal Modification to project no. WT15026 Lighted Crosswalk Upgrades to support construction for any unforeseen costs, risks, or scope changes that may impact the project's cost throughout the construction phase.
Attachment A - FY 2023-24 General Fund First and Second Quarter Budget Update
Attachment B - FY 2023-24 General Fund First and Second Quarter Revenues
Attachment C - FY 2023-24 First and Second Quarter for Other Major Funds