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ACCEPT FISCAL YEAR 2024-25 FIRST 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 of the first quarter of Fiscal Year (FY) 2024-25.
2. Approve two budget amendments and associated transfers in the General Fund Citywide Revenue and the Fire Department Truck 7 Restoration Project.
It is 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 reviewed the financial results for the first quarter of Fiscal Year (FY) 2024-25. That review indicates General Fund revenues are within budgeted levels and expenditures are slightly under budget. General Fund revenues totaled $31.8 million in the first quarter, and expenses totaled $70.5 million. Staffing levels in the first quarter were lower than the level anticipated in the budget resulting in expenditure savings. Overall, first quarter expenditures of $70.5 million were at 18% of the budget and are projected to end the year within the total adjusted annual expenditure budget of $390.2 million.
Staff reviewed all other City funds to determine significant budget variances. Budget adjustments are needed in the General Fund Property Rentals revenue and the Fire Department.
DISCUSSION
Background
Regular analysis and reporting of the City’s financial status supports the City Council’s strategic goal of Fiscal Sustainability and is a key component to maintaining a fiscally healthy organization.
Council adopted the FY 2024-25 annual city-wide budget of $955.7 million on June 18, 2024. The adopted General Fund expenditure budget was $328.3 million of the total City budget.
Present Situation
General Fund Budget Status Update
Attachment A presents the revised annual General Fund budget with actual revenues and expenditures for the first three months of the current fiscal year. The first three months of revenue and expenditure transactions do not typically provide enough information to draw precise conclusions and judgments regarding year-end outcomes. Consequently, this report does not include a revised Long-Range Financial Plan (L-RFP) projection or a year-end projection. Subsequent quarterly reports will include updated year-end projections.
The City does not receive General Fund tax revenues in a regular monthly pattern, evidenced by first quarter revenues being less than 25% of annual budgeted revenues. The timing of monthly expenses is more evenly distributed. Still, the General Fund includes some budgeted items paid in large lump sums that cause variances when reviewed quarterly. The information below is based on an analysis of the trends in the first few months of available data. Staff continues to monitor revenue collections and expenditure trends in all categories against the annual budget, the L-RFP, and department projections.
Budget Adjustments
Throughout the fiscal year, the City Council can authorize adjustments to the budget. Attachment A summarizes the Adopted Budget, adjustments made in the first quarter, and the resulting Approved Budget of the General Fund.
Below are the details of those approved changes.
Adopted General Fund Expenditure Budget $328.28 million
Encumbrance/Contract Rollover +8.65 million
Capital Rollover +24.99 million
Approved Carryover +3.09 million
Approved Funding for Projects +25.22 million
Total Revised Expenditure Budget $390.2 million
The first adjustment is the encumbrance and contract rollover from the prior fiscal year. The City uses encumbrance accounting to avoid exceeding the budget by earmarking appropriations for expenses before paying for products or services. On a budgetary basis, encumbrances are reported as a reduction to available appropriations in the fiscal year they are committed, even if not paid for by year-end. At the end of FY 2023-24, the General Fund had $8.65 million encumbered for approved purchases not yet received or paid for during the fiscal year. The appropriations related to those encumbrances are re-appropriated in the FY 2024-25 budget.
Capital budgets continue on until the associated project is complete. The General Fund is the funding source for $24.99 million in ongoing capital projects, including special projects designated by Council last year. The unspent funds from FY 2023-24 have been added back to the General Fund budget for FY 2024-25.
The Approved Carryover of $3.09 million is related to projects and priorities from the prior fiscal year that were not yet encumbered. These continuations were approved by Council in October and December 2024.
The approved FY 2023-24 Funding for Projects of $25.22 million in year-end funds is related to projects approved with the year end budget report on Resolution 2024-12-03-1504 and on Resolution 2024-11-19-1503 to address the impact of health care premiums.
The adopted budget plus subsequent Council-approved budget amendments increased the total budget to $390.2 million. In the adopted budget, expenditures exceeded revenues by $7.8 million. With the budget revisions, expenditures now exceed the revenues by $69.8 million, of which $62.0 million is covered by prior year fund balance restrictions. The projected ending balance with the revised expenditure budget is $50.8 million. The City’s target ending available balance at 16.7% of the adopted budget is $54.8 million.
Revenues
First quarter revenue collections for significant General Fund categories (sales tax, property tax, utility users tax, franchise fees, business license tax, hotel/motel tax, and program revenues) were in line with the amounts received in the same period in prior years. General Fund revenues of $31.8 million were 10% of budget.
Most revenue categories are below a 25% pro-rated monthly collection rate because the receipt of funds is seasonal. For example, San Joaquin County remits the majority of property tax revenue to the City in December and May, in line with the December 10 and April 10 due dates for property owners to pay annual taxes. Thus, the City received $1.08 million in the first three months of the year of an expected $77.9 million for Property Tax.
Each major category has different collection schedules, and the City receives almost all the larger revenue sources in the later months of the fiscal year.
Sales tax revenue received from the State in the first quarter is primarily revenues related to the prior fiscal year and are appropriately accrued to the prior year. Thus, only July 2024 sales tax revenues were posted as of September 30, 2024. The City does not accrue its sales tax revenue quarterly. Statewide, the City’s sales tax consultant is projecting low growth for the first two quarters of FY 2024-25 and low or stagnant growth for the last two quarters. The FY 2024-25 budget for sales tax revenues is $726,366 less than actual receipts in FY 2023-24. It is expected that FY 2024-25 sales tax revenues will end the year close to or slightly below the prior year receipts.
Receipts from Program Revenues were $3.5 million or 18% of the budget as of September 30, 2024. This category includes Fire District Contracts, Code Enforcement fees, License & Permits, Fines, Sale of Fixed Assets, and other charges for services.
Interfund reimbursements consist of billings to outside agencies, indirect cost recovery, and a lump sum payment from the Municipal Utilities Department for property rentals. As of September 30, 2024, interfund reimbursements were $2.0 million, approximately 23% of the budgeted revenues. Revenues in this category earned in the first quarter of the fiscal year are billed for reimbursement but are generally received in the following quarter or later.
Staff will continue to monitor revenues and report performance in future quarterly reports.
Expenditures
Staff reviewed the first three months of General Fund expenditure data reported in Attachment A. Actual expenditures of $70.5 million were 18% of the Approved Budget. As is the case with revenues, it is too early in the fiscal year to draw firm conclusions or judgments about observed trends, especially in salaries and benefits, as vacancies often take months to fill. However, expenditure trends in many departments are running close to or just below expectations. The chart below summarizes total departmental and program spending as a percent of the total budget.
As shown above, most departments are below the 25% expenditure level.
Salary Savings have resulted in mild-to-moderate savings in most program expenditures. Several departments continue to experience staff vacancies. At September 30, 2024, 1,538 out of 1,773 authorized positions had been filled Citywide, with 59 sworn and 55 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.
Crime Reduction is one of the City Council’s highest priorities, and the Stockton Police Department (SPD) continues to hire sworn officers to meet its hiring goals. Although the department hired 15 new officers during the first quarter, 7 officers separated from the City (2 for other agencies, 1 retired, 2 resigned, and 2 were released from probation), resulting in a net gain of 8 officers. At the end of the first quarter, 87% of sworn positions were filled, with 368 sworn staff positions out of 425 authorized positions. Hiring for sworn and non-sworn personnel will continue throughout the fiscal year. Despite nationwide challenges in law enforcement retention and recruiting, SPD has significantly ramped up their efforts. The Recruiting team accomplished the following during the reporting period:
• Attended 96 recruiting events
• Received 372 interest cards
• Received 104 applications for Police Officer
SPD Recruiting has expanded efforts through digital platforms and partnered with outside marketing resources. During this time, SPD has reorganized to redeploy officers back to field operations, adjust the deployment model, educate the public and civic leaders on service levels, and launched several community campaigns. Overall, the Police Department is within budget at 22% as of September 30, 2024.
The Fire Department's overall actual expenditures amounted to $14.5 million or 22% of the budget at the end of the first quarter. The first of the two firefighter training academies conducted by the department each year started on August 1, 2024. Nineteen Firefighter trainees out of 21 vacant sworn positions at the beginning of the fiscal year were successfully recruited for the academy. Fire Academy expenses, which included personal protective equipment, training supplies, and payroll of instructors and the trainees contributed to the expenses for the period. Wildland fire deployments have increased from the past two years, which also added to the higher backfill overtime costs. The costs of these deployments will be reimbursed by the State later in the fiscal year. The department continued to experience attrition with 9 vacant sworn positions out of a total of 15 vacant positions in the department at the end of the first quarter. Payroll savings were sufficient to offset the higher Fire Suppression backfill overtime required to maintain daily staffing levels.
Actuals for the Economic Development Department are trending lower than budgeted primarily due to the one-time discretionary funds from both FY 2023-24 and FY 2024-25. This obligation makes up approximately 56% of the Economic Development budget. The department’s overall actual expenditures amounted to 9% of the annual budget at the end of the first quarter. And an additional $3.32 million or 34% is encumbered for approved contracts and purchases pending payment. Salaries and operations are on track with approved budget and staff is working on getting one-time discretionary funds encumbered/obligated before the end of the year.
In the Program Support for Other Funds category, most transfers are completed on a monthly basis. The Capital Improvement line is under budget because the Council Priority projects will be transferred in a later quarter as expended. The Grant Match transfer is only recorded, if needed, when grants with required matching funds are expended.
Tax Collection expenses are, for the most part, incurred later in the year. The City typically pays property tax administration fees to San Joaquin County in December and May. Sales tax administration fees will be paid quarterly starting in December. Payment for taxes and assessments on City-owned properties will begin in November.
Election expenses budgeted in FY 2024-25 are for the November 2024 election in the second quarter.
The Other Administration category holds various city-wide costs that are not attributable to an individual or specific group of programs or departments. By far, the largest amounts are offsets to expenditures in other areas of the budget, such as indirect costs allocated to the Fire Department for reimbursement by fire districts.
General Legal expenses of $22,137 reflect two months of legal fees for various lawsuits and bankruptcy-related legal advice. Labor negotiations with the City’s safety units started in February 2025 and continue through the end of FY 2024-25, adding more in monthly expenses for the last half of the year.
Debt Service payments associated with the Assured Guaranty settlement are generally due in the last half of the year, so no funds had been transferred to the Debt Service Fund as of September 30, 2024.
The City did not need to access Contingency funds in the first quarter. Funds will be utilized in Quarter 2 and the latter half of the fiscal year.
Staff will continue to monitor General Fund expenditures and return later in the year with quarterly reports that include year-end projections, additional Council appropriations, and any necessary budget adjustments.
Measure A Expenditure Plan First Quarter Budget Update
Measure A is a three-quarter percent general (sales) tax. The measure was originally approved by voters on November 5, 2013, and became effective April 1, 2014. On the same ballot, voters also approved Measure B, a non-binding advisory measure. Measure B recommends that 65% of Measure A proceeds be used for law enforcement and crime prevention services and that 35% of Measure A proceeds be used for general city services, including recovery from bankruptcy.
On December 5, 2023, the Stockton City Council adopted an ordinance to extend Measure A. The tax was set to expire March 31, 2024. By approving the extension by ordinance, the tax will continue for an additional ten years.
A Performance Audit was performed by Moss Adams early FY 2023-24 at the Advisory Committee’s request. The Measure A Performance Audit released in October 2023 found no compliance issues, however, the Performance Audit recommended that the City could benefit from Measure A Expenditure Guidelines & Planning to increase visibility and transparency, and to demonstrate the City’s alignment with Measure B.
Attachment B presents the Measure A Expenditure Plan for FY 2024-25 First Quarter Budget Update.
Measure A transaction and use tax revenues received as of September 30, 2024 totaled $3.6 million, reflecting payments for sales transactions in July 2024. The variance is because remittances take some time to process on the state’s side and will not post to the City’s books until subsequent quarters. Pending payments that will post in the second quarter for August and September 2024 sales transactions total approximately $7.9 million.
Expenditures through the first quarter totaled approximately $9.3 million, or 24% of the Approved Budget. The Police Department expended approximately $8.8 million, and OVP spent approximately $425,000 through the first quarter of the fiscal year. At the end of the first quarter, 25% is the target budget utilization. Combined salary and benefit costs for Police sworn and non-sworn positions were at 22% of the budget. Most Police Department expenditure categories were under 25% of the budget at the end of the first quarter. Recruitment, Retention, and Wellness Efforts are currently at 32% of budget utilization, slightly higher than the target.
The Marshall Plan expenses through the end of the first quarter have utilized 80.5% of the posted and pending FY 2024-2025 Measure A tax revenues earned during the same period, which is over the Measure B advisement of 65% but consistent with the Measure A Expenditure Plan approved by Council in July 2024.
Other Funds - Technical Corrections
The adopted budget resolution authorizes technical corrections to be processed administratively with a follow-up report to the City Council on any correction over $100,000. The following technical corrections were processed for the first quarter of the fiscal year:
1. During completion of the FY 2024-25 budget, a technical error reduced the Downtown Marina Fund (640) Transfer In from $277,000 to $247,000. The General Fund Transfer Out of $277,000 was entered correctly. An adjustment was completed under the technical correction authority of the adopted budget resolution.
2. On August 21, 2018, Council adopted a resolution implementing the Public Facilities Fee Program lntrafund Loan Repayment Plan. The Public Facilities Fee Program lntrafund Loan Repayment Plan includes transfer of all revenues collected by the owing funds: Community Recreation Center Public Facility Fee Fund, Fire Station Public Facility Fee Fund, and the Police Station Public Facility Fee Fund, until such time that the balance is paid in full or Fiscal Year (FY) 2037-38. During budget completion, technical errors to two transfer entries were made and then found during reconciliation. The first one was a Transfer In entry to the Library Citywide Fund (310-316) for $143,760 that did not match the corresponding Transfer Out entry from the Fire Station Citywide Fund (310-315) of $149,455. The second was a Transfer In entry to the Street Improvements Citywide Fund (310-312) for $67,643 that did not match the corresponding Transfer Out entry from the Community Recreations Centers-Citywide Fund (310-313) of $73,338. Adjustments were completed under the technical correction authority of the adopted budget resolution.
Budget Adjustments
Staff have identified two budget amendments needed.
1. In previous years, the Rent expense budget for 400 E. Main was offset in General Fund Property Rentals revenue due to a multi-year prepayment by the City. This year the process was simplified; the payments are allocated monthly to Rent expenses without passing through General Fund Property Rentals revenue. The General Fund Property Rentals revenue budget needs to be reduced by $960,975 to account for this change.
2. The Fire Department received Council authorization through Resolution 2024-01-23-1501 for the Fire Truck No. 7 Restoration project. An on-going appropriation is needed to staff and supply the truck. The department needs to appropriate $108,360 for the backfill overtime for the annual leave and sick time coverage of one Firefighter Engineer and six Firefighters to staff Truck 7 for the current year.
FINANCIAL SUMMARY
This report provides an analysis of FY 2024-25 General Fund's first quarter results. Staff review indicates revenues are consistent with budget projections, and the City expenditures are estimated to be slightly below the approved budget. Two budget amendments have been identified.
1. Reduce General Fund Property Rentals revenue (Account 0000-000-461000-100-000-00-00-000-000-) FY 2024-25 budget by $960,975.
2. Appropriate $108,360 to the Fire Department Fire Suppression Operations - Truck 7 Restoration for annual leave and sick leave coverage related to Reso 2024-01-23-1501 (Account 4020-000-610003-100-000-20-40-000-000-) from the General Fund available fund balance.
Staff will continue to monitor trends and potential budget variances and will return to the Council with future recommendations for changes where appropriate.
Attachment A - FY 2024-25 First Quarter Budget Update - General Fund
Attachment B - FY 2024-25 Measure A Expenditure Plan First Quarter Budget Update