title
ACCEPT THE FISCAL YEAR 2022-23 THIRD QUARTER BUDGET STATUS UPDATE AND AUTHORIZE BUDGET AMENDMENTS
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution to:
1. Accept this budget status report on the financial results for the Third Quarter of Fiscal Year (FY) 2022-23.
2. Authorize two budget amendments increasing appropriations in the Workers’ Compensation Internal Service Fund (ISF) and in the Storm Drain Maintenance District Fund for additional claim and repair expenses.
3. Authorize the continuation of up to $9,060,939 in FY 2022-23 budget appropriations to FY 2023-24 for the completion of identified programs.
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
Staff's review of the financial results for the nine months ending March 31, 2023, indicates General Fund revenues are projected to exceed budgeted levels by 8.4% and expenditures are projected to be 6.8% under budget. The updated projection of net annual activity for FY 2022-23 is $6.5 million more than the Second Quarter Budget Update.
Through the third quarter, General Fund revenues totaled $188.5 million, and expenses totaled $186.5 million. If current trends continue, overall General Fund expenditures will end the year at approximately $326.6 million, coming in under the Approved Budget by $23.9 million (6.8%). Revenue collections are currently projected to end the year approximately $24.1 million (8.4%) higher than budgeted. Staff will continue to monitor revenues and expenditures and return to Council with a year-end report in a couple of months.
Staff reviewed all other City funds to determine significant budget variances and identified two budget amendments needed for FY 2022-23. It is recommended that approximately $9.1 million in FY 2022-23 expenditure appropriations be carried forward to the new fiscal year enabling departments to continue projects planned and funded but not completed by June 30, 2023.
DISCUSSION
Background
The Council remains committed to transparency and financial responsibility with the continuation of Fiscal Sustainability as one of its strategic targets. This budget status update is provided in support of that objective.
Council adopted the FY 2022-23 annual city-wide budget of $898.7 million on June 21, 2022. The adopted General Fund expenditure budget was $282.9 million of the total City budget. Administrative and Council-approved amendments to the adopted budget increased total General Fund expenditure appropriations to $350.5 million.
Present Situation
General Fund Budget Status Update
General Fund expenditures and revenues for the first nine months of the FY 2022-23 are shown in Attachments A and B. Attachment A summarizes the City's General Fund revenues, expenditures, and available balance by Approved Budget, Year to Date Activity as of March 31, 2023, Third Quarter Projection, and variance amounts. The Second Quarter Report included revenue projections of $19.5 million over the budget and expenditures of $22.0 million under budget. The revised projections indicate revenues will end the year above the budgeted level by $24.1 million, and expenditures will be approximately $23.9 million less than budget for a net increase of $6.5 million.
The City does not receive General Fund tax revenues in a regular monthly pattern, so third-quarter actual revenues are less than 75% of budgeted revenues. The timing of expenses is more consistent than revenues. However, the General Fund does include some budgeted items that will be paid in large lump sums and cause variances when reviewed quarterly. The information below indicates our best analysis of the trends evident from available data and projections for year-end performance compared to the budget based on this review.
Budget Adjustments
Throughout the fiscal year, the Council may adjust the budget. The Approved Budget column on Attachment A includes all adjustments made through the third quarter, including various adjustments approved in the Second Quarter Budget Report and other subsequent Council agenda items. The General Fund approved expenditure budget is $350.5 million, an increase of about $508,000 since the Second Quarter Budget Report because of Council approved and technical budget adjustments.
Revenues
Attachment B displays staff's analysis of revenue collections and projections through the third quarter of the year. Actual revenues received as of March 31, 2023, were $188.5 million, and projected year-end revenues are $309.8 million. The most significant variances compared to the budget are in sales tax, business licenses, utility users’ tax and franchise tax. Compared to the Second Quarter Budget Report, projected year-end revenues increased by $4.9 million.
Sales Tax receipts make up nearly 39% of the total annual General Fund revenue. Remittances received from the State in the third quarter represent sales through January 2023, due to the lag time involved in obtaining the tax collected. Year-end sales tax collections are projected to be $125.8 million, exceeding the budget by $13.8 million. While year-end projections exceed FY 2021-22 sales tax receipts by $4.2 million (3.4%), receipts in the last two quarters of FY 2022-23 were down compared to the same quarters in the previous year. It is still too early to say if this indicates a long-term trend of an economic downturn.
Property Taxes are 25% of the City's total annual General Fund revenues and are remitted to the City each year by San Joaquin County in January and April. Receipts for the first nine months were 53.7% of the budget as of March 31, 2023, with San Joaquin County remitting approximately half of the annual property tax revenues in January 2023. FY 2022-23 property tax revenues are expected to be $71.9 million by year end, a 5.2% increase compared to prior year revenues. Property tax revenue growth is attributable to increasing home values and new construction. As shown in Attachment B, the anticipated variance is 1.8% of the $70.7 million budget.
The City collects Utility Users Tax (UUT) revenues for four utility categories: Water, Electric and Gas, Cable TV, and Telecommunications. UUT is 14% of total annual General Fund revenue and is a tax imposed on the users of various utilities. Overall, the FY 2022-23 projections for the Utility Users Tax category are 6.3% more than budget estimates and 7.4% greater than prior year revenues. Electricity and gas are the primary areas generating additional revenues at 9.6% over the $27.1 million budget. UUT is subject to a certain degree of volatility as consumer use of utilities can be dependent on weather conditions, conservation efforts, and the availability of substitutes. Cable and Telecommunications UUT are expected to be at or slightly below the budgeted amount.
The City receives Franchise Tax receipts in three categories: PG&E, Cable/Video, and Waste Haulers. Franchise fees are charged to companies as a percentage of income. Because they are based on the revenue generated by a service provider, these fees tend to track parallel with UUT. Franchise revenues are projected to be 8.2% greater than the $17.1 million budget with PG&E and waste hauler fees coming in over budget estimates. Cable/video revenues are projected to decline to $2.0 million compared to FY 2021-22 receipts of $2.5 million.
Business License Taxes make up 5% of General Fund revenues. Business license tax revenue is projected to be $16.2 million, a 15.4% increase compared to prior year revenues. Actual receipts in this category were at 72.9% through the third quarter.
Other Taxes combined are 2.5% of the General Fund revenue. Hotel/Motel Taxes are showing projected receipts of $3.3 million compared to $3.6 million in the previous fiscal year.
Investment Proceeds line item includes proceeds from investments as well as interest on cash holdings. The City's investments are limited to secure/conservative instruments that are not expected to be hit as hard as other investment options. The revenue projection of $3.4 million assumes conservative earnings in the fiscal year and is $910,541 more than the annual budget.
Program Revenues consist primarily of revenues from fines, licenses, service contracts with other agencies, and code enforcement fees, and are just under six percent of total General Fund revenue. Year-end estimates for this category are $1.9 million (11.7%) greater than budget. Revenues from Other Agencies is projected to be higher than budget by $1.6 million. The other large variance in this category is Fire Contracts which is expected to exceed the budget by $456,169. Most other program revenues are projected to be close to the annual budget.
Interfund reimbursements consist of cost recovery to the General Fund from other funds and other agencies for administrative services and facility space. This category constitutes 3% of General Fund revenues. These reimbursements are projected to be $495,790 or 5.5% higher than the budget of $9 million primarily due to use of an updated Cost Allocation Plan.
Expenditures
Staff reviewed the first nine months of General Fund expenditure data as reported in Attachment A. Expenditure trends in most departments are in line with budget. Projected expenditures decreased by $1.4 million compared to the Second Quarter Budget Report projection. The significant variances from budget are explained in detail in the following sections of the report.
Figure1 below summarizes the spending levels of all departments and programs as a percent of their respective budget.
Figure 1
As shown above, most operating budgets are running below the 75% expenditure level anticipated at the end of the third quarter. Most of the lower spending levels are a result of programs that spend more in the last half of the year for items like debt, labor negotiations, election, tax collection, and audit contract costs. In addition, several departments experienced higher than budgeted staff vacancies during the year.
As shown below, the FY 2022-23 Adopted Budget included a total of $10.4 million in budgeted salary savings. Through the third quarter of the fiscal year, actual General Fund savings from vacancies were at 11%. Total salary expenditures were approximately $7.4 million less than estimated in the budget.
Figure 2 summary of salary savings results for the three quarters of the fiscal year.
Figure 2
Department Expenditures
The Police Department is afforded 45% of the General Fund budget. The hiring of six new officers was offset by the attrition of 14 officers (three retired, three resigned or were released during probation, one did not complete the academy, and six left to other agencies), resulting in 366 of the 485 authorized sworn positions being filled at end of the third quarter. Police Department expenses were at 66% of the budget as of March 31, 2023. Overall, the Department estimates it will end the year approximately $16.9 million under budget primarily due to vacant positions and new employees starting at lower pay than departing employees.
The Fire Department accounts for 16% of the General Fund annual budget. The department’s overall actual expenditures amount to $39.3 million or 68% of the budget as of March 31, 2023. The second Fire Academy began on February 1st with 13 Firefighter candidates that were successfully recruited to fill 70% of sworn personnel vacancies. There were six remaining vacant sworn positions at the end of the third quarter. The department continues to generate additional payroll savings from personnel attrition and is expected to end the fiscal year at approximately 6% below the budget.
The Public Works Department accounts for 6% of the General Fund annual budget. Approximately 63% of the department budget was expended as of March 31, 2023, and is expected to end the year 3.3% under budget due to the heavy rain season which lowered water expenses and various other materials and services coming under budget.
The Economic Development Department is trending under budget by approximately $485,000. Year to date actuals are at 23% of budget because of unspent one-time discretionary funds for special projects such as:
• Allocation to Downtown Infill Infrastructure Program.
• One-time discretionary funding to Real Property for the preparation and implementation of site-specific environmental activities that will directly aid in accomplishing economic development goals.
• One-time discretionary funding for activities related to the Implementation of the Economic Development Strategic Plan.
The Office of Violence Prevention is estimated to end the year 13.2% below budgeted expenditures with approximately $103,560 from salary savings. Staffing turnover and the availability of other funding sources have also resulted in underspending the client support services budget.
Program Support for Other Funds includes appropriations for City libraries, recreation activities, grants, entertainment venues, marina and golf course operations, and development services. Operating transfers occur in regular monthly intervals, whereas capital and grant match transfers are recorded when expended. Grant match funds are not anticipated to be needed by year-end.
In Administration, departments are projected to end the year within budget, except for the Other Administration line. This category, which contains a variety of citywide costs that are not attributable to an individual department or specific group of programs, includes a negative budget for indirect cost charges and vacancy savings. The year-end projection currently shows an overage of $213,885, which will be resolved by redistributing budgeted vacancy savings at year-end to other departments experiencing vacant positions.
Debt Service payments by the City are not expended in any regular pattern but instead by the scheduled due dates to bondholders. The budget has been adjusted to reflect the FY 2021-22 true up and FY 2022-23 estimated contingency payments to Assured Guaranty. Payment of $4,031,000 was made in May 2023 and the full appropriated amount of $8.4 million will be paid out by year-end.
Other City Funds
In addition to the detailed review of General Fund expenditures and revenues described above, all City funds were reviewed as part of this report. Year-end projections for all funds were included in the FY 2023-24 Annual Budget released on May 15, 2023. Since that time, additional expenditures in the Workers’ Compensation Fund are expected to push the fund over budget and additional funding is needed for storm basin repairs in the Maintenance District Fund. No other significant variances from the projections contained in the FY 2022-23 Annual Budget were noted. Year-to-date activity shown on Attachment C is similar to the General Fund in that revenues and expenses can be seasonal and subject to irregular schedules. The Emergency Communication Fund, for example, looks out of balance with a negative balance of $73,865. This is a result of quarterly billings processed after the close of each quarter. All expenses incurred will be fully covered through revenues and fund balance by year-end.
Two City funds are in need of a budget amendment that was identified during staff's review of the Third Quarter results. The corrective action is described below. All other funds were under the authorized budget appropriation.
1. The Workers’ Compensation Internal Service Fund (551) exceeded budget by approximately $2,500,000 due to three significant settelment payments. While the cost will be offset by reimbursements from the City’s excess insurance carrier, a budget amendment is being submitted to increase revenues and expenditures to account for these variances. The reimbursement amouts will be greater than the projected budget overage.
2. There has been continuous erosion at the retention basin at the Army Court storm station, which is part of the Charter Way industrial storm drainage maintenance district. Staff have been using bags of concrete to lessen further erosion, but the site needs proper repair. The basin requires levee repairs before the wet season starts. Requests for bids were received and additional funding of $18,000 is needed from fund balance (270 Fund) to award this work.
Continuation of FY 2022-23 Appropriations
Pursuant to Section 1908 of the City Charter, operating budget appropriations lapse at the end of each fiscal year if not expended or encumbered. With this requirement in place, programs lose funding at year end unless Council takes action to continue the appropriation into the following fiscal year. Following a review of budgets and activities in FY 2022-23, departments have identified funded programs that could not be encumbered or completed prior to the end of the fiscal year on June 30, 2023. To complete these programs, it is recommended that the FY 2022-23 budgets identified in the table below be continued to FY 2023-24 to complete the specific programs listed in the following table. Budget balances for each program will be reviewed and only available balances will be continued to FY 2023-24. Of the total $9.1 million, $2.9 million are for Council Priority projects approved in May 2023.
|
Description |
|
Department |
|
Fund |
Not to Exceed Amount |
|
Implementation of Strategic Plan |
|
Economic Development |
|
General Fund |
19,327 |
|
From Open Windows and authorized to stay in EDD, for Downtown Infill Infrastructure Program |
|
Economic Development |
|
General Fund |
1,940,000 |
|
Environmental Work at four sites |
|
Economic Development |
|
General Fund |
150,000 |
|
Dignity Alcove - Council priority project |
|
Economic Development |
|
General Fund |
50,000 |
|
Broken Window Program - Council priority project |
|
Economic Development |
|
General Fund |
250,000 |
|
Sister City Association - Council priority project |
|
Economic Development |
|
General Fund |
15,500 |
|
GIS Migration to hosted Environment |
|
Information Technology |
|
Technology ISF |
100,000 |
|
Cisco Traffic Signal Infrastructure |
|
Information Technology |
|
Technology ISF |
300,000 |
|
Cisco Traffic Core Replacement |
|
Information Technology |
|
Technology ISF |
400,000 |
|
Anti-illegal dumping reward program - Council priority project |
|
Police |
|
General Fund |
225,000 |
|
Pilot Gun Buy back program- Council priority project |
|
Police |
|
General Fund |
225,000 |
|
Northeast Library - One time start-up costs |
|
Community Services |
|
Measure M |
302,000 |
|
Northeast Recreation - One time start-up costs |
|
Community Services |
|
Measure M |
26,250 |
|
Library Refresh - Weston Ranch |
|
Community Services |
|
Library Fund |
30,000 |
|
Library Refresh - Manteca |
|
Community Services |
|
Library Fund (County funded) |
117,886 |
|
Bookmobile & Self Check - City |
|
Community Services |
|
Measure M |
225,000 |
|
Bookmobile & Self Check - County |
|
Community Services |
|
Library Fund (County funded) |
225,000 |
|
Painting - Arnold Rue |
|
Community Services |
|
Measure M |
31,000 |
|
Passenger Van |
|
Community Services |
|
Recreation Fund |
55,000 |
|
Sports Office Setup |
|
Community Services |
|
Measure M |
10,200 |
|
Aquatics Repairs |
|
Community Services |
|
Measure M |
120,000 |
|
Stockton Arts - Artist Grants |
|
Community Services |
|
Recreation Fund |
50,000 |
|
Enhanced community events - Special Events |
|
Community Services |
|
Recreation Fund |
50,000 |
|
Enhanced community events - Special Events |
|
Community Services |
|
Measure M |
24,000 |
|
California Library Connect - E-rate service |
|
Community Services |
|
Measure M |
34,468 |
|
California Library Connect - E-rate service |
|
Community Services |
|
Library Fund (County funded) |
19,308 |
|
Youth Services Programs - Council priority project |
|
Community Services |
|
General Fund |
2,086,000 |
|
One-time cleanup experiment for the Mormon Slough |
|
Public Works |
|
General Fund |
750,000 |
|
Fire Station No.1 Equipment Project |
|
Fire |
|
General Fund |
102,000 |
|
City Council Discretionary Funds |
|
City Council |
|
General Fund |
86,000 |
|
Mayor Discretionary Funds |
|
City Council |
|
General Fund |
42,000 |
|
Retention and Recruitment |
|
Human Resources |
|
General Fund |
1,000,000 |
|
Total |
|
|
|
|
9,060,939 |
FINANCIAL SUMMARY
This report provides an analysis of the FY 2022-23 General Fund third-quarter results update. The review indicates that revenues are on track to exceed budget projections, while expenditures are likely to be less than budgeted targets. Staff will continue to monitor trends and potential budget variances and will return to the Council with year-end results and recommendations in a couple of months.
Staff also reviewed other City funds and recommends the following budget amendment:
1. Increase both revenue and expenditure appropriations by $2,500,000 in the Workers’ Compensation ISF due to significant settlement payments covered by excess insurance reimbursements.
2. Authorize funding and appropriations of $18,000 from Municipal Utilities Storm Drainage Maintenance District Fund (270) Balance.
Attachment A - FY 2022-23 Third Quarter Budget Update - General Fund
Attachment B - FY 2022-23 Third Quarter Revenues - General Fund
Attachment C - FY 2022-23 Third Quarter Report for Other Major Funds