Title
Adopt a Resolution to Accept the FY 2024-2025 Mid-Year Financial Report as of December 31, 2024, and to Approve Proposed Adjustments to the 2024-2025 Budget
Staffreport
COUNCIL PRIORITY
SUMMARY
The FY 2024-2025 Mid-Year Financial Report is for information only. Staff recommends City Council review and approval of the proposed adjustments to the FY 2024-2025 Budget.
RECOMMENDATIONS
Staff recommends the City Council adopt a resolution to accept the 2024-2025 Mid-Year Financial Report, which is as of December 31, 2024, and that the City Council approve the proposed Adjusted Fiscal Year 2024-2025 Budget, including revenue and expenditure appropriations.
BACKGROUND
The City budgets on a biennial cycle every two years. At the mid-point of each biennial, Staff review revenues and expenditures while evaluating priorities and services to formulate a mid-cycle budget adjustment. At the mid-point of the second budget year, Staff may also propose adjustments to ensure budget alignment with revenue and expenditure projections. The City Council adopted the FY 2023-2024 and FY 2024-2025 General, Enterprise, Internal Service, and Parking Fund budgets on May 15, 2023. On May 20, 2024, the City Council reviewed mid-cycle adjustments, and approved amendments to the FY 2024-2025 budget. The approved budgets feature the annual expenditure and resource allocation plan that guides the implementation of City Council budget policies and priorities. The budget provides funding direction for a broad range of services that meet the needs of the community in accordance with City Council policies.
This financial review provides the mid-year budget update to the City Council for the current fiscal year. Analysis of the revenues collected and all expenditures through December 31, 2024, measure operational adherence to the budget allocation plan.
Analysis and Discussion
FY 2024-2025 Mid-Year Financial Report
FY 2024-2025 Mid-Year Financial Report as of December 31, 2024 (Attachment B), provides a revenue and expenditure summary for the General, Enterprise, Internal Service, and Parking Fund. The report provides detailed revenue and expenditure comparisons to the prior year while also focusing on variances from financial plans and budgeted allocations.
Mid-year revenue in FY 2024-2025 totals $53,223,000, 37% of the budget of $144,309,000 compared with 39% in 2023-2024. Mid-year expenditures total $63,964,000, 39% of the anticipated total of $162,754,000, compared with 37% in 2023-2024. Expenditures are expected to stay within the 2024-2025 budget appropriations. Nevertheless, costs will continue to be closely monitored throughout the year.
Enterprise, Internal Services, and Special Revenue Funds mid-year revenue and expenditure variances to both budget and compared to FY 2024-2025 are within anticipated levels. Several budget adjustments are proposed for Shoreline to align revenue and to account for unexpected expenditures associated with the Shoreline development.
Budget Amendments
The City Council approves budgets based on the best revenue and expenditure data available prior to adoption of the budget appropriations. As a result, budget adjustments are periodically necessary for changes that arise requiring amendments to revenue projections and/or expenditure budget appropriations. The City Council approved the FY 2024-2025 mid-cycle budget amendments on May 20, 2024. Based on current financial trends, staff propose FY 2024-2025 budget revisions to revenues and expenditures funds as follows:
General Fund
The General Fund finances the operations of the City having no special or dedicated revenue sources and pays for basic municipal services. The FY 2024-2025 Amended General Fund budget projects revenues totaling $144,309,647 with a proposed reduction adjustment of $905,287 revising it to $143,404,360. The Amended FY 2024-2025 General Fund Expenditure Budget is $162,753,847 including FY 2023-2024 approved budget carryover for purchase order encumbrances and ongoing initiatives previously approved by City Council. No General Fund expenditure adjustments are proposed.
General Fund Revenue
It is still early in the fiscal year and revenue trends are still developing. For example, remittances for certain taxes (e.g., Sales Tax, Utility Users Tax, etc.) allow tax remitters 30 days to pay, which results in a lag in terms of when revenue is received and recorded. After a thorough review of current revenue trends in comparison to prior year revenue trends at the same point, staff recommend amending the General Fund revenue projections by a net decrease of $905,287 from what was projected at the time of adoption on May 20, 2024. Highlights of the significant revisions for key revenue sources are outlined below with detailed changes in Attachment C.
Property Tax - (2024-2025 Amended Budget of $31,266,510, adjusted by $658,375 or 2% to $31,924,885) Property Tax is the City’s second largest revenue source and represents approximately 21% of total General Fund revenue. Secured Tax, the VLF Swap, and Redevelopment Residual Property Tax revenues make up 96% of the City’s annual Property Tax revenue. Based on current trends and a revenue update from the County, property tax is projected to increase by $660,000 over what was estimated at the time of adoption. This is primarily due to VLF Swap revenue, which is estimated to be $550,000 greater than currently budgeted. The second tranche of property tax revenue will be received in April.
Sales Tax - (2024-2025 Amended Budget of $58,045,125, reduced by $4,769,125 or 8% to $53,276,000) Recent sales tax projections provided by the City’s sales tax consultant forecast a significant decrease in this key revenue stream. Updated revenue projections will result in a decrease of $4.8 million over what was projected at the time of adoption. There are several factors contributing to the significant change in the City’s sales tax revenue projection. At the end of FY 2023-2024, because of an audit, an adjustment was made to the City’s sales tax that negatively impacted the total sales tax collected. This adjustment also impacted future revenue projections. Additionally, personal consumption on taxable goods has continued to decline, while services have continued to grow. This trend continues to have an impact on sales tax revenue.
Utility User Tax (UUT) - (2024-2025 Amended Budget of $12,811,300, adjusted by $1,135,267 or 9% to $13,946,567) Based on current trending, UUT is projected to increase by $1.1 million over what was projected at the time of adoption. This is primarily attributed to UUT related to electricity consumption.
Franchise Fees - (2024-2025 Amended Budget of $6,492,000, adjusted by $715,000 or 11% to $7,207,000) Based on current trending, Franchise Fees are projected to increase by $0.7 million over what was projected at the time of adoption. This is primarily attributed to franchise fees related to refuse. This estimate also includes a one-time payment of $0.5 million related to the recent franchise change.
Interest and Property Income - (2024-2025 Amended Budget of $2,969,000, adjusted by $721,800 or 24% to $3,690,800) The proposed increase is mainly related to interest income as the City holds more of its assets in higher yielding investments in an elevated interest rate environment.
Fines, Fees and Forfeitures - (2024-2025 Amended Budget of $539,000, adjusted by $119,500 or 22% to $658,500). The proposed increase is mostly related to aligning fines already levied though there is some risk related to if or when fines are actually paid. Also to note, the revenue budget related to City parking citations has been removed as this revenue is now recorded in the Parking Fund, which is where the activity occurs.
General Fund Expenditures
Mid-year expenditures were $63,964,000, 39% of the budget of $162,753,845; 50% of the year has passed. Expenditures by all departments remain less than one-half of their budget appropriation. Over the past five years, an average of 40% of the annual budget appropriation has been expended by December 31. Given this, no expenditure adjustments are proposed at this time.
Enterprise, Internal Service Funds, and Parking Fund
The City's business-type operations are made up of four Enterprise Funds; the Water Pollution Control Plant Fund, the Environmental Services Fund, the Shoreline Enterprise Fund, and the Storm Water Fund. These municipal operations are designed to recover costs through user fees. Internal Service Funds also operate as business activities, exclusively supporting the City's internal operations. Facilities Maintenance, Information Technology, Insurance Services, and Equipment Maintenance comprise the Internal Service Funds.
The Parking Fund provides for parking meter and parking lot operations and maintenance at the Downtown Parking Structure.
Revenues and expenditures in these funds are as expected at this point in the fiscal year. Several adjustments are proposed below to align revenue and account for unexpected expenditures.
Enterprise, Internal Service Funds, and Parking Fund Revenue
Shoreline Enterprise Fund (2024-2025 Amended Budget of $522,000, adjusted by $300,00 to $822,000). This includes restoring the budget for Transient Occupancy Tax. With initial Shoreline development plans, this revenue source was uncertain and therefore unbudgeted. However, there continues to be hotel operations and TOT collected. This adjustment will add an estimated $300,000 in TOT revenue.
Enterprise, Internal Service Funds, and Parking Fund Expenditure
Shoreline Enterprise Fund
Staff propose a budget appropriation increase in the amount of $667,500. Of this amount, $567,500 is related to unanticipated consultant and legal services related to the Shoreline development bankruptcy proceedings. It is expected that these expenditures will be recovered when the litigation is resolved.
$100,000 is related to rip rap repairs along the shoreline due to storm activities this winter.
Facilities Maintenance Fund
Staff proposes an increase in budget appropriation in the amount of $279,460 because of the recently approved ACI franchise agreement effective February 1, 2025. With the implementation of this agreement, the City is required to pay for its operational generation of garbage, recyclables, and organics hauling services.
Previous Actions
• On May 15, 2023, the City Council held a public hearing and adopted the budget for Fiscal Years 2023-2024 and 2024-2025.
• On May 20, 2024, the City Council adopted the mid-cycle budget for Fiscal Year 2024-2025.
Committee Review and Action
• On February 26, 2025, the City Council Finance Committee reviewed the Fiscal Year 2024-2025 Mid-Year Financial Report as of December 31, 2024, and proposed Adjusted Fiscal Year 2024-2025 Budget, including revenue and expenditure appropriations. The Committee unanimously recommended the report be moved to the City Council for acceptance.
Financial Impacts
The staff recommendation to reduce the FY 2024-2025 General Fund revenue by $905,287 will draw $0.9 million more than planned.
For the Shoreline Enterprise Fund, the FY 2024-2025 budget amendment appropriating $667,500 in expenditures will be offset by the adjustment adding $300,000 in TOT revenue in the short term. Over the long term, the City will seek to recover the $567,500 in Shoreline development litigation costs.
The appropriation of $279,460 to the Facilities Maintenance Fund will draw from fund balance. There are sufficient reserves to cover the cost for FY 2024-2025. To note, this will be a net new ongoing cost that will be included with the FY 2026-2027 Biennial Budget. Facilities Maintenance Fund costs are allocated across the General Fund and Enterprise funds.
ATTACHMENTS
Attachment A: Resolution Approving the 2024-2024 Mid-Year Financial Report as of December 31, 2024, and Adopting the Proposed Adjusted Fiscal Year 2024-2025 Budget Appropriations.
Attachment B: FY 2024-2025 Mid-Year Financial Report as of December 31, 2024
Attachment C: General Fund Revenue Budget Adjustment Detail
PREPARED BY: Nicole Gonzales, Finance Director
Felicia Silva, Assistant Finance Director