Title
Staff Report for a City of San Leandro City Council Presentation and Resolution to Present and Approve the 2021-2022 Mid-Year Financial Report as of December 31, 2021 and the Second Quarter Budget Amendment for the 2021-2022 City Operating Budget
Staffreport
SUMMARY AND RECOMMENDATIONS
Staff recommends approval of the resolution accepting the 2021-2022 Mid-Year Financial Report as of December 31, 2021 and Approving the Second-Quarter Budget Amendment for the Fiscal Year 2021-2022 City Operating Budget.
BACKGROUND
The City Council approved the Fiscal Year 2021-2022 and 2022-2023 General, Enterprise, Internal Service, and Parking Fund budgets on June 28, 2021. The approved budgets feature the annual expenditure and resource allocation plan that guide the implementation of City Council budget policies and priorities. The budget provides funding direction for the broad range of services that meet the needs of the community in accordance with City Council policy.
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, 2021 measures operational adherence to the budgetary allocation plan.
DISCUSSION-Mid-Year Report
The City budget for 2021-2022 was adopted on June 28, 2021. The amended budget incorporates current estimates for revenue and expenditure appropriations for all funds as of December 31, 2021. The attached 2021-2022 Mid-Year Financial Report as of December 31, 2021 provides the revenue and expenditure summary for the General, Enterprise, Internal Service, and Parking Fund. The following detailed discussion offers comparisons to the prior year and focuses on variances from the revenue and expenditure plans and allocations contemplated in the budget.
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 amended 2021-2022 General Fund budget projects revenues totaling $123,102,000 and expenditures totaling $133,735,000, including purchase order encumbrances from 2020-2021, approved carryover amounts, and several City Council approved appropriation amendments prior to December 2021. Please note that the General Fund budget reflects the use of reserves for one-time expenditures, which is consistent with the City’s policy.
The amended budget expenditure total ($133,735,000) also includes several major City Council actions recorded in January 2022. These adjustments ($1,283,678) are included to reflect total appropriations more accurately at mid-year. These measures include the following.
• Approved 2020-2021 Appropriation Carryovers-$448,500
• SL Management Organization MOU-$112,978
• Re-Organization Plan-$722,200
Mid-year revenue in 2021-2022 totals 38% of the amended budget, compared to the same 34% in 2020-2021. Expenditures of $52,650,000 at mid-year amount to 39% of the anticipated total, compared to 38% in 2020-2021. Revenues and expenditures are generally in line with the prior year, slightly ahead of the prior year. Both revenues and expenditures will continue to be closely monitored through the remainder of the year.
A detailed review of revenue and expenditure variances is presented below.
General Fund Revenue
• Property Tax-(received 47% of anticipated budget compared to 47% in 2022-2021). The Property Tax appropriation increased by $793,000 in the final budget as approved in June 2021. Property Tax is the City’s second largest revenue source and represents 22% of total General Fund revenue. Secured Tax and Redevelopment Residual Property Tax revenues make up 62% of the City’s annual Property Tax revenue. Actual Secured Tax revenue amounts to $7,174,000 to date in 2021-2022, $501,000 above the same period in 2020-2021. Alameda County will distribute the first payment of the Redevelopment Residual Tax in early 2022 ($1,285,000 was recorded in January 2022) and the second payment of Secured Tax will be in April.
• Sales/Transaction Taxes-(received 34% of anticipated budget compared to 32% in 2020-21). The Sales/Transaction Tax appropriations were increased by $4,203,000 in the budget reflecting the anticipated economic rebound impacts of COVID-19. Actual revenues are $2,554,000 compared with last year at the same time. Avenue Insights, the City’s sales tax advisor, projects the City will receive added Sales/Transaction Tax revenue above the originally appropriation by year end. This favorable report on the recovery in taxable transactions is critical as Sales and Transaction Taxes are the City’s largest revenue sources and make up 40% of the General Fund revenue. The proposed budget amendment increases appropriations for Sale/Transaction tax revenues by $2,586,000.
Real Property Transfer Tax-(received 41% of anticipated budget compared to 25% in 2020-2021). The Property Transfer Tax appropriation was increased by $2,000,000 in the approved budget, reflecting impacts of ballot measure VV approved by city voters in November 2020. The measure authorized increasing the real property transfer tax rate from $6 per $1,000 in valuation to $11. This increase in the tax rate is initially projected anticipated to generate $4,000,000 in new annual General Fund revenue. Actual revenues through December 31, are $1,899,000 above the same period in 2020-2021. The proposed budget amendment increases appropriations for Property Transfer tax revenues by $2,000,000.
• Charges for Services-(received 46% of anticipated budget compared to 43% in 2020-21). Charges for services revenue is budgeted in 2021-2022 at $2,054,000, $757,000 above the 2020-2021 budget. Mid-year revenues were $949,000, $387,000 than the same period yeast year. Due to COVID-19, recreation programs were adversely impacted in 2020-2021 and to a lesser amount in 2021-2022. In 2021-2022, some programing resumed (pools, day camps, park rentals, and summer adventures) resulting in greater revenues, $284,000 more than in 2020-2021.
• Interest & Property Income-(received 36% of anticipated budget compared to 38% in 2020-2021). Actual Interest Income revenues recorded through December 31, 2021, amounted to $967,000. Revenue in the same period 2020-2021 totaled $1,080,000. Both years exceeded the projected FY 2020-2021 revenue budget of $675,000. Higher Interest Income revenue will partially offset losses in rental income at the Marina Community Center and the Senior Center.
• Intergovernmental-(received 51% of anticipated budget compared to 11% in 2020-2021). The reduction in revenue reflects the one-time CARES Act funds provided to state and local governments impacted by the COVID-19 outbreak in 2020-2021. The City received $1,100,000 from the State Department of Finance covering eligible expenditures last year.
• License & Permits-(received 55% of anticipated budget compared to 38% in 2020-2021). Actual Building Permit revenues recorded through December 31, amounted to $1,561,000 in 2021-2022. Revenue in the same period last fiscal year was $1,062,000. This Building Permit increase reflects nearly all the change in Licenses & Permit revenue.
As reported in the attached Mid-Year Financial Report, all other taxes and revenue receipts are relatively in line with budgeted revenues.
General Fund Expenditures
• General Fund, Total Expenditures-(40% of budget compared to 37% in 2020-2021). Mid-year expenditures were $52,650,000, 39% of the budget of $133,735,000. Year-over-year General Fund expenditures increased by $6,637,000 partly due to timing of expenditures. All departments’ expenditures remain less than one-half of their budget appropriations. Over the past five years, an average of 40% of the annual budget appropriation has been expended by December 31, 2021. Additional part-time and full-time staffing savings are projected.
Enterprise, Internal Service Funds, and Parking Fund
Four Enterprise Funds make up the City's business-type operations. The Water Pollution Control Plant Fund, the Environmental Services Fund, the Shoreline Enterprise Fund, and the Storm Water Fund are City municipal operations designed to fully 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.
• Shoreline Enterprise Expenditures-(30% of budget compared to 9% in 2020-2021). Actual Shoreline Enterprise expenditures (and revenues) increased related to a significant increase in play at the Monarch Bay golf courses and transition to the golf management agreement.
• Insurance Services, Expenditures-(85% of budget compared to 41% in 2020-2021). Insurance Services impacted by higher general liability and workers compensation insurance premiums.
• Parking Revenue-(28% of budget compared to 18% in 2020-21). Parking revenues continue to be impacted by the COVID-19 pandemic. Current year revenues are expected to be lower than budgeted. The proposed budget amendment decreases appropriations for parking revenues and reflects a $550,000 contribution from the General Fund to support the program.
DISCUSSION-Budget Amendment
Analysis
The City Council approves annual 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 changes in revenue or expenditure budget appropriations or re-appropriations between budget line items.
Overall, the financial outlook is positive. General Fund revenues are expected to be higher than originally budgeted, mainly due to projected increases in sales tax and real property transfer tax revenues. General Fund expenditures are expected to be lower than originally budgeted, primarily due to vacancy savings, less recreation programming, and reclassification of expenditures to the newly established American Rescue Plan Act (ARPA) Fund.
While revenue decreased in some line-items, overall revenues have increased. The total proposed budget amendment for General Fund revenue appropriations amounts to $4,464,100. The appropriation amendment decreases expenditures by a total of $2,632,600. Based on this mid-year budget adjustment, amended revenues are projected less than expenditures by $3,536,000.
This General Fund budget amendment reflects one-time contributions to pay down unfunded pension liability, including $3,000,000 to CalPERS and $608,500 to the PARS/Pension Trust. The proposed contribution to CalPERS is expected to generate approximately $4,300,000 in interest savings over time. The projected investment return for the Pension Trust is 5.89%. These proposed contributions are consistent with the City’s Prioritization of Unfunded Liability Liquidation (PULL) Plan in which up to 50% of General Fund land sales and up to 50% of General Fund surplus can go towards funding unfunded liabilities. In the prior fiscal year, the City generated approximately $1,200,000 from the sale of property and achieved positive financial results.
This General Fund budget amendment also includes funding to support capital projects including the street maintenance program. The proposed contributions amount to $4,917,800, which is the same amount that was transferred to the General Fund from the Capital Project Fund in fiscal year 2020-2021 in anticipation of the COVID-19 impact to the budget.
Proposed budget adjustments to other funds are based on projected revenue trends and expected program activities (Enterprise Funds, Internal Service Funds, Gas Tax Fund, Parking Fund, etc.). Adjustments also reflect reclassifications between street related projects to ensure sufficient funds are in place to support the overall street maintenance program.
Attachment 2 (Tables 1, 2, and 3), included with the staff report/resolution, details proposed revenue and expenditure appropriation amendments to the 2021-2022 budget. A summary of the proposed budget adjustments is also provided for reference (Attachment 1).
The following is a summary of the major adjustments.
Amended General Fund Revenue Appropriations
|
Taxes |
|
|
|
|
|
|
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Sales and Use Tax (010-3201) |
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2,109,000 |
|
|
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Transaction/Use Tax (010-3227) |
|
476,100 |
|
|
|
Property Transfer Tax (010-3203) |
|
2,000,000 |
|
|
|
|
|
|
|
|
|
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Charges for Services |
|
|
|
|
|
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Recreation programs (010-3751--010-3770) |
|
(614,000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amended General Fund Expenditure Appropriations
|
Non-Departmental |
|
|
|
|
|
Vacancy Saving (010-14-002-4301) |
|
3,900,000 |
|
|
CalPERS funding (010-14-002-5190) |
|
3,000,000 |
|
|
PARS FUNDING (010-14-002-5190) |
|
608,500 |
|
|
|
|
|
|
|
|
Transfers (010-99-901-8410) |
|
|
|
|
To Capital Project Fund |
|
3,217,800 |
|
|
To Gas Tax |
|
1,700,000 |
|
|
Capital Project Fund |
|
(5,675,000) |
|
|
|
|
|
|
|
Other Funds Revenue/Expenditure Appropriations
|
Gas Tax Fund |
|
|
|
|
|
|
From General Fund (140-3950) |
|
1,700,000 |
|
|
ARPA Fund |
|
|
|
|
|
|
|
From Capital Project Fund (F190) |
|
5,675,000 |
|
|
|
From General Fund (F190) |
|
1,060,900 |
|
|
Capital Project Fund |
|
|
|
|
|
|
From General Fund (210-3950) |
|
3,217,800 |
|
Review by Finance Committee
The Finance Committee (Committee) met on March 1, 2022 to review and discuss the Mid-Year Financial Report and Proposed Budget Adjustments. The Committee unanimously approved the proposed budget amendments. The Committee also made the following recommendations/comments:
• Advised staff to continue to enhance and communicate budget information and financial results to the community
• Confirmed the need to communicate more about metrics and how they tie to expenses in the future
• Advised staff to provide updates to the Council and community regarding Budget Task Force recommendation implementation status
• Had discussion about future consideration of some Real Property Transfer Tax revenues for affordable housing programs
Please note that steps were put in place for the development of strategic performance measures that will be easy for the community to understand. An update regarding the Community Budget Task Force recommendations’ implementation status is planned for July 2022.
Next Steps
Staff plans to come to the City Council Finance Committee and City Council again prior to June 30, updating the 2021-2022 projections (while updating the 2022-2023 budget) if any significant changes develop.
Consistent with the City’s policy, encumbrances outstanding at year-end remain Assigned Fund Balance and are re-appropriated for the following year. Open purchase orders and carryover requests averaged $3,800,000 in recent years.
.
ATTACHMENTS
• 2021-2022 Mid-Year Financial Report as of December 31, 2021
• Attachment 1: Proposed Budget Adjustments - Summary
• Attachment 2: Proposed Budget Adjustments - Details
PREPARED BY
Susan Hsieh, Finance Director