Title
Staff Report for Fiscal Year (FY) 2014-15 Year End Financial Review (Information Only)
Staffreport
SUMMARY AND RECOMMENDATION
This report provides an update on FY 2014-15 financial performance for all City funds through June 30, 2015 and unaudited year-end results for the General Fund and the City’s other operating funds. This report is for informational purposes only. Audited year-end results will be provided in the City’s Comprehensive Annual Financial Report (CAFR); scheduled to be completed in December.
BACKGROUND
The City Council adopted the 2014-15 budget on June 3, 2013 and has modified it at various points since. General Fund revised revenue projections for FY 2014-15 equal $84.5 million. General Fund adjusted expenditure appropriations for FY 2014-15 equal $90.4 million; an increase of $7.6 million over original adopted expenditure appropriations of $82.8 million.
DISCUSSION
This report provides the City Council with a summary of revenues and expenditures through June 30, 2015 and compares them to the adjusted budget. As previously mentioned, the presentation of financial data to the City Council is prior to the completion of the audited financial statements.
Now that most of the major revenues for the fiscal year have been received and expenditures appropriately charged to last year have been posted, the Finance Department is better able to analyze year-to-date trends and year-end projections. Below is an analysis of revenues and expenditures for the General Fund and other key operating funds.
General Fund Revenue
In total, year-end actuals for General Fund revenues indicate a positive variance of $7.2 million over revised revenue projections for FY 2014-15. This is primarily due to the receipt of an additional $3.0 million in sales tax (helped by passage of the Measure HH sales tax add-on), $1.4 million in property transfer tax, and $540,000 in business license taxes. All other revenues show a positive variance of $2.3 million over revised revenue projections for FY 2014-15. Please refer to Table 1 in the attachment.
Sales Tax (+$2,969,000) Sales tax represents San Leandro’s largest General Fund revenue source. This increase has been led by across the board increases in all sales tax categories with the business to business sector, auto parts / repair, and electronic equipment sales showing the largest increases. Per the last quarterly report (Q1 2015) from the City’s sales tax consultants, San Leandro’s business to business sector increased by 46.9% when compared to the Quarter 1 (Q1) of 2014. Electronic equipment and auto parts / repair rose 780.1% and 25.6%, respectively, over the same time period. Measure Z and the newly adopted Measure HH represent $5.7 million of the total sales tax revenue received and will continue for 30 years; ending March 31, 2045.
Property Transfer Tax (+$1,401,000) Property Transfer Tax revenue is tied directly to all real property sales. It is a volatile revenue source and difficult to predict more than one year at a time. Factors that affect the revenue generated by Transfer Taxes are the sale price of property and the volume of property sold. Property Transfer Tax showed of positive variance of $1.4 million (56%) over the adjusted budget and increased by $638,000 (20%) over the prior year actuals of $3.3 million.
Business License Tax (+$540,000) Business License Tax is heavily influenced by not only the state of the economy, but also the continued diligence of City staff to ensure that all businesses within San Leandro comply with the City’s business license regulations and pay their appropriate share of business license taxes in a timely manner. Total business license taxes collected for FY 2014-15 equal $5.2 million; an increase of $400,000 over FY 2013-14 year-end actuals of $4.8 million.
General Fund Expenditures
The 2014-15 Adjusted Expenditure Budget totals $90.4 million and represents a $7.6 million increase over the Adopted Expenditure Budget due to encumbrance carryovers from the prior fiscal year (funded by dedicated fund balance), and one time Council approved items from unanticipated savings at the end of 2013-14. Year-End activity by department is summarized on Table 2 of the attached document. Overall year-end actual expenditures were 5.0% less than the Adjusted Expenditure Budget for FY 2014-15.
Summary Expenditures
The Non-Departmental budget overage of $1.1 million is due primarily to a $507,000 reclassification of termination payoffs and $800,000 in unrealized Interdepartmental Service Charges and Vacancy Savings in Employees Services. Rising need for services necessitated the quicker filling of vacant positions than originally anticipated when the budget was first prepared.
The Police budget overage of $53,000 is minimal and primarily due to higher than expected personnel costs in several divisions.
General Fund Year-End Summary
The 2014-15 year-end forecast for the General Fund has improved over the Adopted Budget, largely due to a greater amount of year-end revenues than expenditures, unspent project funds and prior year carryover of the Economic Uncertainty reserve surplus. It also reflects $1.2 million currently reserved for ACFD OPEB payments as previously discussed. Revised projections for 2014-15 reflect an operating increase in undesignated fund balance of $8.1 million over the adopted budget. Overall, staff projects a net fund balance in the General Fund of $22.9 million, an improvement of $13.2 million over the Adopted Budget. Please refer to Table 3 in the attachment.
All Other Funds
In addition to the City’s General Fund, City operations are supported by a number of other funds. Projected savings and budget modifications are all reflected in the estimated ending fund balances. Please refer to Table 4 in the attachment.
• The Parking Fund decreased $67,000 due to increased maintenance costs and revenues that were less than anticipated. Staff continues to monitor revenues and expenditures in the Parking Fund.
• The Asset Seizure Fund decreased $62,000 due to the expected use of seizure funds to finance appropriate and needed purchases within the Police Department. These purchases may not have been made absent Asset Seizure Funds.
The Water Pollution Control Plant (WPCP) Fund decreased $8.4 million and this was mainly due to the recording of $13 million in pension liability expense per GASB 68. The WPCP Fund is an enterprise fund that uses full accrual accounting. Under this method, all liabilities, even liabilities not expected to be paid from current resources (within the year), are reflected in a statement of financial position. Thus, this is why $13 million in net pension liability impacts the fund balance of the WPCP even though only about $800,000 is for the current year. The City’s General Fund, which uses modified accrual accounting, will not have a significant decrease due to GASB 68.
• The Storm Water Fund decreased $34,000 due to projects deferred to 2014-15.
• The Building Maintenance Fund decreased $469,000 due to increased maintenance costs and internal service charge revenues that were less than anticipated. Staff continues to monitor revenues and expenditures in the Building Maintenance Fund.
• The Information Technology Fund decreased $481,000 due to extraordinary equipment purchases and installation costs for projects in 2014-15.
CONCLUSION
This report provides an update on the 2014-15 budget performance and unaudited results for the General Fund and the City’s other operating funds. Better than expected revenues across the board and lower than expected expenditures in each department were the primary drivers in producing a positive budget balance.
Staff will present recommendations for designating portions of fund balance with the first quarter report, expected in the next few months.
ATTACHMENTS
• Table 1 - General Fund Revenues
• Table 2 - General Fund Expenditures
• Table 3 - General Fund Summary
• Table 4 - All Other Funds Summary
PREPARED BY: David Baum, Finance Director, Finance Department