AGENDA REPORT
Meeting Date: February 15, 2022
Item Number:
To:
From:
F-2
Honorable Mayor & City Council
Jeff S. Muir, Director of Finance
Tatiana Szerwinski, Assistant Director of Finance
Brandy Gros, Budget Manager
Subject: MIDYEAR UPDATE ON FISCAL YEAR 2021-22 GENERAL FUND
FINANCIAL RESULTS AND FORECAST AND APPROVAL OF A
GENERAL FUND APPROPRIATION OF $16,500
Attachments: None
RECOMMENDATION
This financial report is intended for City Council’s information and the City Council may provide direction as needed. It is recommended the City Council approve the $16,500 appropriation request.
INTRODUCTION
This item will provide a midyear update of the City’s fiscal year 2021-22 compared to fiscal year’s 2020-21 midyear results. This report will also provide a General Fund forecast for the remainder of fiscal year 2021-22. Additionally, there is a $16,500 appropriation request included in this report for literature databases and library materials funded by donations received from the Friends of the Beverly Hills Public Library.
DISCUSSION
Fiscal Year 2021-22 Midyear Update
On November 16, 2021, Finance presented unaudited General Fund financial results for fiscal year 2020-21 and first quarter fiscal year 2021-22 results.
Meeting Date: February 15, 2022
This report provides an update on General Fund financial results through the second quarter of fiscal year 2021-22 and a comparison to the same six-month period of the prior fiscal year. Overall, General Fund revenues for the first two quarters were approximately $25.2 million (27.4%) above the prior year’s results and expenditures were $18.8 million (15.8%) higher than results from the prior year.
Property Tax 82,590 38,854 34,113 4,741 13.9%
Sales Tax 33,709 22,484 15,239 7,244 47.5%
Transient Occupancy Tax 35,278 16,742 6,740 10,002 148.4% Business License Tax 43,053 3,264 2,667 596 22.4%
"Big Four" Taxes Sub-Total 194,630 81,343 58,759 22,584 38.4% Other Taxes 1,670 1,094 818 276 33.7%
Intergovernmental Revenues 827 170 749 (579) -77.3%
Federal Recovery Funds 3,180 4,042 0 4,042 100.0%
Licenses and Permits 18,894 9,640 7,738 1,903 24.6%
Fines and Penalties 5,035 3,986 2,314 1,672 72.3%
Use of Money and Property 6,264 34 2,292 (2,258) -98.5% Current Services 10,939 7,398 5,496 1,902 34.6%
Miscellaneous Revenues 8,885 9,349 10,191 (842) -8.3%
Transfers In 50 25 3,554 (3,528) -99.3%
Total Revenues 250,374 117,082 91,911 25,171 27.4%
EXPENDITURES
Salaries and Benefits 130,384 61,117 62,772 (1,655) -2.6% Materials and Supplies 2,252 888 914 (26) -2.8%
Contractual Services 34,784 21,676 23,300 (1,624) -7.0% Capital Outlay 700 1 52 (51) -98.2%
Internal Service Charges 51,758 29,140 22,774 6,366 28.0% Other Charges 8,781 7,034 4,476 2,558 57.1%
Transfer to Pension Trust 5,000 5,000 0 5,000 100.0%
Transfers Out 23,975 13,531 5,258 8,273 157.4%
Total Expenditures 257,634 138,387 119,545 18,841 15.8% Surplus / (Deficit) (7,260) (21,304) (27,634) 6,330
Transfer of WEP Earmark 10,000 5,000 0 (5,000)
Total Surplus / (Deficit) (17,260) (26,304) (27,634) 1,330 General Fund
($ Thousands)
REVENUES
FY2021-22
Adopted
Budget
FY2021-22
July - Dec
Actuals
FY2020-21
July - Dec
Actuals
Variance from
Prior Year
%
Variance
Note: The above represents actual activity during these first six months of the fiscal year and disregards certain accounting/accrual entries in order to assist with comparison.
Meeting Date: February 15, 2022
High-level midyear revenue variances between FY 2021-22 and FY 2020-21 are as follows:
“Big Four” tax revenues are up over 38.4% from the same period last fiscal year, driven by significant increases in sales tax and TOT, followed by an increase in property tax. For fiscal year 2020-21, the economy was just beginning to reopen in Q1 (July to September), and into Q2 (October to December), there were still significant closures and/or restrictions in many sectors, particularly travel/tourism.
Fiscal year 2021-22 continues to see strong gains in sales tax and TOT as the City recovers from the impacts of the pandemic. Property tax increases were primarily fueled by slightly higher than anticipated assessed valuation, as well as an increase in the amount of actuarially-determined annual public safety pension obligations that are recoverable through the public safety pension override tax being higher than the prior year. The vast majority of business license taxes are expected to be collected when due in January.
o When further examining “Big Four” revenues against the first “prepandemic” six months from fiscal year 2019-20, the City’s revenues have significantly recovered, with the exception of transient occupancy tax.
Total “Big Four” revenues for the period of July 2021 through December 2021 are $81.3 million, which is $2.9 million above the July 2019 through December 2019 total of $78.4 million.
Property Tax 38,854 34,113 32,005 6,849 21.4%
Sales Tax 22,484 15,239 17,034 5,449 32.0%
Transient Occupancy Tax 16,742 6,740 24,120 (7,378) -30.6% Business License Tax 3,264 2,667 5,235 (1,971) -37.7%
"Big Four" Taxes Sub-Total 81,343 58,759 78,395 2,949 3.8% Other General Fund Revenues 35,739 33,152 46,090 (10,351) -22.5% Total Revenues 117,082 91,911 124,485 (7,402) -5.9%
% Var
General Fund
($ Thousands)
REVENUES
FY2021-22
July - Dec
Actuals
FY2020-21
July - Dec
Actuals
FY2019-20
July - Dec
Actuals
Variance
from FY21-22
to FY19-20
Federal recovery funds for fiscal year 2021-22 represent the recognition of the second installment of American Rescue Plan relief funds. The City’s allocation ended up higher than originally indicated when the budget was being put together, which is why it exceeds the budgeted amount.
Licenses and permits are up nearly 25% over the prior year, driven primarily by increased building and development activity and to a lesser extent, increased permit activity for Greystone use and filming.
Fines and penalties are up significantly over the prior year as a result of increased parking enforcement activity.
Use of money and property is currently reflecting a small balance due to accounting standards which require the City to mark its portfolio holdings to market, and with interest rates continuing to rise recently, additional “unrealized losses” were recorded as a result. Without these unrealized losses, this category would be reporting approximately $1.0 million. Because the City generally holds its investments to maturity, these losses are ultimately not realized. Current services revenues are up over the prior year primarily as a result of more fee-based summer programming being available compared to the prior year as well as increases in preschool program and daycare fees, special events fees, inspections, plan maintenance fees, zone change fees, and ambulance fees.
Meeting Date: February 15, 2022
Miscellaneous revenues were lower primarily due to recoverable expenditures from BHUSD received during this period of the prior year and higher Metro reimbursements received for the same period, mostly offset by larger public benefit contributions in the current year.
Transfers in to the General Fund are budgeted significantly lower this year, as there were one-time transfers budgeted in the prior year to assist with offsetting the revenue impact of the pandemic.
High-level midyear expenditure variances between FY 2021-22 and FY 2020-21 are as follows:
Salaries and benefits were lower than the same period of the prior year as a result of the voluntary retirement/separation incentives and a lower headcount for the first half of the current fiscal year compared to the prior year, somewhat offset by cost-of-living increases effective in October.
Internal service charges are up as some of the charges that were deferred in the prior year to mitigate pressure on the General Fund were reinstated in FY 2021- 22, and increasing insurance costs have driven up the allocations for the Liability Fund.
Other charges increased over the prior year because the entire amount budgeted for retiree medical liability (“OPEB”) costs were transferred into the Section 115 OPEB Trust in July, where those charges were allocated over the full fiscal year last year.
Similar to OPEB, the $5.0 million budgeted for accelerated pay down of the unfunded pension liability was transferred to the Section 115 Pension Trust in July; where in contrast it was transferred during the second half of the prior year. Budgeted transfers out are significantly higher than the prior year, and therefore the amount recorded through the second quarter is higher.
Overall, variances between the first half of the current fiscal year compared to the prior year are explainable and generally within expectations. The fact that expenditures outpace revenues through the second quarter, albeit to a lesser extent than the prior year, is a typical pattern each fiscal year because property tax is primarily received from December through June and business tax is primarily received in January.
Meeting Date: February 15, 2022
Fiscal Year 2021-22 Forecast
The table below summarizes the fiscal year 2021-22 General Fund adopted budget, revised budget, forecasted actuals and percentage of revised budget.
Property Tax 82,590 82,590 92,586 9,997 12.1%
Sales Tax 33,709 33,709 40,646 6,937 20.6%
Transient Occupancy Tax 35,278 35,278 39,864 4,585 13.0% Business License Tax 43,053 43,053 47,337 4,285 10.0%
"Big Four" Taxes Sub-Total 194,630 194,630 220,434 25,804 13.3% Other Taxes 1,670 1,670 1,644 (26) -1.5%
Intergovernmental Revenues 827 827 340 (487) -58.9%
Federal Recovery Funds 3,180 3,180 4,042 862 27.1%
Licenses and Permits 18,894 18,493 19,281 788 4.3%
Fines and Penalties 5,035 5,035 7,973 2,937 58.3%
Use of Money and Property 6,264 6,264 3,068 (3,197) -51.0% Current Services 10,939 10,939 12,792 1,853 16.9%
Miscellaneous Revenues 8,885 8,885 12,830 3,945 44.4%
Transfers In 50 53 53 0 0.0%
Total Revenues 250,374 249,976 282,455 32,480 13.0%
EXPENDITURES
Salaries and Benefits 130,384 129,957 132,065 2,109 1.6% Materials and Supplies 2,252 2,454 1,963 (491) -20.0%
Contractual Services 34,784 52,164 49,772 (2,391) -4.6% Capital Outlay 700 1,965 1,375 (589) -30.0%
Internal Service Charges 51,758 51,758 51,758 0 0.0%
Other Charges 8,781 8,793 8,106 (688) -7.8%
Transfer to Pension Trust 5,000 5,000 5,000 0 0.0%
Transfers Out 23,975 25,650 25,650 0 0.0%
Total Expenditures 257,634 277,740 275,690 (2,050) -0.7% Surplus / (Deficit) (7,260) (27,764) 6,766 34,530
Transfer of WEP Earmark 10,000 10,000 10,000 0
Total Surplus / (Deficit) (17,260) (37,764) (3,234) 34,530 General Fund
($ Thousands)
REVENUES
FY2021-22
Adopted
Budget
FY2021-22
Revised
Budget
Forecasted
FY2021-22
Actuals
%
Variance
Variance
Revised
Budget vs.
Forecast
High-level revenue comparisons of the revised budget to forecasted actuals are as follows:
Property tax is estimated based on the City consultant’s (HdL) estimate, and is forecasted above budget due to slightly higher than anticipated assessed valuation, as well as an increase in the amount of actuarially-determined annual public safety pension obligations that are recoverable through the public safety pension override tax which was approved subsequent to budget adoption.
Meeting Date: February 15, 2022
Conservative sales tax estimates were used in developing the current year’s budget; however, based on sales tax activity through the third quarter of calendar year 2021, the City’s consultant (HdL) has developed an updated forecast of $40.6 million, or an increase of $6.9 million.
Transient occupancy tax continues to show signs of improvement and based on the experience through the first five months of filings for the fiscal year, the forecast is projected to exceed the budget by $4.6 million. As of the drafting of this report, business license tax renewals reflect better results than the prior year, and the forecast is being increased to $47.3 million based on receipts as of February 1, 2022, which is $4.3 million above the adopted budget.
Budgeted intergovernmental revenues consist mainly of federal recovery funds ($4.0 million forecasted actuals), which have been segregated from the rest of this category, leaving remaining anticipated revenues of $0.3 million from other grant sources.
Licenses and permits are forecasted to exceed the budget by $0.8 million due to increased construction and permit related activities.
Increases in fines and penalties of $3.0 million are due primarily to increased activity in parking violations from the prior year (approximately $2.0 million). Due to fluctuating interest rates and lower than anticipated interest earnings through the first six months of the year relative to the same period from last fiscal year, a conservative forecast of $3.1 million has been included for use of money and property.
Current services revenues are forecasted higher than the budget due to increases in fee-based programming, ambulance fees, and zone change fees. Miscellaneous revenues are forecasted above the revised budget primarily due to the combination of a $5.0 million public benefit contribution that was unbudgeted and a decreased estimate of forecasted Metro recoverable expenditures.
High-level expenditure comparisons of the revised budget to forecasted actuals are as follows:
Salaries and benefits are projected to exceed the budget due largely to increases in overtime relative to the budget, the increased pace of filling vacant positions relative to the assumed pace and estimated budgeted savings, and various citywide position reclassifications with retroactive pay impacts. Materials and supplies are currently forecasted to be under budget based on actual experience and expenditures over the first 6 months as well as prior year patterns.
Contractual services are forecasted to come in under budget for the fiscal year by $2.4 million and include expenditures for major items such as Metro purple line related costs, enhanced security expenditures (including the additional $1.8 million appropriated on 2/8/22), and BHUSD JPA expenditures. Internal service charges, other charges, and transfers out are expensed to equal the budget. Transfer to the pension trust of $5.0 million annually is part of the Council approved plan to shorten the amortization of the unfunded pension liability.
Meeting Date: February 15, 2022
General Fund Reserves
Based on the audited results for fiscal year 2020-21, the City has total General Fund reserves of $215.3 million, which decreased by $4.1 million from the previous fiscal year’s total of $219.3 million, as detailed below. This overall decrease was driven by the $15 million transfer of the Metro Rodeo North Portal Station earmarked funding out of committed fund balance, and setting aside that transfer, there was an $11.0 million surplus, or increase to fund balance. Based on the above forecasted results for fiscal year 2021-22, there is an estimated total reduction of fund balance of $13.0 million due to transfers out of previously earmarked/committed fund balance of $20.0 million for both the Water Enterprise Plan (WEP) and Retiree Medical Liability (OPEB) Trust, but offset by the forecasted $6.8 million surplus (which incorporates the additional $1.8 million appropriation brought forward on February 8, 2022 for additional enhanced security contract funding), which leaves a total estimated fund balance of $202.0 million. The City continues to exceed its adopted financial policy required reserves.
The economic/contingency reserve required by the City’s financial policies is comprised of at least 40% of General Fund expenditures, and shall not decrease unless approved by the Council. Based on the above fiscal year 2021-22 forecast, 40% of operating expenditures is $95.3 million and as such it is recommended that the current economic contingency reserve of $101.2 million be maintained and not decreased. Council has also established a budget stabilization reserve available for one-time deficits. It should be noted that during the course of the pandemic, utilization of either of these reserve sources have been unnecessary, a testament to the financial stability and resiliency of the City. Additional elements of total reserves include funds committed by Council for specified purposes or other restricted funds. This leaves a forecasted unassigned fund balance of $36.8 million, above current restrictions, contingency, and stabilization reserves, which can be available for one-time use per direction of the City Council.
General Fund Reserves (Fund Balance)
($ Thousands)
FY2019-20
Audited
Actuals
FY2020-21
Audited
Actuals
FY2021-22
Unaudited
Forecasted
Actuals
Economic/Contingency Reserve (minimum 40%)
Contingency Reserve (minimum 25%) 63,262 $ 63,262 $ 63,262 $ Economic Reserve (minimum 15%) 37,958 37,958 37,958
Total Economic/Contingency Reserve 101,220 101,220 101,220 Budget Stabilization Reserve 13,000 13,000 13,000
Committed Fund Balance (Council earmarks)
Metro Rodeo Station North Portal 15,000 - -
Property Acquisition (Subway related) 5,000 5,000 5,000 Water Fund (WEP Support) 10,000 10,000 -
Retiree Medical Liability 10,000 10,000 -
Street Tree Removal & Replacement 1,123 1,123 1,123
Committed Fund Balance Total 41,123 26,123 6,123
Nonspendable (long-term receivables/advances to other funds) 8,3 6,853 94 6,853 Restricted (Pension trust) 23,416 22,733 21,684
Encumbrances/Carryovers 10,078 16,401 16,401
Unassigned 22,095 28,946 36,761
Total Fund Balance 219,326 $ 215,276 $ 202,042 $
Meeting Date: February 15, 2022
Other Items
Donation
The Friends of the Beverly Hills Public Library made a donation of $16,500 to the City to support media and e-book subscription fees and homebound delivery services. This additional revenue has been received and as such, it is requested that the City Council approve an appropriation in the amount of $16,500 to the Community Services operating budget therefor.
FISCAL IMPACT
This financial update to the City Council has no specific fiscal impact. The $16,500 appropriation request is funded through a donation by the Friends of the Beverly Hills Public Library.
Tatiana Szerwinski
Assistant Director of Finance
Jeff S. Muir
Director of Finance
Approved By Approved By