AGENDA REPORT
Meeting Date: May 10, 2022
Item Number:
To: Honorable Mayor & City Council
From: Jeff S. Muir, Director of Finance
Tatiana Szerwinski, Assistant Director of Finance
Brandy Gros, Budget Manager
Subject: UPDATE ON FISCAL YEAR 2021-22 GENERAL FUND FINANCIAL
RESULTS AND FORECAST IN PREPARATION FOR FISCAL YEAR
2022-23 BUDGET PROCESS, AND
APPROVAL OF A GENERAL FUND APPROPRIATION OF $34,960.32
FOR LIBRARY EXPENDITURES FUNDED BY DONATION, AND
APPROVAL OF AN ADVANCED APPROPRIATION OF $180,193
FROM THE CABLE TELEVISION AND INFORMATION
TECHNOLOGY FUNDS FOR RECORDING AND BROADCASTING
EXPENDITURES FOR FISCAL YEAR 2022-23
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 $34,960.32 General Fund appropriation request for literature databases and library material expenditures funded by donations received from the Friends of the Beverly Hills Public Library, and that City Council approve the advanced appropriation request of $160,193 from the Cable Television Fund for an additional 1.6 FTE for the position of Senior Video Production Specialist and $20,000 from the Information Technology Fund for recording and broadcasting expenditures for fiscal year 2022-23.
INTRODUCTION
This item will provide an update through the third quarter of the City’s fiscal year 2021-22 compared to the same period of the prior fiscal year 2020-21. This report will also provide a General Fund forecast for the remainder of fiscal year 2021-22. Additionally, F-2
Meeting Date: May 10, 2022
there are two appropriation requests: (1) for $34,960.32 from the General Fund for literature databases and library materials funded by donations received from the Friends of the Beverly Hills Public Library and (2) for $180,193 from the Cable Television and Information Technology Funds for recording and broadcasting expenditures and an additional 1.6 FTE for fiscal year 2022-23.
DISCUSSION
Fiscal Year 2021-22 Update through March 31, 2022
On November 16, 2021, Finance presented unaudited General Fund financial results for fiscal year 2020-21 and first quarter fiscal year 2021-22 results. On February 15, 2022, Finance presented a midyear update on the fiscal year 2021-22 financial results and forecast.
This report provides an update on General Fund financial results through the third quarter of fiscal year 2021-22 and a comparison to the same nine-month period of the prior fiscal year. Overall, General Fund revenues for the first three quarters were approximately $46.9 million (27.9%) above the prior year’s results and expenditures were $22.0 million (12.5%) higher than results from the prior year.
Property Tax 82,590 55,508 48,474 7,034 14.5%
Sales Tax 33,709 33,354 25,948 7,405 28.5%
Transient Occupancy Tax 35,278 24,334 6,436 17,898 278.1% Business License Tax 43,053 52,116 42,724 9,392 22.0%
"Big Four" Taxes Sub-Total 194,630 165,313 123,583 41,730 33.8% Other Tax 1,670 1,687 1,173 514 43.8%
Intergovernmental Revenues 827 1,364 1,086 278 25.6%
Federal Recovery Funds 3,180 4,042 0 4,042 100.0%
Licenses and Permits 18,894 13,648 10,376 3,272 31.5%
Fines and Penalties 5,035 5,752 3,411 2,340 68.6%
Use of Money and Property 6,264 1,822 3,486 (1,664) -47.7% Service Fees and Charges 10,939 10,287 7,033 3,254 46.3% Miscellaneous Revenues 8,885 10,806 12,415 (1,609) -13.0% Transfers In 50 41 5,308 (5,267) -99.2%
Total Revenues 250,374 214,759 167,870 46,889 27.9%
EXPENDITURES
Salaries and Benefits 130,384 95,013 92,441 2,572 2.8%
Materials and Supplies 2,252 1,543 1,468 75 5.1%
Contractual Services 34,784 30,504 30,890 (386) -1.2%
Capital Outlay 700 1 60 (59) -98.2%
Internal Service Charges 51,758 40,449 32,430 8,019 24.7% Other Charges 8,781 8,389 5,387 3,002 55.7%
Transfer to Pension Trust 5,000 5,000 5,000 0 100.0%
Transfers Out 23,975 17,156 8,387 8,769 104.6%
Total Expenditures 257,634 198,054 176,062 21,993 12.5% Surplus / (Deficit) (7,260) 16,705 (8,192) 24,896
FY2021-22
Adopted
Budget
FY2020-21
July - March
Actuals
Variance
from Prior
Year
%
Variance
FY2021-22
July - March
Actuals
General Fund
($ Thousands)
Note: The above represents actual activity during these first nine months of the fiscal year and disregards certain accounting/accrual entries in order to assist with comparison. The above also excludes the $10 million transfer to the water fund, as this is considered a below the line transfer from committed fund balance.
Meeting Date: May 10, 2022
High-level revenue variances between FY 2021-22 and FY 2020-21 for results through the third quarter are as follows:
“Big Four” tax revenues are up over 33.8% from the same period last fiscal year, driven by significant increases in transient occupancy tax (TOT) ($17.9 million above the prior year), and business tax ($9.4 million above the prior year). Sales tax and property tax are also showing signs of improvement from the prior year for the same period by over $7.0 million each. 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 into Q3 (January to March). Fiscal year 2021-22 continues to see strong gains across all four major revenues as the City recovers from the impacts of the pandemic. TOT increases were driven by reopening activity in the third quarter and increased travel to the area, in particular in January 2022 and February 2022 due to the Super Bowl and the Oscars. As a result of economic recovery seen into the third quarter of fiscal year 2021-22, business license tax and sales tax also increased substantially over the prior year. 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, which are recoverable through the public safety pension override tax, being higher than the prior year.
o When further examining fiscal year 2021-22 “Big Four” revenues against the first “pre-pandemic” nine months from fiscal year 2019-20, the City’s revenues have significantly recovered and in two cases, surpassed fiscal year 2019-20 revenue (in the cases of property and sales tax, by $9.3 million and $6.2 million respectively). In contrast, while showing signs of recovery, TOT is still $8.1 million below pre-pandemic levels at $24.3 million versus $32.4 million. Business license tax is also nearly recovered, just below pre-pandemic levels by $1.5 million. “Big Four” revenues for the period of July 2021 through March 2022 are $165.3 million, which is $6.0 million above the July 2019 through March 2020 total of $159.3 million.
Property Tax 55,508 48,474 46,236 9,272 19.1%
Sales Tax 33,354 25,948 27,113 6,241 24.1%
Transient Occupancy Tax 24,334 6,436 32,412 (8,078) -125.5% Business License Tax 52,116 42,724 53,569 (1,453) -3.4% "Big Four" Taxes Sub-Total 165,313 123,583 159,330 5,983 4.8% %
Variance
General Fund
($ Thousands)
FY2021-22
July - March
Actuals
FY2020-21
July - March
Actuals
FY2019-20
July - March
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, permits, and plan checks are up nearly 31.5% over the prior year, driven primarily by increased building and development activity as well as increased filming and Greystone use permits.
Meeting Date: May 10, 2022
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 balance of $1.8 million due to a lower interest rate environment through much of the nine month period. 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. Miscellaneous revenues were lower primarily due to recoverable expenditures from BHUSD received through 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 expenditure variances through the third quarter between FY 2021-22 and FY 2020-21 are as follows:
Salaries and benefits were higher than the same period of the prior year as a result of increased hiring through the third quarter of the current fiscal year compared to the prior year along with 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.
The $5.0 million budgeted for accelerated pay down of the unfunded pension liability was transferred to the Section 115 Pension Trust by the third quarter of both the current and prior fiscal years.
Budgeted transfers out are significantly higher than the prior year, due largely to the transfers into the Infrastructure Fund, Water Fund, and Parking Enterprise Fund to support capital improvement projects, and therefore the amount recorded through the third quarter is higher.
Overall, variances between the third quarter of the current fiscal year compared to the prior year are explainable and generally within expectations. Compared to the mid-year update where expenditures were outpacing revenues, by the third quarter of current fiscal year, revenues began outpacing expenditures, due in part to continued recovery from the pandemic, the significant business tax receipts in January, and strong property and sales tax receipts into the third quarter of the current fiscal year.
Meeting Date: May 10, 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. Finance takes a conservative approach in forecasting, which continues to be essential due to the unpredictability of the pandemic and associated economic recovery. As such, the below forecast is anticipating an increased surplus of $15.3 million compared to $6.7 million as of the February 15, 2022 update, due largely to better than anticipated results in business license tax. Of this forecasted surplus, $5.0 million is due to the first payment received from the OneBH project, and it will be recommended that these funds be earmarked and set aside for future one-time expenditure priorities. This recommendation will be formally brought forward as part of the fiscal year 2021-22 year end update, where closer to final actual results for the year will be brought forward along with recommendations for the use of actual surplus funds.
Property Tax 82,590 82,590 92,586 9,997 12.1%
Sales Tax 33,709 33,709 40,456 6,747 20.0%
Transient Occupancy Tax 35,278 35,278 39,986 4,707 13.3% Business License Tax 43,053 43,053 52,972 9,920 23.0%
"Big Four" Taxes Sub-Total 194,630 194,630 226,000 31,370 16.1% Other Taxes 1,670 1,670 1,670 0 0.0%
Intergovernmental Revenues 827 827 1,364 537 64.9%
Federal Recovery Funds 3,180 3,180 4,042 862 27.1%
Licenses and Permits 18,894 18,493 18,493 0 0.0%
Fines and Penalties 5,035 5,035 6,710 1,675 33.3%
Use of Money and Property 6,264 6,264 5,719 (545) -8.7% Current Services 10,939 10,939 13,716 2,777 25.4%
Miscellaneous Revenues 8,885 8,885 12,247 3,362 37.8%
Transfers In 50 53 53 0 0.0%
Total Revenues 250,374 249,976 290,015 40,039 16.0%
EXPENDITURES
Salaries and Benefits 130,384 130,404 128,914 (1,490) -1.1% Materials and Supplies 2,252 2,459 2,057 (402) -16.3%
Contractual Services 34,784 53,083 51,092 (1,991) -3.8% Capital Outlay 700 864 864 0 0.0%
Internal Service Charges 51,758 51,758 51,758 0 0.0%
Other Charges 8,781 8,781 9,317 536 6.1%
Transfer to Pension Trust 5,000 5,000 5,000 0 0.0%
Transfers Out 23,975 25,705 25,705 0 0.0%
Total Expenditures 257,634 278,055 274,708 (3,346) -1.2% Surplus / (Deficit) (7,260) (28,079) 15,307 43,385
Less Carryforwards 0 16,400 0 0
Surplus / (Deficit) (7,260) (11,679) 15,307 43,385
REVENUES
FY2021-22
Adopted
Budget
FY2021-22
Revised
Budget
Forecasted
FY2021-22
Actuals
Variance
Revised
Budget vs.
Forecast
General Fund
($ Thousands)
% Variance
Meeting Date: May 10, 2022
The revised budget for fiscal year 2021-22 shows an increased deficit position of $11.7 million (or a $4.4 million increase from the adopted budget). The deficit increase is largely due to additional new appropriations of $1.7 million for public safety services, $0.7 million for Community Assistance Grant Fund increases, $1.5 million for Metro increases, and $0.5 million for consulting services for the Cheval Blanc Beverly Hills Project.
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. 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 $40.5 million, or an increase of $6.7 million to the revised budget. Transient occupancy tax continues to show signs of improvement and based on the experience through the first eight months of filings for the fiscal year, the forecast is projected to exceed the budget by $4.7 million. Business license tax reflects better results than the prior year, and the forecast is being increased to $53.0 million ($5.6 million higher than the February forecast) based on receipts as of April 25, 2022, which is $9.9 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 $1.4 million from other grant sources.
Licenses and permit revenue is forecasted to come in near the budgeted revenue at $18.5 million due to increased construction and permit related activities. Fines and penalties revenue is forecasted above the budget at $6.7 million due primarily to increased activity in parking violations from the prior year (currently by $2.8 million).
Meeting Date: May 10, 2022
It is currently anticipated that use of money and property will be slightly below the budget by $0.5 million, due primarily to lower than anticipated interest earnings through the first nine months of the year relative to the same period from last fiscal year.
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 offset by a slightly 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 be $128.9 million, and just below the budget by $1.5 million. This is a decrease of $3.2 million from the February forecast of $132.1 million attributed to a reclassification of $2.2 million for incentive leave cash outs now expensed from the Employee Benefits Fund, and actual payroll expenses decreasing relative to the previously forecasted estimate by $1.0 million.
Materials and supplies are currently forecasted to be under budget based on actual experience and expenditures over the first nine months. Contractual services are forecasted to come in under budget for the fiscal year and include expenditures for major items such as Metro purple line related costs, enhanced security expenditures, 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: May 10, 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. 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 $4.7 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 $15.3 million surplus (which incorporates the additional $1.8 million appropriation brought forward on February 8, 2022 for additional enhanced security contract funding), along with additional appropriations approved on April 12, 2022 for the Real Time Watch Center ($0.4 million General Fund), Ambassadors ($0.2 million), which leaves a total estimated fund balance of $210.6 million. The City continues to exceed its adopted financial policy required reserves.
General Fund Reserves (Fund Balance)
($ 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) 8,394 6,853 6,853 Restricted (Pension trust) 23,416 22,733 21,684
Encumbrances/Carryovers 10,078 16,401 16,401
Unassigned 22,095 28,946 45,302
Total Fund Balance $ 219,326 $ 215,276 $ 210,583
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. It is recommended that the current economic contingency reserve of $101.2 million be maintained. 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 $45.3 million, above current restrictions, contingency, and stabilization reserves, which can be available for one-time use per direction of the City Council.
Meeting Date: May 10, 2022
COVID-Appropriation Update
Through April 2022, the City has spent approximately $2.9 million for the purchase of materials and supplies, contractual services, and capital outlay as part of the City’s response to the COVID-19 Pandemic. Significant expenses include $0.7 million for the Senior Meals Program, $0.4 million for enhanced cleaning and disinfecting activities, $0.4 million for remote work operations, $0.3 million for PPE purchases, and $0.3 million for COVID newspaper ads and signage. The City has helped offset the costs of the pandemic through various external funding sources, including $0.5 million in CDBG funding for the Senior Meals Program and over $2.0 million that been submitted to FEMA for reimbursement.
City Council appropriated $2.0 million for COVID-related expenditures on October 13, 2020. Of the $2.9 million spent above, approximately $2.1 million was able to be absorbed by departments’ budgets last fiscal year and this fiscal year, leaving $0.8 million funded by the aforementioned appropriation. An additional $1.0 million has been expended for private security firms Nastec International, Inc. and Covered 6 LLC/DGP International, based on a Council approved appropriation on February 8, 2022 providing for the use of any remainder of the COVID appropriation for public security contracts.
There remains $0.2 million currently unexpended.
Public Security-Appropriation Update
Through April 2022, the City has spent approximately $5.8 million for the purchase of materials and supplies, contractual services, and capital outlay related to supplemental enhancements to public safety since May 2020. Significant expenses include $5.1 million for armed security services, $0.3 million on meals and lodging, and $0.2 million on police supplies and equipment.
City Council appropriated $3.4 million for supplemental public safety-related expenditures on October 13, 2020, $0.4 million on December 8, 2020, and $0.9 million on February 2, 2021, for a total of $4.7 million, which has been fully expended, primarily on the armed security service firms Nastec International, Inc. and Covered 6 LLC/DGP International. Following is a summary of supplemental public safety-related expenditures by activity:
Description
Total Public
Security
Expenses
Amounts
Funded by
Supplemental
Appropriations
Amounts Not
Funded by
Supplemental
Appropriations
Armed security service $ 5,094 $ 4,306 $ 788
Barricade & forklift rental 166 114 52
Hotel stays 107 31 75
Meals 181 49 132
Other 27 1 26
Police supplies & equipment 197 154 42
TOTAL $ 5,770 $ 4,655 $ 1,115
Public Security Appropriation Summary (in thousands)
Meeting Date: May 10, 2022
Other Items
Donation
The Friends of the Beverly Hills Public Library made a donation of $34,960.32 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 $34,960.32 to the Community Services operating budget therefor.
Continued Recording and Broadcasting of City Council Liaison and Certain Ad Hoc Meetings
Based on City Council direction from the April 12, 2022 study session, Staff recommends that the City Council authorize the addition of 1.6 FTEs (two regular parttime positions) to the Information Technology Department to support the continued recording and broadcasting of hybrid City Council led liaison and certain ad hoc meetings. There are no appropriations requested for the remainder of the current fiscal year 2021-22 as existing budget will be utilized. The cost to continue recording and broadcasting City Council led liaison and certain ad hoc meetings would require ongoing appropriations of $20,000 for software maintenance and licensing and $160,193 for 1.6 FTEs (two regular part-time Senior Video Production Specialist positions). With Council approval, both of these appropriations will be incorporated into the fiscal year 2022-23 proposed operating budget.
Upcoming Budget Process
This third-quarter update on the General Fund will be the final update leading into the upcoming fiscal year 2022-23 budget process. There will be a City Council study session for the Proposed Fiscal Year 2022-23 CIP Budget on May 17, 2022 and a study session on May 24, 2022 for the Proposed Fiscal Year 2022-23 Operating Budget.
FISCAL IMPACT
This financial update to the City Council has no specific fiscal impact. The $34,960.32 appropriation request is funded through a donation by the Friends of the Beverly Hills Public Library. The advanced appropriation request of $160,193 from the Cable Television Fund and $20,000 from the Information Technology Fund will be incorporated into the fiscal year 2022-23 proposed operating budget.
Tatiana Szerwinski,
Assistant Director of Finance
Jeff S. Muir,
Director of Finance
Approved By Approved By