STAFF REPORT
Meeting Date: November 7, 2023
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 2022-23 Unaudited General Fund Financial Results, Recommendation for Allocation of Fiscal Year 2022-23 General Fund Available Balance, and Approval of a General Fund Appropriation of $1,117,365 for Tourism and Marketing
Attachments: None
INTRODUCTION
This item will provide an update of the City’s fiscal year 2022-23 unaudited results compared to the most recent interim year forecast previously presented to Council. Staff recommends City Council approve the recommended allocation of the fiscal year 2022- 23 General Fund available balance and approve a $1,117,365 General Fund true-up appropriation for tourism and marketing.
DISCUSSION
Fiscal Year 2022-2023 Unaudited General Fund Financial Results On March 7, 2023, Finance presented a revised General Fund financial forecast for fiscal year 2022-23 which was based on information available at that time and projected a total surplus of $2.7 million. With fiscal year 2022-23 now complete, staff has prepared the following summary table that compares current unaudited actuals with what was projected.
Meeting Date: November 7, 2023
FY 2022-23
Forecast as
of March
2023
Actuals
Variance
from
Forecast
Operating Revenue (including Operating Transfers In) $ 300.8 $ 313.7 $ 12.9 Operating Expenditures (including Operating Transfers Out) 273.5 277.0 3.5 Operating Surplus / (Deficit) before One-Time Revenue 27.3 36.8 9.4 One-Time Major Development Projects Net Revenue 5.7 3.7 (1.9) Non-Operating Transfers Out (22.3) (22.3) -
Total Surplus / (Deficit) from Current Year Resources 10.7 18.2 7.5 Transfers Out of Committed Fund Balance (8.0) (8.0) -
Total Surplus / (Deficit) $ 2.7 $ 10.2 $ 7.5
Immaterial differences may exist when adding rounded figures above.
General Fund
($ Millions)
Overall, General Fund operating revenue (before one-time revenue) was approximately $12.9 million (4.3%) above the forecast and operating expenditures were $3.5 million (1.3%) higher than forecasted. As a result, the total surplus was $7.5 million higher than the March forecast. For additional perspective, detailed actual results for fiscal years 2020-21 and 2021-22 are included below along with a comparison of the March 2023 forecast to unaudited actuals for fiscal year 2022-23.
Meeting Date: November 7, 2023
Forecast
as of
March 2023
Actuals
Property Tax 86,391 93,842 96,928 101,777 4,849 5.0%
Sales Tax 37,235 45,489 45,676 43,344 (2,332) -5.1%
Transient Occupancy Tax 19,255 42,411 48,000 51,822 3,822 8.0% Business License Tax 43,765 53,726 54,300 58,101 3,801 7.0% "Big Four" Tax Subtotal 186,646 235,469 244,904 255,043 10,139 4.1% Other Taxes 1,663 2,165 1,455 1,177 (278) -19.1%
Intergovernmental Revenue 1,259 1,527 386 1,075 690 178.8% Federal Recovery Funds 4,320 4,042 0 0 0 0.0%
Licenses and Permits 14,964 19,132 19,951 19,247 (705) -3.5% Fines and Penalties 5,333 7,585 6,918 6,756 (162) -2.3% Use of Money and Property 5,610 4,288 4,437 5,465 1,029 23.2% Net Change in Fair Value of Investments (788) (4,917) 0 891 891 N/A Service Fees and Charges 9,793 10,804 13,394 12,579 (816) -6.1% Miscellaneous Revenue 18,034 10,607 9,363 11,495 2,132 22.8% Operating Transfers In 83 90 6 6 0 0.0%
Operating Revenue[1] 246,915 290,791 300,814 313,735 12,921 4.3%
EXPENDITURES
Salaries and Benefits 127,830 129,390 137,006 136,939 (67) 0.0% Materials and Supplies 2,164 2,247 1,821 2,732 911 50.0% Contractual Services 43,707 44,219 47,978 50,591 2,613 5.4% Capital Outlay 60 1 0 12 12 N/A
Internal Service Charges 42,085 51,758 66,556 66,556 (0) 0.0% Other Charges 10,291 9,391 10,720 10,666 (53) -0.5%
Transfer to Pension Trust 5,000 5,000 5,000 5,000 0 0.0% Pension Liability Paydown from Trust 2,279 0 0 0 0 N/A
Operating Transfers Out 5,263 5,192 4,395 4,467 72 1.6% Operating Expenditures[2] 238,681 247,199 273,477 276,964 3,488 1.3% Net Operating Surplus / (Deficit) 8,235 43,592 27,337 36,770 9,433 34.5% One-Time Major Development Projects Net Revenue[3] 0 5,360 4,200 2,233 (1,967) -46.8% Public Benefit Contributions 1,000 5,000 1,500 1,500 0 0.0% Non-Operating Transfers In 7,000 1,055 0 0 0 0.0%
Non-Operating Transfers Out
Transfer to Infrastructure Fund (2,800) (11,543) (12,500) (12,500) 0 0.0% Transfer to Parking Fund 0 (6,000) (6,000) (6,000) 0 0.0% Stormwater Subsidy (2,485) (3,335) (3,400) (3,400) 0 0.0% Transfer to PAL Fund for Unhoused Pilot 0 0 (451) (451) 0 0.0% Total Surplus / (Deficit) from Current Year Resources 10,950 34,129 10,687 18,152 7,466 69.9% Utilization of General Fund Reserves
Transfer for Land Acquisition 0 0 (7,995) (7,995) 0 0.0% Transfer to Infrastructure Fund (15,000) 0 0 0 0 0.0%
Transfer to Water Enterprise Fund 0 (10,000) 0 0 0 0.0% Transfer to OPEB Trust 0 (10,000) 0 0 0 0.0%
Total Surplus / (Deficit) (4,050) 14,129 2,692 10,157 7,466 277.4% [1] Operating Revenue excludes one-time revenue from major development projects, accounted for below the line. [2] Operating Expenditures exclude salaries and benefits of the Major Projects Team, accounted for below the line. [3] One-time revenue from major development projects, net of salaries and benefits of the Major Projects Team.
NOTE: The Section 115 Pension Trust is included in the General Fund for purposes of financial reporting in the Annual Comprehensive Financial Report. The results above exclude the Section 115 Pension Trust, as well as certain accounting/accrual entries totaling $1.9 million in aggregate in order to assist with comparison. Immaterial differences may exist when adding rounded figures above.
General Fund
($ Thousands)
REVENUES
FY 2020-21
Actuals
FY 2021-22
Actuals
FY 2022-23
Variance
from
Forecast
% Var
Meeting Date: November 7, 2023
The major operating revenue variances between the last forecast and unaudited actual results are as follows:
• Overall, “Big Four” tax revenues were up $10.1 million (4.1%) compared to the forecast. This is the first year that Transient Occupancy Tax (TOT), like all other big four tax revenues, outpaced pre-pandemic levels.
o Property tax totaled $101.8 million and came in $4.8 million (5.0%) over the March forecast. Large value changes in residential and nonresidential transfers of ownership contributed to healthy increases in assessed valuations (5.2%) and strong results in property tax revenue. o Actual sales tax remittances from the State were $43.3 million, approximately $2.3 million (5.1%) less than forecasted. Spending trends shifted away from consumption of goods to greater spending on services.
Also, the County pool declined as online sales are allocated away from the County pool to agencies with more fulfillment centers. o Transient Occupancy Tax was $51.8 million, or $3.8 million (8.0%) more than forecasted. This marks the first fiscal year in which TOT revenue exceeded its pre-pandemic high of $50.0 million in fiscal year 2018-19. o Business License Tax was $58.1 million, which was $3.8 million (7.0%) more than forecasted.
• Remaining General Fund operating revenue categories (excluding one-time revenue) totaled $58.7 million, $2.8 million or 5.0% more than the forecast of $55.9 million. Notable variances from the forecast are primarily in the following categories:
o Other Taxes fell short of the forecast by $0.3 million due to market conditions depressing the volume of real property sales, resulting in lower than projected property transfer tax.
o Intergovernmental revenue exceeded the forecast by $0.7 million largely related to State funding for Ground Emergency Medical Transportation (GEMT) reimbursements.
o Use of Money and Property outpaced the conservative forecast by $1.0 million resulting from stronger than projected interest earnings on the City’s investment portfolio as interest rates have risen. o Net Change in Fair Value of Investments reflects a $0.9 million “unrealized gain” recognized through the change in fair market value adjustment to the investment portfolio, as required by accounting standards. Because the City generally holds its investments to maturity, these types of gains or losses are ultimately not realized. o Services Fees and Charges were $0.8 million below the amount forecasted due to the recognition of bad debt expense in the year-end results.
o In Miscellaneous Revenue, reimbursements from Metro and unanticipated revenue from other sources (e.g., various vendor reimbursements and settlement of claims) resulted in $2.1 million more than forecasted.
Meeting Date: November 7, 2023
Operating expenditures were largely consistent with the forecast, resulting in a variance of only $3.5 million or 1.3% in aggregate. The most significant variances between the last forecast and unaudited actual results are as follows:
o Spending on materials and supplies increased in the second half of the fiscal year, resulting in $0.9 million more expended than forecasted primarily due to purchases of safety supplies, such as Meridian protective barriers and other public safety equipment.
o Contractual Services were $2.6 million (5.4%) more than forecasted in part due to Council direction to allocate additional resources in support of the unhoused, as well as timing differences in the spending of carryover funds based on when work is completed.
One-time net revenue from large development projects fell short of the forecast by nearly $2.0 million. $2.1 million in building permit fees for the One Beverly Hills (OneBH) project was forecasted to be collected in fiscal year 2022-23; however, the timeline of the project has deferred the realization of this revenue. All other one-time revenues and non-operating transfers matched the amount forecasted.
Fiscal year 2022-23 financial results reflected another year of strong results for major tax revenues, the rebounding of investment income due to higher market interest rates, and growing Citywide service fees and charges across a wide range of sources. Despite these encouraging results, staff remains vigilant about fiscal responsibility, as the City contends with substantial financial demands for significant investment in capital infrastructure and public safety, increasing support of the school district and the unhoused, renegotiated labor contracts with employee bargaining units, the expansion of the City’s real estate portfolio, and higher market prices driving up costs incurred for goods and services.
Tourism and Marketing / TOT True-Up
For approximately thirty years, the City has maintained a policy of funding its tourism and marketing programs from one-seventh (or 2%) of the 14% Transient Occupancy Tax, at the direction of Council. For comparative reference, the TOT budget in fiscal year 1993-94 was $6.9 million. Each year, the tourism and marketing budget is established based on TOT projections made during the budget process and approved through budget adoption by the Council. Because the fiscal year 2022-23 TOT realized ($51,821,556) exceeded the originally budgeted amount of $44,000,000, following the existing policy of allocating one-seventh of TOT for tourism and marketing would necessitate City Council to approve a General Fund appropriation of $1,117,365 to the fiscal year 2023-24 tourism and marketing budget (00101311-734400) to true it up.
The fiscal year 2023-24 tourism and marketing budget of $7,071,428 was approved by City Council as part of the budget process based upon a $49,500,000 TOT estimate.
This allocation provided funding for the approved work plans of the Conference & Visitors Bureau, the Rodeo Drive Committee, the Beverly Hills Chamber of Commerce and several miscellaneous items. Currently, there is remaining unallocated contingency funding in the fiscal year 2023-24 tourism and marketing budget of approximately $860,000. Additionally, there are unexpended contingency funds of approximately $1.6 million from the fiscal year 2022-23 one-seventh of TOT being carried over into fiscal year 2023-24. With approval of the true-up appropriation by City Council, there will be approximately $3.6 million of unallocated contingency funding for future tourism and marketing purposes. Staff requests City Council approve the true-up appropriation, or provide alternate direction to staff.
Meeting Date: November 7, 2023
FISCAL IMPACT
General Fund Reserves and Allocation of Fiscal Year 2022-23 General Fund Balance Staff is seeking approval from Council on the recommended allocation of additional fund balance generated by fiscal year 2022-23 General Fund activities, reflected below.
General Fund Reserves (Fund Balance)
($ Millions)
FY 2021-22
Audited
Actuals
FY 2022-23
Unaudited
Actuals
FY 2022-23
Unaudited Actuals
with
Recommendations
Change from
FY 2021-22
Economic/Contingency Reserve (minimum 40%)
Contingency Reserve (minimum 25%) $ 63.3 $ 68.2 $ 68.2 $ 4.9 Economic Reserve (minimum 15%) 38.0 41.0 41.0 3.0
Total Economic/Contingency Reserve 101.3 109.2 109.2 7.9 Budget Stabilization Reserve 13.0 13.0 13.0 -
Committed Fund Balance (Council earmarks)
Property Acquisition (Subway related) 5.0 - - (5.0)
Street Tree Removal & Replacement 1.1 1.1 1.1 -
One-time Public Benefit Contributions 5.0 5.0 6.5 1.5
One-time Capital Improvement Plan Contributions 29.1 26.1 26.1 (3.0) Committed Fund Balance Total 40.2 32.2 33.7 (6.5)
Nonspendable (long-term receivables/advances to other funds) 5.7 4.9 4.9 (0.8) Restricted (Pension trust) 19.2 18.9 18.9 (0.3)
Encumbrances/Carryovers/Metro (Assigned) 17.6 21.0 21.0 3.4 Unassigned 28.9 34.9 33.4 4.5
Total Fund Balance $ 225.9 $ 234.1 $ 234.1 $ 8.2
As required by the City’s financial policies, the economic/contingency reserve shall be at least 40% of General Fund operating expenditures. Given operating expenditures increased for fiscal year 2022-23, the economic/contingency reserve will be increased by $7.9 million. Pursuant to policy, the economic/contingency reserve shall not decrease unless approved by City Council.
Staff recommends fiscal year 2022-23 one-time public benefit contributions of $1.5 million from the 9908 S. Santa Monica Blvd. Mixed-Use Project (former Friars Club) be added to the existing earmark in Committed Fund Balance for future public benefit purposes to be determined by Council at a future date. During fiscal year 2022-23, City Council approved the use of $8.0 million in earmarks for a property purchase, ($5.0 million from Property Acquisition and $3.0 million from One-time Capital Improvement Plan Contributions), resulting in an overall decrease of $6.5 million for Council earmarks (i.e., Committed Fund Balance).
Staff believes it would be prudent to let the remaining fiscal year 2022-23 General Fund surplus of $4.5 million fall to unassigned reserves. Mid-year General Fund appropriations to-date for fiscal year 2023-24 total $5.8 million and an additional $8.4 million in General Fund appropriations is anticipated to come forward shortly for a property purchase adjacent to the Gale Yard. While the originally adopted fiscal year 2023-24 budget projected a surplus of $5.5 million, these new funding commitments, coupled with expected, but yet unknown ongoing increases in personnel costs above the amount budgeted for renegotiated employee labor contracts, are expected to necessitate using General Fund unassigned reserves in fiscal year 2023-24 to cover these additional costs. Furthermore, the $1,117,365 General Fund appropriation for the tourism and marketing / TOT true-up would be funded through unassigned reserves (see chart below).
Meeting Date: November 7, 2023
Fiscal Year 2022-23 Unaudited Increase in Unassigned Fund Balance $ 4,526,780 Fiscal Year 2023-24 Projected Surplus (from Adopted Budget) 5,537,530 Total Combined Two-Year Estimated Increase in Unassigned Fund Balance $ 10,064,310 Less Approved and Pending Mid-Year Appropriations as of 11/7/2023 (15,373,345) Net Impact on General Fund Unassigned Reserves $ (5,309,035) Date Agenda Item Mid-Year
Appropriations
8/15/2023
Agreement with Step Up on Second to Provide 30 Units of Scattered-Site Permanent Supportive Housing for the Unhoused and 40 Motel Stays
$ 1,798,065
9/19/2023 Approval of Salary Schedule and Associated Appropriation 26,700 10/3/2023 JPA Agreement + CCTV Purchases/Installation 4,012,215 $ 5,836,980
11/7/2023 Tourism and Marketing True-Up (from FY 2022-23) 1,117,365 Forthcoming Property Purchase 8,419,000
$ 9,536,365
As of 11/7/2023 Total Mid-Year Appropriations (pending Council approval) $ 15,373,345 Forthcoming MOU Increases - Miscellaneous Groups Unknown General Fund Summary
Fiscal Year 2023-24 Mid-Year Appropriations Approved by Council To-Date General Fund Appropriations Pending Direction from Council The City Council may also provide alternative direction to staff. Finance will continue to provide regular updates to the Council to help inform use of unassigned reserves and whether current year financial activity results in an increased or decreased estimate to the year-end surplus and reserves.
RECOMMENDATION
This financial report is intended for City Council’s information. Staff recommends City Council approve the recommended allocation of the fiscal year 2022-23 General Fund available balance and approve a $1,117,365 General Fund true-up appropriation for tourism and marketing.
Tatiana Szerwinski
Assistant Director of Finance
Jeff S. Muir
Director of Finance
Approved By Approved By