STAFF REPORT
Meeting Date: November 19, 2024
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 2023-24 Unaudited General Fund and Enterprise Fund Financial Results, Recommendation for Allocation of General Fund Reserve Balance, Potential Transfer of $3 million from the Parking Enterprise Fund to the General Fund, and First Quarter General Fund Results for Fiscal Year 2024-25
Attachments: None
INTRODUCTION
This item will provide an update of the City’s fiscal year 2023-24 unaudited General Fund results compared to the most recent interim year forecast previously presented to Council.
Staff recommends that City Council approve the proposed allocation of the General Fund reserve balance and seeks direction on the transfer of $3.0 million from the Parking Enterprise Fund back to the General Fund for operational subsidies provided in the prior fiscal year. Also provided are fiscal year 2023-24 unaudited results for the City’s Enterprise Funds and a brief synopsis of General Fund first quarter results for fiscal year 2024-25 in comparison to the first quarter of last fiscal year.
Meeting Date: November 19, 2024
DISCUSSION
Fiscal Year 2023-24 Unaudited General Fund Financial Results On March 18, 2024, Finance presented a revised General Fund financial forecast for fiscal year 2023-24 which alerted City Council to looming fiscal concerns and highlighting forecasted deficits over the next five years. That report, based on information available at that time, projected a total deficit of $13.4 million. With fiscal year 2023-24 now complete, staff has prepared the following summary table that compares current unaudited actuals with what was forecasted.
Before consideration of public benefit contributions, General Fund revenue was approximately $2.2 million (0.7%) below the forecasted amount and total expenditures were $5.6 million (1.6%) lower than forecasted. As a result, the total deficit was $9.9 million, $3.5 million lower than the March forecast. As part of the March update, the City Council approved the use of $10.0 million of one-time public benefit contributions to offset the forecasted deficit for fiscal year 2023-24.
FY 2023-24
Forecast
as of
March 2024
Actuals
Variance
from
Forecast
Total Revenue[1] (including Transfers In) $ 319.3 321.5 $ (2.2) $ Total Expenditures (including Transfers Out) 344.9 339.2 (5.6) Surplus / (Deficit) before One-Time Revenue (23.4) (19.9) 3.5 One-Time Public Benefit Contributions 10.0 10.0 0.0
Total Surplus / (Deficit) (13.4) $ (9.9) $ 3.5 $
[1] Total Revenue excludes one-time public benefit contriibutions, accounted for below the line.
Immaterial differences may exist when adding rounded figures above.
General Fund
($ Millions)
Meeting Date: November 19, 2024
For additional perspective, detailed actual results for fiscal years 2021-22 and 2022-23 are included below along with a comparison of the March 2024 forecast to unaudited actuals for fiscal year 2023-24.
REVENUE
Property Tax 93,842 $ 101,777 $ 101,188 $ 100,890 $ (298) -0.3% Sales Tax 45,489 43,344 43,692 41,433 (2,259) -5.2%
Transient Occupancy Tax (TOT) 42,411 51,822 48,500 47,981 (519) -1.1% Business Tax 53,597 58,101 58,000 61,206 3,206 5.5%
"Big Four" Tax Subtotal 235,339 255,043 251,380 251,510 130 0.1% Other Taxes 2,165 1,177 914 1,735 821 89.8%
Intergovernmental Revenue 5,568 1,075 469 1,515 1,046 223.0% Licenses and Permits 19,109 19,247 18,413 18,733 320 1.7% One-Time Major Development Projects Revenue 5,513 2,813 11,300 5,980 (5,320) -47.1% Fines and Penalties 7,625 6,781 6,944 6,540 (404) -5.8% Use of Money and Property 4,181 5,462 7,649 7,759 110 1.4% Service Fees and Charges 10,024 12,579 13,207 13,733 526 4.0% Miscellaneous Revenue 11,606 11,473 11,224 11,832 608 5.4% Transfers In 1,145 6 6 6 0 0.0%
Total Revenue [1] 302,276 315,657 321,506 319,343 (2,163) -0.7%
EXPENDITURES
Salaries and Benefits 129,543 137,520 143,114 143,587 473 0.3% Materials and Supplies 2,247 2,732 2,555 2,418 (137) -5.4% Contractual Services 24,501 25,134 30,963 27,695 (3,268) -10.6% Marketing and Promotion 4,559 6,213 9,348 7,166 (2,182) -23.3% BHUSD Joint Powers Agreement 11,696 11,696 13,800 13,700 (100) -0.7% Private Security 3,463 7,003 6,937 6,875 (62) -0.9%
Supportive Housing / Unhoused Assistance 0 546 1,817 1,818 1 0.1% Internal Service Fund Charges 51,758 66,556 73,106 73,106 0 0.0% Other Charges 9,392 10,678 6,576 6,003 (573) -8.7%
Transfer to Pension Trust 5,000 5,000 10,000 10,000 0 0.0% Transfer for Real Property Acquisition 0 7,995 8,419 8,419 0 0.0% Transfer of Earmark to OPEB Trust 10,000 0 0 0 0 0.0%
Transfers Out 36,070 26,818 38,231 38,431 200 0.5%
Total Expenditures 288,230 307,890 344,866 339,218 (5,648) -1.6% Net Surplus/(Deficit) before Public Benefit
Contributions $ 7,767 14,046 $ (23,360) $ (19,875) $ 3,485 $ -14.9% One-Time Public Benefit Contributions 5,000 1,500 10,000 10,000 0 0.0% Total Surplus/(Deficit) 19,046 $ 9,267 $ (13,360) $ (9,875) $ 3,485 $ -26.1% [1] Total Revenue excludes one-time public benefit contributions, accounted for below the line.
General Fund
($ Thousands)
Forecast as
of March
2024
Actuals
FY 2023-24
% Variance
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 in order to assist with comparison. Immaterial differences may exist when adding rounded figures above.
FY 2021-22
Actuals
FY 2022-23
Actuals
Variance
from
Forecast
Meeting Date: November 19, 2024
The major revenue variances between the March forecast and unaudited actual results for fiscal year 2023-24 are as follows:
Overall, “Big Four” tax revenues were $251.5 million, up $0.1 million (0.1%) from the total forecasted amount.
o Property Tax totaled $100.9 million and came in $0.3 million (0.3%) lower than the March forecast. Assessed valuation increases in residential and non-residential transfers of ownership were partially offset by appeals, exemptions, and other adjustments, ultimately resulting in a 5.3% increase in assessed valuations for fiscal year 2023-34 and significant realized revenue from property taxes for the year. While assessed value was up, factors such as delinquencies can affect the timing of revenue realization. o Actual Sales Tax remittances from the State were $41.4 million, approximately $2.3 million (5.2%) less than forecasted. This shortfall is caused by a combination of: (1) a statewide cooling for taxable sales, particularly in the area of new car sales, which faced challenges from tight credit conditions and elevated prices across the industry; and (2) delayed payments and the associated compounding impact on the City’s allocation of the County pool. This is expected to be recovered as local taxpayers remit past due payments.
o Transient Occupancy Tax (TOT) was $48.0 million, or $0.5 million (1.1%) less than forecasted. This is primarily due to a fiscal year 2023-24 change in methodology for TOT revenue recognition related to a transition from the 60-day availability period to a 30-day period and represents a one-time timing difference.
o Business Tax was a record-high $61.2 million for fiscal year 2023-24, which was $3.2 million (5.5%) more than forecasted.
Remaining General Fund revenue categories (excluding one-time public benefit contributions) totaled $67.8 million, $2.3 million (3.3%) less than the forecast of $70.1 million. Notable variances from the forecast are primarily in the following categories:
o Other Taxes totaled $1.7 million and outperformed the forecast by $0.8 million (89.8%) primarily due to property transfer taxes nearly doubling expectations. This relates to an exceptional spike in a single month attributable to an ownership change for a group of high-value parcels, which is an outlier rather than indicative of a broader trend in the real estate market.
o Intergovernmental Revenue totaled $1.5 million and exceeded the forecast by $1.0 million (223.0%) largely related to the successful collection of COVID-related cost recovery reimbursements from FEMA.
o One-Time Major Development Projects Revenue generated $6.0 million, falling $5.3 million short of the forecast (47.1%). This significant shortfall is attributable to changes in the development schedule for the One Beverly Hills (OneBH) project, which has resulted in a deferral of expected revenue realization.
o Fines and Penalties totaled $6.5 million and fell short of the forecast by $0.4 million (5.8%) due to lower collections of parking ordinance violations revenue in the second half of the fiscal year.
o Services Fees and Charges were $13.7 million and ended $0.5 million (4.0%) above the amount forecasted due to an increase in Police and Fire services for special events in the second half of the fiscal year, as well as an outperformance of projected afterschool programming and environmental assessment fees.
Meeting Date: November 19, 2024
o Miscellaneous Revenue such as municipal surcharge revenue, recoveries from write-offs, and unanticipated revenue from other sources (e.g., stale check recoveries, and excise and payroll tax refunds) totaled $11.8 million, which resulted in $0.6 million (5.4%) more than forecasted.
Expenditures were largely consistent with the forecast, resulting in a variance of $5.6 million or 1.6% in aggregate. The most significant variances between the last forecast and unaudited actual results are as follows:
o Contractual Services totaled $27.7 million and were $3.3 million (10.6%) less than forecasted primarily related to lower-than-anticipated spending on reimbursable as-needed engineering services and independent compliance monitoring for the MTA Purple Line Extension Project, of which $1.1 million has been carried over to fiscal year 2024-25 to align with the expected completion of work.
o Marketing and Promotion expenditures totaled $7.2 million and came in $2.2 million lower than forecasted. This represents a timing difference as all funds were carried over for future application.
o Other Charges totaled $6.0 million, $0.6 million (8.7%) less than forecasted due to the recharacterization of $0.2 million as a Transfer Out and slower growth rates for credit card fees and utility costs than projected.
One-Time Public Benefit Contributions matched the amount forecasted at $10.0 million and are presented separate from ongoing revenue and expenditure totals.
Overall, the City maintained strong revenue results with notable growth over the prior year in the areas of business tax, investment income, and service fees and charges. Looking ahead, further improvements are expected in sales tax and revenue from major development projects with the anticipated collection of deferred income.
However, fiscal year 2023-24 ultimately resulted in a net deficit of $9.9 million, as the City grapples with growing needs and obligations. Public safety remains a top priority of the Council, as evidenced by the City’s substantial and ongoing investments in this critical area. While the City continues to allocate significant resources to ensure the safety and well-being of its residents, it is important to note that the funding requirements for maintaining and enhancing our public safety services are growing at an accelerated rate, necessitating careful financial planning and potential adjustments to our budget allocations in the coming years.
Concurrently, we are experiencing rising costs across various other essential Cityprovided services such as capital investments to maintain and upgrade our infrastructure, escalating personnel costs due to competitive labor markets and benefit obligations, higher prices for goods and vendor services amid inflationary pressures, and growing insurance and liability costs. These compounding financial pressures underscore the need for strategic fiscal management to maintain the high quality of services our residents expect and deserve, while balancing those needs with maintaining healthy reserves for the financial security of the City’s future.
Meeting Date: November 19, 2024
Fiscal Year 2023-24 Unaudited Enterprise Fund Financial Results The City's Enterprise Funds represent self-supporting business-type activities, operating much like private sector entities. These funds, which include utilities as well as parking operations, are designed to be financially independent, with revenues generated from user fees intended to cover their operational costs and capital investments. The chart below provides the financial results for fiscal year 2023-24 and the resulting impact on fund balance.
BEGINNING FUND BALANCE $ 117,385 162,710 $ 16,112 $ 106,615 $ 18,054 $
REVENUE
Operating Revenue 33,716 15,458 18,827 11,890 1,703
Investment Income 1,984 1,410 245 1,539 168
Lease Revenue 2,348 17,882 0 0 0
Other Revenue 2,037 2,305 99 278 345
Transfers In from the General Fund 1,158 3,000 0 0 4,500 Total Revenue 41,243 40,055 19,171 13,706 6,716
EXPENSES
Salaries and Benefits 6,473 4,213 3,260 1,519 2,071
Materials and Supplies 1,398 39 108 76 12
Contractual Services 1,519 4,773 12,509 2,808 147
Water Purchases 10,546 0 0 0 0
Internal Service Fund Charges 5,531 6,721 5,528 1,891 2,146 Debt Service 4,011 7,764 0 0 0
Other Charges 607 2,801 235 143 81
Capital Projects 9,081 3,719 1 2,175 2,960
Transfers Out 0 0 60 0 0
Total Expenses 39,167 30,030 21,701 8,612 7,418
Total Surplus/(Deficit) 2,076 $ 10,025 $ (2,530) $ 5,094 $ (701) $ Non-Budgetary Accounting Entries[1] 7,893 6,322 230 (870) 1,041 ENDING FUND BALANCE $ 133,732 172,679 $ 13,812 $ 110,840 $ 18,394 $ Less: Fixed Assets and
Non-Current Assets/Liabilities (100,708) (84,338) (1,051) (50,832) (13,151) Less: Encumbered Carryovers (12,121) (1,436) (144) (88) (794) Cash Reserve Balance @ 6/30/24[2] 59,850 47,958 12,617 59,920 4,449 50% Target Reserve Level 15,043 13,156 10,850 3,219 2,229 Above/(Below) Target Reserve 44,807 34,802 1,766 56,701 2,221 Reserve Level Attained[2] 198.9% 182.3% 58.1% 930.8% 99.8% Unencumbered CIP Carryovers 50,508 21,061 2,658 25,413 3,601 Net Reserve Balance[3] $ 26,897 9,342 $ 9,958 $ 34,506 $ 848 $ [3] Reserve balance, net of all carryover appropriations (encumbered and unencumbered).
NOTE: Immaterial differences may exist when adding rounded figures above. [1] Non-Budgetary Accounting Entries represent certain non-cash accounting/accrual entries required by the Governmental Accounting Standards Board (GASB) such as capitalization of fixed assets and depreciation.
Reporting these entries below the line allows for a clearer representation of the City's actual fiscal performance and aligns more closely with budgetary practices and operational financial management. [2] Year-end cash reserve balances presented above are net of encumbered carryforwards. Enterprise Funds typically carry forward significant unencumbered appropriations for planned capital projects not yet tied to a contract.
Because these appropriated funds are available for reallocation to reserves or other purposes based on financial needs or Council direction, they are factored into the Reserve Level Attained and presented below the line.
Enterprise Funds
($ Thousands)
Water
Funds
Parking
Funds
Solid Waste
Fund
Wastewater
Funds
Stormwater
Funds
Meeting Date: November 19, 2024
Water Funds
The Water Funds, as reflected above, include the Water Enterprise Fund, the Water Capacity Fee Fund, and the Water Supply Fee Fund. Water service charges for fiscal year 2023-24 yielded $33.7 million and total revenue amounted to $41.2 million. Total fiscal year 2023-24 expenses were approximately $39.1 million, with $10.5 million expended on water purchased from Metropolitan Water District and $9.1 million invested towards capital projects. Setting aside non-budgetary accounting entries, Water Fund revenue exceeded expenses for fiscal year 2023-24 by $2.1 million, thereby increasing reserves.
The City’s financial policies set a target level for Enterprise Fund cash reserves at 50% of operating expenses. At the December 11, 2018 Council meeting, City Council approved a reduced reserve level for the Water Fund to 25% for a period of approximately 30 years to support the economic investment in the Water Enterprise Plan (WEP). As of June 30, 2024, the Water Fund reserve balance is $59.9 million (198.9%) before consideration of unencumbered CIP carryovers.
Parking Funds
The Parking Funds, as reflected above, include the Parking Enterprise Fund and the Parking Authority Fund. Parking service charges for fiscal year 2023-24 yielded $15.5 million and commercial leasing revenue amounted to $17.9 million. Total fiscal year 2023- 24 revenue was approximately $40.0 million and total expenses amounted to $30.0 million (including $3.7 million in capital spending), resulting in a net surplus of $10.0 million.
Due to the financial impact of COVID on the City’s parking and lease revenue, the General Fund transferred a total of $15.0 million to the Parking Enterprise Fund from fiscal year 2021-22 through fiscal year 2023-24 to subsidize operations during the economic downturn ($6.0 million in both fiscal year 2021-22 and fiscal year 2022-23; $3.0 million in fiscal year 2023-24). These transfers were set during the budget process based on conservative estimates of projected future revenue. While parking service charges have not yet reached the height of the last full pre-pandemic fiscal year ($17.3 million in fiscal year 2018-19), they have achieved substantial recovery. Additionally, Parking Fund lease revenue has exceeded pre-COVID levels and contributed to the year-end cash reserve balance of $48.0 million, more than triple the amount required by policy.
On June 18, 2024, with the presentation of the fiscal year 2024-25 proposed operating and capital budgets, staff indicated potential financial challenges on the horizon, including forecasted General Fund deficits over a five-year period. Given the outcome of fiscal year 2023-24 Parking Fund financial results, staff is seeking Council direction on whether the $3.0 million General Fund operational subsidy to the Parking Fund should be returned to the General Fund.
Solid Waste Fund
The Solid Waste Enterprise Fund generated $18.8 million in service charges from residential and commercial refuse collection as well as alley maintenance, resulting in total revenue of $19.2 million. However, over the past two years, there has been a sharp (though anticipated) increase in the cost of commercial and residential solid waste collection and processing services incurred by the City primarily due to the rising cost of labor and regulatory compliance, as well as the need for infrastructure development. For fiscal year 2023-24, contractual services totaled $12.5 million, total expenses were $21.7 million, and the Solid Waste Enterprise Fund operated at a net loss of $2.5 million for the year.
Meeting Date: November 19, 2024
The year-end reserve balance of $12.6 million (58.1% of operating expenses) exceeded the 50% target level. When solid waste rates were last adopted on January 12, 2021, City Council approved a drawdown of reserves below the 50% target level to delay the first rate implementation, with anticipated recovery by fiscal year 2025-26. Staff is closely monitoring the financial impact of ongoing operations, and a new cost of service rate study is currently underway to ensure that adequate revenue is generated to support the Solid Waste Enterprise.
Wastewater Funds
The Wastewater Funds, as reflected above, include the Wastewater Enterprise Fund and the Wastewater Capacity Fee Fund. Wastewater service charges for fiscal year 2023-24 yielded $11.9 million and total revenue amounted to $13.7 million. Total fiscal year 2023- 24 expenses were $8.6 million, including $2.6 million for the City’s allocable share of the administration of the Hyperion Treatment Plant and $2.2 million invested towards capital projects. Fiscal year 2023-24 operations resulted in $5.1 million of revenue in excess of expenses and a $59.9 million cash reserve balance, substantially in excess of the minimum required. Due to healthy reserves, wastewater rate adjustments adopted by Council on March 11, 2024 were intended to be revenue neutral with planned use of reserves to fund capital expenses over the five-year planning period.
Stormwater Funds
The Stormwater Funds, as reflected above, include the Stormwater Enterprise Fund, the Stormwater Measure W – Regional Program Fund, and the Stormwater Department of Water Resources Prop 1 Fund. User charges resulted in revenue of $1.7 million, with total revenue of $6.7 million which included a $4.5 million transfer from the General Fund. Staff considers the Stormwater Funds exempt from the Enterprise Fund reserve policy due to its unique financial structure. Unlike other enterprise funds, it cannot achieve full cost recovery through user fees due to regulatory constraints, necessitating significant ongoing support from the General Fund to maintain essential stormwater management services.
General Fund operating subsidies for the Stormwater Fund are established during the annual budget process based on projected needs. Despite a $4.5 million transfer from the General Fund in fiscal year 2023-24, the Stormwater Fund netted a deficit of $0.7 million for fiscal year 2023-24, with actual expenses totaling $7.4 million for Ballona Creek MS4 compliance project costs and other operating costs including personnel and internal service fund charges.
Fiscal Year 2024-25 General Fund First Quarter (Q1) Update The table below summarizes the fiscal year 2024-25 General Fund Adopted Budget and first quarter results and includes prior year first quarter results for comparison purposes.
While first quarter results reflect a large deficit, this is due to the cyclical nature and timing of major revenue cash flows and will improve significantly over the next two quarters, as the majority of property and business tax receipts are received. Compared to fiscal year 2023-24 first quarter results, the fiscal year 2024-25 first quarter operating deficit is $2.1 million higher than the prior year.
Meeting Date: November 19, 2024
REVENUE
Property Tax 103,496 $ 4,580 $ 4,917 $ (337) $ -6.9%
Sales Tax 44,768 9,638 10,923 (1,285) -11.8%
Transient Occupancy Tax (TOT) 51,233 13,171 14,922 (1,752) -11.7% Business Tax 62,600 834 827 7 0.8%
"Big Four" Tax Subtotal 262,097 28,222 31,589 (3,367) -10.7% Other Taxes 933 372 264 108 40.8%
Intergovernmental Revenue 458 543 40 503 1243.1%
Licenses and Permits 13,997 5,463 4,016 1,448 36.0%
One-Time Major Development Projects Revenue 16,050 2,180 2,111 69 3.3% Fines and Penalties 6,146 1,511 1,707 (196) -11.5%
Use of Money and Property 10,048 2,871 1,582 1,289 81.5% Service Fees and Charges 11,726 4,263 4,133 130 3.1%
Miscellaneous Revenue 11,341 3,173 3,269 (96) -2.9%
Transfers In 6 2 2 0 0.0%
Total Revenue [1] 332,801 48,599 48,713 (114) -0.2%
EXPENDITURES
Salaries and Benefits 151,959 34,008 32,599 1,409 4.3%
Materials and Supplies 2,603 672 489 183 37.5%
Contractual Services 30,098 6,366 4,915 1,452 29.5%
Marketing and Promotion 7,957 2,288 2,768 (481) -17.4%
BHUSD Joint Powers Agreement 14,200 3,525 2,875 650 22.6% Private Security 6,640 1,509 1,314 195 14.8%
Supportive Housing / Unhoused Assistance 1,999 195 138 57 41.1% Internal Service Fund Charges[2] 80,319 20,080 18,277 1,803 9.9% Other Charges 7,132 1,503 1,454 49 3.3%
Transfer to Pension Trust[2] 10,000 2,500 2,500 0 0.0%
Transfers Out 21,892 5,473 8,848 (3,375) -38.1%
Total Expenditures 334,800 78,118 76,176 1,942 2.5%
Net Surplus/(Deficit) before Public Benefit
Contributions $ (29,519) (1,999) $ (27,463) $ (2,056) $ 7.5% One-Time Public Benefit Contributions 12,500 10,000 10,000 0 0.0% Total Surplus/(Deficit) 10,501 $ (19,519) $ (17,463) $ (2,056) $ 11.8% [1] Total Revenue excludes one-time public benefit contributions, accounted for below the line.
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 in order to assist with comparison. Immaterial differences may exist when adding rounded figures above.
General Fund
($ Thousands)
FY 2024-25
Adopted
Budget
FY 2024-25
July - Sept
Actuals
FY 2023-24
July - Sept
Actuals
Variance
from
Prior Year
%
Variance
[2] To provide consistency for better comparison between fiscal years, the reported fiscal year 2023-24 results above have been adjusted to reflect (1) only 25% of the $11.5 million annual Internal Service Fund Charges for liability insurance, despite the full amount being recorded in the first quarter; and (2) 25% of the $10.0 million annual contribution to the Section 115 Pension Trust, despite the full amount being distributed in the third quarter due to cash flow considerations. These adjustments align with the monthly recording practice for ISFs and the quarterly pension trust contribution practice to mitigate market investment risk implemented in fiscal year 2024-25.
Meeting Date: November 19, 2024
High-level revenue variances between Q1 2024-25 and Q1 2023-24 are as follows:
“Big Four” tax revenue is down $3.4 million (10.7%) from the same period last fiscal year, driven by decreases in Sales Tax and Transient Occupancy Tax (TOT). o Current year first quarter Sales Tax revenue was $1.3 million (11.8%) lower than the same period of the prior year. This recent decline is under analysis, and due to the reporting lag from the California Department of Tax and Fee Administration (CDTFA), definitive information about the cause of this decrease is not yet available. The decline could be attributed to a timing issue in revenue recognition, a further reduction in taxable sales, or a combination of both factors.
o TOT had a $1.8 million (11.7%) decline compared to the same period for last year attributable to some rooms being taken offline at hotels undergoing construction and an ownership change that temporarily affected operations.
The increase in Intergovernmental Revenue represents $0.4 million in additional COVID-related cost recovery payments from FEMA and $0.1 million in Urban Area Security Initiative (UASI) grants funds.
Higher Licenses and Permits benefitted from rising plan check and building permit revenue.
Fines and Penalties were lower in the first quarter of the current year in the area of parking ordinance violations.
The impact of higher interest rates on investment income gave Use of Money and Property a boost in the first quarter of the current fiscal year.
High-level expenditure variances between Q1 2024-25 and Q1 2023-24 are as follows:
Materials and Supplies rose in relation to the first quarter of the prior year largely as a result of the purchase of books, publications, and audio visual materials for the library.
Contractual Services were $1.5 million higher than the same period last fiscal year predominantly due to a timing difference in the distribution of Community Assistance Grant Funding (CAGF), which largely occurred after the first quarter in fiscal year 2023-24.
Marketing and Promotion was $0.5 million lower than the same period last fiscal year predominantly due to a timing difference in distributions to the Beverly Hills Conference & Visitors Bureau.
Due to escalations in agreements previously approved by Council, other contractual service costs for the Beverly Hills Unified School District Joint Powers Agreement, Private Security, and programming for Supportive Housing / Unhoused Assistance increased in the first quarter of the fiscal year in comparison to the prior year.
The rise in Internal Service Charges was driven by the increasing cost of facilities and information technology operations and replacement charges, as well as liability insurance.
Transfers Out declined sharply due to a decrease in need for transfers to the Infrastructure Fund for capital investment and the cessation of General Fund subsidies for Parking Fund operations.
One-time public benefit contributions remain flat at $10.0 million from the OneBH development project, collected in the first quarter of each of the past two fiscal years.
Meeting Date: November 19, 2024
Overall, variances between the first quarter of the current fiscal year compared to the prior year are explainable and generally within expectations. The fact that expenditures greatly outpace revenues for the first quarter is a typical pattern each fiscal year, as property tax is mostly received from December through June and business tax is primarily received in January.
Staff intends to bring a formal mid-year review of the current fiscal year to the City Council in February, which will include updated revenue and expenditure forecasts.
FISCAL IMPACT
Allocation of Fiscal Year 2023-24 General Fund Reserve Balance Based on unaudited financial results for fiscal year 2023-24, the components of General Fund reserves as of June 30, 2024 are reflected below.
As required by the City’s financial policies, the economic/contingency reserve shall be at least 40% of General Fund operating expenditures1. Given operating expenditures increased for fiscal year 2023-24, the economic/contingency reserve will be increased by $0.7 million. Pursuant to policy, the economic/contingency reserve shall not decrease unless approved by City Council.
At the March 18, 2024 mid-year financial update, Council approved staff’s recommendation to utilize the fiscal year 2023-24 $10.0 million public benefit contribution to offset fiscal year 2023-24 expenditures. Unassigned reserves and other assigned fund balance were used to absorb the balance of the deficit for fiscal year 2023-24.
1 For purposes of this calculation, certain discretionary, reimbursable, or one-time expenditures are excluded such as voluntary contributions to the Section 115 pension trust, contractual services funded by Metro, and other one-time costs.
General Fund Reserves (Fund Balance)
($ Millions)
FY 2022-23
Audited
Actuals
FY 2023-24
Unaudited
Actuals
Change
from
Prior Year
Economic/Contingency Reserve (minimum 40%)
Contingency Reserve (minimum 25%) 68.2 $ 68.7 $ 0.5 $
Economic Reserve (minimum 15%) 41.0 41.2 0.2 Total Economic/Contingency Reserve 109.2 109.9 0.7 Budget Stabilization Reserve 13.0 13.0 - Committed Fund Balance (Council earmarks) Street Tree Removal & Replacement 1.1 1.1 -
One-Time Public Benefit Contributions 6.5 6.5 -
One-Time Capital Improvement Plan Contributions 26.1 26.1 - Committed Fund Balance Total 33.7 33.7 - Nonspendable (long-term receivables/advances to other funds) 3.3 4.9 (1.6) Restricted (Pension trust) 25.5 18.9 6.6 Restricted (Metro Projects) 4.8 3.5 1.3 Encumbrances/Carryovers 7.9 17.5 (9.6) Unassigned 33.4 36.6 3.2 Total Fund Balance 234.1 $ 234.7 $ 0.6 $ Meeting Date: November 19, 2024
The originally adopted fiscal year 2024-25 budget projected a deficit of $2.0 million before considering $12.5 million in anticipated one-time public benefit contributions. For fiscal year 2024-25, mid-year General Fund appropriations to-date total $0.4 million (including pending appropriations on tonight’s agenda), as shown below. These new funding commitments will necessitate either (1) continued utilization of public benefit contributions towards current year expenditures or (2) further use of General Fund unassigned reserves in fiscal year 2024-25 to cover these additional costs. Also on the horizon are unknown ongoing increases in personnel costs for public safety employees (negotiations with employee associations are beginning for amended labor contracts) and a Councilapproved commitment to transfer up to $5.0 million in matching funds from the General Fund to the City’s Affordable Housing Fund (if the City’s Local Housing Trust Fund grant application is approved).
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 is seeking direction from the Council regarding the option to reallocate the fiscal year 2023-24 $3.0 million operational subsidy to the Parking Enterprise Fund back to the General Fund.
$ (1,998,905)
Council-Approved Utilization of One-Time Public Benefit Contributions (6/18/24 Item G-2) 2,000,000 Fiscal Year 2024-25 Adopted Balanced Budget[1] $ 1,095 Less Approved and Proposed Mid-Year Appropriations as of 11/19/24 (409,014) $ (407,919) Date Agenda Item Council Mid-Year
Appropriations
8/20/2024 Flag Reinstallation 74,708 $
11/19/2024 Approval of Salary Schedule and Associated Appropriation (pending) 306,150 11/19/2024 Flag Display Against Antisemitism (pending) 28,156 $ 409,014
General Fund Summary
Fiscal Year 2024-25 Mid-Year Appropriations Approved by Council Fiscal Year 2024-25 Projected Deficit before One-Time Public Benefit Contributions [1] Exlcudes $10.5 million in anticipated one-time public benefit contributions to be considered for earmark towards Committed Fund Balance.
Net Impact on General Fund Unassigned Reserves or Additional Use of One-Time Public Benefit Contributions
Tatiana Szerwinski
Assistant Director of Finance
Jeff S. Muir
Director of Finance
Approved By Approved By