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November 1, 2022
ITEM TITLE
Financial Report and Appropriation: Accept the Quarterly Financial Report for the Quarter Ending June 30, 2022, and Appropriate Funds for that Purpose
Report Number: 22-0275
Location: No specific geographic location
Department: Finance
Environmental Notice : The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
Recommended Action
Accept the quarterly financial report for the quarter end ed June 30, 2022 and adopt a resolution making various amendments to the Fiscal Year 2021/22 budget to adjust for variances and appropriating funds for that purpose. (4/5 Vote Required)
SUMMARY
The Finance Department, in collaboration with other City departments, prepares quarterly financial reports for the General Fund that reflect budget to actual comparisons, projected revenues and expenditures, and highlight major variances that may require additional action or changes . This report is as of June 30, 2022, and is in compliance with Section 504 (f) of the City Charter, which requires that quarterly financial reports be filed by the Director of Finance through the City Manager.
In preparing the quarterly financial projections, staff has identified various budget changes that are needed to accurately reflect actual revenues and expenditures or address changes in budgetary needs. For government entities, a budget creates a legal framework for spending during the fiscal year. After the budget is approved by the City Council, there are circumstances which arise that could require adjustments to the approved budget. Council Policy 220 -02 “Financial Reporting and Transfer Authority” was established in January of 1996 and allows for budget transfers and adjustments to be completed. This report discusses budget adjustments that staff recommends in the General Fund as well as various other funds to address identified fiscal issues.
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ENVIRONMENTAL REVIEW
The Director of Development Services has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines because the proposed activity consists of a governmental fiscal/administrative activity which does not result in a physical change in the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines, the activity is not subject to CEQA. Thus, no environmental review is required.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable
DISCUSSION
As part of the fiscal year 2021-2022 year-end process, staff has reviewed budget to actual reports to identify potential budget overages at either the category or fund level. Various budg et changes are needed to align the budget with anticipated year-end actuals.
For government entities, a budget creates a legal framework for spending during the fiscal year. After the budget is approved, circumstances arise that may require adjustments to the approved budget. City Council Policy No. 220-02 “Financial Reporting and Transfer Authority” permits budget transfers to be completed.
Transfers that exceed $15,000 require City Council approval. The City Council may amend the budget at any meeting after the adoption of the budget with a 4/5ths vote. Staff is seeking approval for recommended adjustments in the General Fund and various other funds to align the budget with anticipated year-end actual expenditures where the actuals are expected to exceed the budget. A report on the full results of fiscal year 2021-2022, including audited actual revenues and expenditures, will be provided following the completion of the annual audit and with the presentation of the Annual Comprehensive Financial Report.
This report will provide summary information for the following areas:
General Fund Revenues and Expenditures
Adjustments to General Fund Expenditures
Adjustments to non-General Fund funds
General Fund Overview
The General Fund began the year with an unassigned (available) fund balance of $28.3 million. This balance was the combination of the Operating Reserve of $25.9 million and $2. 4 million set aside for a contribution to the Pension Reserve Fund, per the Cit y’s General Fund Reserves – Fiscal Health Policy. The $2. 4 million contribution was made during Fiscal Year 2021/22. The Operating Reserve is anticipated to increase by $1.4M as of June 30, 2022. This increase will maintain the reserve at the target lev el of 15% of next fiscal year’s (fiscal year 2022/23) budgeted operating expenditures. Additionally, the Economic Contingency Reserve is expected to be fully funded at the 5.0% target and the Catastrophic Event Reserve is anticipated to be partially funded at 1.5% with a target of 3.0% of budgeted operating expenditures.
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General Fund Revenues
The City’s General Fund revenues are projected to be $18.6 million more than the Revised Budget amounts, largely as a result of increased projections for Sales Tax, Measure A, and Measure P revenues, and Transient Occupancy Taxes. Sales Tax related revenues rebounded from the decline experienced at the beginning of the pandemic, moved into a period of sustained consumer spending, and also increased due to the impact of inflation on taxable goods, most notably general consumer goods and higher gasoline prices. It is anticipated to decrease in future fiscal years because of global economic conditions including increase d inflation, reduced, or eliminated federal funding that was distributed during the pandemic (i.e., federal stimulus payments to families, enhanced unemployment benefits, etc.) , and the Federal reserve increasing interest rates.
Table 1 in millions
Adopted
Budget
Amended
Budget
Year-end
Projection Variance
Revenue Source
Major Discretionary Revenues
Property Tax 40.7$ 42.5$ 44.2$ 1.6$ Property Tax in lieu of VLF 24.8 25.9 25.9 - Sales Tax 39.7 39.7 46.1 6.4 Measure P Sales Tax 23.0 23.0 27.6 4.6 Measure A Sales Tax 23.0 23.0 27.6 4.6 Franchise Fees 12.9 12.9 13.9 1.0 Transient Occupancy Tax 4.9 4.9 7.4 2.5 Utility User Tax 3.8 3.8 3.7 (0.1) Major Discretionary Revenues Subtotal 172.9 175.8 196.4 20.5 Other General Fund Revenues
American Rescue Plan Act - 4.6 1.5 (3.2) Other Revenues 45.1 49.1 50.3 1.2 Other General Fund Revenues Subtotal 45.1 53.7 51.8 (1.9) Other General Fund Sources - 6.2 6.2 - Total Revenues/Sources 218.1$ 235.8$ 254.4$ 18.6$ Expenditures
Personnel Services 121.5$ 120.5$ 118.8 1.7$ Supplies and Services 15.4 17.6 18.3 (0.7) Other Expenses 1.6 10.8 18.9 (8.1) Utilities 4.9 4.9 6.3 (1.4) Other Expenditures 74.6 82.1 89.9 (7.8)
Total Expenditures 218.1$ 235.8$ 252.2$ (16.4)$ Total General Fund Surplus/(Deficit) -$ -$ 2.2$ 2.2$ Fiscal Year 2021/22 General Fund Overview
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Transient Occupancy Tax revenues are pro jected to exceed budget by $2.5 million. This is due to higher occupancy rates and increase in travel and vacation activity that is tied to the removal of the Governor’s Stay at Home order issued at the height of the pandemic. American Rescue Plan (ARPA) funds are below budget due to a reduced use of ARPA funds than anticipated. These funds will be repurposed and brought forward to Council with a revision to the ARPA spending plan. The revised plan will be presented with a future Quarterly Financial Report.
General Fund Expenditures
The City’s General Fund expenditures are estimated to exceed budget by $16.4 million, this is largely due to increased Measure P and Measure A Sales Tax revenues. An increase in the Sales Tax revenues for both of these measures results in an increase in expenditures (transfers out). Both Measure P and Measure A are expected to exceed budget by $4.6 million each for a total increase of $9.2 million.
The Other Expenses category is anticipated to exceed budget by $7.2 milli on this is mainly due to two transactions. The first is the loan agreement that the City entered with the State of California for $3.4 million (Resolution 2022-070), this resolution increased the appropriations in the Housing Authority fund, but it is more appropriately placed within the General Fund. These funds were received as a stopgap for the Emergency Rental Assistance Program (ERAP). It is expected that this loan will be repaid with future Federal Funding. The appropriation for this program is being carried forward into fiscal year 2022/23. The second is resulting from the bond issuance for the Bayfront project. The Chula Vista Bayfront Facilities Financing Authority issued bonds of $325 million on May 26, 2022. In order to recognize the City’s revenue contribution towards this project a prior period adjustment is being recorded in the General Fund, resulting in a city contribution expense of $3.7 million. This is purely an accounting transaction, necessary to accurately reflect the City’s tota l contribution towards the Bayfront project as a part of the bond issuance.
Additionally, there were $0.9 million in contributions to the Bayfront budgeted as transfers that will be reclassified to contribution expenditures to the Bayfront.
The Personnel category is anticipated to end the fiscal year with savings of $1.7 million, this is largely due to vacancies throughout the City, with most vacancies occurring within the Police department. As a result of the vacancies, increased overtime expenditures have been incurred primarily in the public safety departments but are offset by salary savings and decrease in fringe costs.
The Utilities category is anticipated to exceed budget by $1.4 million, this is largely due to increased energy costs and delayed savings from the solar and battery projects at various City sites.
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Departmental Revenues and Expenditures
The largest variance s in Departmental Revenues are projected to be in Non -Departmental, Development Services and Engineering/Capital Project. The Non-Departmental positive variance of $17.6 million is where the major revenues are recorded including Sales Tax, Measure A, Measure P, and Motor Vehicle License Fees.
Development Services is where the ERAP loan proceeds from the State of California are recorded as previously mentioned. The largest negative variance of $1.5 million is in the Engineering/Capital Projects department that reflects a decrease in interfund reimbursements that is due to a large number of personnel vacancies.
Table 2
Department Amended
Budget
Year-end
Projection Variance
City Council $ 6,000 $ 20,000 333.3% Boards & Commissions - - 0.0% City Clerk 14,000 53,725 383.8% City Attorney 805,177 460,322 57.2% Administration 145,000 99,111 68.4% Information Technology 280,561 206,361 73.6% Human Resources 526,430 652,805 124.0% Finance 1,897,648 1,741,447 91.8% Non-Departmental 188,582,125 206,136,456 109.3% Animal Care Facility 1,208,437 1,121,047 92.8% Economic Development 990,432 763,074 77.0% Development Services 2,186,068 5,782,649 264.5% Engineering/Capital Project 9,456,866 7,983,324 84.4% Police 6,266,367 5,818,922 92.9% Fire 5,171,594 5,187,456 100.3% Public Works 7,790,398 7,392,334 94.9% Parks and Recreation 2,953,405 3,591,133 121.6% Library 1,288,916 1,147,880 89.1% Total Departmental Revenue $ 229,569,424 $ 248,158,047 108.1% Fiscal Year 2021/22 General Fund Departmental Revenues
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The Departmental Expenditure variances that exceed budget are expected to be in various departments. The
13.4% variance in the City Clerk department is due to increased elect ion costs. The 3.8% increase in the Human Resources department is due to increase d recruitment cost due to a larger than normal number of recruitments over the past fiscal year. The increase in non-Departmental is due the increase in transfers out for both Measure P and A as well as the contribution to the Bayfront described earlier in this report . The increase in Development Services is related to the carry forward of appropriations for the ERAP loan from the State of California and is offset with the loan proceeds.
Fiscal Year 2021/2022 Budget Adjustments
Staff is recommending various adjustments, appropriations, and transfers to City Departmental and Fund budgets that require City Council authorization.
General Fund Adjustments
In the General Fund, some of the transfers are between expense categories within the same Department and some transfers are between Departments. There are also proposed budget adjustments reflecting increased revenue where needed to address unanticipated expenditure category overages and ensure accurate year - end reporting. The recommended budget adjustments are shown in the table below. The overall net cost to the General Fund is an increase of $3.2 million as a result of the proposed budget adjustments.
Table 3
Department Amended
Budget
Year-end
Projection % Expended
City Council 1,693,398 1,388,345 82.0% Boards & Commissions 162,485 153,942 0.0% City Clerk 1,258,063 1,426,231 113.4% City Attorney 3,139,081 2,712,596 86.4% Administration 2,407,215 2,358,214 98.0% Information Technology 3,747,738 3,596,047 96.0% Human Resources 2,903,359 3,013,632 103.8% Finance 3,925,784 3,674,900 93.6% Non-Departmental 91,645,766 106,432,299 116.1% Animal Care Facility 2,839,084 2,743,845 96.6% Economic Development 2,183,345 1,506,836 69.0% Development Services 2,618,546 5,859,598 223.8% Engineering/Capital Project 9,222,899 9,492,681 102.9% Police 48,853,790 48,524,747 99.3% Fire 32,193,488 32,401,321 100.6% Public Works 11,751,593 11,846,377 100.8% Parks and Recreation 11,791,371 11,948,365 101.3% Library 3,446,802 3,090,012 89.6% Total Expenditure Budget $ 235,783,807 $ 252,169,988 106.9% Fiscal Year 2021/22 General Fund Departmental Expenditures P a g e | 7
While the net cost to the General Fund from the proposed budget adjustments is a decrease of $3,200,634, there are several key items to note.
1. Various City Departments – Transfer budget of Personnel, Supplies and Services, Other Capital, and Utilities to address budget shortfalls and overages.
2. Non-Departmental - Increase both Transfers-Out expense and revenue appropriations by $4,625,105 for FY2022 Measure P actuals that exceeded budget.
3. Non-Departmental - Increase both Transfers-Out expense and revenue appropriations by $4,590,294 for FY2022 Measure A actuals that exceeded budget.
4. Non-Departmental - Increase Other Expense appropriations by $3,683,951 for Chula Vista Bayfront commitment.
5. Development Services – Increase expenditure and revenue appropriat ions by $3,426,935 as a correction for loan proceeds related to the ERAP Program.
Other Fund Adjustments
The following recommended adjustments are for funds outside of the General Fund. The proposed adjustments, displayed in the table, have a net cost dec rease of approximately $ 8.8 million to the various identified funds. The proposed adj ustments are to impact the fund balances or current year available revenues of the respective noted funds.
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The Other Funds proposed budget adjustments resulting in a net decrease of $ 8,772,088 primarily being derived by the following transactions:
1. 2016 Measure P Sales Tax - Increase Transfer-In revenues from the General Fund by $4,625,105 for actuals that exceeded budget.
2. 2018 Measure A Sales Tax - Increase Transfer-In revenues by $4,590,294 for actuals that exceeded budget.
3. Public Liability Trust Fund – Increase expense appropriations by $702,825 for higher than budgeted legal costs, and revenue appropriations by $79,806 with difference funded by fund balance.
4. Transport Enterprise Fund - Increase expense appropriations by $1,262,108 for capital purchases of vehicles & equipment, and revenue appropriations by $652,353.
Table 5
PERSONNEL SUPPLIES & OTHER OTHER CIP TRANSFERS TOTAL TOTAL Footnote SERVICES SERVICES EXPENSES CAPITAL BUDGET OUT UTILITIES EXPENSE REVENUE NET COST
OTHER FUNDS
Bayfront Lease Revenue 1 -$ -$ -$ -$ -$ -$ -$ -$ (294,107)$ (294,107)$ 2016 Measure P Sales Tax 2 - - - - - - - - (4,625,105) (4,625,105) 2018 Measure A Sales Tax 3 - - - - - - - - (4,590,294) (4,590,294) Utility Tax Settlement 4 - - 22 - - - - 22 (22) - OR V2 Pub Benefit Contribution 5 - - 82 - - - - 82 (82) - Parking Meter 6 - - - - - - 5,649 5,649 (5,649) - Developer Contributions 7 - - 93,025 - - - - 93,025 (93,025) - Donations 8 - - 160,934 - - - - 160,934 (160,934) - Permanent Endowments 8 - (160,934) - - - - - (160,934) 160,934 - Federal Grants 9 - - - - 50,000 - - 50,000 - 50,000 State Grants 10 - - - - 9,002,506 (9,002,506) - - - - Chula Vista Housing Authority 24 - - (3,426,935) - - - - (3,426,935) 3,426,935 - RDA Successor Agency Fund 12 - - 46,522 - - - - 46,522 - 46,522 Section 115 Trust 13 - 36,278 - - - - - 36,278 - 36,278 Public Liability Trust 14 - 291,949 410,876 - - - - 702,825 (79,806) 623,019 Bayfront Special Tax District 15 - - 569,589 - - - - 569,589 (408,624) 160,965 Central Garage Fund 16 - 208,955 - - - - - 208,955 (56,393) 152,562 Equipment Vehicle Replacement 17 - - 240 - - - - 240 (240) - Vehicle Replacement Fund 18 - - 63,051 - - - - 63,051 (63,051) - Bayfront Trolley Station 19 - - 19 - - - - 19 (19) - CV Elite Athlete Training Ctr 20 - - 298,436 - - - - 298,436 (298,436) - Transport Enterprise 21 - 652,353 - 609,755 - - - 1,262,108 (652,353) 609,755 Long Term Debt - City of CV 22 10,833,455 - - - - - - 10,833,455 (10,833,455) - 2017 CREBs LRBs 23 - 4,968 - - - - - 4,968 (4,968) - Capital Improvement Projects 10, 11 - - - - (9,002,506) - - (9,002,506) 8,060,823 (941,683) Total Other Funds 10,833,455$ 1,033,569$ (1,784,139)$ 609,755$ 50,000$ (9,002,506)$ 5,649$ 1,745,783$ (10,517,871)$ (8,772,088)$ Other Fund Amendment Footnotes
Fiscal Year 2021/2022 - 4th Quarter Other Funds Budget Adjustments Summary 11 - Increase revenue appropriations by $941,683 for the Veterans Wall insurance payment in the Capital Improvement Fund. 5 - Increase expenditure appropriations by $5,649 for utilities in the Parking Meter Fund. 1 - Increase revenue budget by $294,107 in the Bayfront Lease Revenue Fund from the General Fund. 2 - Increase revenue budget by $4,625,105 for Measure P Sales Tax revenues from the General Fund. 4 - Increase both revenue and expenditures appropriations by $22 for Other Expenses category for bank charges. 10 - Transfer $9,002,065 revenue and expenditure appropriations from the Capital Improvement Projects Fund to the State Grants Fund for CIP related to Eucalyptus Park approved by the City Council on Resolution No. 2022-100.
6 - Increase expenditure appropriations by $123,000 for Personnel Services for Wellness Incentives. 8 - Transfer $160,934 revenue and expenditure appropriations from the Permanent Endowments Fund to the Donations Funds. 3 - Increase revenue budget by $4,590,294 for Measure A Sales Tax revenues from the General Fund. 9 - Increase expenditure appropriations by $50,000 for CIP STL0436 (D Street Sidewalk Project). 7 - Increase both revenue and expenditures appropriations by $93,025 for a Developer Contribution from HomeFed Developer Agreement approved by the City Council on July 13, 2021. 12 - Increase expenditure appropriations by $46,522 for Other Expenditures in the RDA Successor Agency Fund. 13 - Increase expenditure appropriations by $36,278 for Supplies and Services for contract services in the Section 115 Fund. 14 - Increase expenditure appropriations by $702,825 for higher than budgeted legal costs, and increase revenue budget by $79,806 in the Public Liability Trust Fund. 15 - Increase expenditure appropriations by $569,589 Other Expenses, and increase revenue budget by $408,624 in the Bayfront Special District Tax Fund. 16 - Increase expenditure appropriations by $208,955 for Supplies and Services, and increase revenue budget by $56,393 in the Central Garage Fund. 17 - Increase both revenue and expenditures appropriations by $240 for Other Expenses category for bank charges. 18 - Increase both revenue and expenditures by $63,051 in the Vehicle Replacement Fund. 19 - Increase both revenue and expenditures appropriations by $19 for Other Expenses category for bank charges. 20 - Increase both revenue and expenditures appropriations by $298,436 for the CV Elite Athlete Training Center. 21 - Increase expenditure appropriations by $1,262,108 for equipment and other purchases, and increase revenue budget by $652,353 in the Transport Fund. 22 - Increase expenditure appropriations by $10,833,455 due to an accounting correction for Unfunded Liability costs related to the issuance of the Pension Obligation Bonds in the Long Term Debt 23 - Increase both revenue and expenditures appropriations by $4,968 for Supplies and Services. 24 - Transfer expenditure and revenue appropriations by $3,426,935 for loan proceeds from the Housing Authority Fund to the General Fund that was previously approved by the City Council on Resolution 2022-070.
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5. Capital Improvement Projects Fund – Increase revenue appropriations by $941,683 for the Veterans Wall insurance payment, and transfer expenditure and revenues appropriations by $9,002,506 for Eucalyptus Park (PRK0340) to the State Grants Fund.
Pension Obligation Bond
February of 2021 the City issued Pension Obligation Bonds (POBs) in the amount of $350 million. These bonds allowed the City to pay off the Unfunded Accrued Liability (UAL) with CalPERS. The City also began to set aside 75% of the saving generated by the difference between the estimated UAL payment and the bond payment into a Section 115 Trust Fund. These monies are available to pay for any future UAL that may arise and to call a portion of the POB in 2031. The savings from the 2020/21 fiscal year allowed us to make an additional $2.4 million contribution this fiscal year. The City’s pensi on actuary consultant Govinvest prepared an analysis for the City that reflects the funding status of the City’s CalPERS plans before the POB and after the POB. For the year ended June 30,2021, the City’s plans are 109.3% funded after the issuance of the POB. Prior to the POB the plan would have been funded at 78.0%. Based on the latest numbers from CalPERS it is anticipated for the year ended June 30, 2022, the City’s plans will be 98.1% funded, this again is a significant improvement from the pre-issuance estimate of 69.3% funded had the POBs not been issued.
Table 6
Fiscal Year Accrued Liability
Market Value of
Assets
Unfunded Accrued
Liability (UAL) Funded Status
2021 $1,248,554,182 $974,061,115 $274,493,067 78.0%
2022 Est. $1,296,540,000 $898,933,440 $397,606,560 69.3% Pre - Pension Obligation Bond
64.0%
66.0%
68.0%
70.0%
72.0%
74.0%
76.0%
78.0%
80.0%
$0
$200,000,000
$400,000,000
$600,000,000
$800,000,000
$1,000,000,000
$1,200,000,000
$1,400,000,000
2021 2022 Est.
Pre-POB Funded Status
Accrued Liability Market Value of Assets
Unfunded Accrued Liability (UAL) Funded Status
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DECISION-MAKER CONFLICT
Staff has reviewed the decision contemplated by this action and has determined that it is not site-specific and consequently, the real property holdings of the City Council members do not create a disqualifying real property-related financial conflict of interest under the Political Reform Act (Cal. Gov't Code § 87100, et seq.).
Staff is not independently aware and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision-maker conflict of interest in this matter.
CURRENT-YEAR FISCAL IMPACT
The Fourth Quarter Monitoring Report presents projected revenue and expenditure actuals as of October 14, 2022. Approval of the resolution amending the fiscal year 202 1-2022 budget will result in the following impacts:
General Fund – The proposed adjustments have a net cost increase of $3,200,634 that includes an increase of expenses by approximately $18,025,919 and an increase of revenues by $14,825,285.
Table 7
Fiscal Year Accrued Liability
Market Value of
Assets
Unfunded
Accrued
Liability (UAL) Funded Status
2021 $1,248,554,182 $1,364,541,019 -$115,986,837 109.3% 2022 Est. $1,296,540,000 $1,271,980,000 $24,560,000 98.1% Post- Pension Obligation Bond
92.0%
94.0%
96.0%
98.0%
100.0%
102.0%
104.0%
106.0%
108.0%
110.0%
112.0%
-$200,000,000
$0
$200,000,000
$400,000,000
$600,000,000
$800,000,000
$1,000,000,000
$1,200,000,000
$1,400,000,000
$1,600,000,000
2021 2022 Est.
Post-POB Funded Status
Accrued Liability Market Value of Assets
Unfunded Accrued Liability (UAL) Funded Status
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Other Funds – The proposed adjustments have a net cost decrease of $8,772,088 to various funds that includes a decrease of expenses by approximately $1,745,783 and an increase of revenues by $10,517,871.
ONGOING FISCAL IMPACT
Staff will review the impacted budgets to identify potential ongoing impacts and may recommend changes during fiscal year 2022-2023.
ATTACHMENTS
Attachment 1 – General Fund Budget Transfers
Attachment 2 – General Fund Budget Amendments
Staff Contact: Sarah Schoen, Director of Finance and Ed Prendell, Budget and Analysis Manager