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February 21, 2023
ITEM TITLE
Financial Report and Appropriation: Accept the Quarterly Financial Report for the Quarter Ending December 31, 2022, and Appropriate Funds to Implement Required Budget Adjustments
Report Number: 23-0049
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 ending December 31, 2022 and adopt a resolution making various amendments to the Fiscal Year 2022/23 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 December 31, 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 Co uncil, there are circumstances which arise that could require adjustments to the approved budget. 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 CE QA 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 no t subject to CEQA. Thus, no environmental review is required.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable
DISCUSSION
The Second Quarter Financial Report is developed using six months of actual financial activity for Fiscal Year 2022/2023 as of December 31, 2022. The data in this report is the most current data available; however, the projections are likely to change.
This report will provide summary information for the following areas:
• Major General Fund Discretionary Revenues
• Adjustments to General Fund Expenditures
• Adjustments to non-General Fund funds
The Finance Department will continue to monitor the City’s actual revenues and expenditures and will provide any significant changes in subsequent Quarterly Financial reports.
General Fund Overview
Revenues are projected to exceed budget by $11.3 million, and expenditures are projected to exceed budget by $6.0 million ($9.0 million when projected personnel savings are excluded). Staff anticipates several major discretionary revenues to come in higher than budget as detailed in the General Fund Revenues section. The increased revenue will offset various increases in projected expenditures detailed in the General Fund Expenditure section of this report. This report is based on the latest information, but there are unknown variables that may affect the General Fund , such as economic factors that may slow growth including continued increases in inflation, interest rates, unemployme nt, and other financial uncertainties. Staff will continue to monitor these factors and will provide updates in future quarterly financial reports.
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General Fund Revenues
As shown in Table 1, the City’s major discretionary revenues are projected to exceed the Fiscal Year 2022/23 amended budget by approximately $12.3 million. This is due to increased Property Tax, Sales Tax, Measure A and P Sales Tax, and Transient Occupancy Tax revenues.
The following are explanations of the significant variances between budgeted and projected revenues:
Property Tax – Current projections a re based on Fiscal Year 2021/22 audited actual property tax revenues as well as the increases in home prices and home sales that occurred in the past two years, Table 1 in millions
Adopted Budget Amended
Budget
Year-end
Projection Variance
Revenue Source
Major Discretionary Revenues
Property Tax 40.9$ $ 44.4 $ 46.9 $ 2.6 Property Tax in lieu of VLF 26.8 27.8 27.8 - Sales Tax 42.3 43.7 45.7 1.9 Measure P Sales Tax 25.9 25.9 28.0 2.1 Measure A Sales Tax 25.9 25.9 28.0 2.1 Franchise Fees 14.5 14.5 14.5 - Transient Occupancy Tax 5.2 5.4 8.9 3.5 Utility User Tax 3.8 3.8 3.8 - Major Discretionary Revenues Subtotal 185.3 191.4 203.7 12.3 Other General Fund Revenues
Other Revenues 63.6 64.5 63.5 (1.0) Other General Fund Revenues Subtotal 63.6 64.5 63.5 (1.0) Other General Fund Sources 6.5 6.5 - Total Revenues/Sources 248.9$ $ 262.4 $ 273.7 $ 11.3 Expenditures
Personnel Services $ 126.9 $ 130.0 $ 126.9 $ 3.0 Non-Personnel
Supplies and Services 18.6 21.2 22.7 (1.5) Other Expenses 1.8 7.5 8.0 (0.5) Utilities 6.1 6.2 6.2 (0.0) Other Expenditures 95.5 97.7 104.5 (6.9) Total Non Personnel 122.0 132.5 141.4 (9.0) Total Expenditures 248.9 262.4 268.3 (6.0) Total General Fund Surplus/(Deficit) -$ $ - $ 5.4 $ 5.3 Fiscal Year 2022/23 General Fund Overview
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which are connected to increases in the assessed valuation of parcels and tax assessments. The City’s assessed valuation is higher than what was budgeted based on updated information from the County Assessor’s Office . As a result, Property Tax is expected to exceed the amended budget by approximately $2.6 million.
Sales Tax revenue is currently trending higher than anticipated, which is a result of increase d costs in the consumer goods , fuel, and restaurants categories . Inflationary impacts are expected to continue through the end of the 2022/23 fiscal year. Growth of Sales Tax revenue is anticipated to slow in future fiscal years because of global economic conditions , long -term inflation leading to reduced consumer spending, and the Federal reserve increasing interest rates as an attempt to prevent an economic recession.
Measure A Sales Tax and Measure P Sales Tax revenues are anticipated to exceed budget by $2.1 million each for a combined total of $4.2 million. The driver for these variances is the same as the Sales Tax description. Projections are based on updated information provided by HdL, the City’s outside sales tax consultant.
Transient Occupancy Tax revenues are projected to exceed budget by $3.5 million . This reflects an increase in hotel stays and short -term rentals. P ent-up demand for hotel activity is occurring with nationwide travel returning to pre-pandemic levels.
Other Revenues are projected to decrease by approximately $1.0 million tied to several City departments that are anticipating a decline in revenues , particularly Charges for Services revenues that are generated by staff time hours charged . This is discussed in the Departmental Revenues section of this report.
General Fund Expenditures
As shown in Table 1 above, expenditure s are anticipated to exceed budget by $6. 0 million. This includes projected personnel savings of approximately $3.0 million. Staff is not recommending a reduction of Personnel Services at this time but is instead recommending use of the increased revenues to offset the projected needs within the non-personnel categories of the General Fund. This table reflects projections for all budgeted categories of General Fund Expenditures , which includes an increase to the Transfer Out category equivalent to the increase in projected Measure A and Measure P Sales Tax revenues as well as increases related to operations, such as increased internal services charges in various departments, as well as increased costs related to goods and services (i.e., fuel, utilities, and supplies and services). The recommended increase to General Fund expenditure appropriations is $8,961,572.
The increased expenditures appropriations described above will be fully offset by the increased major discretionary - Property Tax, Transient Occupancy Tax, and Sales Tax revenues.
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Departmental Revenues and Expenditures
Departmental Revenues
Table 2 below provides the amended General Fund revenue budget (Current Budget), the projected year-end revenues (Year-end Projection), and the projected variance (in dollars) at the department level.
The largest variance in Departmental Revenues is projected to be in the Non-Departmental, City Attorney and the Engineering/Capital Projects Departments. The Non-Departmental positive variance of $13.0 million is due to the increase in major revenues including Sales Tax, Property Tax, and Transient Occupancy Tax as discussed in the General Fund Revenues section of this report. Additionally, there is an expected decrease in departmental revenues, most notably in the Engineering/Capital Projects department ($1.2 million) and the City Attorney department ($0.7million) due to staffing vacancies in both departments.
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Departmental Expenditures
Table 3 below provides the amended General Fund expenditure budget (Current Budget), the projected year-end expenditures (Year-End Projection), and the projected variance (in dollars) at the department level.
The Departmental Expenditures are expected to exceed budget in various departments.
The following are explanations of the significant variances between budgeted and projected expenditures:
The Non-Departmental $ 5.7 million negative variance is primarily due to the Transfer Out expenditure for both Measure A and Measure P Sales Tax Funds of $2.1 million for a total of approximately $4.2 million, based on updated Measure A and Measure P Sales Tax projections . The variance also includes an additional Transfer Out to the Public Liability Trust Fund from the General Fund of $2.4 million to cover increased legal costs.
The Fire department’s $2.0 million negative variance is driven by an increase in overtime costs that is tied to staffing vacancies.
The Police Department reflects a positive variance of $1.1 million which is driven by department vacancies resulting in salary savings.
As mentioned above, s everal departments are anticipating salary savings due to a n increased volume of vacancies and ongoing recruitments.
Table 3
Department Current
Budget
Year-end
Projection Variance
City Council $ 1,754,011 $ 1,529,427 $ 224,584 Boards & Commissions 35,977 35,977 - City Clerk 1,565,395 1,563,963 1,432 City Attorney 3,139,868 3,092,012 47,856 Administration 2,675,838 2,491,051 184,787 Information Technology 4,816,748 5,124,466 (307,718) Human Resources 3,266,606 3,480,698 (214,092) Finance 4,572,094 4,455,156 116,938 Non-Departmental 100,673,380 106,416,064 (5,742,684) Animal Care Facility 3,241,640 3,104,840 136,801 Economic Development 4,617,918 4,463,735 154,183 Development Services 6,129,976 5,873,312 256,664 Engineering/Capital Project 10,552,679 10,023,151 529,528 Police 54,462,292 53,359,427 1,102,865 Fire 31,107,142 33,146,857 (2,039,715) Public Works 21,406,711 21,751,067 (344,356) Parks and Recreation 4,410,517 4,625,234 (214,717) Library 3,986,307 3,840,235 146,073 less anticipated personnel savings - - (3,000,000) Total Expenditure Budget $ 262,415,100 $ 268,376,672 $ (8,961,572) Fiscal Year 2022/23 General Fund Departmental Expenditures P a g e | 7
General Fund Adjustments
The $ 9.0 million in General Fund expenditure and revenue adjustments are necessary to correct the appropriations needed to balance the budget as listed in Table 4 resulting in $0 net cost to the General Fund.
The General Fund adjustments below do not reflect the salary projection savings identified in individual departments as listed within Table 3, which are based on current vacancies that exist within departments.
1. Decrease expenditure and revenue appropriations by $89,250 related to American Rescue Plan (ARPA) COVID -19 stipends in various departments.
2. Increase revenue appropriations by $188,788 due to a refund from County Registrar for prior year election costs.
3. Transfer expenditure appropriations of $330,000 from the Personnel Services category to Supplies & Services category for Attorney Services due to expected vacancies.
4. Decrease revenue appropriations by $205,174 in the Charges for Services category.
5. Transfer expenditure appropriations of $429,000 from Personnel Services category to Supplies & Services and increase Supplies & Services by $737,713 for software subscription renewals.
6. Increase expenditure appropriations by $200,000 for various construction and re pair costs to address facility maintenance needs.
7. Increase expenditure appropriations by $19,267 in the Transfer-Out category in the Federal Funds to increase grant match for the JAG Grant approved by Council Resolution 2022-230.
8. Decrease expenditure appropriations by $3,100 in the Transfer-Out category for the General Fund contribution to the to the Eastlake Maintenance District I Fund to match the levy for ELMD Zone C.
9. Increase expenditure appropriations by $40,045 in the Transfer -Out category to Living Coast Discovery Center Fund for increased utility costs.
10. Transfer expenditure appropriations by $160,415 in the Transfer -Out category from the General Fund to the Federal Grant Fund for debt service payments.
11. Increase revenue appropriations by $5,725,019 f or updated projections for Property Taxes ($2,455,249), Public Safety Sales Tax ($31,604), and Transient Occupancy Taxes ($3,238,166).
12. Increase expenditure and revenue appropriations by $2,138,919 for Measure P Sales Tax revenue and corresponding Transfer-Out to the Measure P Sales Tax Fund in higher than budgeted revenues.
13. Increase expenditure and revenue appropriations by $2,068,692 for Measure A Sales Tax revenue and corresponding Transfer-Out to the Measure A Sales Tax Fund in higher than budgeted revenues.
14. Increase expenditure appropriations by $2,419,687 for the transf er-out from the General Fund to the Public Liability Trust Fund for higher than budgeted legal costs.
15. Increase expenditure appropriations by $386,812 for Internal Service charges related to the Central Garage Fund for fuel and utility costs in various departments.
16. Transfer expenditure appropriations of $903,673 in Personnel Services from Non -Departmental to the Fire Department for International Association of Fire Fighters labor agreement costs .
17. Increase expenditure and revenue appropriations by $432,601 for Contract Services for permitting fees.
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18. Increase expenditure appropriations by $504,868 for Personnel Services and revenue appropriations by $511,000 for Strike-Team activities.
19. Decrease revenue appropriations by $145,709 for the Transfer-In from the ALS Fund for reimbursements for differential pay.
20. Increase expenditure appropriations by $108,000 in Supplies & Services for Contract Services for specialized radio repairs and other services.
21. Transfer expenditure appropriations of $79,825 from the Personnel Services category to Supplies & Services category for software costs.
22. Decrease revenue appropriations by $1,650,000 due to current department vacancies.
Other Fund Adjustments
1. Increase expenditure appropriations by $300,000 for the Asset Management Pla n.
2. Increase revenue appropriations by $2,138,919 for Transfer -In for projected Measure P Sales Tax revenues received in the General Fund.
3. Increase expenditure appropriations by $724,534 and revenue appropriations by $555,422 for Internal Service charges related to the Central Garage Fund in various departments and funds.
4. Decrease expenditure appropriations by $139,451 and decrease revenue appropriations by $62,000 related to American Rescue Plan (ARPA) COVID-19 stipends in various funds/departments.
5. Increase revenue appropriations by $2,068,692 for Transfer-In for revised Measure A Sales Tax revenue received in the General Fund.
6. Increase expenditure appropriations by $116,400 from available fund balance for Other Capital purchases.
7. Decrease expenditure and revenue appropriations by $145,709 for Transfers Out to the General Fund and Transfer In from the Transport Fund related to decreased reimbursements for differential pay .
8. Increase expenditure and revenue appropriations by $34,500 for Mayor Inauguration d onation.
9. Increase expenditure appropriations by $85,000 for Supplies & Services for software purchases.
10. Increase expenditure and revenue appropriations by $154,704 in Other Funds from the County of San Diego Emergency Grant for the Chula Vista Homeless Bridge Shelter.
11. Increase expenditure appropriations by $40,000 for Supplies & Services from available fund balance for the Animal Care Grant expenditures.
12. Increase expenditure and revenue appropriations by $45,000 for Supplies & Services from the Port of San Diego – Civic Event Program Grant.
13. Increase expenditure appropriations by $ 160,415 for Transfer Out to correct P ension Obligation Bonds contribution.
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14. Increase expenditure appropriations by $388,987 and revenue appropriations by $567,464 to mat ch grant award amounts.
15. Increase expenditure appropriations by $70,000 for Other Capital to purchase digital displays.
16. Increase expenditure and revenue appropriations by $3,919,687 for increased legal costs including an increase to the Transfer In from the General Fund of $2.4 million and $1.5 million in Other Revenues .
17. Increase expenditure appropriations by $18,800 from available fund balance for various Open Space and Maintenance District Funds.
18. Increase expenditure and revenue appropriations by $100,000 for Supplies & Services for increased fuel costs.
19. Increase expenditure appropriations by $60,000 for Other Capital to purchase new vehicle.
20. Increase revenue appropriations by $100,000 for auction proceeds for the disposal of City vehicles.
21. Increase expense and revenue appropriations by $40,045 for Utilities due to increase in electricity and natural gas costs.
22. Increase expenditure appropriations by $67,372 for Supplies & Services of $64,272 and Transfer -Out of $3,100 to the CV Elite Training Center Fund.
23. Increase expenditure and revenue appropriations by $582,416 in Supplies & Services to purchase program supplies.
24. Increase expenditure and revenue appropriations by $297 in Other Expenses to pay final debt service payment.
25. Increase expenditure appropriations by $52,000 for Other Capital to pay for vehicle and equipment purchases.
26. Increase revenue appropriations by $6,373,080 for Charges for Services related to Park Dedication revenues based on updated projections.
27. Increase expenditures appropriations by $650,000 for CIP Project Expenditures for the Heritage Road Bridge Improvements (STM-0386) project.
28. Decrease revenue appropriations by $1,685,932 for Charges for Services related to Park Dedication revenues based on updated projections.
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 Second Quarter Monitoring Report presents projected revenue and expenditure actuals as of December 31, 2022. Approval of the resolution amending the fiscal year 2022/2023 budget will result in the following impacts:
General Fund
The proposed adjustments increase expenditure appropriations by approximately $8,961,572 and increase estimated revenues of $8,961,572.
Other Funds
The proposed adjustments have a net positive fiscal impact of $7,607,298 to various funds, including an $7,179,288 increase in expenditure appropriations and an $14,786,585 increase in revenue appropriations.
ONGOING FISCAL IMPACT
Staff will review the impacted fund budgets to identify potential ongoing impacts and will incorporate as required during the Fiscal Year 2023/2024 budget development process.
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ATTACHMENTS
Attachment 1 – General Fund Budget Transfers
Attachment 2 – General Fund Budget Amendments
Staff Contact: Sarah Schoen, Director of Finance/Treasurer Ed Prendell, Budget and Analysis Manager