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May 23, 2023
ITEM TITLE
Financial Report and Appropriation: Accept the Quarterly Financial Report for the Quarter Ending March 31, 2023, Appropriate Funds to Implement Required Budget Adjustments, and Authorize the City Manager to Execute Certain Documents
Report Number: 23-0135
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. Notwithstanding the foregoing, the activity qualifies for an Exemption pursuant to Section 15061(b)(3) of the California Environmental Quality Act State Guidelines.
Recommended Action
Accept the quarterly financial report for the quarter ending March 31, 2023, and adopt a resolution 1) making various amendments to the Fiscal Year 2022/23 budget to adjust for variances and appropriating funds for that purpose; and 2) authorizing the City Manager to enter into an agreement with the lowest bidder for capital project GG0262 (Casa Casillas), to execute the agreement with South Bay Community Services to administer a homeless prevention program, and to execute the PP -GEMT IGT Certification Form for the Public Provider Ground Emergency Medical Transportation Intergovernmental Transportation Intergovernmental Transfer Program. (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 March 31, 2023 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.
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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. This report discusses staff recommended budget adjustments in the General Fund as well as various other funds to address identified fiscal needs.
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. Notwithstanding the foregoing, it has also been determined that the activity qualifies for an Exemption pursuant to Section 15061(b)(3) of the California Environmental Quality Act State Guidelines. Thus, no environmental review is required.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable
DISCUSSION
The Third Quarter Financial Report is developed using nine months of actual financial activity for Fiscal Year 2022/2023 as of March 31, 2023. The data in this report is the most current data ava ilable; 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 Status
The General Fund continues to be balanced after the use of one-time American Rescue Plan Act (ARPA) funds.
This projection is conservative , and staff continues to closely monitor General Fund revenues and expenditures to avoid a general fund deficit.
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General Fund Overview
Revenues and expenditures are projected to be under the current amended budget by $6.2 million due to a reduction in ARPA funds for projects not moving forward in this fiscal year. 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 changes to inflation, interest rates, unemployment, as well as 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 $ 2.9 million. This is due to increased Sales Tax , Measure A and P Sales Tax, and Transient Occupancy Tax revenues.
The following are explanations of the significant variances between the current amended budget and projected revenues:
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• Sales Tax revenue is currently trending higher than anticipated, which is a result of increased costs in the consumer goods, fuel, and restaurants categories. Inflationary impacts are expected to continue through the end of the 2022/23 fiscal year. Growt h 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 $0.3 million each for a combined total of $0.6 million. The driver for these variances is the same as the Sales Tax description above. These projections are based on updated information provided by HdL, the City’s outside sales tax consultant.
• Transient Occupancy Tax revenues are projected to exceed the amended budget by $0.6 million. This reflects an increase in hotel stays and short -term rentals. Pent -up demand for hotel activity is occurring with nationwide travel returning to pre-pandemic levels. • Other Revenues are projected to be below the amended budget by $9.2 million mainly due to a decrease in the budgeted Transfers In from the American Rescue Plan Act (ARPA). Staff will be returning to City Council with a revised ARPA spending plan to ensure that funds are obligated on or before December 31, 2024, with all payments completed by December 31, 2026.
General Fund Expenditures
As shown in Table 1 abov e, expenditures are anticipated to be under budget by $6.2 million. This includes projected personnel savings of approximately $3. 8 million. 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 incre ases related to operations, such as increased internal services charges in various departments, and increased costs related to goods and services (i.e., fuel, utilities, and supplies and services).
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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 s in Departmental Revenues are projected to be in the Non-Departmental, Police, Economic Development, and the Engineering/Capital Projects Departments. The Non-Departmental positive variance of $ 4.1 million is primarily due to the increase in major revenues including Sales Tax , Measure A and P Sales Tax , and Transient Occupancy Tax as discussed in the General Fund Revenues section of this report. The Parks and Recreation positive variance of $1. 2 million is due to additional revenues from recreation programming. Additionally, th ere is an expected decrease in departmental revenues, most notably in the Police department ($3. 5 million), Economic Development department ($2.6 million), and Engineering/Capital Projects department ($1.4 million) driven by a decrease in anticipated revenue recovery funded by ARPA in those 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 be under budget in various departments.
The following are explanations of the significant variances between budgeted and projected expenditures:
• The Economic Development positive variance of $3.1 is primarily due to the expenditure allocation for the University Innovation Project that was able to be funded with a generous grant from the State of California and additional non-General Fund revenue sources. • The Police and Engineering positive variances of $1.3 million and $1.1 million respectively, are driven by department vacancies resulting in salary savings . These vacancies are resulting in reductions in current services revenue.
• The Fire Department’s $1.3 million negative variance is driven by pending reimbursements due to strike team deployments, impacts to overtime rates due to essential workers stipends, and injury leave impacts to overtime.
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General Fund Adjustments
The $0.8 million in General Fund expenditure and revenue adjustments are necessary to balance the budget as listed in Table 4 resulting in $0 net cost to the General Fund.
1. Increase Transfer Out expenditure appropriations by $55,000 in Non-Departmental from the Supplies & Services category in Public Works, resulting in a transfer from General Fund to Fund 713 – Capital Improvement Projects Fund (Casa Casillas GGV0262).
2. Increase expenditure appropriations by $843,000 in the Utilities category due to incr eased costs city- wide offset by Personnel savings in various departments as listed above .
3. Decrease expenditure appropriations by $773,758 in the Personnel Category from department vacancies to offset increased utilities expenses in various departments as l isted above.
4. Increase expenditure and revenue appropriations by $191,003 for Contract Services for permitting fees.
5. Transfer expenditure appropriations by $550,000 from the Personnel Services category to the Supplies & Services category due to higher recruitment costs.
6. Increase expenditure and revenue appropriations by $9,995 for one -time grant funding.
7. Increase expenditure appropriations by $454,000 and revenue appropriations by $314,000 for Fire Strike Team and Fire Academy activities.
8. Decrease expenditure appropriations by $169,242 in the Personnel Category from department vacancies to offset Personnel and Utilities expenses in various departments as listed above.
9. Increase revenue and expenditure appropriations by $285,502 for Parks & Recreation additiona l programming.
10. Transfer $1,037 in expenditure appropriations for Internal Service Charges for restructuring of the Parks Maintenance Divisions moved from the Parks & Recreation Department to the Public Works Department.
Other Fund Adjustments
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1. Transfer expenditure appropriations by $136,836 from the Supplies & Services category to the Personnel Services category for additional Fire Academy needs.
2. Decrease expenditure appropriations by $180,222 in the Transfers Out due to an updated vehicle replacement schedule.
3. Decrease revenue appropriations by $128,877 in order to match actual revenues received.
4. Increase expenditure appropriations by $75,000 in the Supplies & Services category to support smart parking meters.
5. Increase expenditure and revenue appropriations by $301,208 for the FY2022 and FY2023 Opioid Settlement payments.
6. Increase revenue appropriations by $951,480 for anticipated development revenues based on updated projections.
7. Increase expenditure appropriations by $130,000 and revenue appropriations by $65,000 for anticipated grants and use of fund balance.
8. Increase expenditure appropriations by $453,902 and revenue appropriations by $403,902 for various grant expenditures.
9. Increase expenditure and revenue appropriations by $4,000 for the Library Stay & Play grant.
10. Increase expenditure appropriations by $250,000 for the South Bay Community Services Homelessness Prevention Program.
11. Increase expenditure appropriations by $89,982 for Pension Bond Debt service payments omitted from the budget.
12. Transfer expenditure appropriations by $145,451 from the Personnel Services Category to the Utilities category.
13. Increase expenditure appropriations by $802,644 Pension Bond Debt service payments omitted from the budget.
14. Increase expenditure appropriations by $660,833 for insurance claims agreement.
15. Increase expenditure and revenue appropriations by $916,000 to match current year trends and to facilitate the execution of GEMT Certification as described below.
16. Increase revenue appropriations by $1,998,242 for anticipated development revenues based on updated projections.
17. Increase expenditure appropriations by $489,367 for Pension Bond Debt service payments omitted from the budget.
18. Decrease revenue appropriations by $408,339 for anticipated development revenues based on updated projections.
19. Increase revenue appropriations by $4,905,650 for anticipated development revenues based on updated projections.
20. Decrease revenue appropriations by $227,077 for anticipated development revenues based on updated projections.
21. Increase revenue appropriations by $26,968 for anticipated development revenues based on updated projections.
22. Increase expenditure and revenue appropriations by $55,000 for Casa Casillas (GGV0262) from General Fund transfer.
23. Decrease revenue appropriations by $140,000 for anticipated development revenues based on updated projections.
24. Decrease revenue appropriations by $109,867 for anticipated devel opment revenues based on updated projections.
Capital Improvement Project
GGV0262 – Casa Casillas – Bid proposals for the Casa Casillas CIP Project were recently received by the City.
To expedite this project, staff is recommending that the City Council authorize the City Manager to execute the agreement with the lowest bidder for the construction of this project up to the project budget of $3.2 million.
Ground Emergency Medical Transport
The City Transport Program was a participant in the California Department of Health Care Services for the QAF (Quality Assurance Fee) and GEMT (Ground Emergency Medical Transportation) programs, both of which sunset on December 31, 2022. A new program is now available under the Department of Health Care Services under the Public Provider (PP) Ground Emergency Medical Transportation (GEMT) intergovernmental transfer (IGT), otherwise known as the PP -GEMT IGT Program. As a requirement for participation, the City must pay $516,471, which represents 1/3 of the current year 2023 annual collection amount into the program, and then will receive those and some additional funds back through the supplemental Medi-Cal program. To qualify, the City will have to submit a certification form to the State of California Department of Health Care Services by June 01, 2023 certifying compliance to program rules and P a g e | 9
eligibility. Staff is recommending that the City Council approve the City’s participation in this program and authorize the City Manager to execute the certification form , as well as all other documents necessary to implement the program.
SBCS Homeless Prevention
The City received a proposal from South Bay Community Services (SBCS) to administer a homelessness prevention program in the amount of $250,000. Staff is recommending that the City Council authorize the City Manager to execute the agreement with SBCS for the admi nistration of the program up to the project budget (BGS1221).
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 Cou ncil 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 Third Quarter Monitoring Report presents projected revenue and expenditure actuals as of March 31, 2023. Approval of the reso lution amending the fiscal year 2022/2023 budget will result in the following impacts:
General Fund
The proposed adjustments increase both revenues and expenditures appropriations by approximately $800,500.
Other Funds
The proposed adjustments have a net positive fiscal impact of $4,643,108 to various funds, including an $4,047,714 increase in expenditure appropriations and an $8,690,822 increase in revenue appropriations.
ONGOING FISCAL IMPACT
Staff will review the impacted fund budgets to identify po tential ongoing impacts and will incorporate as required during the Fiscal Year 2023/2024 budget development and monitoring process.
ATTACHMENTS
Attachment 1 – General Fund Budget Transfers
Attachment 2 – General Fund Budget Amendments
Attachment 3 – Ground Emergency Medical Transport Certification Attachment 4 – South Bay Community Services Agreement
Staff Contact: Sarah Schoen, Director of Finance/Treasurer Ed Prendell, Budget and Analysis Manager