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October 17, 2023
ITEM TITLE
Financial Report and Appropriation: Accept the Quarterly Financial Report for the Quarter Ending June 30, 2023, Appropriate Funds for that Purpose, and Amend a Council Policy Report Number: 23-0261
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 Sections 15060(c)(3) no environmental review is required.
Recommended Action
Accept the quarterly financial report for the quarter ended June 30, 202 3, and adopt resolutions A) Making various amendments to the fiscal year 2022-23 budget to adjust for variances and appropriating funds for that purpose (4/5 Vote Required) , and B) Amending Council Policy 220 -02 Financial Reporting and Transfer Authority with updated terminology.
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, 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.
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” w as established in January of 1996 and allows for budget transfers and adjustments to be completed. This report discusses budget adjustments that staff recommend in the General Fund as well as various other funds to address identified fiscal issues.
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Additionally, staff is requesting to update the Financial Reporting and Transfer Authority Policy (the “Policy”), last adopted via City Council Resolution No. 2022-250. The Policy was established to clarify the authority for budget transfers which may be required to fund needed services in each City department within a given fiscal year. When the policy was last updated one change in terminology was omitted and staff is recommending an update to change “summary account” to “budget category” to align with the curre nt financial system.
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.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable
DISCUSSION
As part of the fiscal year 20 22-23 year-end process, staff has reviewed budget to actual reports to identify potential budget overages at either the category or fund level . Various budget amendments 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” per mits budget transfers to be completed .
Transfers that exceed $75,000 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 2022-23, 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 operating reserve of $27.2 million, per the City’s Reserves – Fiscal Health Policy . Based on preliminary numbers as of October 3, 2023 , the operating reserve is currently anticipated to increase by approximately $1.8 million; however, this may change as part of the year -end closing process. This increase will maintain the reserve at the target level of 15% of next fiscal year’s (fiscal year 2023-24) budgeted operating expenditures, at approximately $29.0 million. Additionally, the Economic Contingency Reserve is expected to be fully funded at the 5.0% target at approximately $9.7 million, and the Catastrophic Event Reserve is anticipated to be partially funded at approximately $3.2 million, reflecting P a g e | 3
1.7% funding as compared with a target of 3.0% of budgeted operating expenditures . All of the forgoing reserve numbers are based on preliminary estimates and subject to change as part of the final year-end close- out process.
Fiscal Year 2022-23 General Fund Overview
Table 1 in millions
Adopted
Budget
Amended
Budget
Year-End
Projection Variance1
Revenue Source
Major Discretionary Revenues
Property Tax $ 40.9 $ 46.8 $ 46.2 $ (0.6) Property Tax in lieu of VLF 26.8 27.8 28.0 0.2
Sales Tax 42.3 43.7 46.3 2.6
Measure P Sales Tax 25.9 28.0 28.5 0.5
Measure A Sales Tax 25.9 28.0 28.5 0.5
Franchise Fees 14.5 14.5 14.4 (0.1)
Transient Occupancy Tax 5.2 8.8 8.8 -
Utility User Tax 3.8 3.8 3.6 (0.2)
Major Discretionary Revenues
Subtotal 185.3 201.4 204.4 2.9
Other General Fund Revenues
Other Revenues 63.6 63.7 56.1 (7.7)
Other General Fund Revenues
Subtotal 63.6
63.7 56.1
(7.7)
Total Revenues/Sources $ 248.9 $ 265.1 $ 260.5 $ (4.8)
Expenditures
Personnel Services $ 126.9 $ 127.8 $ 126.5 $ 1.3
Non-Personnel
Supplies and Services 18.6 24.5 21.3 3.2
Other Expenses 1.8 8.1 7.6 0.5
Utilities 6.1 7.2 6.6 0.6
Other Expenditure Categories2 95.5 104.8 103.3 1.5
Total Non-Personnel 122.0 144.6 138.7 5.9
Total Expenditures $ 248.9 $ 272.4 $ 265.3 $ 7.1
General Fund Surplus/(Deficit) $ - $ (7.3) $ (4.9) $ 2.4
Use of Prior Year Fund Balance - 7.3 7.9 Contribution to Reserves per Policy - - (3.0)
Total General Fund
Surplus/(Deficit) $ - $ - $ -
General Fund Revenues
1 Variance compares the Amended Budget and the Year-End Projection. 2 Other Expenditure Categories include: Other Capital, Transfers Out, Internal Service Charges, Non-CIP Projects Expenditures and CIP Project Expenditures.
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The City’s General Fund revenues are projected to be $4.8 million less than the Amended Budget, largely due to Major Revenues outperforming the budget by $2.9 million, offset by Other Revenues coming in below budget by $7.7 million.
Sales Tax related revenues exceeded the Amended Budget by $2.6 million, which is partially due to the impact of inflation on taxable goods, most notably general consumer goods and higher gasoline prices. The growth rate for the Sales Tax revenue category is anticipated to decrease in future fiscal years because of global economic conditions including increased 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.
Property Tax revenue is projected to come in slightly lower than the Amended Budget ($0.6 million). While this is a shortfall as compared to the Amended Budget, i t is important to note that the Amended Budget reflects a $5.9 million increase over the Adopted Budget. The increase of property assessed valuations in fiscal year 2022-23 reflects a diverse real estate inventory of residential and commercial properties, which also includes new development as well as a slight decline in real estate sales due to higher interest rates.
The American Rescue Plan (ARPA) revenues are projected below budget due to a reduced use of anticipated reimbursements to the General Fund. This reduction is due in part to Major Revenues exceeding the Adopted Budget, resulting in a reallocation of these funds with ARPA spending plan amendment that was approv ed by the City Council on July 25, 2023 (Resolution No. 2023-110) in fiscal year 2023 -24. This amendment allocated $13 million for the purchase of the Palomar Motel as well as other adjustments.
General Fund Expenditures
The City’s General Fund expenditures are estimated to come in under the Amended Budget by $7.1 million, including personnel savings of $1.3 million. This amount reflects projected salary savings of $5.9 million and savings in other personnel costs of $0.7 million, offset by overtime overages of $5.3 million. The projected savings in the Personnel category 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 which are offset by salary savings and decrease d fringe benefit expenditures.
The Supplies and Services category is projected under budget by $3.2 million. This includes savings of $1.6 million in Non -Departmental and additional savings in various departments of $1.6 million related to maintenance costs, insurance premiums, travel/training costs, and supplies.
The Utilities category is anticipated to come in under budget by $0.6 million, largely due to an unusually rainy season that resulted in decreased water utility expenditures.
The other expenditure categories (Other Capital, Transfers Out, Internal Service Charges, Non -CIP Project Expenditures, and CIP Project Expenditures) are anticipated to be under the Amended Budget by $ 1.5 million. This is due to the ARPA spending plan amendment that reallocated $2. 7 million of Non-CIP Project Expenditures tied to ARPA funding for the University Project. This is offset by both Measure P and Measure A Sales Tax revenues exceeding the Amended budget by $0.5 million each for a total increase of $1.0 million, resulting in an increased Transfer Out of the General Fund to both respective funds.
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Departmental Revenues and Expenditures
Departmental Revenues
Table 2 below provides the Amended General Fund revenue budget , the projected year -end revenues, and the projected variance at the department level.
Fiscal Year 2022-23 General Fund Departmental Revenues
Table 2 in thousands
Department Amended
Budget
Year-End
Projection Variance
City Council $ 5.0 $ 5.2 $ 0.2 City Clerk 204.3 234.7 30.4 City Attorney 568.0 564.7 (3.3) Administration 166.1 131.0 (35.1) Information Technology 427.4 353.5 (73.9) Human Resources 977.0 607.2 (369.8) Finance 1,866.9 1,288.8 (578.1) Non-Departmental 216,148.6 221,184.7 5,036.2 Animal Care Facility 1,570.6 1,148.1 (422.4) Economic Development 3,192.4 579.0 (2,613.4) Development Services 2,325.7 2,052.8 (272.8) Engineering/Capital Project 8,486.5 8,743.5 257.0 Police 9,334.4 6,404.2 (2,930.2) Fire 6,214.7 4,109.6 (2,105.0) Public Works 9,005.1 8,354.6 (650.5) Parks and Recreation 3,224.5 4,072.2 847.6 Library 1,463.0 638.9 (824.1) Total Departmental Revenue $ 265,179.9 $ 260,473.5 $ (4,706.6)
The largest variances in Departmental Revenues are projected to be in Non -Departmental, Parks and Recreation, and Engineering/Capital Projects. The Non -Departmental positive variance of $ 5.0 million is where the major revenues are recorded , including Sales Tax, Measure A, Measure P, and Motor Vehicle License Fees. The Parks and Recreation Department positive variance of $0.8 million reflect program revenues due to higher than budgeted activities as more programming was made available to the residents of Chula Vista.
The majority of the departments with negative variances for revenues are due to the decrease in planned ARPA reimbursements mentioned earlier in th is report. The Adopted Budget anticipated that ARPA reimbursements would be approximately $12.6 million, and of that $8.3 million was to be used for General Government Services Reimbursement under the Revenue Recovery category. In July 2023, the City Council approved an amendment to the ARPA Spending Plan (Resolution No. 2023-110), which reprogrammed these funds in fiscal year 2023-24. As a result of the reprogramming, the transfer from ARPA to the General Fund was decreased by $10.4 million.
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Departmental Expenditures
Table 3 below provides the Amended General Fund expenditure budget, the projected year -end expenditures, and the projected variance at the department level.
Fiscal Year 2022-23 General Fund Departmental Expenditures Table 3 in thousands
Department Amended
Budget
Year-End
Projection Variance
City Council $ 1,759.0 $ 1,286.5 $ 472.5 Boards & Commissions 36.0 8.0 28.0 City Clerk 1,571.4 1,393.3 178.1 City Attorney 3,302.6 2,789.9 512.7 Administration 2,692.8 2,427.5 265.3 Information Technology 5,125.5 4,361.6 763.9 Human Resources 3,280.6 3,415.6 (135.0) Finance 4,590.1 4,198.5 391.6 Non-Departmental 106,750.6 107,523.9 (773.3) Animal Care Facility 3,367.6 3,215.4 152.3 Economic Development 4,619.9 1,944.1 2,675.8 Development Services 6,135.3 5,831.6 303.7 Engineering/Capital Project 10,700.5 10,040.3 660.2 Police 54,741.5 53,127.3 1,614.2 Fire 32,996.8 34,344.3 (1,347.5) Public Works 22,055.7 21,033.5 1,022.3 Parks and Recreation 4,542.7 4,878.1 (335.4) Library 4,060.2 3,446.2 614.0 Total Expenditure Budget $ 272,328.8 $ 265,265.3 $ 7,063.5 Departments that are expected to exceed their Amended Budget amounts will be mitigated by savings from other General Fund departments. The recommended budget amendments are reflected in the General Fund Adjustments section of this report.
The following are explanations of the significant variances between the Amended B udget and projected expenditures:
The Fire Department is projected to exceed the Amended Budget by $1.3 million, primarily for overtime costs due to the essential worker stipends, strike team deployments, and injury leave impacts.
The Parks and Recreation department is estimated to exceed the Amended Budget by $0.3 million .
This overage is tied to additional programming costs during the fiscal year and is fully offset by $0.8 million in increased revenues.
The Police Department budgetary savings of $1.6 million is primarily due to salary savings as a result of vacancies within the department.
The Economic Development department budgetary savings of $2.7 million is related to an ARPA project for the University Innovation project. These funds were reprogrammed as part of the ARPA P a g e | 7
Amendment that was approved by the City Council in July 2023 amending the fiscal year 2023-24 budget.
Fiscal Year 2022-23 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. Additionally, this reflects an increased appropriation for the estimated transfer to the Pension Reserve Fund per Council Policy 220-09. The recommended budget adjustments are shown in Table 4 below.
General Fund Budget Adjustments Summary - 4th Quarter Fiscal Year 2022/2023 Table 4
Department
Personnel Non-Personnel Total Total
Footnote Services Expenses Expense Revenue Net Impact
Human Resources 1 195,051 150,000 150,000 - 150,000 Finance 1 (150,000) (150,000) (150,000) - (150,000) Non-Departmental 2-5, 6,8,9 - 4,696,424 4,696,424 (1,085,860) 3,610,564 Engineering/Capital
Projects 6 (350,000) (350,000) (350,000) - (350,000) Police 6 (1,000,000) (1,000,000) 1,000,000) - (1,000,000) Fire 7,8 1,407,690 1,350,000 1,350,000 - 1,350,000 Parks and
Recreation 9 360,859 335,411 335,411 - 335,411 Library 10 (205,900) (335,411) (335,411) - (335,411) Total General Fund $ 257,700 $ 4,696,424 $4,696,424 $(1,085,860) $3,610,564 The proposed General Fund budget adjustments result in a net increase to the fiscal year 2022-23 budget of $3,610,564, primarily being derived by the following transactions:
1. Transfer expenditure appropriations of $150,000 in personnel savings in the Finance Department to the Human Resources Department, and transfer Supplies and Services appropriations within the Human Resources Department into Personnel Services. Overages due to increased recruitment costs.
2. Increase expenditure appropriations in the Transfer Out Category offset by an increase to estimated revenue by $501,817 for the Measure P Sales Tax revenues transferred into the Measure P Sales Tax Fund.
3. Increase expenditure appropriations in the Transfer Out Category offset by an increase to estimated revenue by $531,816 for the Measure A Sales Tax revenues transferred into the Measure A Sales Tax Fund.
4. Increase expenditure appropriations in the Transfer Out Category offset by an increase to estimated revenue by $52,226 for a transfer to the Living Coast Discovery Center Fund to cover utility related expenditures and increasing the Sales and Use Tax amount that exceeded the budget.
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5. Transfer expenditure appropriations from CIP Project Expenditures for the Brush Clearance Rice Canyon (CTY0225) $22,540 and Asset Management (GGV0222) $6,400 to Transfers Out $28,940 to transfer projects to the Capital Projects Fund.
6. Transfer expenditure appropriations of $350 ,000 in personnel savings in the Engineer ing/Capital Projects Department to Non-Departmental and transfer $1,000,000 in personnel savings in the Police Department to Non-Departmental
7. Transfer expenditure appropriations of $41,000 in Supplies and Services and $6,050 in Other Capital in the Fire Department into Personnel Services due to overages from increased overtime costs.
8. Transfer expenditure appropriations of $1,350,000 from Non-Departmental to the Fire Department Personnel Services due to Overages from increased overtime costs.
9. Transfer expenditure appropriations of $335,411 from the Library Department to the Parks and Recreation Department to cover additional services.
10. Increase expenditure appropriations budget in the Transfer Out Category by $ 3,610,564 for an additional contribution to the Section 115 Trust Fund.
Other Fund Adjustments
The following recommended adjustments are for funds outside of the General Fund.
Other Fund Budget Adjustments Summary - 4th Quarter Fiscal Year 2022-23 Table 5
Non-
Personnel Total Total
Footnote Expenses Expense Revenue Net Impact
Bayfront Lease Revenue 1 $ 544,138 $ 544,138 $ (30,091) $ 514,047 2016 Measure P Sales Tax 2 (501,817) (501,817) 2018 Measure A Sales Tax 3 - - (531,816) (531,816) Parking Meter 4 6,972 6,972 (6,972) - Transp Fair Share Dev
Contrib 5 - - (55,930) (55,930)
Public Benefit Contribution 6 158,472 158,472 (158,472) - Donations 7 604,782 604,782 (698,377) (93,595) Section 115 Trust 8 11,695 11,695 (3,610,564) (3,598,869) Living Coast Discovery
Center 9 52,226 52,226 (52,226) - Capital Improvement
Projects 10 28,940 28,940 (28,940) - TOTAL OTHER FUNDS $ 1,407,225 $1,407,225 $(5,675,205) $(4,267,980)
The Other Funds proposed budget adjustments result in a negative net impact of $4,267,980, primarily being derived by the following transactions:
1. Increase expenditure appropriations by $ 544,138 from available fund balance for Bayfront Lease contributions.
2. Increase estimated revenues by $501,817 for Measure P Sales Tax revenues received from the General Fund.
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3. Increase estimated revenues by $531 ,816 for Measure A Sales Tax revenues received from the General Fund.
4. Increase expenditure appropriations in the Parking Meter fund by $6,972, offset with an increase to estimated revenues.
5. Increase estimated revenues by $55,930 in the Transportation Fair Share Dev eloper Contribution fund to recognize revenues received.
6. Increase expenditure appropriations in the Public Benefit Contribution fund in the Other Expenses category and estimated revenues by $158,472 to recognize revenues received.
7. Increase expenditure appropriations in the Donations fund by $604,782 in the Other Expenses category, offset by a $698,377 increase in estimated revenue to recognize revenue received.
8. Increase revenue budget for a Transfer In from the General Fund by $3,610,564 for an additional contribution to the Section 115 Trust Fund.
9. Increase appropriations in the Utilities Category and estimated revenue by $52,226 for the Transfer In from the General Fund for the utility costs for the Living Coast Discovery Center.
10. Increase revenue budget for a Transfer In from the General Fund by $28,940 and increase expenditure appropriations from CIP Project Expenditures by $28,940 for the Brush Clearance Rice Canyon (CTY0225, $22,540 increase) and Asset Management (GGV0222, $6,400 increase).
Update to Financial Reporting and Transfer Authority Policy On November 8, 2023, the Council adopted updates to the Financial Reporting and Transfer Authority Policy (the “Policy”), by Resolution No. 2022-250. The Policy was established to cla rify the authority for budget transfers which may be required to fund needed services in each City department within a given fiscal year.
The Policy states that it is the City Council’s intent for the budget authorization to be maintained and that transfers should be limited and used only when it is necessary to continue the effective operations of the City.
It also states that it is the City Manager’s responsibility to maintain the integrity of the adopted budget and to allow transfers only as a means for continuing the programs and policies of the City Council as approved via the budgetary process. Staff recommends updating the policy by making the following change:
3. Council approval shall be required for transfers of appropriations which are greater than $75,000 between budget categories within a department.
The City Manager’s authority to transfer appropriations up to and including $ 75,000 between “summary accounts” language being changed to “budget categories” within the same department will ensure the policy adheres to the functionality of the City’s current financial system.
Preparation of the Annual Comprehensive Financial Report Staff recommends that the City Council authorize the City Manager to amend the fiscal year 2022-23 budget and approve appropriations and transfers in the General Fund and various other funds in order to ensure audited actuals resulting from final year-end closing entries do not exceed budget.
Staff recommends that the Director of Finance report any amendments to the fiscal year 2022-23 budget and appropriations and transfers to the General Fund and various other funds approved by the City Manager in the next quarterly financial report following the release of the Annual Comprehensive Financial Report.
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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 3, 2023. Approval of the resolution amending the fiscal year 2022 -2023 budget will result in the following impacts:
General Fund: The proposed adjustments result in a net impact of $3,610,564 to the fiscal year 2022 -23 budget. This includes an increase in General Fund appropriations of approximately $ 4,696,424 and an increase in estimated revenues of $1,085,860.
Other Funds: The proposed adjustments result in a net impact to the fiscal year 2022-23 budget of the Other (non-General Fund) funds of $ 4,267,954. This includes a n increase in appropriations of approximately $1,407,250 and an increase in estimated revenues of $5,675,205.
ONGOING FISCAL IMPACT
Staff will review the impacted budgets to identify potential ongoing impacts and may recommend changes during fiscal year 2023-2024.
ATTACHMENTS
Attachment 1 – General Fund Budget Transfers
Attachment 2 – General Fund Budget Amendments
Attachment 3 – Council Policy 220-02 Financial Reporting and Transfer Authority
Staff Contact: Sarah Schoen, Director of Finance/Treasurer Ed Prendell, Budget and Analysis Manager