Hem 8.6
Revised - Redline Version
11/12/2024
CITY COUNCIL
STAFF REPORT
CITY OF
CHULA VISTA
November 12, 2024
ITEM TITLE
Financial Report and Appropriation: Accept the Quarterly Financial Report for the Quarter Ending June 30, 2024 (Fourth Quarter Report) and Appropriate Funds to Implement Required Budget Adjustments Report Number: 24-0263
Location: No specific geographic location
Department: Finance
G.C. § 84308: No
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 ended June 30, 2024 (the "Fourth Quarter Report") and adopt a resolution making various amendments to the fiscal year 2023-24 budget and the fiscal year 2023- 24 Capital Improvement Program 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 Fourth Quarter Report is as of June 30, 2024, 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 Fourth Quarter Report, staff has identified various budgetary 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 v. 005 Page | 1
1996 and amended November of 2022, and allows for budget transfers and adjustments to be completed.
Budget transfers and adjustments processed pursuant to this authority are provided as Attachments 1 and 2 to this report. This Fourth Quarter Report discusses budget adjustments that staff recommends in the General Fund as well as various other funds to address identified fiscal issues.
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 2023-24 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" permits 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. Any additional adjustments required will be included in the next quarterly report to City Council following the release of the City's 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 Citywide Reserve Policy-Fiscal Health Plan (220-03) was updated on May 8, 2024. The policy was revised to calculate the reserve amount utilizing the prior year's operating expenditure budget (Adopted Budget). This change will allow the City to plan for known increases to maintain reserve levels during the annual budget process. There are three General Fund reserves as well as three additional reserves for Pension, Other Post-Employment Benefits (OPEB), and Other City Debt. All three of the General Fund reserves are funded at the fiscal year 2023-24 target level: the General Fund Operating Reserve at $27.3 million (15.0%), the Economic Contingency Reserve at $9.1 million (5.0%), and the Catastrophic Event
Reserve at $5.5 million (3.0%). These numbers are based on preliminary estimates and are subject to change as part of the final year-end closing and audit processes. Final reserve numbers will be provided to City Council with the City's Annual Comprehensive Financial Report.
Fiscal Year 2023-24 General Fund Overview*
Table 1 in millions
Adopted Amended Year-End Variance
Budget Budget Projection
Revenue Source
Major Discretionary Revenues
Property Tax $ 48.3 $ 49.7 $ 48.6 $ (1.2)
Property Tax in lieu of VLF 29.3 29.9 29.9 -
Sales Tax 45.8 46.1 48.1 2.1
Measure P Sales Tax 27.8 28.8 29.4 0.6
Measure A Sales Tax 27.8 28.8 29.4 0.6
Franchise Fees 14.8 14.8 15.0 0.2
Transient Occupancy Tax 9.3 9.3 8.3 (1.0)
Utility User Tax 3.8 3.8 3.6 (0.2)
Major Discretionary Revenues Subtotal 207.1 211.2 212.2 1.1 Other General Fund Revenues
Other Revenues 51.2 73.2 78.3 5.1
Other General Fund Revenues Subtotal 51.2 73.2 78.3 5.1 Total Revenues/Sources $ 258.2 $ 284.4 $ 290.5 $ 6.2
Expenditures
Personnel Services $ 132.9 $ 134.9 $ 135.7 $ (0.8)
Non-Personnel
Supplies and Services 25.2 28.1 27.4 0.7
Other Expenses 1.8 3.8 7.1 (3.3)
Transfers Out 86.8 108.4 112.2 (3.8)
Internal Service 4.5 4.5 4.4 0.1
Utilities 6.7 7.0 7.2 (0.2)
Other Expenditures Category? 0.4 1.1 0.9 0.2
Total Non-Personnel 125.3 152.8 159.1 (6.3)
Total Expenditures $ 258.2 $ 287.8 $ 294.8 $ (7.0)
Use of Prior Year Fund Balance $ - $ 3.4 5.0 $ 1.6
Total General Fund Surplus/ (Deficit) $ - $ $ 0.7 $ (0.7) : 0.7
Surplus Contribution to Reserves (0.7)
Total General Fund Surplus/(Deficit) $ - $ $ - $ -
1 Variance compares the Amended Budget and the Year-End Projection. 2 Other Expenditures Category includes: Other Capital, Non-CIP Projects Expenditures and CIP Project Expenditures. *Tables may not tie due to rounding
Page |3
General Fund Revenues
As shown in Table 1 above, the City's General Fund revenues are $6.2 million more than the Amended Budget.
This overage is a combination of Major Discretionary Revenues and Other General Fund Revenues which exceed the amended budget by $1.1 million and $5.1 million respectively.
Major Discretionary Revenues
Sales Tax revenue exceeded budget by $2.1 million. Measure A and Measure P Sales Tax exceeded budget by $0.6 million each, for a combined total of $1.2 million. Based on the latest information from HDL, the City's sales tax consultant, the additional sales tax revenue continues to show moderate growth based on gains in general retail, quick-service dining, and one-time construction material sales associated with the Bayfront development. These positive variances in major discretionary revenues are partially offset by $1.2 million shortfall in Property Tax, which is partially due to one-time adjustments to redevelopment trust revenues, and $1.0 million shortfall in Transient Occupancy Taxes (TOT), due to a slight downturn in travel demand for hotels and short-term rentals.
Other General Fund Revenues
These revenues exceeded the amended budget by $5.1 million, primarily due to an increase in anticipated revenues in Non-Departmental (investment earnings, cannabis excise taxes) and Fire (fees, staff time, FEMA reimbursements), Attorney (litigation recoveries), and Parks and Recreation Departments (rentals, recreation fees). These revenues are discussed in detail below in the Departmental Revenues and Expenditures section of this report.
General Fund Expenditures
The City's General Fund expenditures exceeded the Amended Budget by $6.87.0 million, primarily in the Transfers Out and Other Expenses categories. The overage in the Transfers Out category of $3.8 million is largely due to the additional Sales Tax received and transferred to the Measure A and Measure P Sales Tax funds ($1.2 million) and transfers to the Capital Improvement Projects Fund ($2.4 million).
The Other Expenses category is over budget by $3.3 million largely due to encumbrances that will be carryforward into fiscal year 2024-25. In the Non-Departmental department, $2.8 million is being carried forward in order to maintain the three General Fund reserves at their target levels in fiscal year 2024-25, now that all three have been fully funded at their respective fiscal year 2023-24 target levels.
Departmental Revenues and Expenditures
Departmental Revenues
Table 2 below provides the Amended General Fund revenues budget, projected year-end revenues, and the variance (difference) between both at the department level.
Fiscal Year 2023-24 General Fund Departmental Revenues* Table 2 in thousands
Amended Year-End
Department Variance
Budget Projection
City Clerk $ 47.8 $ 305.4 $ 257.6
City Attorney 425.4 817.7 392.3
Administration 55.1 68.1 13.0
Information Technology 394.7 388.0 (6.7)
Human Resources 622.3 763.2 140.9
Finance 1,902.0 1,337.8 (564.2)
Non-Departmental 244,207.6 247,800.8 3,593.2
Animal Care Facility 1,530.3 1,428.6 (101.7)
Economic Development 471.0 521.5 50.5
Development Services 2,288.7 1,935.7 (353.0)
Engineering/Capital Projects 9,229.6 8,679.6 (550.0)
Police 6,204.2 6,675.7 471.5
Fire 3,466.4 5,620.1 2,153.7
Public Works 8,597.3 8,850.1 252.8
Parks and Recreation 3,918.0 4,513.5 595.5
Library 1,002.6 788.5 (214.1)
Total Departmental Revenue $ 284,363.0 $ 290,495.3 $ 6,132.3 *Tables may not tie due to rounding
The largest variance in General Fund Departmental Revenues is projected to be in Non-Departmental, Fire, and Parks and Recreation Departments. Non-Departmental is where the major discretionary revenues are recorded, including Sales Tax, Measure A Sales Tax, Measure P Sales Tax, and Property Tax in lieu of VLF (also known as Motor Vehicle License Fees); the projected variance is a positive $3.6 million. The Fire Department's positive variance of $2.2 million is largely due to additional reimbursements from Fire Strike Team activity, Port District fees and FEMA reimbursements. The Parks and Recreation Department positive variance of $0.6 million reflects increased program revenues due to greater than budgeted activities, as more recreational programming was made available to the residents of Chula Vista during the year.
Departmental Expenditures
Table 3 below provides the Amended General Fund expenditure budget, projected year-end expenditures, and the variance (difference) between both at the department level.
Fiscal Year 2023-24 General Fund Departmental Expenditures* Table 3 in thousands
Amended Year-End Variance
Department Budget Projection
City Council $ 1,541.6 $ 1,498.5 $ 43.1
Boards & Commissions 7.1 4.4 2.7
City Clerk 3,509.7 3,040.3 469.4
City Attorney 3,178.2 2,767.8 410.4
Administration 2,598.2 2,419.7 178.5
Information Technology 4,599.2 4,588.2 11.0
Fiscal Year 2023-24 General Fund Departmental Expenditures* Table 3 in thousands
Amended Year-End
Department Variance
Budget Projection
Human Resources 3,564.5 3,439.6 124.9
Finance 4,754.1 4,524.7 229.4
Non-Departmental 119,301.9 127,547.3 (8,245.4)
Animal Care Facility 3,450.7 3,249.9 200.8
Economic Development 1,888.6 1,876.8 11.8
Development Services 2,870.3 2,675.4 194.8
Engineering/Capital Projects 11,232.4 10,307.0 925.4
Police 56,340.3 59,153.4 (2,813.1)
Fire 35,913.9 36,177.5 (263.6)
Public Works 23,705.2 22,981.1 724.1
Parks and Recreation 5,453.9 5,125.2 328.7
Library 3,856.1 3,474.0 382.1
Total Expenditure Budget $ 287,765.9 $ 294,850.8 $ (7,084.9) *Tables may not tie due to rounding
Departments that exceeded their Amended Budget expenditure amounts will be mitigated by savings from other General Fund departments, additional revenues, or the use of prior year's fund balance. The recommended budget amendments are reflected in the General Fund Adjustments section of this report.
The following are explanations of the significant variances between budgeted and projected expenditures:
• The Non-Departmental negative variance of $8.18.2 million is primarily due to the Transfer Out for both Measure A and Measure P Sales Tax Funds combined, based on updated Measure A and Measure P Sales Tax projections; increased encumbrances, mainly for the required contribution to the fiscal year 2024-25 reserves as mentioned above; and additional transfers to the Capital Improvement Projects Fund as well as the Bond Call and OPEB reserves. • The Police Department reflects a negative variance of $2.8 million which is driven by an increase in overtime costs tied to staffing vacancies and operational needs. The Finance Department is currently in the process of hiring a consultant to review overtime usage to determine whether there are structural budgetary issues to be addressed.
• The Engineering/Capital Projects Department's positive variance of $1.00.9 million is driven by department vacancies resulting in anticipated salary savings. Some of these vacancies result in a reduction of current Charges for Services revenue (Other Revenues category). • The Fire Department's negative variance of $0.60.3 million is offset by reimbursements from Strike Team deployments.
Fiscal Year 2023-24 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 revenues and increased expenditures where needed to address unanticipated expenditure category overages and ensure accurate year-end reporting. The recommended budget adjustments are shown in the Table 4 below.
Table 4
NON-
DEPARTMENT PERSONNEL PERSONNEL TOTAL TOTAL
SERVICES EXPENDITURES EXPENDITURES REVENUE NET IMPACT
GENERAL FUND
City Council $ (26,486) $ (16,560) $ (43,405) $ $ (43,045) Boards & Commissions (2,712) (2,712) (2,712)
City Clerk (149,687) (319,736) (469,423) (237,859) (707,282) City Attorney (1,210) (409,335) (410,545) (538,340) (948,885) Administration (140,706) (37,792) (178,500) (178,500)
Information Technology (22,862) 11,818 (11,044) (11,044) Human Resources 56,251 (181,155) (124,904) (124,904)
Finance (122,842) (106,574) (229,416) 438,152 208,736
Non-Departmental 126,120 8,771,021 8,897,141 (3,720,657) 5,176,484 Animal Care Facility (111,156) (89,669) (200,823) (200,823) Economic Development (1,236) (10,569) (11,806) (268,657) (280,463) Development Services (169,119) (25,700) (194,819) (69,091) (263,910) Engineering/Capital Projects (1,094,190) 168,841 (925,349) (192,540) (1,117,889) Police 2,801,760 11,377 2,813,137 (263,129) 2,550,008
Fire 361,470 (97,892) 263,578 (1,131,241) (867,663)
Public Works (151,977) (572,142) (724,119) 178,475 (545,644) Parks and Recreation (333,150) 4,497 (328,653) (326,221) (654,874) Library (256,820) (126,415) (382,965) (382,965)
TOTAL GENERAL FUND $764,160 $6,971,573 $7,735,733 $(6,131,108) $ 1,604,625 Human Resources: Increase to Personnel Services of $56,251 for increased hourly staffing costs due to an increase in employee recruitments. This increase is offset by a decrease to Non-Personnel Expenditures.
Non-Departmental: Increase to Personnel Services and Non-Personnel Expenditures for total increased appropriations of $8,897,141. These increases are mainly due to salary costs and carryforward items for items such as reserves, as well as increased transfers due to Measure A and Measure P Sales Tax, Capital Projects, and reserves. These increases are offset with budgetary savings in other General Fund departments, increased revenues such as Sales Tax, and the use of prior year's fund balance.
Police: Increase to Personnel Services offset by an increase to Non-Personnel Expenditures for a total increase to appropriations of $2,813,137. These increases are due to overtime costs tied to staffing vacancies and operational needs. These increases are offset by budgetary savings within other General Fund Departments as well as additional revenues from FEMA reimbursements and Port of San Diego services revenue.
Fire: Increase to Personnel Services offset by a decrease to Non-Personnel Expenditures for a total increase to appropriations of $263,578. These increases are due to overtime costs and are offset with additional strike team, Port of San Diego services revenue and FEMA reimbursements.
Other Fund Adjustments
The following recommended adjustments are for funds outside of the General Fund. The proposed adjustments are displayed in Table 5 below. The proposed adjustments are offset by additional current year revenues or the available fund balance of the respective funds.
Table 5
PERSONNEL NON-PERSONNEL TOTAL
SERVICES EXPENDITURES EXPENDITURES TOTAL REVENUE NET IMPACT
OTHER FUNDS
Bayfront Lease Revenue $ $ 47,155 $ 47,155 $ $ 47,155
Western Park Acquisition & Dev 443,344 443,344 443,344
2016 Measure P Sales Tax) 108,745 108,745 (740,802) (632,057) 2018 Measure A Sales Tax 403,330 (340,802) 62,528 (649,886) (587,358) Public Liability Trust 396,930 396,930 (538,165) (141,235) Capital Improvement Projects (2,245,256) (2,245,256) (1,423,925) (3,669,181) Federal Grants 1,269,678 1,269,678 (1,269,678)
National Opioid Settlement 227,538 227,538 (227,538)
Donations 211,327 211,327 (211,327)
Public Facilities DIF 198,075 198,075 (198,075)
State Grants 100,625 100,625 (100,625)
Parking Meter 91,328 91,328 (91,328)
Donations 68,584 68,584 (68,584)
Section 115 Trust 11,650 11,650 (11,650)
Public Educational & Govt Fee 4,658 4,658 (4,658)
CFD 97-1 Otay Ranch 3,980 3,980 (3,980)
CFD 18M Village 3 Otay Ranch 2,555 2,555 (2,555)
CFD 08M Vlg 6 McMillin & OR 2,457 2,457 (2,457)
CFD 09M ORV II Brookfield-Shea 1,621 1,621 (1,621)
CFD 13-M Otay Ranch Village 2 1,278 1,278 (1,278)
CFD 99-2 Otay Ranch Vlg 1 West 1,204 1,204 (1,204)
CFD 07M Eastlake Woods & Vista 958 958 (958)
CPF Benefit Funds 792 792 (792)
Developer Contributions 688 688 (688)
Otay Ranch Preserve 663 663 (663)
CFD 12M Village 7 Otay Ranch 614 614 (614)
CFD 98-3 Sunbow 2 614 614 (614)
OV Rd Fee Recovery District 339 339 (339)
Town Center I Parking District 87 87 (87)
Utility Tax Settlement 34 34 (34)
Otay Valley Rd AD 90-2 Impvt 31 31 (31)
TOTAL OTHER FUNDS $ 403,330 $ 611,494 $ 1,014,824 $ (5,554,156) $(4,539,332)
Bayfront Lease Revenue Fund: Increase appropriations by $47,155 offset with available fund balance.
Western Parkland Acquisition & Dev Fund: Increase appropriations by $443,344 for interest costs related to the approved interfund loan, which is partially offset by increased revenues.
Measure P Sales Tax: Increase to Non-Personnel Expenditures of $108,745 of which $31,140 is for an increase to Sports Courts & Fields (PRK0327). These increases are offset by revenues of $740,802 from the transfer in from the General Fund.
Measure A Sales Tax: Increase Personnel Services by $403,330, which is offset by a decrease in Non-Personnel Expenditures and an increase in estimated revenues to reflect the transfer in from the General Fund by $649,886 for Measure A Sales Tax revenue received.
Public Liability Trust: Increase to Non-Personnel Expenditures by $396,930 for litigation costs. These costs are offset by additional revenue of $538,165 resulting from an additional transfer in from the General Fund as well as insurance reimbursements.
Capital Improvement Projects Fund: Decrease to Non-Personnel Expenditures for CIP Project expenditures for the Palomar Motel Project (GGV0270) which is partially offset by an increase to other Non-Personnel Expenditure categories for a net decrease to total appropriations by $2,245,256. Increase in estimated revenue of $1,423,925 for the additional transfers from the General Fund.
The funds listed below are increasing appropriations in Non-Personnel Expenditures for various purposes that are fully offset with additional revenues received.
Federal Grants: Increase of $1,269,678 to Non-Personnel Expenditures for FEMA reimbursement of $1,223,925 related to COVID activities in prior years that was received along with additional funding for the Emergency Rental Assistance Program (ERAP) of $123,637, and a reduction of the California Low Income Household Water Assistance program of $77,884.
National Opioid Settlement: Increase of $227,538 to Non-Personnel Expenditures for Opioid settlement funds received. This funding will be utilized to address the harmful effects of the opioid crisis.
Donations: Increase of $211,327 to Non-Personnel Expenditures for various donations received.
Public Facilities DIF: Increase of $198,075 to Non-Personnel Expenditures for interest costs related to the existing interfund loan.
State Grants: Increase of $100,625 to Non-Personnel Expenditures for the CalAPP grant by $100,000 and the Library Stay and Play Grant of $625.
Parking Meter: Increase of $91,328 to Non-Personnel Expenditures for the implementation of the new smart meters.
Donations: Increase of $211,327 to Non-Personnel Expenditures for various donations received.
Section 115 Trust: Increase of $11,650 to Non-Personnel Expenditures for fees related to the management of the trust.
Public Educational & Govt Fee: Increase of Non-Personnel Expenditures for the purchase of audio-visual equipment.
The remaining funds listed above reflect increases to appropriations related to charges for treasury and banking services.
Preparation of the Annual Comprehensive Financial Report Staff recommends that the City Council authorize the City Manager to amend the fiscal year 2023-24 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 the authorized budget.
Staff recommends that the Director of Finance report any further amendments to the fiscal year 2023-24 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.
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 Report presents projected revenue and expenditure amounts as of June 30, 2024, with updates through October 24, 2024, as the most current information available. Approval of the resolution amending the fiscal year 2023-24 budget and the fiscal year 2023-24 Capital Improvement Program budget will result in the following impacts:
General Fund - The proposed adjustments result in a negative impact to the fiscal year 2023-24 budget.
This includes an increase in General Fund appropriations of approximately $7,735,733, and an increase in revenues of $6,131,108 for an additional net impact to prior year fund balance of $1,604,625.
Other Funds - The proposed adjustments result in a net positive impact to the fiscal year 2023-24 budget of the Other (non-General Fund) Funds of $4,539,332. This includes an increase in appropriations of approximately $1,014,824 and an increase in estimated revenues of $5,554,156.
The proposed adjustments amend the Capital Improvement Program budget for the following: Increase appropriations in the Measure P Sales Tax Fund for Sports Courts & Fields (PRK0327) by $31,140; and decrease appropriations in the Capital Improvement Funds for the Palomar Motel Acquisition Convert Project (GGV0270) by $2,463,120.
ONGOING FISCAL IMPACT
Staff will review the impacted budgets to identify potential ongoing impacts and may recommend budgetary adjustments to Council during fiscal year 2024-25.
Page | 10
ATTACHMENTS
1. General Fund Budget Transfers
2. General Fund Budget Amendments
Staff Contact: Sarah Schoen, Director of Finance/Treasurer Ed Prendell, Budget and Analysis Manager
Page |11