Cotati City Council
Agenda Staff Report
Item type: REGULAR AGENDA (ACTION)
To: City Council
Subject: Mid-Year Budget Review for Fiscal Year 2021-2022 Date: February 08, 2022
Written by: Angela Courter, Director of Administrative Services Recommendation
It is recommended that the City Council receive the fiscal year 2021/22 mid-year budget review and approve the proposed budget adjustments.
Background
On June 8, 2021, City Council adopted the Fiscal Year 2021/22 budget. The highlights of the adopted budget included:
• Positive 2021/22 budget outlook as the economy continues to improve due to the vaccine rollout and financial stimulus. However, we are dedicated to continuing close monitoring of key revenue sources and expenditure management.
• Balanced budget maintaining prudent fund balances.
• Continue to prioritize economic development, infrastructure, and community. • General Fund has additional reserve of $3.4M for a total reserve of 65% of the proposed operating expenditures.
• General Fund Ending Fund Balance of $5.5M
• The City budget includes $6.7M in capital projects to improve the community, including:
▪ Falletti Barn Design
▪ Traffic Safety Improvements
▪ City Hall Complex Refurb.
▪ Civic Center Generator
▪ Westside Streets Improvements
▪ Bird Section St. Improvements
▪ Gateway and Kiosk Signage
▪ Kotate Park Impr. (Prop 68)
▪ Helen Putnam Park Design
▪ Pocket Park Cleanup
▪ Benches for 116/ORH
▪ Quick-strike Street Design
▪ ORH Traffic Flow Design
▪ Storm drain Improvements
The Mid-Year Budget Review is an opportunity for staff to update the City Council on currentyear budget performance based on actual operating results through December 31, 2021. The intent of this report is to provide Council with an update on how major revenue sources and operating expenditures are tracking in comparison to the approved budget. Additionally, the mid- year revenue and expenditure report serves as a good baseline from which to begin developing the City Manager’s fiscal year 2022/23 recommended budget.
Emphasis is placed on an analysis of the City’s major General Fund revenues, as the overall health of those revenues is instrumental to the City’s ability to maintain, and potentially enhance, services in the future. In addition to the General Fund revenues, we will also evaluate the General Fund expenditures and the Water Fund, Sewer Fund, and Cash and Investments.
Analysis/Discussion
General Fund
General Fund Revenues: The General Fund revenues are on track for the budgeted expectations at mid-year. There is variation of timing of receipts for Sales Taxes, Licenses, Permits and Franchises, Public Safety Charges and Other Revenue. All funds are anticipated to be reconciled by the end of the budget year. Staff are recommending Council approve a budget adjustment reclassifying the American Rescue Plan Act (ARPA) funds, budgeted for $1.4M, to be removed as revenue from the General Fund and reclassed to a Special Revenue Fund # 226 called “ARPA 2021”. This adjustment allows for segregation of grants funding for federal reporting. Adjusting for this proposed change, general fund revenues are at approximately 45.1% of budgeted revenues. The difference is primarily due to the timing of revenue, which are anticipated to reconcile by the end of the budget year.
General Fund Expenditures and Transfers: Total expenditures both by expenditure type and by department for fiscal year 2021/22 are in line with the current year budget. When comparing the expenditures to the same periods in the prior year there is a slight decrease of
3.0 percent or $128,722. Most of the decrease was due to decreased Other Expenses offset by the increase in Contract Services primarily related to insurance and contract services for housing related work, stormwater, IT services, traffic signal repair and maintenance, as well as the license agreements for the Veronda-Falletti Ranch.
Enterprise Funds
Water Funds- The water funds charges for services are tracking at 6.5% above budget but
4.% less than the same period in the last year. This decrease is primarily related to decreased in water usage due to the severe drought.
Expenses as of mid-year are below budget but in line with expectations due to the timing of billings for contract services as well as postponed capital projects. Aqueduct water usage continues to be the main expense for the fund at approximately $247,000 as compared to prior years cost to date of $332,000.
Sewer Funds- The sewer fund revenues are currently tracking above budget for revenues and under budget for expenditures. The decrease in actual balance of expenditures at midyear compared to the prior fiscal year mid-year is due to the timing of the William/Olof Wastewater Pipeline Replacement Project which was completed during this time last fiscal year. Wastewater treatment and related subregional debt service continues to be the main expense for the fund at approximately $1,073,000 as compared to prior years cost to date of $991,000 an increase of approximately $82,000 or 8.3%.
Cash and Investments
All investments held on December 31, 2021, conform to the City’s Investment Policy and State Regulations.
Cash Flows: Sufficient cash inflows were available from July 2021 through December 2021 to meet all City expenditures. In addition, the City has enough cash flow on December 31, 2021 to cover anticipated expenditures through the next six months.
Investment Strategy: The City utilizes a low-risk investment management approach by buying and holding securities until maturity. A “laddered maturity” investment strategy is applied to a portion of the asset allocation in our CD investment portfolio, which is currently only 3 percent of the City’s investments. A laddered portfolio is structured with securities that have different maturity dates. As securities are called or mature, proceeds are reinvested in a new security with a longer term at the end of the ladder. Laddering helps to minimize interest-rate risk, increase liquidity, and diversify credit risk.
Of the total investment portfolio, 97 percent is held in investment pools and checking accounts. Of this amount, LAIF currently represents 74 percent of the City’s investment portfolio. Interest earnings of $21,000 were generated in LAIF for the first two quarters of Fiscal Year 2021/22. As of December 2021, LAIF had a 0.212% monthly yield. The City Investment Policy allows for up to 100 percent of the City’s investment portfolio in LAIF, per State Statute.
Fiscal Impact: All City cash and investments are pooled, and interest is allocated to funds quarterly based on the ending cash balances of each fund. Interest earnings for the quarters ending September 30, 2021, and December 31, 2021, were $12,531 and $9,079, respectively.
Financial Considerations
With the mid-year budget staff are recommending the following budget amendments:
• Reducing transfers to remove required fund transfers for streets projects that are now funded by Street Bond Issuance
• Increase the expense allocation for the Pension Obligation Bond Additional Discretionary Payment and one-time additional General Funded Additional Discretionary Payment made to CalPERS to reduce City liabilities and save approximately $1.9M in interest charges from CalPERS over the next 22 years. • Onetime adjustment for Furnace replacement at City Hall.
The proposed adjustments have been included in detail in an attachment to the agenda item. There are no other proposed budget adjustments requested at this time.
Environmental Issues
The action of a mid-year budget review does not constitute a project as defined by California Environmental Quality Act Guidelines Section 15378; therefore, no further environmental review is required.
Attachments:
Fiscal Year 2021-22 Mid-Year Budget Report (DOCX) Fiscal Year 2021-22 Mid-Year Budget Presentation (PDF) Mid-Year Proposed Budget Adjustment (PDF)