Cotati City Council
Agenda Staff Report
Item type: REGULAR AGENDA (ACTION)
To: City Council
Subject: Mid-Year Budget Review for Fiscal Year 2022-2023 Date: February 14, 2023
Written by: Angela Courter, Director of Administrative Services Recommendation
It is recommended that the City Council receive the fiscal year 2022/23 mid-year budget review and approve the proposed budget adjustments.
Background
On June 28, 2023, City Council adopted the Fiscal Year 2022/23 budget. The highlights of the adopted budget included:
• Positive but conservative 2022/23 budget outlook as the economy continues to improve after the covid-19 shutdowns.
• Balanced budget maintaining prudent fund balances.
• Continued to focus on City Goals.
• Financial Highlights included:
• General Fund has $2.4 M more than the required reserve for a total estimated fund balance of $4.6M or 52% of the proposed operating expenditures (required reserve is 25% of the Operating Expenditures).
• The City budget includes $12.1M in capital projects to improve the community streets, parks, buildings, and landscaping. As well as approximately $2.5M in capital improvements for the enterprise water and wastewater funded infrastructure.
Detail on the status of all these projects are provided in detail on the City’s Online Capital Improvement Plan and active project website.
The Mid-Year Budget Review is an opportunity for staff to update the City Council on current-year budget performance based on actual operating results through December 31, 2022.
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 midyear revenue and expenditure report serves as a good baseline from which to begin developing the City Manager’s fiscal year 2023/24 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, staff also evaluated 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.
General Fund Expenditures and Transfers: Total expenditures both by expenditure type and by department for fiscal year 2022/23 are mostly 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
5.4 percent or $224,049. Most of the decrease was due to decreased Transfers Out due to the timing of General Fund funded capital projects. This decrease was offset by slight increases in Utilities, primarily PG&E as well as Contract Services primarily related to insurance and contract services for housing related work, IT services, as well as the license agreements for the Veronda-Falletti Ranch.
Enterprise Funds
Water Funds- The water funds charges for services are tracking at 2.2% above budget but
1.9% less than the same period in the last year. This decrease is primarily related to decreases in water usage due to the drought.
Expenses as of mid-year are below budget but in line with expectations Aqueduct water usage continues to be the main operating expense for the fund at approximately $218,000 and we expect this cost to increase for the next two quarters as the community goes back to more normalized water use and irrigation. The major capital projects for the water fund are currently in design and scheduling for construction. The last major expense for water is the Salaries and Benefits. These costs, although at 4.8% higher than budget at mid- year, were evaluated and noted to be due to onetime benefit payouts. No adjustments were deemed needed at this time.
Sewer Funds- The sewer fund revenues are currently tracking above budget in total.
However, the operations and capital portion of revenues are tracking just below budget at
47.5%. The decrease in revenues is primarily due to the ongoing reduction in water usage due to the drought. This reduced water usage leads to a lower wintertime average consumption which is used as the volume metric for wastewater max usage for billing purposes. Additionally compared revenues to the prior year, the City has brought in less connection fees due to the completion of other development projects.
Operating Expenses at mid-year have increased by approximately $232,000 or 12% compared to the prior fiscal year. This is primarily due to the increase cost of Wastewater Treatment. Additionally, during this year, the City has already incurred almost $600,000 in capital project work related to the sewer main replacement on W. Sierra where there was no project in the prior year.
Cash and Investments
All investments held on December 31, 2022, conform to the City’s Investment Policy and State Regulations.
Cash Flows: Sufficient cash inflows were available from July 2022 through December 2022 to meet all City expenditures. In addition, the City has enough cash flow on December 31, 2022, 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. Of the total investment portfolio, 97 percent is held in investment pools and checking accounts. Of this amount, LAIF currently represents 79 percent of the City’s investment portfolio.
Interest earnings of $83,315 were generated in LAIF for the first two quarters of Fiscal Year 2022/23. As of December 2022, LAIF had a 2.173% 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, 2022, and December 31, 2022, were $29,535 and $53,780, respectively.
Financial Considerations
With the mid-year budget staff are not currently recommending any budget amendments, but rather will move forward with the budget sessions and may propose adjustments with the amended budget at the close of the fiscal year.
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 2022-23 Mid-Year Budget Report (PDF) Fiscal Year 2022-23 Mid-Year Budget Presentation (PPTX)