Cotati City Council
Agenda Staff Report
Item type: REGULAR AGENDA (ACTION)
To: City Council
Subject: MID-YEAR BUDGET REVIEW FOR FISCAL YEAR 2023-2024 Date: January 23, 2024
Written by: Angela Courter, Director of Administrative Services Recommendation
It is recommended that the City Council receive the fiscal year 2023/24 mid-year budget review report, adopt the resolution to amend the fiscal year budget based on updated assumptions for investment earnings, and receive the investment report for the quarter ended December 31,2023.
Background
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, 2023. This report's intent is to update the Council on how major revenue sources and operating expenditures are trending compared to the approved budget and propose any amendments to the budget if needed. Additionally, the mid-year revenue and expenditure report serves as a good baseline from which to begin developing the City Manager’s fiscal year 2024/25 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 help, 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.
Finance staff hired Optimized Investment Partners (OIP) in May 2023 to help improve the investment returns for the city and to ensure compliance with California Government Code by ensuring safety of principal and sufficient liquidity for operations. The independently generated investment report for the quarter ended December 31, 2023 is attached along with the Quarterly Financial Report for consistency with prior quarters and compliance. This report is provided to meet the reporting requirements in the California Government Code Sections 53600 et seq. and the City of Cotati Investment Policy and Guidelines.
Analysis/Discussion
General Fund
General Fund Revenues: The General Fund revenues are on track for the budgeted expectations at half year. There is a variation of timing of receipts for Sales Taxes, Revenues from Other Agencies, Revenue from Other Taxes, and Licenses, Permits and Franchises which are expected to be reconciled by the end of the budget year. City staff are proposing increasing the investment earnings by $120,000 in the general revenues budget due to expectations with full implementation of investment policy.
Total expenditures both by expenditure type and by department for fiscal year 2023/24 are in line with the current year budget. Comparing the expenditures to the same periods in the prior year, there is a 19.6 percent increase of $774,289. This increase was primarily related to increased transfers needed for capital projects, increased contract services for insurance and tech and data projects.
Enterprise Funds
Water Funds- The water funds charges for services are tracking at 6 percent above the same period in the prior year and at 53.6 percent of the annual budget. This increase is primarily due to the City’s rate increase. Expenses as of mid-year are slightly below budget and in line with expectations. Aqueduct water usage and salaries-benefits are the main expenses for the fund at $303,537 and $305,233, respectively for the current fiscal year to date December 31, 2023.
Expenditures compared to prior years have decreased primarily due to prior years one-time payment of interfund debt service to the Wastewater fund of $526,117. The City project for the main flushing is to be started during the spring and will bring the capital outlay expenditures in line with the budget expectations.
Sewer Funds- The sewer fund revenues and expenditures are currently tracking at and just below budget expectations of 50 percent. Revenues for the funds compared to the same period in the previous year decreased due to the above-mentioned one-time interfund debt service payment received from the Water Fund. The actual balance of expenditures compared to mid-year prior year has decreased 26.6 percent due to decreased capital outlay for projects during the period and decreased wastewater treatment costs.
No adjustments are proposed for the water or wastewater funds at this time.
Cash and Investments Mid-Year Report:
Cash and investments held by the City and the trustees continue to be invested in accordance with the Government Code and the Council Investment Policy as adopted on May 9, 2023.
Cash Flows: Sufficient cash inflows were available from July 2023 through December 2023 to meet all City expenditures. In addition, the City has enough cash flow on December 31, 2023, to cover expected expenditures through the next six months. The difference in reporting from the cash and investments per the Mid-Year Report and the Investment Report are due to timing differences for the balance of outstanding payments and accrued interest.
Investment Reporting Balances: The total cash and investment portfolio book value (cost) held by the City as of December 31, 2023, was $18,265,456, balances held in restricted escrow account for $1,133,007, and total cash and investments held by the trustees for the 2019 and 2020A Bonds was $289,323.
The cash and investments held by the City include the following components: Managed Investment Portfolio ($8,707,706), State of CA Local Agency Investment Fund ($6,091), California Asset Management Program (CAMP) Pooled Investment Fund ($8,307,491), Cash/Time Deposits ($1,124,981.29), and accrued interest on investments ($119,185.98). Earned interest is the interest earned on investments over a specific time period, accrued interest is the interest that an investment has earned, but hasn’t yet been received, and paid interest is the interest that has already been received as payment.
During the quarter, no investments were purchased. During the quarter, one investment matured, totaling $1,230,000. The funds were reinvested into CAMP.
Two-year Treasuries yielding 5.03% at the beginning of the quarter ended lower at the end of the quarter at 4.23%, which was a decrease of 80 basis points for the quarter.
As of December 31, 2023, the Weighted Yield to Maturity on the Managed Investment Portfolio was 4.62%.
Financial Considerations
City staff are proposing amending the general fund fiscal year budget to increase the revenue expectations for Investment Earnings by $120,000. No other adjustments or financial considerations are proposed with the presentation of the Mid-Year budget or the investment reports.
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.