Item No.
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: OFFICE OF THE CITY MANAGER
BY: STEPHEN W. HANNAH, FINANCE DIRECTOR
DATE: MARCH 26, 2024
SUBJECT: MID-YEAR BUDGET PERFORMANCE REVIEW
EXECUTIVE SUMMARY
The City Council will receive and file the Mid-Year Budget Performance Review ending December 31, 2023, which represents the balances and activity for the first and second quarters (July through December) of the 2023-2024 Fiscal Year.
RECOMMENDATION
That the City Council:
Receive and file the Mid-Year Budget Performance Review for the 6-month period ending December 31, 2023, which represents the balances and activity for the first and second quarters of Fiscal Year 2023-2024.
BACKGROUND
The City Council adopted a structurally balanced Fiscal Year (FY) 2023-2024 Annual Budget on June 27, 2023, that was developed with modest revenue growth consistent with the economic conditions at the time of budget development.
The Fiscal Year 2023-2024 Mid-Year Budget Performance Report is an important gauge of the City’s economic vitality as it provides an in-depth assessment of the City’s revenues and expenditures during the first half of the fiscal year and provides projections of the fiscal year end results. These projections serve as the starting point for the refinement of next year’s budget.
This report summarizes the City of Downey’s (City) overall financial position for the current fiscal year allowing the City to proactively respond to unanticipated changes and emerging trends. It also provides transparency and public reporting to the Community with an emphasis on the General Fund. By December 31st, the expectation is that most budget categories will be at or below 50%, although this may fluctuate based on timing of certain receipts and expenditures/projects. After the end of the third-quarter (March 31st), staff will again conduct another review of revenues and expenditures and provide updates.
MID-YEAR BUDGET PERFORMANCE REVIEW
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Further, the information presented in this report was provided to the City Council Budget Subcommittee for review and discussion at a March 19, 2024 subcommittee meeting.
ANALYSIS
Revenues
General Fund Revenues
Total General Fund Revenues are on course to meet or slightly exceed the Fiscal Year 2023-2024 budget projection of $121.4 million by approximately $130,000. This positive year-end projection includes both positive and negative trends in the economy. City staff is monitoring these trends and will adjust projections as the year progresses, if necessary.
Revenues Sources with Positive Projections
Property Taxes are projected to exceed the adopted budget projections by $725,000 or
2.1%. The Secured Property Tax projection shows a growth of 4.9% over the previous fiscal year with a year end projection rising from $18.5 million to $19.4 million (source City of Downey Financial Statements and HDL1). Over the past year, the median sales price Projected Variance
Fiscal Year Adjusted
2023-2024 2023-2024 2022-2023 2023-2024 Budget &
Adjusted Actual Actual June 30 Projected
Revenue Budget Revenues Revenues $s %Amount Amount
Sales and Use Taxes 40,381$ 13,116$ 13,536$ (420)$ -3.1%39,500$ (881)$ Property Taxes 35,155 8,270 7,865 405 5.1%35,880 725 Utility Users Taxes 8,710 3,706 3,765 (59) -1.6%8,710 - Franchise Taxes 3,225 1,034 758 276 36.4%3,225 - Hotel Taxes 2,075 429 199 230 115.6%2,500 425 Business Taxes 1,645 224 459 (235) -51.2%1,645 - Other Taxes 300 150 110 40 36.4%300 - Total Taxes 91,491 26,929 26,692 237 0.9%91,760 269 Licenses, Permits & Fees 9,445 5,029 4,049 980 24.2%9,750 305 Charges to Other Funds 8,405 2,281 1,792 489 27.3%8,405 - Transfers In 3,526 1,313 1,711 (398) -23.3%2,626 (900) Investment Income and Rents 2,301 1,038 615 423 68.8%3,250 949 Rev from Other Agencies 1,975 855 431 424 98.4%1,710 (265) Fines and Forfeitures 1,717 615 810 (195) -24.1%1,475 (242) Other Revenues 1,511 756 772 (16) -2.1%1,525 14 Charges for Services 1,027 470 523 (53) -10.1%1,027 - Total Revenues 121,398$ 39,286$ 37,395$ 1,891$ 5.1%121,528$ 130$ For the Period July 1 thru December 31, 2023
In Thousands
(Unaudited)
Fiscal Year
Year Over Year
Variance
City of Downey
Schedule of General Fund Revenues
MID-YEAR BUDGET PERFORMANCE REVIEW
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PAGE 3
for a single-family home has remained steady at $873,000. The cooling of the housing market has resulted in a slowing in total assessed value growth for City housing units. In addition, as the growth in home value has slowed, the desire to sell has also decreased.
Unsecured Property Taxes project a growth of 5.9% from $580,000 to $614,000.
Hotel Taxes are projected to exceed the adopted budget projections by $425 ,000 or
20.5%. The increase is the result of the collection of a full six months of hotel taxes from Springhill Suites, which opened in November 2022.
Licenses, Permits, and Fees are projected to exceed the adopted budget projections by $305,000 or 3.2%. When compared to the prior fiscal year, this revenue group has increased $979,000, 24.2%. A portion of this increase is related to the timing of receipt of the revenue. Permit related revenue shows a $262,000 increase over the previous year with $200,000 being from the issuance of building permits. Note that this amount includes receipts related to a single large project that is positively influencing the balance of Permit fees. Fees have increased nearly $713,000, with $605,000 of this increase found in Plan Check Fees ($276,000) and Emergency Transport Fees ($328,000).
1 Hdl Coren & Cone provides property tax and sales tax consultation and reporting for the City Projected Variance
Fiscal Year Adjusted
2023-2024 2023-2024 2022-2023 2023-2024 Budget &
Adjusted Actual Actual June 30 Projected
Revenue Budget Revenues Revenues $s %Amount Amount
Secured Property Tax 18,775$ 7,594$ 7,240$ 354$ 4.9%19,400$ 625$ Unsecured Property Tax 565 553 510 42 8.3%600 35 Fiscal Year
Year Over Year
Variance
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Investment income and Rents are projected to exceed the adopted budget projections by $949,000 or 41.2%. This increase is primarily driven by the effect of increased interest rates on both the Local Agency Investment Fund (LAIF) pool and the City’s overall investments portfolio2. The following charts reflect the change in investment related income over the last three fiscal years:
To take advantage of the increase in interest rates, the City has been lengthening its average maturity date and average rate of return on investments primarily through the purchase of non-callable investments. All purchases were compliant with the City’s Investment Policy. The following table demonstrates the lengthening of investment Maturities over the last 12 months:
Revenues Sources with Negative Projections
Sales and Use Taxes are trending towards missing budgeted estimates by $881,000.
Sales tax is expected to miss estimates by at least $750 ,000. Prop 172 sales tax related receipts are trending to miss estimates by $205,000. Measure S Transaction and use tax receipts look to exceed estimates by less than $100,000.
2 Higgins Asset Management administers the City’s investments and executes all authorized trades on the City’s behalf. 2023 2022
0 - 12 months 32,103$ 11,871$
13 - 24 Months 13,115 46,243
25 - 36 Months 16,914 12,871
37-48 months 9,364 -
49 - 60 months 13,640 245
85,136$ 71,230$
Investment Portfolio by Maturity
As of December 31
(In Millions)
MID-YEAR BUDGET PERFORMANCE REVIEW
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Inflation driven price increases for building materials and contractor costs have caused homeowners to pause improvement projects reducing sales tax revenues related to these areas by 5.5%. Restaurants experienced a pullback as consumers had to decide on where to spend discretionary income given the higher menu prices. Fuel and service stations contributed to the overall decline as lower fuel prices at the pump reduced receipts from gas stations. While global crude oil prices have stabilized, they remained 15% lower year-over-year. A bright spot for the City is in the area of Business & Industry who benefited from companies continuing to purchase capital equipment even with higher financing costs.
The following table provides details of the projected shortfall for these revenue sources:
Revenue from Other Agencies is projected to miss budgetary estimates by $265 ,000 or
13.4% as the City anticipates that the State will significantly decrease mandated cost reimbursements due to budget constraints.
Finally, Fines and Forfeitures is projected to end the year $242 thousand below budgetary estimates. The shortfall is primarily the result of a decrease in the issuance of Code and Safety related citations. Through six months, City Ordinance Fines are off $137,000, Administrative Citations are down $37,000, and Parking Citations are down $36,000 when compared to the same period of Fiscal Year 2022-2023.
Other Governmental Fund Revenues
The revenues of other governmental funds, that is Special Revenue, Capital Project and Debt Service funds, excluding transfers, have a positive year-over-year variance of $2.6 million. Included within this is the $1.2 million one-time receipt of funding for the YMCA project from the State of California. The following table provides detail related to other government fund revenues:
Projected Variance
Fiscal Year Adjusted
2023-2024 2023-2024 2022-2023 2023-2024 Budget &
Adjusted Actual Actual June 30 Projected
Revenue Budget Revenues Revenues $s %Amount Amount
Sales and Use Tax 26,875$ 8,580$ 8,967$ (387)$ -4.3%26,125$ (750)$ Sales and Use Measure S 12,626 4,252 4,279 - -0.6%12,700 74 Prop 172 Sales Tax 880 284 291 (7) -0.6%675 (205) Total Revenues 61,796$ 22,297$ 22,045$ 278$ 34.2%62,000$ (221)$ Fiscal Year
(Unaudited)
Year Over Year
Variance
City of Downey
Comparative Schedule of Sales Tax Revenues
For the Period July 1 thru December 31, 2023
In Thousands
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Revenues of the Water, Sewer and Golf Funds
The revenues of the Water Fund for the first six months of the fiscal year are running $937,000 less than the prior fiscal year. This decrease primarily results from continued customer conservation efforts and greater regional rainfall, reducing the need for lawn and garden irrigation during the six-month billing period. The following table details the year-to-date revenues of the Water Fund:
FY 2024 FY 2023
Actual Actual
Revenue Revenues Revenues $s %
Sales and Use Taxes 5,396$ 5,210$ 186$ 3.6% Property Taxes 660 658 2 0.3% Other Taxes 29 34 (5) -14.7% Rev from Other Agencies 5,050 3,184 1,866 58.6% Licenses, Permits & Fees 1,582 1,484 98 6.6% Investment Income and Rents 356 72 284 394.4% Other Revenues 186 52 134 257.7% Charges for Services 5 2 3 150.0% Total Revenues 13,264$ 10,696$ 2,568$
Variance
City of Downey
Schedule of Other Governmental Fund Revenues
For the Period July 1 thru December 31, 2023
In Thousands
(Unaudited)
Year Over Year
FY 2024 FY 2023
Actual Actual
Revenue Revenues Revenues $s %
Charges for Services 6,682$ 7,646$ (964)$ -12.6% Investment Income 76 51 25 49.0% Fees 2 - 2 0.0% Other Revenue 364 364 - 0.0% Total Revenues 7,124$ 8,061$ (937)$ -11.6% City of Downey
Schedule of Water Fund Revenues
For the Period July 1 thru December 31, 2023
In Thousands
Year Over Year
Variance
(Unaudited)
MID-YEAR BUDGET PERFORMANCE REVIEW
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The revenues of the Sewer Fund are also below the prior fiscal year in the amount of $201,000. This shortfall resulted from prior year transfers from the Water Fund not being repeated in the current fiscal year. When excluding these transfers, the Fu nd shows a positive variance of $87,000. The following table details the year-to-date revenues of the Sewer and Storm Drain Fund:
The Golf Fund reflects a $278,000 positive variance for the first six months when compared to the same period of Fiscal Year 2022-2023. A total $154,000 of this positive variance, reflected in Other Revenue, resulted from a golf cart trade in credit. The following table provides detail related to the Golf Fund:
FY 2024 FY 2023
Year Over
Year
Actual Actual Variance
Revenue Revenues Revenues $s %
Charges for Services 642$ 593$ 49$ 8.3% Investment Income 57 23 34 147.8% Fees 6 2 4 0.0% Transfers In - 288 (288) -100.0% Total Revenues 705$ 906$ (201)$ -22.2% City of Downey
Schedule of Sewer Fund Revenues
For the Period July 1 thru December 31, 2023
In Thousands
(Unaudited)
FY 2024 FY 2023
Actual Actual
Revenue Revenues Revenues $s %
Charges for Services 2,374$ 2,274$ 100$ 4.4% Investment Income 32 11 21 190.9% Other Revenue 157 - 157 0.0% Total Revenues 2,563$ 2,285$ 278$ 12.2% Year Over Year
Variance
(Unaudited)
City of Downey
Schedule of Golf Fund Revenues
For the Period July 1 thru December 31, 2023
In Thousands
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Expenditures / Expenses
General Fund Expenditures
General Fund expenditures are projected to end the year inline with the 2023-2024 budget projection of $117.3 million. While the General Fund as a whole is on path to finish the year at budgetary limitations, a few departments are on a trajectory to exceed their budgetary authority. These projected overages are offset by other departmental savings primarily related to personnel vacancies and delays in contract initiation. Inflation continues to challenge budgetary projections across all departments.
The first table on the next page details General Fund expenditures by department for the first six months of the fiscal year:
FY 2024 FY 2024 FY 2023 FY 2024 FYE
Expenditures Adjusted Actual Actual Projected Projection by Department Budget ExpendituresExpenditures FY 2024 FY 2023 June 30 Variance City Council 297$ 139$ 149$ 46.8%39.4%295$ 2$ City Manager 1,695 509 449 30.0%31.2%1,141 554 City Attorney 328 171 375 52.1%165.9%328 - City Clerk 1,730 226 285 13.1%33.0%1,314 416 Human Resources 1,697 733 666 43.2%41.1%1,555 142 Finance & Non-departmental 12,037 3,539 8,033 29.4%50.7%11,295 742 Police 43,748 21,730 19,976 49.7%47.7%44,741 (993) Fire 27,812 14,037 12,628 50.5%48.4%28,765 (953) Library 3,260 1,495 1,211 45.9%47.9%2,951 309 Parks and Recreation 8,095 3,912 3,540 48.3%51.8%8,004 91 Community Development 6,468 2,340 1,889 36.2%31.0%5,559 909 Public Works 10,173 5,613 5,228 55.2%51.3%11,406 (1,233) Total 117,340$ 54,444$ 54,429$ 46.4%47.8%117,354$ (14)$ City of Downey
Schedule of General Fund Expenditures
By Department
For the Period July 1 thru December 31
In Thousands
(Unaudited)
Year-to-Date
Percentage Used
MID-YEAR BUDGET PERFORMANCE REVIEW
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PAGE 9
The next table displays the same General Fund expenditure data by expenditure category:
3 Fiscal Year 2022-2023 transfers Out included $7.6 million associated with the $13.9 million sale of land in Fiscal Year 2021-2022. Amounts were transferred to the Capital Projects Fund.
As the first table shows, Police, Fire and Public W orks are trending to be over budget for the fiscal year. Staff is currently monitoring these accounts to try t o bring them back in line with the approved budget.
For the Police and Fire Departments, the primary driver for the $993,000 and $953,000 thousand projected variances are overtime costs. Overtime budgeting for public safety continues to be a challenge for Downey as well as many other cities. There are a number of contributing factors to overtime costs including vacancies and training time for new officers. Another significant contributing factor for both departments is the increased cost of materials, supplies, and services as a result of the inflation experienced over the last couple of years.
Public Works is projected to exceed its General Fund budget by $1.2 million. The significant contributors to this variance are increased cost of utilities, specifically electricity, and the cost of supplies, materials and services. The cost of electricity is projected to exceed the $552,000 adopted budget by $349,000. Services are projected to exceed their adopted budget of $3.0 million by $594 ,000. This includes anticipated overages in Contract Services ($253,000), Maintenance for City Buildings ($155,000) and City Land assets ($161,000). Materials and supplies are anticipated to exceed the adopted budget of $602,000 by $296,000. Significant contributors in this area are the cost of materials used for land improvements ($155,000) and custodial supplies ($84,000). As mentioned above, staff is analyzing these numbers to determine if controls are need to FY 2024 FY 2024 FY 2023 FY 2024 FYE
Expenditures Adjusted Actual Actual Projected Projection by Category Budget Expenditures Expenditures FY 2024 FY 2023 June 30 Variance Paid Compensation 49,834$ 24,196$ 22,449$ 48.6%47.6%49,839$ (5)$ Employee Benefits 30,790 14,499 13,798 47.1%45.6%29,869 921 General and Administrative 7,997 4,379 4,008 54.8%54.6%8,902 (905) Materials and Supplies 3,003 1,486 1,354 49.5%51.4%3,061 (58) Contract and Prof Services 13,983 6,153 4,888 44.0%40.8%13,640 343 Utilities 1,404 732 713 52.1%66.1%1,738 (334) Insurance 3,938 2,435 1,729 61.8%62.6%3,999 (61) Other Expense Groups 272 114 302 41.9%262.6%187 85 Transfers Out 6,119 450 5,188 3 7.4%49.3%6,119 - Total 117,340$ 54,444$ 54,429$ 46.4%47.8%117,354$ (14)$ City of Downey
Schedule of General Fund Expenditures
By Expense Group
For the Period July 1 thru December 31
In Thousands
(Unaudited)
Year-to-Date
Percentage Used
MID-YEAR BUDGET PERFORMANCE REVIEW
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PAGE 10
bring this budget back in line with the annual spending plan or if a structural change has occurred in the spending plan, which needs to be recognized.
The City Clerk’s budget is dependent on the final cost to the City of the last election cycle, which could be significant, putting the budget more in line with the budgeted amount.
Finance’s projection is related to the impact of vacancies and of contracts being issued later than anticipated. Vacancies accounted for $480,000 of the variance and is made up of salary savings of $320,000, savings on employee insurance benefits of $80,000 and CalPERS retirement contributions of $80,000. Contract related projected savings are $256,000 as anticipated contracts were executed later in the year (vCISO, Financial Reporting, and Budget Preparation software) or have not yet been issued (ERP Replacement), resulting in budget savings.
Other Governmental Fund Expenditures
The following table shows the by department status for the first six months of the year for all other Government Funds:
As the table indicates, in total, we are currently projected to have a $2.0 million budgetary surplus due to expenditures being less than expected during the first six-months of the fiscal year. Most of the funds contained in other government funds are used for capital construction and maintenance, and federal and state grants. Actual spending in these funds is not always consistent across the full fiscal year and, as such, actual year -end results could be higher or lower than the $2.0 million projection. Staff will continue to monitor to ensure alignment with budgeted spending.
FY 2024 FY 2024 FY 2023 FY 2024 FYE
Expenditures Adjusted Actual Actual Projected Projection by Department Budget Expenditures Expenditures FY 2024 FY 2023 June 30 Variance City Manager 141$ 11$ 2$ 7.8%0.0%23$ 118$ Human Resources - - 3 0.0%0.0%- - Finance & Non-departmental 8,934 4,496 5,709 50.3%85.3%9,331 (397) Police 1,295 445 685 34.4%64.4%982 313 Fire 1,252 503 274 40.2%35.4%1,166 86 CMSC 1,629 800 590 49.1%125.7%1,613 16 Library - - 30 0.0%0.0%- - Parks and Recreation 3,199 1,245 1,081 38.9%95.6%2,926 273 Community Development 3,815 892 1,054 23.4%179.5%1,534 2,281 Public Works 3,822 1,922 3,464 50.3%112.7%4,328 (506) Public Works Utlities 517 314 278 60.7%14.3%749 (232) Total 24,604$ 10,628$ 13,170$ 43.2%82.6%22,652$ 1,952$ City of Downey
Schedule of Other Governmental Fund Expenditures
By Department
For the Period July 1 thru December 31
In Thousands
(Unaudited)
Year-to-Date
Percentage Used
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Expenditures of the Water, Sewer, and Golf Funds
The Water and Sewer Funds are projected to end the fiscal year within their budgetary authority. The Golf Fund, primarily due to having to replace the netting for the driving range, $169,000, water utility costs ($78,000) and electric Utility costs, $44,000, is projected to be over budget by $293 ,000 for the year. This overage is more than offset by the greater than anticipated revenues reported above. Budget adjustments will be necessary to bring the spending plan into alignment with current year needs.
The following table on the next two pages reflects the details of these three funds:
FY 2024 FY 2024 FY 2023 FY 2024 FYE
Expenditures Adjusted Actual Actual Projected Projection by Category Budget Expenses Expenses FY 2024 FY 2023 June 30 Variance Salaries 2,259$ 856$ 811$ 37.9%36.8%1,866$ 393$ Overtime 217 133 98 61.3%53.8%282 (65) Other Compensation 1 1 1 100.0%33.3%2 (1) Retirement 862 408 468 47.3%46.1%866 (4) Employee Insurance 637 253 220 39.7%32.3%537 100 Taxes 32 14 13 43.8%41.9%30 2 Purchased Water 6,720 1,551 1,690 23.1%25.5%3,721 2,999 Supplies 742 160 387 21.6%52.2%384 358 Electric Utility 1,100 398 312 36.2%33.9%901 199 Other Insurance - 335 249 0.0%99.6%335 (335) Contract Expense 810 306 241 37.8%30.8%733 77 Rental Expense 290 143 107 49.3%49.1%343 (53) All Other Expenses 2,557 1,066 984 41.7%42.4%2,619 (62) Transfers Out 900 - 738 0.0%50.0%- 900 Total 17,127$ 5,624$ 6,319$ 32.8%36.2%12,619$ 4,508$ City of Downey
Schedule of Water Fund Expenses
By Expense Category
For the Period July 1 thru December 31
In Thousands
(Unaudited)
Year-to-Date
Percentage Used
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CITY COUNCIL PRIORITIES
Fiscal Responsibility
Public Engagement
FISCAL IMPACT
There is no financial impact associated with the receipt of this report.
FY 2024 FY 2024 FY 2023 FY 2024 FYE
Expenditures Adjusted Actual Actual Projected Projection by Category Budget Expenses Expenses FY 2024 FY 2023 June 30 Variance Salaries 602$ 198$ 221$ 32.9%42.3%432$ 170$ Overtime 10 18 18 180.0%180.0%39 (29) Retirement 225 103 112 45.8%44.1%225 - Employee Insurance 148 44 48 29.7%42.5%96 52 Taxes 9 3 4 33.3%57.1%7 2 Contract Expense 160 51 61 31.9%50.8%123 37 Supplies 70 18 29 25.7%41.4%47 23 Rental Expense 36 18 13 50.0%48.1%43 (7) Liability Insurance 22 11 - 50.0%0.0%26 (4) Professional Services 8 1 2 12.5%25.0%3 5 All Other Expenses 248 118 5 47.6%14.3%287 (39) Total 1,538$ 583$ 513$ 37.9%44.0%1,328$ 210$ City of Downey
Schedule of Sewer Fund Expenses
By Expense Category
For the Period July 1 thru December 31
In Thousands
(Unaudited)
Year-to-Date
Percentage Used
FY 2024 FY 2024 FY 2023 FY 2024 FYE
Expenditures Adjusted Actual Actual Projected Projection by Category Budget Expenses Expenses FY 2024 FY 2023 June 30 Variance Contractual Services 1,494$ 853$ 476$ 57.1%33.4%1,669$ (175)$ Professional Services 674 293 275 43.5%42.0%703 (29) Water Utility 370 224 239 60.5%79.7%448 (78) Debt Serrvice - Principle 535 - - 0.0%0.0%535 - Maintenance 140 67 56 47.9%40.0%160 (20) Electric Utility 90 45 50 50.0%55.6%134 (44) Liability insurance 180 90 15 50.0%50.0%90 90 Interest Expense 74 7 51 9.5%54.8%74 - All Other Expenses 478 246 92 51.5%0.0%514 (36) Total 4,035$ 1,825$ 1,254$ 45.2%38.6%4,327$ (292)$ City of Downey
Schedule of Golf Fund Expenses
By Expense Category
For the Period July 1 thru December 31
In Thousands
(Unaudited)
Year-to-Date
Percentage Used