Fremont City Council Meeting: 11/07/23 07:00 PM
3300 Capitol Avenue Div/Dept: Finance Department
Fremont, CA 94538 Category: Presentations
SCHEDULED
Sponsors:
COUNCIL STAFF REPORT (ID # 5021) DOC ID: 5021
Updated: 11/2/2023 1:32 PM by Susan Gauthier Page 1
FISCAL YEAR 2022/23 YEAR-END REPORT - Informational Report and Presentation of Year-End Results for FY 2022/23
Contact Persons:
Name: David Persselin
Title: Finance Director
Div/Dept: Finance Department
Phone: 510-494-4631
E-Mail: [email protected]
Executive Summary: The FY 2022/23 Year-End Report provides a summary of actual operating results for the General Fund, makes a recommendation for allocating the General Fund ending fund balance of $21.9 million, and identifies appropriation actions taken by the City Manager in accordance with Resolution No. 2022-29, a Resolution of the City Council of the City of Fremont Approving and Adopting a Budget for the Fiscal Year July 1, 2022 through June 30, 2023 (the “Budget Resolution”).
BACKGROUND: The FY 2022/23 operating budget was adopted by the City Council on June 14, 2022, and year-end estimates for General Fund revenues, expenditures, and ending fund balance were included with the FY 2023/24 Proposed Operating Budget presented to the City Council on May 16, 2023.
The audit of the City’s FY 2022/23 financial statements by an independent certified public accounting firm is underway, and the annual comprehensive financial report, including the audited financial statements, is expected to be available by December 31, 2023. To provide the City Council with more timely information about the year just completed, staff has prepared the following information using unaudited amounts. Staff will report on any material audit adjustments at the time the annual comprehensive financial report is provided to the City Council.
DISCUSSION/ANALYSIS:
General Fund Operating Results: General Fund revenues and transfers in, totaling $296.7 million, are $8.7 million higher than the May estimate of $288.0 million. This is primarily due to higher than anticipated sales tax revenue. Property tax, business tax, and interest earnings also performed better than anticipated.
General Fund expenditures and transfers out of $312.6 million were $0.5 million lower than the May estimate of $313.1 million, largely as a result of savings in the Police and General Government functions. Encumbrances, reflecting the portion of the fund balance that has been contractually obligated, but not yet spent, total $1.2 million.
As part of the FY 2022/23 adopted operating budget, the General Fund Contingency Reserve was increased by $3.1 million to meet the Council-adopted policy requirement of 16.7% of budgeted expenditures and transfers out, or $41.7 million. Additionally, as part of the F Y 2021/22 Year-End Report, the City Council increased the General Fund Budget Uncertainty Council Staff Report (ID # 5021) Meeting of November 7, 2023 Updated: 11/2/2023 1:32 PM by Susan Gauthier Page 2
Reserve by $2.5 million to $12.5 million. The resulting net addition to the existing reserves totaled $5.6 million.
The difference between sources of $341.3 million and uses of $313.8 million, along with the increase in General Fund reserves of $5.6 million, yields a FY 2022/23 General Fund ending unreserved fund balance of $21.9 million.
The table below provides a summary of the May estimates and the actual year-end results.
Recommended Allocation of General Fund Ending Fund Balance: Over the past two years the City has received unusually high levels of sales tax revenue, and the City Council has correspondingly increased the General Fund Budget Uncertainty Reserve to offset some of the added risk. As it turns out, that Council action was both wise and well -timed.
The California Department of Tax and Fee Administration (CDTFA) has recently informed staff that a portion of the sales tax revenue we received last year was incorrectly reported by local businesses, and as a result the City was overpaid. The State is still investigating the misreporting, so staff does not yet know how much the City will need to repay, but staff’s current estimate is approximately $28 million. The CDTFA will recover the overpaid amount by reducing our quarterly sales tax remittances, possibly over the next two years.
Consequently, staff is recommending that the City Council leave the ending unreserved fund balance unappropriated so it will be available to absorb the loss of revenue we expect to experience. We anticipate receiving more specific information from the State over the next several months, and as part of the FY 2023/24 Mid-Year Budget Report in March, staff will recommend any necessary budget adjustments for the current fiscal year. Meanwhile, to Council Staff Report (ID # 5021) Meeting of November 7, 2023 Updated: 11/2/2023 1:32 PM by Susan Gauthier Page 3
ensure the City does not outspend its resources, staff plans to suspend the $5.5 million of ongoing increases we budgeted this year for street, building, and parks maintenance.
The 2024/25 proposed budget will include any actions necessary to bring City expenditures in line with revenues. That could include a continuation of maintenance spending at last year’s level and could also include drawing on the $15 million accrued leave reserve we established last year.
Appropriation Actions by the City Manager: The Resolution adopted by the City Council to implement the annual operating budget also includes authorization for the City Manager to take additional appropriation actions reflecting the following: (1) carryover of unexpended prior-year encumbrances; (2) cost center revenue increases; (3) grant revenue increases; and (4) increased General Fund revenue directly supported by General Fund expenditures. Included in the Resolution are requirements to report these actions to the City Council at year-end.
The amount of increased appropriations for FY 2023/24 due to unexpended FY 2022/23 encumbrances was $36.7 million as detailed below.
Fund Type Encumbrances
Governmental Funds
General Fund $ 1,226,334
Capital Projects 14,125,710
Gas Tax 1,159,357
Environmental Services 612,509
Development Cost Center 338,382
Miscellaneous 1,029,783
Subtotal 18,492,075
Reimbursement Grant Funds 14,697,633
Internal Service and Custodial Funds 3,490,941
Total $ 36,680,648
Additional grant and fee revenue resulted in increased appropriations by the City Manager as summarized in the following table.
Source Amount Recipient Purpose
Private Grant $ 49,923 Fire Department Radio Equipment Private Grant 7,245 Human Services Housing Support Services State Grant 1,299,572 Human Services Emergency Rental Assistance State Grant 500,000 Human Services Housing Navigation Center Federal Grants 992,875 Human Services Emergency Rental Assistance Development Service Fees 8,437 Community Development Plan Check Staffing Special Events Fees 4,249 General Fund Cost Reimbursement County Service Fees 105,116 Human Services Senior Services State Service Fees 7,641 Human Services Senior Services Federal Service Fees 17,264 Human Services Senior Services Total $2,992,322
FISCAL IMPACT: Holding the $21.9 million ending unreserved fund balance unappropriated leaves it available to offset a portion of the reduction in sales tax revenue anticipated for this year. The $20.0 million Budget Uncertainty Reserve is also available.
Council Staff Report (ID # 5021) Meeting of November 7, 2023 Updated: 11/2/2023 1:32 PM by Susan Gauthier Page 4
ENVIRONMENTAL REVIEW: Action on this item is exempt from the requirements of the California Environmental Quality Act (CEQA) per CEQA Guidelines Section 15378(b), as an administrative and/or fiscal activity that does not involve commitment to a specific project that will result in any significant physical impact on the environment.
ATTACHMENTS: None.
RECOMMENDATION: Accept the report and presentation.