Agenda Report
Fullerton City Council
MEETING DATE: FEBRUARY 6, 2024
TO: CITY COUNCIL / SUCCESSOR AGENCY
SUBMITTED BY: Ellis chang, director of administrative services PREPARED BY: STEVEN AVALOS, BUDGET AND PURCHASING MANAGER
CINNDY BARRIOS, SENIOR BUDGET ANALYST
SUBJECT: SECOND QUARTER FINANCIAL REPORT AND MID-YEAR BUDGET AMENDMENTS FOR FISCAL YEAR 2023-24
SUMMARY
The Second Quarter Financial Report (Q2 Report) presents City revenue performance and expenditures incurred July 1 through December 31, 2023 compared to adopted budget levels, provides an update on the City’s financial position through the fiscal year midpoint and presents FY 2023-24 Mid-Year Budget Amendments.
PROPOSED MOTION
Receive and file Second Quarter Financial Report for FY 2023-24.
Approve FY 2023-24 Mid-Year Budget Amendments (Attachment 4) and authorize City Manager, or designee, to make amendments to the FY 2023-24 Adopted Budget.
ALTERNATIVE OPTIONS
Approve Proposed Motion
Receive and file Second Quarter Financial Report and amend FY 2023-24 Mid-Year Budget Amendments Other options brought by City Council.
STAFF RECOMMENDATION
Staff recommends the Proposed Motion.
CITY MANAGER REMARKS
This financial report is specifically focused at providing the City Council with an update on City financials through the mid-point or Mid-Year of the fiscal year.
BUDGET POLICY PRIORITY STATEMENT
This item matches the following Budget Policy Priority Statement:
Fiscal and Organizational Stability.
FISCAL IMPACT
Staff will use the information provided in these quarterly financial reports to ensure continued budgetary diligence and compliance with adopted budget levels through the end of the fiscal year.
General Fund revenues total $41.7 million through the FY 2023-24 second quarter and are at 35% of $120.7 million adopted revenues. General Fund expenditures total $56.9 million and are at 47% of $120.9 million adopted expenditures. General Fund revenues and expenditures fall where they typically should through mid-point of the fiscal year. Staff does not request General Fund budget adjustments at this time.
The Mid-Year Budget Amendments for FY 2023-24 total $323,800 across all funds. This includes $128,800 of budget adjustments to the General Fund from unassigned fund balance (Fund 10) to support additional staffing and materials costs to perform homeless encampment services in-house and unanticipated increase of costs to produce the First Night event which returned to the City in FY 2023-24.
Staff requests a $195,000 budget amendment in the Information Technology Fund (Fund 68) - $168,000 for contractual agreement increases not accounted for in the adopted budget and $27,000 for software licenses added after budget adoption. FY 2022-23 savings carried forward to the IT Fund in FY 2023-24 would support the amendments.
BACKGROUND AND DISCUSSION
Introduction
Staff provides quarterly financial reports on the current year budget to City Council as part of budget monitoring and financial reporting practices. This sound financial practice and fiscal transparency tool reports the City’s ongoing fiscal condition, identifies and addresses budget issues as they arise and strengthens City financial planning efforts. Quarterly financial reports also measure the City’s overall fiscal condition relative to adopted budget levels.
The FY 2023-24 Second Quarter Financial Report, also referred to as the Mid-Year Budget Report, presents revenues received and expenditures incurred through the second quarter of the fiscal year from July 1, 2023 through December 31, 2023, in comparison to adopted budget levels. The Q2 Report includes Mid-Year Budget Amendments (Attachment 4) for consideration to amend the FY 2023-24 Adopted Budget.
The Q2 Report primarily focuses on the General Fund, the City’s chief operating fund supporting traditional municipal services such as public safety, community and economic development, parks and recreation, library, community services and public works. The discussion section includes other City Funds requiring financial attention.
Q2 Review of General Fund (including Library and Parks and Recreation) General Fund revenues totaled $41.7 million through the second quarter (first half) of FY 2023-24 and are at 35% of $120.7 million adopted revenues. General Fund expenditures total $56.9 million and are at 47% of $120.9 million adopted expenditures.
Revenues
General Fund revenues total $41.7 million and are at 35% of $120.7 million adopted revenues. Revenues may appear low at approximately 35% received through the mid-point of the year. However, this is not atypical as the City receives two large Property Tax (including VLF In-Lieu) installments in the second half of the year in January and May.
The City normally receives only 35% of all Sales Tax revenues, the second largest revenue source, through the fiscal year mid-point. The City receives sales tax two months in arrears (e.g. sales tax for July receipts received in September). Overall, General Fund revenues are slightly down from last year by $3.9 million, or 9%, compared against the midpoint of FY 2022-23. The following summarizes the City’s major revenues.
Property Tax – Property Tax revenues, the largest revenue for the General Fund, are at $18.2 million through December 31, 2023 and slightly down by $1 million compared to second quarter last fiscal year. The City receives the majority of property tax revenues during the second half of the fiscal year, including two VLF In-Lieu installments. Property tax revenues appear on track for $54.6 million adopted levels. The City has benefitted in recent years from an uptick in residual pass-through property tax receipts that aided property tax growth. Property Tax continues as the City’s most stable revenue and indicates the strong assessed valuation of Fullerton properties.
Sales Tax – Sales Tax revenues are at $9.7 million through the first half of FY 2023-24 and slightly down by $0.6 million, or 6%, from Q2 in FY 2022-23. The City experienced an economic recovery and growth in sales tax revenues in FY 2022-23 that surpassed pre-pandemic levels, attributed to its diverse sales tax base not reliant on one economic sector, high inflationary environment and new retailers coming to the City in recent years.
Sales Tax revenues are down slightly in FY 2023-24 due to declines in fuel and service stations and autos and transportation economic industries. However, sales tax receipts to date account for approximately 35% of all sales tax revenue. The City has not yet received most of the sales tax revenue (including the December holiday sales tax returns). Staff will have a better understand of revenues during the next quarter and work with the sales tax consultant to closely monitor sales tax revenues throughout the rest of the fiscal year.
Transient Occupancy Tax – Transient Occupancy Tax, or TOT, also indicates the local economy as travel and places of tourism have now returned to pre-pandemic levels. TOT revenues total $1.2 million through the first half of FY 2023-24 and remain relatively flat compared to $1.15 million in FY 2022-23. TOT revenues remain in line with $3.1 million adopted budget levels.
Planning and Development-Related Fees – Development permits, planning and plan check fees are down by 43% through the first half of FY 2023-24 from prior year levels and trend below the adopted budget. The City had high development activity and completed large projects in FY 2022-23. Development continues in the City in FY 2023-24 but below the prior year volume and pace. Staff will work closely with departments to assess project activity for the rest of the year.
All other major revenues are performing in line with budgeted levels. Staff does not request budget adjustments. Staff may submit revenue adjustments with the next financial report if any major revenues (e.g., property tax, sales tax, planning and development fees) perform over or under budgeted levels.
Expenditures
Expenditures have a more linear nature as staff processes payroll biweekly and pays invoices on a weekly basis. General Fund expenditures total $56.9 million and are at 47% of $120.9 million adopted expenditures through the first half of FY 2023-24.
General Fund expenditures are $3.1 million, or 6%, higher in FY 2023-24 compared to Q2 FY 2022-23. Staff anticipated higher expenditure levels and budgeted accordingly in FY 2023-24 for Memorandum of Agreements approved with all City employee bargaining groups earlier this year. FY 2023-24, General Fund expenditures are currently in line with adopted budget levels through the mid-year point of the fiscal year.
FY 2023-24 Mid-Year Budget Amendments
Staff typically presents budget amendments with the Q2 Financial Report / Mid-Year Report to account for any unanticipated costs, changes in revenues and/or changes in budgeted assumptions that occur during the fiscal year.
FY 2023-24 mid-year budget amendments total $323,800 across all funds. This includes $128,800 in General Fund budget adjustments, with $80,000 to support additional staffing and material costs to perform homeless encampment services in-house. The City also needs an additional $48,800 for unanticipated costs (i.e. inflation) for professional services to produce the First Night event which returned in FY 2023-24.
Staff requests $195,000 in Information Technology Fund (Fund 68) budget amendments. This includes $168,000 for professional services for contractual increase for IT staff augmentation services originally not accounted for in the FY 2023-24 Adopted Budget. Staff requests an additional $27,000 for licenses added to the EnerGov permitting software since budget adoption. Prior year savings in the IT Fund (Fund 68) carried over to FY 2023-24 would support these costs.
Attachment 4 lists the FY 2023-24 Mid-Year Budget Amendments in more detail.
Next Steps
The City will continue to exercise fiscal diligence and monitor citywide expenditure budgets and revenue performance through the remainder of FY 2023-24. Staff will continue quarterly financial reports next providing the Q3 Financial Report.
City Council will hold the FY 2024-25 Budget Study Session in April 2024 during a regular meeting to present the initial FY 2024-25 Proposed Budget for review and comments as well as any public input. Staff will present a General Fund financial forecast at that meeting.
Attachments:
Attachment 1 – Presentation
Attachment 2 – Revenue Summaries Q2 FY 2023-24
Attachment 3 – Expenditure Summaries Q2 FY 2023-24
Attachment 4 – FY 2023-24 Mid-Year Budget Amendments
Second Quarter Financial Report and Mid-Year Budget Amendments for FY 2023-24 February 6, 2024 - Page 2