Agenda Report
Fullerton City Council
MEETING DATE: FEBRUARY 18, 2025
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
NOAH HYUN, ACCOUNT CLERK II
SUBJECT: FISCAL YEAR 2024-25 SECOND QUARTER FINANCIAL REPORT AND MID-YEAR BUDGET AMENDMENTS
SUMMARY
The Second Quarter Financial Report (Q2 Report) provides an overview of the City financial position through mid-year Fiscal Year (FY) 2024-25, reports City’s revenues and expenditures incurred from July 1, 2024 through December 31, 2024 and presents FY 2024-25 Mid-Year Budget Amendments for approval.
PROPOSED MOTION
Receive and file Second Quarter Financial Report for FY 2024-25.
Approve FY 2024-25 Mid-Year Budget Amendments (Attachment 3) and authorize City Manager, or designee, to make budget amendments to the FY 2024-25 Adopted Budget.
ALTERNATIVE OPTIONS
Approved Proposed Motion
Other options brought by City Council.
STAFF RECOMMENDATION
Staff recommends the Proposed Motion.
CITY MANAGER REMARKS
This financial report focuses on providing City Council with an update on City financials through the mid-point or Mid-Year of the fiscal year.
In order to reduce the current Fiscal Year $9 million projected deficit, the administration has been looking at ways to reduce costs mid-year. Included in the mid-year budget is approximately $1 million in reductions for the year which will not impact service levels.
BUDGET POLICY PRIORITY STATEMENT
This item matches the following Budget Policy Priority Statement:
Fiscal and Organizational Stability.
FISCAL IMPACT
Staff will use the Q2 Financial Report information to ensure budgetary diligence and compliance to adopted budget levels through the end of FY 2024-25.
The requested FY 2024-25 Mid-Year Budget Amendments would generate a $1,106,569 net budget reduction across several city funds, including a $947,113 General Fund (Fund 10) savings. The requested budget adjustments primarily attribute to Information Technology (IT) Fund (Fund 68) and Liability Insurance Fund (Fund 62) reductions.
Staff proposes reallocating IT capital projects approved in the FY 2024-25 Adopted Budget to departments through Internal Service Fund (ISF) allocations as these projects support citywide projects. This would generate a $280,000 General Fund savings. The City many shift these costs to other City funds that allocate into the IT Fund (Fund 68).
The Liability Fund, needs a budget adjustment to reflect a FY 2024-25 $976,569 general liability insurance premium reduction, resulting in a $537,113 General Fund savings. These savings would reduce department liability ISF cost allocations across contributing City funds.
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 provides a sound financial practice and fiscal transparency tool to report on the City’s ongoing fiscal condition, identify and address fiscal or budget issues as they arise and strengthens City financial planning efforts. Quarterly financial reports also measure the overall fiscal condition relative to adopted budget levels and keeps City Council informed and updated on current financial conditions.
The FY 2024-25 Second Quarter Financial Report (Q2 Report), also referred to as the Mid-Year Budget Report, reports on revenues received and expenditures incurred through the second quarter of the fiscal year (July 1, 2024 through December 31, 2024) against adopted budget levels. The Q2 Report includes Mid-Year Budget Amendments (Attachment 3) to amend the FY 2024-25 Adopted Budget for City Council consideration.
The Q2 Report focuses on the General Fund, the chief City operating fund supporting traditional municipal services such as public safety, community and economic development, parks and recreation, library community services and public works. The report addresses other city funds requiring attention in the discussion section as needed.
Q2 Review of General Fund (including Library and Parks and Recreation) General Fund revenues through the second quarter of FY 2024-25 total $45.0 million and are at 35% of $127.7 million adopted revenues. General Fund expenditures total $64.2 million and are at 48.4% of $132.9 million adopted expenditures.
Revenues
General Fund revenues total $45.0 million and are at 35% of $127.7 million adopted revenues. Revenues typically appear low at approximately 35% received through the mid-point of the year as the City receives three large property tax installments in the second half of the year. The City also receives only 35% of all sales tax revenues through the mid-point of the fiscal year as it receives sales tax two months in arrears (e.g. sales tax for July receipts received in September).
Overall, General Fund revenues are up $3.3 million (or 7.8%) compared against the FY 2023-24 midpoint. The following summarizes the major City revenues.
Property Tax – Property Tax revenues, the largest General Fund revenue, total $17.6 million through December 31, 2024 and are slightly down by $0.6 million compared to second quarter last fiscal year. The City receives the majority of its property tax revenues during the second half of the fiscal year, including one large secured installment in April 2025 and two VLF In-Lieu installments in January and May 2025. Overall, property tax revenues remain on pace and may surpass adopted $58.0 million budget levels. Property Tax continues to provide the most stable City revenue, indicative of the strong assessed valuation of Fullerton mixed commercial and residential properties.
Sales Tax – Sales Tax revenues total $9.7 million through the first half of FY 2024-25, slightly down by $0.5 million (or 5.4%) from FY 2023-24 Q2. Fullerton maintains a diverse sales tax base that does not rely on one economic sector. However, sales tax growth has curtailed over the last few years due to a high inflationary environment and return to consumer spending normalization.
Sales Tax revenues in FY 2024-25 are slightly down from Q2 last year due to declines in the fuel, service stations, autos and transportation industries. The City is slightly below pace of budgeted $30.5 million in sales tax revenues. However, the City has not yet received most of its sales tax revenue (including the December holiday sales tax returns). Staff will know more during the next quarter and will work with the sales tax consultant to closely monitor sales tax revenues throughout the rest of the fiscal year.
Charges for Services – The City incurs costs for providing certain services and charges fees (user fees) to recover costs for providing those services, including staffing and administrative costs. Planning and development fees, fire fees and public works development fees generate the primary revenues in this category. FY 2024-25 Charges for Services revenues are up by $2.1 million (or 46%), attributable to strong planning and development cost recovery revenues through first half of the year and increased ambulance transport cost recovery and ambulance billing revenue.
All other major revenues are performing in line with budgeted levels. Staff does not request revenue budget adjustments at this time. Staff may submit revenue adjustments with the next (Q3) financial report and if any major revenues (e.g., property tax, sales tax, and planning / development fees) perform over or under budgeted levels.
Expenditures
Expenditures have a more linear nature as staff processes payroll biweekly and pays invoices weekly. General Fund expenditures through the second quarter (or first half) of FY 2024-25 total $64.2 million and are at 48.4% of $132.9 million adopted expenditures.
General Fund expenditures when compared against Q2 FY 2023-24 are $7.4 million higher in Q2 FY 2024-25. Staff anticipated higher expenditure levels in FY 2024-25 and budgeted accordingly to account for projected salary increases approved in Memorandum of Agreements with City employee bargaining groups. Additionally operations have stabilized due to improved retention levels, resulting in low vacancy for the organization, which also contributes to higher expenses in FY 2024-25.
FY 2024-25 General Fund expenditures overall fall in line with adopted budget levels through the fiscal year mid-point.
FY 2024-25 Mid-Year Budget Amendments
Staff typically presents budget amendments to City Council with the Q2 Financial Report / Mid-Year Report to account for any administrative or budget corrections, unanticipated costs, significant revenue changes and/or changes in budgeted assumptions that occurred during the fiscal year.
The FY 2024-25 Mid-Year Budget Amendments for City Council consideration represent a $1,106,569 net reduction across several city funds. The requested budget adjustments primarily attribute to reductions in internal services funds, the IT Fund (Fund 68) and Liability Insurance Fund (Fund 62). This reduction would result in “savings” to the fund from which departments contribute to the IT and Liability Insurance Funds. These adjustments would result in $947,113 General Fund savings.
Staff proposed reallocating IT capital projects approved in the FY 2024-25 Budget to departments through department Internal Service Fund (ISF) allocations as these projects support Citywide projects. This would generate a $280,000 General Fund savings as other City funds cover a proportionate share of the IT Fund (Fund 68) allocation.
The City would achieve a $976,569 Liability Fund savings due to the FY 2024-25 general liability insurance premium. This requires a budget adjustment resulting in a $537,113 General Fund savings. These savings would also reduce department liability ISF cost allocations across several City funds.
Attachment 3 lists the FY 2024-25 Mid-Year Budget Amendments requested for City Council approval in more detail.
Next Steps
The City will continue to exercise fiscal diligence, monitoring citywide expenditure budgets and revenue performance through the remainder of FY 2024-25. Staff will provide quarterly financial reports with the next update providing the Q3 Financial Report for FY 2024-25.
Attachments:
Attachment 1 – Revenue Summaries Q2 FY 2024-25
Attachment 2 – Expenditure Summaries Q2 FY 2024-25
Attachment 3 – FY 2024-25 Mid-Year Budget Amendments
cc: City Manager Eric J. Levitt
FY 2024-25 Second Quarter Financial Report and Mid-Year Budget Amendments February 18, 2025 - Page 2