City of Gonzales
CITY MANAGER DEPARTMENT
STAFF REPORT
TO: Honorable Mayor Rios and City Council
DATE: March 21, 2022
FROM: Rene Mendez, City Manager
SUBJECT: Fiscal Year 2021-2022 Mid-Year Financial Report
RECOMMENDATION
It is recommended that your Council:
• Review and accept the FY 2021-2022 Mid-Year Financial Report; • Approve the Budget Adjustments as presented Attachment 1 under the Projection Budget Column Heading; and
• Approve the Interfund Loan Agreement between the Water Enterprise Fund and the SB1 Gas Tax Fund to pay for the City’s portion of the Gloria/Iverson/Johnson Canyon Road Project.
BACKGROUND
The Mid-Year Financial Report is intended to provide a status of the FY 2021-2022 City Budget midway through the Fiscal Year. The report is based on six months of expenditure and revenue activity ending December 31, 2021. Attachment 1 reflects a detail line-item report of all the budgets and funds, and the adjustments requested.
REVIEW AND ANALYSIS
Overall Status-General Fund
Overall, with the exception of a few areas, the City’s budget can be characterized as performing as anticipated. One area that is recommended for adjustment is the Public Works budget that reflects the appropriation of two existing positions in Public Works that were inadvertently left of the salaries and benefits allocation in the FY 2021-2022 Approved City Budget.
AGENDA
ITEM
13 The year-end projection for the General Fund for expenditures is $7,259,278, which is $305,472 or 4% higher; and for revenues is $6,892,990, which is $154,184 or 2% higher than the Original Budget, which results in an increase to the Net City Cost of $151,288.
While the project numbers indicate an increase from the Original Budget, with the exception of Public Works budget, they reflect adjustments already approved by the Council. Specifically, the adjustments in the Amended Budget reflect the (1) modest employee salary and benefit increases authorized via the 3- year Memorandum of Understandings (MOUs) with the City’s three bargaining groups, and the adjustments to the two employee salaries and benefits resolutions; and (2) the conversion of three 8- month seasonal Firefighter positions to permanent full-time positions. While the Net Cost has increased slightly, as part of the FY 2021-2022 Approved Budget, the General Fund started the Fiscal Year with a healthy Fund Balance that can cover the increased net cost.
However, it is important to realize that this Mid-Year review is based on six months of activity and while we try our best, it is not an exact science, and there are likely to be some changes in expenditures and revenues. We will have a better handle of final activity in the Year-End Financial Report.
However, as it is typical with projections, there are a few expected changes in expenditures and revenues worth noting.
General Fund Expenditures
For example, some of the major General Fund changes in expenditures reflect:
1. In the General Government Building (Budget Unit 170), the increase is due to engineering work done on the emergency backup generator projects that is mostly being funded with a state grant.
2. A net increase in the Police Department Budget which is primarily the result of higher overtime costs to cover vacant positions. However, the Department has aggressively worked to recruit and fill positions and is making steady progress. Several positions have been filled and there are currently candidates going through the hiring process, which will hopefully result in the filling of the remaining vacant positions by the end of the fiscal year.
3. In the Fire Department Budget, the increase is due to the conversion of three 8-month seasonal Firefighter positions to permanent full-time positions.
4. In Public Works the increase is due to reflecting the appropriation for two existing positions that were inadvertently not included in the FY 2021-2022 Approved City Budget.
5. In the Recreation Budget, an allocation for existing personnel that had been incorrectly reflected in the After-School program budget.
6. The increase in the City Aquatics Budget is due to higher than anticipated program costs. Due to the uncertainties created by the pandemic, it was difficult to reflect and budget program costs in the FY 2021-2022 City Budget.
General Fund Revenues
On the revenue side, the changes in the General Revenues Budget, halfway through the Fiscal Year, most revenues are tracking as expected; however, the budget does reflect modest increases in Property Taxes, Sales Taxes, and Garbage Franchise Fees, which is helping to offset some of the increase in expenditures.
At this point, we are taking a very conservative approach for all revenues, but it is likely based on some recent activity and statewide projections, revenues may come in higher than anticipated. This picture will be significantly clearer as part of the Third Quarter Financial Report.
It is also important to point out that while no adjustments are reflected to building and planning permit fee revenues based on the anticipated activity, it is possible that these revenues may come in less than anticipated.
Overall Status – Non-General Fund
Overall, most of the non-general fund budgets are on track and healthy and reflect no changes. However, the following few funds reflect requested changes.
COVID-19 (Fund 110) – reflects a significant increase in revenues and expenditures as a result of the grant received that was not final when the FY 2021-2022 City Budget was approved. These funds are being utilized to pay for the Community Health Workers and rental, utilities, and food assistance programs.
Street Fund (Fund 130) – reflects a decrease of ($47,086) in the Fund’s Net Cost due to an adjustment to retirement costs and a slight uptick to the in-State revenues.
Except for a few minor adjustments, mainly to expected revenues, All Impact Funds and Assessment Funds are on track.
Both of the Successor Agency Funds are tracking as expected.
Water Enterprise Fund (Fund 520) and Sewer Enterprise Fund (Fund 530) have been increased on the expenditure side to cover an increase in loan to the Gonzales Electric Authority for the microgrid. A major milestone for the project was reached several weeks ago with the certification of the Environmental Initial Study and Mitigated Negative Declaration.
Garbage Fund (Fund 540) – has been adjusted to reflect an increase in the franchise fee to the General Fund as a result of increased activity.
Gonzales Electric Authority (Fund 560) – reflects an increase in revenues (transfers from sewer and water) and contractual services to complete all the work necessary to bring this project on-line. However, because most of these expenditures will be covered by Concentric or by GEA when the project goes to financing, all of the City expenditures will be reimbursed.
Interfund Loan Agreement
The loan agreement (Attachment 2) is recommended from the Water Enterprise Fund to the SB1 Gas Tax Fund to reimburse the County for the City’s portion of the cost, for the Gloria/Iverson/Johnson Canyon Road Project as per the agreement with the County. Based on the projected annual SB1 funds that will be received by the City, it is anticipated that this loan will be repaid in 5 years or less.
Explain Recommendation and How it Supports the Vision
Gonzales will continue to be a safe, clean, family-friendly community, diverse in its heritage, and committed to working collaboratively to preserve and retain its small-town charm.
Explain: The Annual Mid-Year Budget Report, while somewhat of a ministerial action, is a significant financial item presented to your Council for review. It supports the Vision, because it is a mid-way point look at the Budget that provides the necessary information to your Council and the public, to keep track of the resources necessary to carry out the Vision.
Overall, the allocation of resources presented in the Mid-Year Budget Report under the Amended Budget Column, sets forth a budget that is within the financial resources of the City, but continues key programs necessary to further the Vision.
Explain how the Recommendation Directly Implements the Mission The City Council and Staff of the City of Gonzales will realize our Vision by providing the leadership, commitment, and resources necessary to provide excellent services that enhance the quality of life of our diverse community.
Explain: Please see the Vision above.
City services will be delivered in a cost-effective, respectful, and friendly manner to ensure the safety and well-being of the residents and the promotion of business, recreational, housing and employment opportunities in an environmentally sustainable manner.
Explain: The Mid-Year Report reflects adjustments that are well within available resources Strong fiscal policies allow us to provide appropriate infrastructure for:
• Public Safety X Yes ____No NA
• Housing Yes ____No X NA
• Recreation X Yes ____No NA
• Continuation of a proactive recreational programs like Kid-Power the Gonzales Youth Council Mental Health Project, and with the GUSD jointly funding a Clinical Social Worker Position, the contract with Sun Street, work on the annexation of the new growth area and other similar programs and initiatives to list a few.
• Environment X Yes ____No ____NA
• The City’s participation with 3CE (formally Monterey Bay Community Power), Gonzales Grows Green Initiative “G3”, implantation of the Climate Action Plan and the development of a microgrid for the GAIBP.
• Education X Yes ____No ____NA
• Strengthening of the partnership with the Gonzales Unified School District, which this year includes the joint funding of Licensed Clinical Social Worker. The work with Hartnell Salinas Valley Promise, as well as the other Salinas Valley Cities in workforce development.
Explain: Overall, the Mid-Year Budget Report reflects the Amended FY 2021-2022 Budget that supports many programs, activities, and initiatives to implement, and/or further the Vision and Mission of the City. Some of which are reflected above.
ALTERNATIVES
The Budget attempts to fund and further the Vision and Mission of the City consistent with Council direction. However, your Council has the alternative to provide direction to redirect, enhance, reduce, and/or eliminate any of the recommended changes to the City Budget, listed under the Projection Budget Column in Attachment 1.
BUDGET IMPACT
Please see the Attachment 1, which provides the detail and the requested adjustments to the budget.
CONCLUSION
Final Thoughts
While we continue to focus on the post-pandemic recovery, it is important to acknowledge and celebrate that our Community has achieved a 100% vaccination rate! Our community’s response to the pandemic and that fact that the City’s financial health is healthy and continues to trend in a positive direction in many areas bodes well for the future. While certainly there have been challenges, we have steadily forged ahead. Yes, while the pandemic did drastically impact, there are many exciting projects and initiatives ahead for the community. These include but are not limited to, the development and construction of the Community Center Complex Project, the New Growth Area, the Microgrid Energy Project, a refresh of Downtown, and more intentional work on addressing mental health.
Attachments:
1. Budget Worksheets FY 21-22 Mid-Year
2. Loan Agreement