Agenda Item No. 7
CITY COUNCIL STAFF REPORT
TO: Honorable Mayor and City Council DATE: September 11, 2023 FROM: Matthew Bronson, City Manager
PREPARED BY: Lorena Zarate, Finance Manager
SUBJECT: FY 2022-23 Year-End Financial Review
RECOMMENDATION
Receive a report on the FY 2022-23 Year-End Financial Review.
BACKGROUND
On June 26, 2023, the Council adopted the FY 2023-25 budget which included estimates for the fiscal year ending June 30, 2023. Staff is currently working with the City’s outside auditors to complete the FY 2022-23 annual audit which is anticipated to be completed in December 2023 and brought to the Council for approval in January 2024. In preparation for the outside auditors’ review in September, staff has conducted an initial review of the year-end financial results of FY 2022-23 to provide a summary to the Council prior to the completion of the audit. The following summary represents this initial review subject to change with the upcoming audit process.
General Fund
The General Fund is the City’s primary fund and includes general City services such as police, fire, and parks and recreation, and general administration. The General Fund is also where property tax, sales tax, and other general revenues are collected. Table 1 below shows the initial year-end estimates for FY 2022-23 compared to the FY 2022-23 year-end unaudited actuals:
Table 1
GF Summary
FY 2022-23
Estimated
FY 2022-23
Unaudited
Actuals Difference
Beginning Reserves $ 6,937,300 $ 6,937,300 $ -
REVENUES:
Revenues/Transfers In 17,964,300 $ 17,840,605 (123,695) EXPENDITURES:
Operating Expenditures 15,535,258 15,424,220 (111,038)
Debt Service 109,825 178,554 68,729
Transfers Out/Other 1,089,175 540,027 (549,148)
TOTAL EXPENDITURES 16,734,258 16,142,801 (591,457)
Annual Surplus $ 1,230,042 $ 1,697,804 $ 467,762
Wastewater Fund Repayment (142,000) (142,000) -
Estimated CIP & Other Carryovers (1,375,000) (2,356,473) (981,473) Ending Reserves $ 6,650,342 $ 6,136,631 $ (513,711)
% of Operating Expenditures 48% 42% -6%
Staff Report: FY 2022-23 Year End Financial Review Page 2 September 11, 2023
FY 2022-23 actual revenues are lower than estimated in the FY 2023-25 budget process mainly due to cannabis tax revenue, which was lower than estimated by about $104,000 given continued market uncertainties. Cannabis tax revenue totaled approximately $1.2 million and staff will continue to monitor this revenue closely to determine if this amount represents a new revenue baseline for the city’s cannabis industry.
Expenditures shown in Table 1 are also lower than originally estimated mainly due to capital improvement items budgeted in FY 2022-23 but not completed or fully expended in the fiscal year and included under the “Transfers Out” category. Examples of these items include:
• Local Street Rehabilitation Program Engineering and Design Work - $51,000 • North 12th Street Sidewalk - $10,000
• West Grand Avenue Streetscape - $1.67 million
• City Corp Yard Improvements - $100,000
• Facilities Conditions and Needs Assessment - $138,500 • Train Station Stormwater Alternate Compliance - $30,000 As shown in Table 1, the FY 2022-23 General Fund estimated unaudited actual surplus is approximately $1.7 million higher than the $1.2 million originally projected because of the differences in revenue and expenditures described above. However, the estimated carryover of unspent appropriated funds for capital projects and other expenditures is higher than the original projected carryover by about $980,000. This estimated carryover to FY 2023-24 is mainly due to the capital projects described above, along with equipment and services originally budgeted for FY 2022-23 that were unspent and include:
• Community Development - Circulation Element and Noise Element - $101,000 • Public Works - Electronic Filing System $5,000
• Public Works – Asset Management System $29,300 ($87,900 total, partially funded by enterprise funds)
• Police Van - $135,000
• Information Technology – Server and Other Maintenance Costs - $83,500 Other estimated carryovers with other revenue sources or no impact to the General Fund include:
• Enterprise Resource Planning Software and Other (using ARPA funding balance) - $507,380
• Trash Removal using Cal Trans Clean California Maintenance Agreement - $50,000 • Housing Allocation using Permanent Local Housing Allocation Grant - $429,500 This estimated carryover reduces the City’s projected ending reserves from $6.6 million to $6.1 million. However, this revised level of reserves is equal to 42% of the City’s General Fund operating budget which provides sufficient reserves for emergencies and unforeseen needs and demonstrates the City’s strong financial position. Staff will return to the Council with additional information about the City’s current year financial condition in November 2023 and in February 2024 as part of the FY 2023-24 first quarter and mid-year review respectively.
Water Fund
The Water Fund is responsible for the maintenance and operation of City’s water system. This includes water lines, tanks, and wells. The Water Fund is estimated to end FY 2022-23 with $1.8 Staff Report: FY 2022-23 Year End Financial Review Page 3 September 11, 2023
million less than the estimates for FY 2022-23 provided to the Council in June 2023 compared to the FY 2022-23 unaudited actuals as shown in Table 2:
Table 2
Water revenues are lower than estimated by approximately $200,000 mainly due to lower water usage from water conservation efforts and the winter storms where there was higher than normal rainfall for the season. Expenditures are higher than anticipated by about $1.6 million mainly due to capital projects, specifically related to the Central Coast Blue (CCB) project and its preconstruction costs. The higher expenditures are mainly due to increased costs of construction, equipment, and other items, including inflationary costs. Total preconstruction costs allocated to the City for the CCB project were $2.8 million for FY 2022-23, of which $800,000 has been included in the CCB financing to be reimbursed to the City once the loan is closed in early 2024.
This updated FY 2022-23 information was reflected in the utility rate study presented to the Council on September 5.
Wastewater Fund
The Wastewater Fund is responsible for the City’s maintenance and operation of wastewater lines within the City and bills for and forwards funds collected to the South San Luis Obispo County Sanitation District. The Wastewater Fund is projected to end FY 2022-23 with $618,000 more than the year-end estimates for FY 2022-23 provided to the Council in June 2023 compared to the FY 2022-23 unaudited actuals as shown in Table 3:
Table 3
Wastewater revenues are higher than estimated by approximately $163,000 mainly due to revenue transferred in of $105,000 related in part to the sewer upgrade for existing flows project.
Water Fund
FY 2022-23
Estimated
FY 2022-23
Unaudited
Actuals Difference
Beginning Reserves $ 7,640,016 $ 7,640,016 $ -
Revenues/Transfers In 3,988,200 $ 3,787,174 (201,026)
Expenditures*/Transfers Out 4,897,384 6,526,599 1,629,215 Annual Surplus $ (909,184) $ (2,739,425) $ (1,830,241)
Ending Reserves $ 6,730,832 $ 4,900,591 $ (1,830,241)
*Does not include Depreciation Expense of $201,146
Wastewater Fund
FY 2022-23
Estimated
FY 2022-23
Unaudited
Actuals Difference
Beginning Reserves $ 3,680,663 $ 3,680,663 $ -
Revenues/Transfers In 1,339,300 $ 1,502,372 163,072
Expenditures*/Transfers Out 2,009,838 1,555,111 (454,727) Annual Surplus $ (670,538) $ (52,739) $ 617,799
Ending Reserves $ 3,010,125 $ 3,627,924 $ 617,799
*Does not include Depreciation Expense of $124,335
Staff Report: FY 2022-23 Year End Financial Review Page 4 September 11, 2023
Expenditures are lower than anticipated mainly due to actual costs of projects being lower than originally estimated and projects that were not completed in FY 2022-23. Similar to the Water Fund, this updated FY 2022-23 information was reflected in the utility rate study presented to the Council on September 5.
FISCAL IMPACT
There is no fiscal impact from receiving this report.
ALTERNATIVES
The Council has the following alternatives to consider:
1. Receive a report on the FY 2022-23 Year-End Financial Review; or
2. Provide alternative direction to staff
PUBLIC NOTIFICATION
The agenda was posted in accordance with the Brown Act.