Agenda Item No. 8
CITY COUNCIL STAFF REPORT
TO: Honorable Mayor and City Council DATE: November 13, 2023 FROM: Matthew Bronson, City Manager
PREPARED BY: Lorena Zarate, Finance Manager
SUBJECT: FY 2023-24 First Quarter Financial Review
RECOMMENDATION
Receive and file the FY 2023-24 First Quarter Financial Review.
BACKGROUND
General Fund
The City Council adopted the Proposed Budget for FY 2023-25 on June 26, 2023, which includes a General Fund budget of $18,927,705 for FY 2023-24. The FY 2023-24 adopted General Fund budget assumed revenues and transfers-in of $19,365,517 leading to a projected surplus of $437,812 producing reserves equivalent to 42% of operating expenditures. This first quarter report covers revenue and expenditure activity in the beginning of FY 2023-24 from JulySeptember 2023. The first quarter is early in the fiscal year and identifying trends is difficult with this initial information. The mid-year budget review scheduled for February 2024 will be a more accurate gauge of financial activity and trends impacting the City’s budget.
Overall, General Fund revenues are performing as expected in the first quarter of FY 2023-24 using historical trends and the timing of when revenues are typically received. The City’s top five revenues (sales tax, property tax, cannabis tax, transient occupancy tax, and franchise fees) are estimated to comprise 80% of total budgeted revenue for FY 2023-24. The table below compares the first quarter of the current fiscal year with the previous year as well as the previous year-end actual to the budgeted year-end estimate for the current year with more information on the following page:
Table 1
Top 5 Revenues 7/1-9/30 Q1
Budgeted
7/1-6/30 % 7/1-9/30 Q1
Unaudited
Actuals 7/1-6/30 %
Inc (Decr)
PY
Sales Tax 405,822 6,028,000 7% 419,080 5,882,949 7% (13,259) Property Tax 8,658 5,614,200 0% 53,727 5,531,439 1% (45,068) Cannabis Tax 141,313 1,326,000 11% 205,206 1,198,037 17% (63,892) Franchise Tax 151,985 735,000 21% 136,240 713,394 19% 15,746 TOT (Hotel Tax) 208,851 900,000 23% 190,438 924,162 21% 18,413 Totals 916,629 14,603,200 6% 1,004,690 14,249,982 7% (88,060) FY 2023-24 Q1 FY 2022-23 Q1
Staff Report: FY 2023-24 First Quarter Financial Review Page 2 November 13, 2022
Sales Tax – Sales tax reported in the first quarter of FY 2023-24 is $13,259 lower when compared to the first quarter in the previous FY 2022-23. Sales tax revenue for the first quarter represents revenue collected for one month only (July 2023) as there is a two-month lag of when the revenue is received by the City. Revenue received in the first quarter of FY 2023-24 for transactions in May and June 2023 was accrued back to FY 2022-23. Although it is still early, current projections from the City’s sales tax consultant show that sales tax revenue is projected to meet budgeted levels for FY 2023-24.
Property Tax- Property taxes are due November 1 and February 1, therefore property tax revenue collected in the first quarter is very minimal. With that said, there is a timing difference where some of the property taxes collected in the first quarter of FY 2023-24 will be collected in the second quarter of the current year (as an example, on October 11, the City received approximately $141,000 in property tax revenue). Property tax revenue is following past years’ historical trends so far and no change to the budget is projected.
Cannabis Tax – Cannabis tax collected in the first quarter this year is lower than last fiscal year by approximately $63,000 given lower revenues reported by some of the cannabis businesses.
Staff will continue to closely monitor and report on this revenue source and will share more information during the mid-year budget review.
Transient Occupancy Tax (TOT) – TOT revenue for the first quarter of FY 2023-24 is $18,000 higher than the first quarter of FY 2022-23. This is due to collection and code compliance efforts related to recent audits performed on permitted STRs. Staff has worked with these STR permit holders to make sure they are staying current and in compliance.
Franchise Fees – Franchise fees for the first quarter of FY 2023-24 are $15,000 higher than the first quarter of FY 2022-23. This is partly due to a timing difference of collection where annual revenue that was collected in the first quarter of FY 2023-24 was received in the second quarter of FY 2022-23.
A more detailed estimate of City revenues will be presented with the mid-year budget review and included in the updated five-year financial forecast presented in February 2024.
With regards to expenditures, staff has worked to keep expenditures on track as budgeted with first quarter General Fund expenditures listed below in Table 2:
Table 2
As a general rule, expenditures should be approximately 25% of the budget at the end of the first quarter unless there are large expenses occurring at the beginning of the fiscal year. Expenditures for the City Management Department (which now includes the Community Services program) are GF Depts Budget Q1 Actual % of Budget
Non-Departmental $ 6,202,502 $ 1,483,355 23.92%
City Management 1,733,754 480,001 27.69%
Administrative Services 705,082 175,041 24.83%
Community Development 1,238,496 207,946 16.79%
Public Works 1,626,264 344,156 21.16%
Police 7,499,580 1,699,133 22.66%
Total GF Expenditures $ 19,005,678 $ 4,389,633 23.10%
Staff Report: FY 2023-24 First Quarter Financial Review Page 3 November 13, 2022
approximately 28% due to annual maintenance agreements and sponsorships that are paid at the beginning of the fiscal year. All other departments have expended funds less than 25% in the first quarter of the fiscal year.
Water Fund
Water Fund revenues are $84,000 higher from this time in FY 2022-23, of which approximately $50,000 is reimbursement for the Calvin Court property purchased by the City for the Central Coast Blue project. The remaining increase in revenue as compared to the first quarter of the prior fiscal year is due to a change in rates effective July 2023, previously approved by the City Council as part of the previous utility rate study. Operating expenditures for the Water Fund in the first quarter are tracking with expectations with 23% expended to date, which includes an annual payment for insurance, a semi-annual payment made to the County for the Lopez Lake water contract, and debt service payment for the water revenue bonds. The capital project expenditures are below budget for the first quarter due to capital projects that have not yet started.
Wastewater Fund
Wastewater Fund revenues are on track as compared to this time in FY 2022-23. Expenditures are below budget for the first quarter with only 9% expended to date. This is mainly due to capital projects that will start later this fiscal year and transfers-out that are reconciled and accounted for annually as a year-end adjustment. Operating expenditures that include salaries and benefits along with supplies and services are on track to meet budgeted expenditures.
FISCAL IMPACT
There is no fiscal impact from receiving this report.
ALTERNATIVES
The Council has the following alternatives to consider:
1. Receive and file the FY 2023-24 First Quarter Financial Review; or
2. Provide alternative direction to staff
PUBLIC NOTIFICATION
The agenda was posted in accordance with the Brown Act.