DATE:
November 7, 2023
TO:
Mayor and Council Members
Chair and Board Members, Hesperia Housing Authority
Chair and Board Members, Hesperia Water District
FROM:
Rachel Molina, City Manager
BY:
Casey Brooksher, Assistant City Manager
Lorraine Carmona, Budget/Finance Specialist
SUBJECT:
Fiscal Year 2022-23 Final Budget Amendments and Update to Accounting Policy
RECOMMENDED ACTION
It is recommended that the following resolutions be adopted, amending the respective Fiscal Year (FY) 2022-23 Budgets for the City of Hesperia, Hesperia Housing Authority, and the Hesperia Water District, along with an update to the Accounting Policy related to revenue recognition:
City of Hesperia No. 2023-64
Hesperia Housing Authority HHA 2023-12
Hesperia Water District Resolution HWD 2023-22
BACKGROUND
In compliance with the City Council’s policy direction, staff has reviewed expenditures through the end of FY 2022-23, and has determined that the City of Hesperia, Hesperia Housing Authority, and Hesperia Water District will require year-end budget adjustments.
ISSUES/ANALYSIS
The analysis of expenditures through the end of FY 2022-23 indicates that the following budget amendment requests should be considered:
Pension Obligation Trust (105)
Operating Transfer Out for Pension Obligation Trust – $600,000 At the May 16, 2023 Council meeting, the City Council approved allocating $4.0 million Section 115 Program between a City Pension Section 115 Trust ($3.4 million) and an Other Post Employment Benefits (OPEB) Trust ($0.6 million), in order to address both the City’s pension and Other Post Employment Benefit (OPEB) obligations. As such, $600,000 was transferred from Fund 105 – Pension Obligation Trust to establish new Fund 106 – OPEB Trust, so that the financial activity of the trust funds can be accounted for separately. This budget amendment provides the budget authority to move the funds needed to establish the new Fund 106.
Local Transport-SB 325 (207)
2023 Emergency Storm Repairs – $721,945
On February 25 and 26, 2023 a large storm passed through Hesperia with heavy rain and snow fall causing significant flooding throughout the City. From the significant flooding on the roadways, the roads incurred major damage, which included an undermined road, excessive potholes in low flow areas, flowline damage, and asphalt berm damage. On February 28, 2023, the City Manager declared a local emergency caused by the winter storm event. The local emergency was confirmed and ratified by the City Council at the March 7, 2023 City Council meeting, and the contract for needed repairs was affirmed at the June 6, 2023 City Council meeting. Staff identified thirteen (13) areas where emergency road repairs were needed and those repairs have been completed. Recently, City staff submitted a request for reimbursement to the Federal Emergency Management Agency (FEMA) and is currently under review by FEMA.
Development Impact Fee (DIF)–Streets (300)
Land Held for Resale – $2,644,000
During FY 2022-23, two parcels of DIF land were sold for a combination of $4,500,000 cash and a $2,644,000 promissory note that is to be paid upon completion of a sewer capital improvement project which is anticipated to be operational by December 2024. Because collection on the promissory note is scheduled to occur in a subsequent year, a loss will be incurred for FY 2022-23, with subsequent revenue to be recorded upon completion of the project and collection on the promissory note. The FY 2022-23 loss has caused the fund to exceed the appropriation authority.
Development Impact Fee–Public Services (304)
DIF Public Services 304 to DIF City Hall Facilities 309 Transition – $16,716 In May 2018, the City Council approved a Development Impact Fee (DIF) Study and rate structure for new development, which took effect in July 2018. As such, DIF 2018 City Hall Facilities Fund 309 was created to account for the new development under the 2018 rates. Existing projects that were in various stages of construction were able to continue under the previous DIF 304. Therefore, the income from operations under DIF 304 needs to be transitioned to the new DIF 309.
DIF 2018 – City Hall Facilities (309)
Interest Expense – $12,135
The DIF-Public Services/City Hall Facilities Loan from the General Fund accrues interest at the Local Agency Investment Fund (LAIF) rate. The interest expense incurred in FY 2022-23 exceeded the budgeted amount by $12,135 due to several rate increases by the Federal Reserve which, in turn, resulted in increased quarterly LAIF rates. A budget amendment of $12,135 is requested to cover the additional interest expense.
Hesperia Housing Authority (HHA) (370)
Land Held for Resale – $77,928
During FY 2022-23 one HHA property was in the process of being sold less than the original cost to purchase the property, which resulted in the need to reduce the carrying value of the property to the lower of cost or market value. This recognized loss then caused the fund to exceed the appropriation authority.
Reclaimed Water Operations (720)
Recycled Water – $15,581
The City purchases recycled water from Victor Valley Wastewater Reclamation Authority (VVWRA), where it is stored within a reservoir, and purveyed to customers for irrigation, soils compaction, and dust control. An estimate was made in the FY 2022-23 Budget for the purchase of recycled water. Approval is requested for the actual cost of recycled water in excess of the budget estimate.
City Engineering Services
Consistent with Joint Resolution 2018-06, budgeted funding for the City’s engineering services contract with TKE Engineering was identified in the FY 2022-23 Operating Budget in the amount of $602,000, and FY 2022-23 engineering expenditures for operating purposes were within the operating budget, at $283,072. While the overall FY 2022-23 Capital Improvement Program (CIP) Budget was sufficient to fund capital project expenditures, contract engineering costs were not specifically identified in the CIP Budget. As such, notification is provided that TKE Engineering services in the amount of $803,818 were incurred during FY 2022-23 related to CIP projects and for services provided through trust funding. As sufficient budget exists within the respective funding sources for the City’s CIP projects during FY 2022-23, a budget amendment related to engineering services is not needed.
Accounting Policy – Recommended Adjustment to Revenue Availability Period for Intergovernmental Revenue Revenues of the City are recognized as soon as they are both measureable and available. Revenues are considered to be available when they are collectable within the current period or soon enough thereafter to pay liabilities of the current period. The City currently considers revenues to be available if they are collected within 60 days of the end of the current fiscal period, such as June 30th.
However, because it takes time for certain intergovernmental agencies, such as San Bernardino County Transportation Authority (SBCTA), to process the final revenue allocation for fiscal year end, the City has received the revenue just outside of the 60 day period referenced in the policy. As this allocation reflects June activity, and it is received and available to pay for obligations in the new period, an adjustment to the policy is recommended for revenues that are received from intergovernmental entities in order to accommodate for this slight delay. The recommended change is identified below in red:
Revenues are recognized as soon as they are both measureable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period, or 90 days for intergovernmental revenues.
Making this change will accommodate for processing delays from other governmental entities in remitting revenue to the City.
FISCAL IMPACT
The proposed Final Fiscal Year 2022-23 Budget Amendments will be funded from a combination of revenues received, operating transfers, and the use of reserves.
ALTERNATIVES
Provide alternative direction to staff.
ATTACHMENTS
Resolution No. 2023-64
Resolution HHA 2023-12
Resolution HWD 2023-22
City of Hesperia STAFF REPORT City of Hesperia STAFF REPORT City of Hesperia
STAFF REPORT
City of Hesperia
STAFF REPORT
Staff Report to the Mayor and Boards of the Hesperia Housing Authority and Hesperia Water District Final Budget Amendments for Fiscal Year (FY) 2022-23
November 7, 2023