Finance and Administrative Services Department
DATE: December 12, 2023
TO: Honorable City Council
FROM: Ann Trinh, Senior Financial Analyst
Grace Zheng, Assistant Finance and Administrative
Services Director
Derek Rampone, Finance and Administrative Services Director VIA: Kimbra McCarthy, City Manager
SUBJECT: Analysis of Fiscal Year 2022-23 Audited Financial Results for the General Operating Fund and General Fund Available Balance
PURPOSE
To provide an analysis of the Fiscal Year 2022-23 audited financial results for the General Operating Fund and General Fund available balance (including one -time revenues and expenditure savings).
BACKGROUND
The General Operating Fund ( GOF) accounts for recurring unrestricted revenues and general operating expenditures. It is a subset of, and distinguished from, the General Fund, which accounts for total unrestricted revenues and total General Fund expenditures, including reserves and nonrecurring revenues and expenditures in nonoperating accounts.
This memorandum provides an analysis of the GOF financial results for Fiscal Year 2022-23 using final audited numbers. Some amounts will not match the Annual Comprehensive Financial Report (ACFR) as certain revenue and expenditure reclassifications have been made for financial statement reporting purposes. In addition, the ACFR groups all General Fund revenues and expenditures together, including reserves. The City define s “operating” as the recurring revenues and expenditures supporting ongoing City services. These classification differences do not affect the evaluation of the GOF ’s financial position. For the purposes of this analysis, one - time General Fund revenues an d expenditures have been reclassified to conform to the City’s definition of “operating” and are presented separately.
Attachment 1
Analysis of Fiscal Year 2022-23 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 12, 2023
ANALYSIS
Fiscal Year 2022-23 GOF Audited Financial Results
The Fiscal Year 2021-22 Audited and Fiscal Year 2022-23 Adopted Budget, Adjusted Budget, and Audited results for the GOF are as follows (dollars in thousands):
2021-22
Audited
2022-23
Adopted
Budget
2022-23
Adjusted
Budget(1)
2022-23
Audited
Variance
of Audited
to Adjusted
Revenues $163,376 $163,836 $165,181 $181,989 $16,808
Expenditures(2) (145,825) (160,080) (175,081) (166,873) 8,208
Year-End Adjustments(3) 13 -0- 3,084 (346) (3,430)
Operating Balance $ 17,564 $ 3,756 $ (6,816)(4) $ 14,770 $21,586 _______________________
(1) The Adjusted Budget includes the Adopted Budge t and encumbrance carryovers from prior fiscal years, increases for reimbursed expenditures, grants and donations, and any budget adjustments approved during the fiscal year.
(2) Amounts are net of budget savings of $6.0 million for Fiscal Year 2022-23 Adopted and Adjusted Budget. (3) Year-End Adjustments include encumbrances and grant/donation carryovers from the prior fiscal year and changes in assets and liabilities for audited results.
(4) Negative balance due to Council-approved transfers to various reserves of $11.1 million during midyear budget update in February 2023.
The Fiscal Year 2022-23 total audited actual revenues are $182.0 million, $16.8 million (10.2%) over the Adjusted Budget , $1 8.2 million (11. 1%) over the Adopted Budget, and $1 8.6 million (11.4%) higher than the Fiscal Year 2021-22 audited actual revenues. The Fiscal Year 2022-23 total audited expenditures are $166.9 million, $8.2 million (4.7%) below the Adjusted Budget, $6.8 million (4.2%) over the Adopted Budget, and $21.0 million (14.4%) higher than the Fiscal Year 2021-22 actual audited expenditures.
The City has emerged stronger from the COVID-19 pandemic and is back to business and more resilient than ever. Most notable, Sales Tax and Transient Occupancy Tax (TOT) have surpassed pre-pandemic levels. As the City has generated a strong operating balance, it has provided an opportunity to add critical positions and contribute to the City’s other priorities, including unfunded liabilities for CalPERS pensions.
Analysis of Fiscal Year 2022-23 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 12, 2023
A discussion of variances by revenue and expenditure categories follows.
Revenues
The Fiscal Year 2021-22 Audited and Fiscal Year 2022-23 Adopted Budget, Adjusted Budget, and Audited results for GOF revenues are as follows (dollars in thousands):
2021-22
Audited
2022-23
Adopted
Budget
2022-23
Adjusted
Budget
2022-23
Audited
Variance
of Audited
to Adjusted
Operating Revenues:
Property Taxes $ 63,996 $ 69,232 $ 69,232 $ 70,874 $ 1,642 Sales Tax 23,376 21,960 21,960 25,346 3,386
Other Local Taxes 18,663 19,124 19,124 25,189 6,065
Use of Money and Property 24,530 24,893 24,893 27,090 2,197 Licenses, Permits, and
Franchise Fees/Fines and
Forfeitures 5,936 6,472 6,472 6,416 (56)
Intergovernmental 1,986 712 712 862 150
Charges for Services 3,037 2,857 2,858 3,450 592
Miscellaneous Revenues 4,133 1,892 2,843 3,618 775
Interfund Revenue and
Transfers
17,719
16,694
17,087
19,144
2,057
Total Operating Revenues $163,376 $163,836 $165,181 $181,989 $16,808
A summary of revenues by category follows:
• The July 1, 2022 City GOF property tax roll saw increased secured and decreased unsecured assessed values (AV), including recaptured Proposition 8 value and tax roll reductions from resolved appeals, resulting in a net 8.5% increase compared to the prior year revised tax roll. The County incorrectly allocated $487.3 million in assessed values to the Shoreline Regional Park Community last year instead of to the GOF. Overall, AV in the City increased a net 9.3% to a total AV of $44.2 billion, which is the second highest among the 15 cities in the County. This presented a slightly better outlook than staff originally expected as developers showed continued interest in constructing commercial and residential buildings. Property tax revenues totaling $70.9 million are $1.6 million (2.4%) higher than budget and $6.9 million (10.7%) more than the Fiscal Year 2021-22 Audited. The variance between budget and actual is primarily due to the higher-than-budgeted unsecured and supplemental tax distributions.
• Sales tax revenues are $ 3.4 million (15.4%) above budget and $2.0 million (8.4%) higher than the Fiscal Year 2021-22 Audited. This is primarily due to strength in new automobile Analysis of Fiscal Year 2022-23 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 12, 2023
sales, restaurants/hotels, and increases from the State and County pools as more consumers shop online.
• Other Local Taxes are $6.1 million (31.7%) above budget and $ 6.5 million (35.0%) higher than the Fiscal Year 2021-22 Audited. The increase compared to Fiscal Year 20 21-22 audited actual amounts is primarily due to $5.1 million higher TOT revenues as quarterly payments have recovered back to pre -pandemic levels beginning the second quarter of 2022 and $1.7 million higher Utility Users Tax revenue due to higher remittances from energy providers
• Use of Money and Property revenues, including both Investment Earnings and Rents and Leases, are $2.2 million (8.8%) above budget and $2.6 million (10.4%) higher than the Fiscal Year 2021-22 Audited. Investment Earnings are $2.1 million (excluding unrealized gains/losses) above budget and $1.8 million higher than the Fiscal Year 202 1-22 Audited.
The Federal Open Marke t Committee (FOMC) raised the benchmark interest rate seven times during Fiscal Year 2022-23, from the benchmark target of 0.25% to 0.5% to a target benchmark range of 5.0% and 5.25%. This positively impacted the City’s interest earnings and will have a greater impact on future fiscal years as lower-yielding securities mature and higher-yielding investments are purchased . Rents and Lease revenues are essentially the same as budget and $788,000 more than Fiscal Year 2021-22 Audited. This is primarily due to standard annual rent adjustments per lease agreements and percentage rent revenue for the Ameswell office lease. Included in Rents and Lease revenues is approximately $2.1 million revenue generated from the Ameswell development. Revenue generated from the Ameswell development is earmarked for the Public Safety Administration Building project.
• Licenses, Permits, and Franchise Fees/Fines and Forfeitures are overall net essentially the same as budget and $480,000 (8.1%) higher than the Fiscal Year 2021-22 Audited. The variance to the prior fiscal year Audited is primarily due to an increase in franchise fee s from PG&E.
• Intergovernmental Revenues are $150,000 above budget and $1.1 million lower than Fiscal Year 2021-22 Audited, primarily due to a one-time grant awarded to the Center for the Performing Arts in the 2021-22 fiscal year.
• Charges for Services are $ 592,000 (20.7%) and $413,000 (13.6%) above Adjusted Budget and the Fiscal Year 2021-22 Audited, respectively. Revenues in this category are mainly derived from City Recreation programs and miscellaneous other services. The variance is primarily due to the strong re venue from Recreation and the Center for the Performing Arts.
Analysis of Fiscal Year 2022-23 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 12, 2023
• Miscellaneous Revenues are $ 775,000 million (27.3%) above budget, primarily resulting from one-time donations and reimbursements that were not included in the Adopted Budget. The City budgets various donations and reimbursements only if they are ongoing in nature. A significant portion of the reimbursements were strike team services rendered for wildfires throughout the State. Compared to F iscal Year 2021-22 Audited, Miscellaneous Revenues are $ 515,000 (12.5%) lower, primarily as a result of less reimbursements related to strike teams received in Fiscal Year 2022-23 compared to Fiscal Year 2021-22.
• Interfund Revenues and Transfers are $2.1 million (12.0%) above Adjusted and $1.4 million (8.0%) higher than the Fiscal Year 202 1-22 Audited, primarily as a result of higher Capital Improvement Projects (CIP) administrative overhead.
Analysis of Fiscal Year 2022-23 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 12, 2023
Expenditures
The Fiscal Year 2021-22 Audited and Fiscal Year 2022-23 Adopted Budget, Adjusted Budget, and Audited results for GOF expenditures are as follows (dollars in thousands):
2021-22
Audited
2022-23
Adopted
Budget
2022-23
Adjusted
Budget
2022-23
Audited
Variance
of Audited
to Adjusted
Operating Expenditures:
Salaries and Benefits:
Salaries and All Pays $ 71,709 $ 78,364 $ 78,017 $ 75,452 $2,565 Retirement 22,257 28,126 28,126 24,397 3,729
Health Benefits 9,190 11,838 11,838 9,335 2,503
All Other Benefits 7,082 8,198 8,198 7,463 735 110,238 126,526 126,179 116,647 9,532
Supplies and Services 18,784 21,831 25,690 21,546 4,144 Capital Outlay/ Equipment
Replacement 2,854 2,611 3,100 2,641 459
Interfund Expenditures and
Transfers 13,949 12,512 12,512 13,439 (927)(1)
Debt Service -0- 1,000 1,000 -0- 1,000 Budget Savings Included (6,000) (6,000) Included (6,000) Transfer to GNOF -0- -0- 2,000 2,000 -0-
Transfer to GF Reserve -0- 1,600 1,600 1,600 -0-
Transfer to Cap Impr Res -0- -0- 4,000 4,000 -0-
Transfer to SPAR -0- -0- 3,000 3,000 -0-
Transfer to Budget
Contingency Res
-0-
-0-
1,000
1,000
-0-
Transfer to Liability Fund -0- -0- 1,000 1,000 -0-
Operating Expenditures $145,825 $160,080 $175,081 $166,873 $8,208 ______________________
(1) The negative variance is due to higher-than-anticipated revenues received, but not budgeted from the Ameswell development which are transferred to the Budget Contingency Reserve.
A summary of expenditures by category follows:
• During Fiscal Year 2022 -23, more positions were filled than vacated, and more vacancies were filled in comparison to the prior fiscal year. However, the City has continued the commitment to employee development with over one-third of the vacancies filled through promotion, which resulted in additional vacancies. Further, the addition of 18 net new Analysis of Fiscal Year 2022-23 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 12, 2023
positions added to the salary savings as new positions take time to fill. Despite steady recruitment efforts, there were still many unfilled positions, resulti ng in a $9.5 million (7.6%) favorable variance in Salaries and Benefits compared to Adjusted and $9.9 million (7.8%) compared to Adopted.
• Historically, the GOF typically realizes savings in Supplies and Services. For Fiscal Year 2022-23, there w ere savings of $4.1 million (16.1%) compared to Adjusted and $285,000 (1.3%) compared to Adopted. However, of this amount, encumbrances totaling $1.9 million were identified to be carried over into Fiscal Year 2023-24. Including these encumbrances, the positive variance to Adjusted Budget would be reduced to $2.2 million or 8.7%.
• The GOF’s $2.4 million contribution to the Equipment Replacement Reserve occurred as budgeted. The remaining capital outlay has a favorable variance of $ 459,000 (63.9%) compared to budget; although $367,000 of this has been encumbered to be expended in Fiscal Year 2023-24.
The Adopted and Adjusted budget savings of $6.0 million takes into consideration the anticipated savings in expenditure accounts. The Fiscal Year 2022-23 Audited amounts indicated in the table do not include a total of $2.3 million of encumbrances outstanding as of the end of the fiscal year.
In accordance with the City Charter, appropriations for lawful encumbrances remaining at the end of each fiscal year are reappropriated in the following fiscal year.
Analysis of Fiscal Year 2022-23 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 12, 2023
Expenditures by Department
A summary of the GOF audited expenditures compared to Adjusted Budget by department are as follows (dollars in thousands):
2022-23
Adjusted
Budget
2022-23
Audited
Encumbrances
Variance
of Audited Plus
Encumbrances
to Adjusted
% Savings
from
Adjusted
Budget
Department:
City Council $ 445 $ 300 6 $ 139 31.2%
City Clerk 1,034 948 2 84 8.1%
City Attorney 3,002 2,449 127 426 14.2%
City Manager 5,559 4,660 218 681 12.3%
Human Resources 3,166 2,868 41 257 8.1%
Information
Technology 7,697 6,105 166 1,426 18.5%
Finance and
Administrative
Services 8,128 6,537 340 1,251 15.4%
Community
Development 2,159 1,682 81 396 18.3%
Public Works 13,505 12,535 177 793 5.9%
Community Services 20,507 17,896 419 2,192 10.7%
Library 7,970 6,278 241 1,451 18.2%
Fire 30,677 30,372 288 17 0.1%
Police 48,297 45,506 165 2,626 5.4%
Nondepartmental(1) 28,935 28,737 -0- 198 0.7%
Budget Savings (6,000) Included -0- (6,000) 100.0% Total Operating
Expenditures $175,081 $166,873 $2,271 $5,937 3.4%
___________________
(1) Nondepartmental expenditures include Interfund Transfers for equipment replacement and Interfund Expenditures and Transfers.
All departments ended Fiscal Year 2022-23 with expenditures below the Adjusted Budget.
Fiscal Year 2022-23 GOF Balance Available
As previously discussed, the City’s GOF ended the 2022-23 fiscal year with a positive operating balance of $14.8 million. The table below details the General Fund balance, including one -time Analysis of Fiscal Year 2022-23 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 12, 2023
revenues and expenditure savings, budget ed transfers, and limited -period expenditure allocations (dollars in thousands):
GOF Balance from Fiscal Year 2022-23 $14,770
Remaining Available Balance from Prior Fiscal Years 15,536 Fiscal Year 2022-23 Midyear Allocations Approved by City Council (1,460)
Additions:
One-Time Revenues and Expenditure Savings in Fiscal Year 2022-23:
Property Taxes—Excess ERAF 8,157
Unspent Limited-Period Expenditures 3,416
Miscellaneous Revenues 203
Child-Care Center Rent 201
Subtotal $40,823
Subtractions:
Allocations in the Fiscal Year 2023-24 Adopted Budget:
Limited-Period Expenditures (7,074)
CIP Reserve (3,000)
Strategic Property Acquisition Reserve (2,000)
Budget Contingency Reserve for the Public Safety Building (2,000) Employee Loan Program Reserve (2,000)
Compensated Absences Reserve (1,353)
Development Services Fund (1,100)
Additional Payment to CalPERS (1,000)
Parental Leave Reserve (1,000)
General Liability Fund (1,000)
Subtotal of Allocations (21,527)
Remaining Unallocated Balance Available $19,296
Including the GOF balance, the remaining balance available from prior fiscal years less midyear allocations approved by the City Council, one-time revenues, and expenditure savings, there was a total of $40.8 million available for allocation through Fiscal Year 2022-23.
Allocations in the Fiscal Year 2023-24 Adopted Budget include new limited-period expenditures of $7.1 million; transfers of $3.0 million to the CIP Reserve, $2.0 million to the Strategic Property Acquisition Reserve , $2.0 million to the Budget Contingency Reserve, $2.0 million to the Employee Loan Program Reserve, $1.4 million to the Compensated Absences Reserve , Analysis of Fiscal Year 2022-23 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 12, 2023
$1.1 million to the Development Services Fund, $1.0 million as an additional payment to CalPERS, $1.0 million to the Parental Leave Reserve, and $1.0 million to the General Liability Fund. This results in a remaining unallocated balance of $19.3 million as of June 30, 2023.
CONCLUSION
Total Fiscal Year 2022-23 GOF revenues are $ 182.0 million, $ 16.8 million ( 10.2%) over the Adjusted Budget and $18.2 million (11.1%) over the Adopted Budget. Total Fiscal Year 2022-23 GOF expenditures are $ 166.9 million, $ 8.2 million ( 4.7%) below the Adjusted Budget and $6.8 million ( 4.2%) over the Adopted Budget . This does not include the $ 2.3 million in encumbrances outstanding at the end of Fiscal Year 2022-23. The GOF ended Fiscal Year 2022-23 with a positive operating balance of $14.8 million, which provided critical funding for Fiscal Year 2023-24 limited-period expenditures and transfers to reserves. The remaining unallocated balance is $19.3 million.
An updated estimate of the City ’s financial position for Fiscal Year 2023-24 and preliminary projections for Fiscal Year 2024-25 will be presented to Council in February 2024 with the Midyear Budget Status Report.
AT-GZ-DR/4/FIN
541-12-12-23M