Finance and Administrative Services Department
DA
TE: December 17, 2024
TO: H
onorable City Council
F
ROM: Ann Trinh, Senior Financial Analyst
Grace Zheng, Assistant Finance and Administrative
Services Director
Derek Rampone, Finance and Administrative Services Director VI
A: Kimbra McCarthy, City Manager
SUB
JECT: Analysis of Fiscal Year 20 23-24 Audited Financial Results for the General Operating Fund and General Fund Available Balance
P
URPOSE
T
o provide an analysis of the Fiscal Year 2023-24 audited financial results for the General Operating Fund and General Fund available balance (including one -time revenues and expenditure savings).
B
ACKGROUND
T
he 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.
T
his memorandum provides an analysis of the GOF financial results for Fiscal Year 2023-24 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 defines “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 2023-24 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 17, 2024
ANALYSIS
Fiscal Year 2023-24 GOF Audited Financial Results
The Fiscal Year 2022-23 Audited and Fiscal Year 2023-24 Adopted Budget, Adjusted Budget, and Audited results for the GOF are as follows (dollars in thousands):
2022-23
Audited
2023-24
Adopted
Budget
2023-24
Adjusted
Budget(1)
2023-24
Audited
Variance
of Audited
to
Adjusted
Revenues $181,989 $180,846 $181,414 $182,381 $ 967
Expenditures(2) (166,873) (175,530) (185,093) (175,522) 9,571
Year-End Adjustments(3) (346) -0- 2,705 225 (2,480)
Operating Balance $ 14,770 $ 5,316 $ (974)(4) $ 7,084 $ 8,058 _______________________
(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 projected vacancy factor of $6.5 million for Fiscal Year 2023-24 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 includes Council-approved transfers to various reserves of $6.0 million during midyear budget update in February 2024.
The Fiscal Year 2023-24 total audited actual revenues are $182.4 million, slightly higher than the Adopted and Adjusted Budget, and the Fiscal Year 2022-23 audited actual revenues. The Fiscal Year 2023-24 total a udited expenditures are $1 75.5 million, $9.6 million (5.2%) below the Adjusted Budget, essentially the same as the Adopted Budget, and $8.6 million (5.2%) higher than the Fiscal Year 2022-23 actual audited expenditures.
The local economy has fully recovered to COVID-19 prepandemic levels. The City’s major revenues have generally remained strong and have benefited from inflation as well as the increase in interest rates. In recent years, the City has experienced strong revenue growth resulting in a larger -than-normal net operating balance that has allowed the City to address a portion of its infrastructure needs and unfunded liabilities. However, during the past fiscal year, the City’s General Operating Fund experienced a net operating balance lower than the past several years at $7.1 million.
Analysis of Fiscal Year 2023-24 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 17, 2024
A discussion of variances by revenue and expenditure categories follows.
Revenues
The Fiscal Year 2022-23 Audited and Fiscal Year 2023-24 Adopted Budget, Adjusted Budget, and Audited results for GOF revenues are as follows (dollars in thousands):
2022-23
Audited
2023-24
Adopted
Budget
2023-24
Adjusted
Budget
2023-24
Audited
Variance
of Audited
to Adjusted
Operating Revenues:
Property Taxes $ 70,874 $ 74,558 $ 74,558 $ 74,660 $ 102 Sales Tax 25,346 25,137 25,137 24,489 (648)
Other Local Taxes 25,189 22,933 22,933 21,205 (1,728)
Use of Money and Property 27,090 28,155 28,155 29,010 855 Licenses, Permits, and
Franchise Fees/Fines
and Forfeitures 6,416 6,738 6,738 6,925 187
Intergovernmental 862 738 750 1,095 345
Charges for Services 3,450 3,440 3,440 3,580 140
Miscellaneous Revenues 3,618 2,430 2,986 3,947 961
Interfund Revenue and
Transfers
19,144
16,717
16,717
17,470
753
Total Operating Revenues $181,989 $180,846 $181,414 $182,381 $ 967
A summary of revenues by category follows:
• The July 1, 202 3 City GOF property tax roll experienced increased secured and unsecured assessed values (AV), including recaptured Proposition 8 value and tax roll reductions from resolved appeals, resulting in a net 7.0% increase compared to the prior fiscal year revised tax roll and a 5.3% increase in revenue from the prior fiscal year. Overall, AV in the City increased a net 7.9% to a total AV of $44.2 billion, which is the third highest among the 15 cities in the County. Property tax revenues totaling $ 74.7 million are essentially the same as budget and $3.8 million (5.3%) more than the Fiscal Year 2022-23 Audited.
• Sales tax revenues are $648,000 (2.6%) below budget and $857,000 (3.4%) lower than the Fiscal Year 202 2-23 Audited. The strength in restaurants and hotels was not sufficient to offset declines in new automobile sales, and state and County pools. The decline in revenue was also due to closures of tax generating businesses and corrections of tax amounts which were a result of standard audits by the California Department of Tax and Fee Administration.
Analysis of Fiscal Year 2023-24 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 17, 2024
• Other Local Taxes are $1.7 million (7.5%) below budget and $4.0 million (15.8%) lower than the Fiscal Year 20 22-23 Audited. The decrease compared to Fiscal Year 20 22-23 audited actual amounts is primarily due to $1.6 million in lower TOT revenues and $ 2.0 million lower Utility Users Tax revenue.
• Use of Money and Property revenues, including both Investment Earnings and Rents and Leases, are $855,000 (3.0%) above budget and $ 1.9 million (7.1%) higher than the Fiscal Year 2022-23 Audited. Investment Earnings are $756,000 (excluding unrealized gains/losses) above budget and $1.4 million higher than the Fiscal Year 202 2-23 Audited.
During Fiscal Year 2023 -24, t he Federal Open Marke t Committee (FOMC) raised the benchmark interest rate to a target range of 5.25% and 5.5%. 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 $544,000 more than Fiscal Year 2022-23 Audited. This is primarily due to standard annual rent adjustments per lease agreements.
Included in Rents and Lease revenues is approximately $2.2 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 $187,000 (2.8%) above budget and $509,000 (7.9%) higher than the Fiscal Year 2022-23 Audited. The variance to the prior fiscal year Audited is primarily due to an increase in franchise fee s received from Recology and PG&E.
• Intergovernmental Revenues are $345,000 and $233,000 above budget and the Fiscal Year 2022-23 Audited, respectively.
• Charges for Services are $ 140,000 and $ 130,000 above Adjusted Budget and the Fiscal Year 2022-23 Audited, respectively. Revenues in this category are mainly derived from City Recreation programs and miscellaneous other services.
• Miscellaneous Revenues are $961,000 (32.2%) 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 .
Compared to Fiscal Year 2022-23 Audited, Miscellaneous Revenues are $ 329,000 (9.1%) higher.
• Interfund Revenues and Transfers are $753,000 (4.5%) above Adjusted and $ 1.7 million (8.7%) lower than the Fiscal Year 2022-23 Audited, primarily due to temporarily suspending the overhead transfer from the Development Services Fund.
Analysis of Fiscal Year 2023-24 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 17, 2024
Expenditures
The Fiscal Year 2022-23 Audited and Fiscal Year 2023-24 Adopted Budget, Adjusted Budget, and Audited results for GOF expenditures are as follows (dollars in thousands):
2022-23
Audited
2023-24
Adopted
Budget
2023-24
Adjusted
Budget
2023-24
Audited
Variance
of Audited
to Adjusted
Operating Expenditures:
Salaries and Benefits:
Salaries and All Pays $ 75,452 $ 85,883 $ 83,958 $ 80,678 $3,280 Retirement 24,397 30,470 30,470 27,166 3,304
Health Benefits 9,335 12,796 12,796 10,109 2,687
All Other Benefits 7,463 8,300 8,300 7,585 715 116,647 137,449 135,524 125,538 9,986
Supplies and Services 21,546 25,178 29,612 23,862 5,750 Capital Outlay/ Equipment
Replacement 2,641 3,032 3,487 3,152 335
Interfund Expenditures
and Transfers 13,439 13,371 13,970 13,970 -0-
Debt Service -0- -0- -0- -0- -0- Budget Savings Included (6,500) (6,500) Included (6,500) Transfer to GNOF 2,000 -0- -0- -0- -0-
Transfer to GF Reserve 1,600 3,000 3,000 3,000 -0-
Transfer to Transportation
Res
-0-
-0-
1,000
1,000
-0-
Transfer to Cap Impr Res 4,000 -0- -0- -0- -0-
Transfer to SPAR 3,000 -0- -0- -0- -0-
Transfer to Budget
Contingency Res
1,000
-0-
-0-
-0-
-0-
Transfer to Open Space
Acquisition Res
-0-
-0-
3,000
3,000
-0-
Transfer to Parental Leave
Res
-0-
-0-
1,000
1,000
-0-
Transfer to Liability Fund 1,000 -0- 1,000 1,000 -0-
Operating Expenditures $166,873 $175,530 $185,093 $175,522 $9,571
Analysis of Fiscal Year 2023-24 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 17, 2024
A summary of expenditures by category follows:
• During Fiscal Year 2023-24, more positions were filled than vacated. The City has continued the commitment to employee development with over one-third of the appointments made as promotions, which subsequently resulted in additional vacancies. Further, the addition of 14 net new positions added to the salary savings as new positions take additional time to fill. Despite steady recruitment efforts, there were still many unfilled positions, resulting in a $10.0 million (7.4%) favorable variance in Salaries and Benefits compared to Adjusted and $11.9 million (8.7%) favorable variance compared to Adopted.
• Historically, the GOF typically realizes savings in the Supplies and Services expenditure category. For Fiscal Year 2023-24, there were savings of $5.8 million (19.4%) compared to Adjusted and $ 1.3 million (5.2%) compared to Adopted. However, of this amount, encumbrances totaling $2.3 million were identified to be carried over into Fiscal Year 2024-
25. Including these encumbrances, the positive variance to Adjusted B udget would be reduced to $3.5 million or 11.8%.
• The GOF’s $2.3 million contribution to the Equipment Replacement Reserve occurred as budgeted. The remaining capital outlay has a favorable variance of $ 335,000 (27.9%) compared to budget, although $52,000 of this has been encumbered to be expended in Fiscal Year 2024-25.
The Adopted and Adjusted Budget vacancy factor savings of $6.5 million takes into consideration the anticipated savings in expenditure accounts. The Fiscal Year 2023-24 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 2023-24 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 17, 2024
Expenditures by Department
A summary of the GOF audited expenditures compared to Adjusted Budget by department are as follows (dollars in thousands):
2023-24
Adjusted
Budget
2023-24
Audited
Encumbrances
Variance
of Audited Plus
Encumbrances
to Adjusted
% Savings
from
Adjusted
Budget
Department:
City Council $ 515 $ 332 $ 1 $ 182 35.3%
City Clerk 1,108 997 1 110 9.9%
City Attorney 3,958 2,645 179 1,134 28.7%
City Manager 6,279 5,695 219 365 5.8%
Human Resources 3,714 3,345 96 273 7.4%
Information
Technology 8,559 6,790 130 1,639 19.1%
Finance and
Administrative
Services 8,504 7,228 236 1,040 12.2%
Community
Development 1,592 1,430 28 134 8.4%
Public Works 14,868 13,365 448 1,055 7.1%
Community Services 23,116 19,484 520 3,112 13.5%
Library 8,198 6,987 60 1,151 14.0%
Fire 33,695 32,539 150 1,006 3.0%
Police 51,171 48,526 195 2,450 4.8%
Housing 695 602 59 34 4.9%
Nondepartmental(1) 25,621 25,557 -0- 64 0.2%
Vacancy Factor Savings (6,500) Included -0- (6,500) 100.0% Total Operating
Expenditures $185,093 $175,522 $2,322 $7,249 3.9%
___________________
(1) Nondepartmental expenditures include Interfund Transfers for equipment replacement and Interfund Expenditures and Transfers.
All departments ended Fiscal Year 202 3-24 with expenditures below the ir Adjusted Budget amounts.
Fiscal Year 2023-24 GOF Balance Available
As previously discussed, the City’s GOF ended the 202 3-24 fiscal year with a positive operating balance of $ 7.1 million. The table below details the General Fund balance, including one -time Analysis of Fiscal Year 2023-24 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 17, 2024
revenues and expenditure savings, budgeted transfers, and limited- period expenditure allocations (dollars in thousands):
GOF Balance from Fiscal Year 2023-24 $ 7,084
Remaining Available Balance from Prior Fiscal Years 19,297 Fiscal Year 2023-24 Midyear Allocations Approved by City Council (1,581)
Additions:
One-Time Revenues and Expenditure Savings in Fiscal Year 2023-24:
Property Taxes—Excess ERAF 6,461
Unspent Limited-Period Expenditures 1,750
Miscellaneous Revenues 84
Child-Care Center Rent 206
Subtotal $33,301
Subtractions:
Allocations in the Fiscal Year 2024-25 Adopted Budget:
Limited-Period Expenditures (10,829)
CIP Reserve (5,000)
General Fund Reserve (2,500)
Development Services Fund (2,000)
Compensated Absences Reserve (1,167)
Parental Leave Reserve (1,000)
General Liability Fund (1,000)
Subtotal of Allocations (23,496)
Remaining Unallocated Balance Available $ 9,805
Including the GOF balance, the remaining balance available from prior f iscal years less midyear allocations approved by the City Council, one-time revenues, and expenditure savings, there was a total of $33.3 million available for allocation through Fiscal Year 2023-24.
Allocations in the Fiscal Year 202 4-25 Adopted Budget include new limited-period expenditures of $10.8 million; transfers of $ 5.0 million to the CIP Reserve, $2.5 million to the General Fund Reserve, $2.0 million to the Development Services Fund, $1.2 million to the Compensated Absences Reserve, $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 $9.8 million as of June 30, 2024, $9.5 million less than what was available a year ago.
Analysis of Fiscal Year 2023-24 Audited Financial Results for the General Operating Fund and General Fund Available Balance December 17, 2024
CONCLUSION
Total Fiscal Year 2023-24 GOF revenues are $182.4 million, slightly higher than the Adopted and Adjusted Budget. Total Fiscal Year 2023-24 GOF expenditures are $ 175.5 million, $9.6 million (5.2%) below the Adjusted Budget and essentially the same as the Adopted Budget. This does not include the $2.3 million in encumbrances outstanding at the end of Fiscal Year 2023-24. The GOF ended Fiscal Year 2023-24 with a positive operating balance of $7.1 million, which provided critical funding for Fiscal Year 2024-25 limited-period expenditures and transfers to reserves. The remaining unallocated available balance is currently $9.8 million.
An updated estimate of the City ’s financial position for Fiscal Year 202 4-25 and preliminary projections for Fiscal Year 202 5-26 will be presented to Council in February 202 5 with the Midyear Budget Status Report.
AT-GZ-DR/4/FIN
541-12-17-24M