Q �EwPpRT
CITY OF
s NEWPORT BEACH
`q44:09 City Council Staff Report
December 10, 2024
Agenda Item No. 13
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Jason AI -Imam, Finance Director/Treasurer - 949-644-3126, [email protected]
PREPARED BY: Shelby Burguan, Deputy Finance Director - 949-644-3085, [email protected]
TITLE: First Quarter Budget Update
ABSTRACT:
The Finance Department prepares quarterly financial reports to review the status of revenues and expenditures for the City of Newport Beach's General Fund and to monitor budgetary trends in other City funds. This report contains information on revenues, expenditures and estimated fund balance for the first quarter of Fiscal Year 2024-25.
The FY 2024-25 first quarter financial report provides an analysis of the City's financial activity from July through September 2024. A $5.0 million unrestricted General Fund operating surplus is projected for FY 2024-25 based on information currently available for the end of the first quarter. Recommended budget adjustments for revenues and expenditures are outlined in this report, which are reflected in the proposed first quarter budget amendment.
RECOMMENDATIONS:
a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; b) Approve Budget Amendment No. 25-024, adjusting revenue estimates and expenditure appropriations as further outlined in this report; and c) Receive and file the attached report of budget amendments for the first quarter.
DISCUSSION:
Economic Overview
The city's assessed property values continue to increase providing a strong revenue base for the City. Recent reductions to sales tax revenue have caused concerns for the broader economy, however, staff estimates that in FY 2024-25, sales tax will begin to rebound.
Revenue for hotels continues to grow as tourism remains a strong source of revenue for the City. The City is well positioned to withstand the impacts of a potential recession and is expected to maintain long-term fiscal sustainability. 13-1
First Quarter Budget Update
December 10, 2024
General Fund Revenues
Most revenue categories performed at or higher than their budgeted levels last year due to more favorable economic conditions than what was originally anticipated in the adopted budget. Growth in many areas has led to a $1.4 million projected increase in General Fund revenues than what is estimated in the budget. Projections for property taxes, sales tax, service fees and charges, intergovernmental revenues, and donations and contributions have been increased.
The following table summarizes the changes to projected General Fund revenues versus the revised budget for FY 2024-25. Details highlighting the reasons for the material variances follow.
FY 2024-25 Proiected General Fund Revenues
Property Taxes
149,296,403
150,434,533
1,138,130
0.8%
Sales Tax
45,299,626
45,406,798
107,172
0.2%
Transient Occupancy Tax*
32,625,873
32,625,873
-
0.0%
Other Taxes
9,587,638
9,587,638
-
0.0%
Service Fees & Charges
25,230,457
25,300,457
70,000
0.3%
Parking Revenue
8,271,651
8,271,651
-
0.0%
Licenses and Permits
5,952,271
5,952,271
-
0.0%
Property Income
9,633,853
9,633,853
-
0.0%
Fines & Penalties
3,996,299
3,996,299
-
0.0%
Intergovernmental
4,964,764
4,989,240
24,476
0.5%
Investment Earnings
1,904,925
1,904,925
-
0.0%
Misc Revenues
425,125
455,125
30,000
7.1%
Operating Transfers In
19,767,775
19,767,775
-
0.0%
Total Revenues
316,956,660
318,326,438
1,369,778
0.4%
*Gross TOT revenues amount to approximately $39.8 million. At the end of the first quarter, it was estimated that Visit Newport Beach (VNB) would receive 18% (or approximately $7.2 million) of TOT on a gross basis for the fiscal year, which brings projected TOT revenues to $32.6 million, net of amounts remitted to VNB.
Property Tax - Property taxes are the City's single largest General Fund revenue and represent approximately 50% of all General Fund revenues. Property tax revenue was projected to increase approximately 4% from $143.6 million in FY 2023-24 to $149.3 million in FY 2024-25, largely due to the inflation adjustment indexed at the 2% cap allowed by Proposition 13 and due to changes in ownership. Property tax revenue for FY 2023-24 totaled $146.1 million, which is $2.6 million higher than previously projected. The higher -than -projected revenue in FY 2023-24 is largely due to supplemental property tax revenue, Redevelopment Agency (RDA) residual revenues, and property tax transfers. Therefore, property tax revenue for FY 2024-25 is projected to be $1.1 million higher than previously projected due to the increase in assessed values.
Staff is recommending a budget amendment to align the revised budget with updated projections.
13-2
First Quarter Budget Update
December 10, 2024
Sales Tax - The second largest funding source for the General Fund is sales tax revenue, making up more than 15% of General Fund revenues. The City's sales tax base is largely generated from three industry groups — autos and transportation; general consumer goods; and restaurants/hotels. In FY 2023-24 the City saw a decline in sales tax revenue that was primarily attributed to an 18% decline in the autos and transportation category compared to FY 2022-23. Sales tax revenues are projected to increase by approximately 5% over the FY 2023-24 amounts, which will still be below the FY 2022-23 actuals. The projection for FY 2024-25 of $45.3 million is still reasonable, however, the City has a sales tax sharing agreement with an auto dealer that is set to expire after the third quarter whereas a full year of the tax sharing was incorporated into the budget. This increases revenue projections by $107,000. A budget amendment is recommended to align the revised budget with updated projections.
Transient Occupancy Tax (TOT) — The third largest funding source for the General Fund is TOT, making up more than 10% of General Fund revenues. Staff's projection for Q1 is in line with the budgeted revenues, and no adjustment is recommended. Staff will continue to monitor TOT trends and will provide additional updates to projections as necessary in future quarterly financial reports.
All Other Revenue — This category includes all other revenue sources other than the top three (property tax, sales tax and TOT). All other revenue is made up of other taxes, service fees and charges, parking revenue, licenses and permits, property income, fines and penalties, intergovernmental revenues, investment earnings, and miscellaneous revenues. Changes in projected amounts are proposed in the following categories:
• Service Fees and Charges — plan check fees, recreation classes, emergency medical services fees and numerous other cost -of -service fees. The Police Department established multi -year agreements for Supplemental Law Enforcement Services between the City of Newport Beach and the City of Anaheim, and the City of Newport Beach and the City of Huntington Beach. The intent of the agreements is for law enforcement personnel to provide these agencies with support during special events. The cities are directly billed for expenses incurred and are billed at the Special Events Hourly Rate. A budget amendment for a $70,000 increase to revenue account 01035352-521175 and expense account 01035353-713002 is recommended to recognize the offset in expenditures by the additional revenues for the first -year expectation of the agreements.
• Intergovernmental Revenues — federal, state and local grant revenues, which includes, but is not limited to, the City's portion of the half cent sales tax revenue paid to the County of Orange for public safety, state mandate reimbursements, reimbursement for strike teams sent to assist with fires, and revenue sharing with the County of Orange under the Waste Disposal Agreement (WDA). The Police Department participates in a State 911 program that is administered through the California Governor's Office of Emergency Services (OES) for the software maintenance phone contracts. The program is transitioning from direct billing towards a reimbursement model. A budget amendment is proposed to recognize the expected revenue reimbursement in Police Support Services Cal OES account 01035352-431245 and increase in expenditures in the Police IT Software License Renewal account 0103522-871017 by $24,476.49.
13-3
First Quarter Budget Update
December 10, 2024
• Miscellaneous Revenues — restricted revenue, damage to City property, bad debt, donations and contributions, non -operating revenues such as proceeds from the sale of materials and equipment, and other miscellaneous revenues. A project applicant donated $30,000 to the Library Services Department to support public amenities as part of their coastal development permit. A budget amendment will recognize $30,000 in additional revenue in the Private Donation and Contributions account 0106053-561005 and increase expenditures by $30,000 for programming - related expenditures in 0106053-841004.
General Fund Expenditures
The FY 2024-25 General Fund revised expenditure budget totals $325.8 million.
Spending trends in FY 2024-25 are generally consistent with prior years and do not indicate any cause for concern. Total expenditure savings of $2.4 million are projected at this time due to year-to-date savings from vacancies, offset by expenses that are addressed in Budget Amendment No. 25-024 and are explained in detail below.
The following table summarizes the changes to the adopted expenditure budget for FY 2024-25, as well as expenditure savings by budget category. Details highlighting the reasons for the material variances follow.
FY 2024-25 Proiected General Fund Expenditures
Salary & Benefits
188,194,601
185,732,949
2,461,652
1.3%
Contract Services
32,899,719
32,899,719
-
0.0%
Grant Operating
1,411,935
1,411,935
-
0.0%
Utilities
4,446,732
4,446,732
-
0.0%
Supplies & Materials
4,827,384
4,857,384
(30,000)
-0.6%
Maintenance & Repair
16,742,060
16,742,060
-
0.0%
Travel & Training
925,308
905,308
20,000
2.2%
General Expenses
4,301,266
4,325,743
(24,476)
-0.6%
Internal Svc Charge
31,245,497
31,245,497
-
0.0%
Capital Expenditures
1,574,128
1,574,128
-
0.0%
Operating Transfers Out
39,255,611
39,255,611
-
0.0%
Total Expenditures
325,824,241
323,397,066
2,427,175
0.7%
Significant expenditure budget variances are as follows:
• The revised salary and benefits budget totals $188.2 million, an increase of $5.3 million over the adopted budget. An analysis of salary and benefit activity for quarter one indicates that $2.5 million in personnel savings has been captured to date. These savings are offset by the $70,000 proposed budget increase related to the Police Department's Supplemental Law Enforcement Services contracts, as explained in the General Fund's service fees and charges section of this report. • The supplies and materials budget will be increased by $30,000 for the Library's programming, as explained in the General Fund's miscellaneous revenues section of this report.
13-4
First Quarter Budget Update
December 10, 2024
• The travel and training budget will be decreased by $20,000 as the budget intended for staff to participate in Certified Access Specialist (CASp) training should be funded from Fund 180, the Restricted Programs Fund, and was erroneously included in the General Fund budget in FY 2024-25. A budget amendment is recommended to transfer $20,000 from the General Fund to the Restricted Programs Fund.
• The general expenses category will be increased by $24,476 for the Police Department's software license, as explained in the General Fund's intergovernmental revenues section of this report.
General Fund Sources, Uses and Projected Surplus
The City continues to be in excellent financial health. Conservative budgeting and sound financial policies have resulted in a trend of General Fund operating surpluses and strong reserve levels for several years. The City is well positioned to continue delivering high levels of services to the community while targeting surplus resources to key priorities each year. It is currently projected that unrestricted General Fund resources will total $5.0 million at the end of FY 2024-25. As is the case each year, staff anticipates that additional budget savings will be realized, and the final year-end budget surplus will exceed this amount.
The following table illustrates the prior year sources and uses of funds, current year activity, and the projected year-end results.
FY 2024-25 Projected General Fund Sources. Uses and Budaet Surplus Beginning Fund Balance Reserves
Operating Resources:
Operating Revenues
Prior Year Resources Carried Forward
Transfers In from Other Funds
Repayment of Advances
Total Operating Resources
Operating Uses:
Operating Expenditures
Transfers Out
Total Operating Uses
Net Operating Surplus
Non -Operating Resources & Uses
Transfers Out
Total Non -Operating Resources & Uses
Net Change in Fund Balance
Endina Fund Balance Reserves
Revised
•
Budget
$ 15,752,275
15,752,275
-
0.0%
297,188,885
298,558,663
1,369,778
0.5%
6,786,845
6,786,845
-
0.0%
19,767,775
19,767,775
-
0.0%
1,250,000
1,250,000
-
0.0%
324,993,505
326,363,283
1,369,778
0.4%
286,568,630
284,141,455
(2,427,175)
-0.8%
39,255,611
39,255,611
-
0.0%
325,824,241
323,397,066
(2,427,175)
-0.7%
(830,736)
2,966,217
3,796,953
-457.1%
13,680,159
13,685,648
5,489
0%
(13,680,159)
(13,685,648)
(5,489)
0.0%
14,510,895
10,719,431
3,791,464
-26.1%
$ 1,241,380
5,032,844
3,791,464
305.4%
13-5
First Quarter Budget Update
December 10, 2024
Facility Financing Plan
Per the City's Municipal Code, park dedication and in -lieu fees provide for the dedication of land, the payment of fees in lieu thereof or a combination of both, for park or recreational purposes in conjunction with the approval of residential development. $976,701 of budgeted park zone fees in Park Zone 9 are not anticipated to be received in FY 2024-25. A budget amendment is recommended to align the budgeted revenues in this fund with current projections by reducing revenues in account 51303-422105.
Additionally, park zone fees in Park Zone 4 are now estimated to be received this fiscal year, therefore, it is recommended to increase the revenue budget in 51303-422080 by $506,789.
Fire Equipment Fund
The FY 2024-25 Internal Service Fund (ISF) for fire equipment will be increased by $56,400. Planned additional expenses for FY 2024-25 were included in the ISF chargeback accounts in the General Fund but were not reflected in the expense account in the Fire Equipment fund; thus, the General Fund will not be impacted.
Other Funds
Staff has evaluated the fiscal condition of the City's other major operating funds (Tidelands and Water). An analysis of the budget performance for these funds indicates that no budget adjustments are necessary and variances between budgeted and actual amounts are within reason.
Personnel Changes
It is recommended that two equipment operator I (EOI) positions be adjusted to two equipment operator II (EOII) positions. The EOII is a highly skilled journeyman position.
It is distinguishable from the EOI through performance of more skilled and complex tasks involving heavy equipment, possession of a California Class A commercial driver's license, and an additional year of experience is required. Those who hold that position are able to safely operate 14 pieces of complex heavy equipment such as loaders, beach cleaners, dump trucks, skid -loaders and backhoes, and 15 pieces of light duty equipment.
E011s are responsible for training EOIs and maintenance workers in the operation of heavy and light equipment. There will be no change to the total fulltime position count, and no budget amendment is required as the cost to adjust these positions is $9,500, which can be covered by vacancy savings.
FISCAL IMPACT:
As a result of the Budget Amendment (Attachment A) included with this report, revenue estimates will be adjusted upward by $345,436 and $195,876 will be appropriated to the expenditure accounts listed in the Budget Amendment. Approval of these budget amendments is included in the projected Fiscal Year 2024-25 column of the General Fund Sources & Uses table on the previous page.
13-6
First Quarter Budget Update
December 10, 2024
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item).
ATTACHMENTS:
Attachment A — Budget Amendment No. 25-024
Attachment B — Budget Amendments for the First Quarter
13-7
�EWPORT ATTACHMENT A
I°k City of Newport Beach
x BUDGET AMENDMENT
Cq<<Fp RNp 2024-25 BA#: 25-024
Department: Finance
ONETIME: ❑� Yes ❑No
Requestor: Shelby Burguan
Approvals
❑ CITY MANAGER'S APPROVAL ONLY
Finance Director: Date j S
0 COUNCIL APPROVAL REQUIRED City Clerk: Date
EXPLANATION FOR REQUEST:
To adjust revenue estimates and expenditure appropriations relating to Fiscal Year 2024-25 Quarter 1 staff report. 0 from existing budget appropriations ❑� from additional estimated revenues
❑� from unappropriated fund balance
REVENUES
Fund #
Org
Object Project
Description
Increase or (Decrease) $
010
0106053
561005
DESIGNATED GIFTS - PRVT DONATION/CONTRIBUTNS
30,000.00
010
01035352
521175
POLICE SUPPORTSERViCES - POLICE MISCELLANEOUS SVC
70,000.00
010
01035352
431245
POLICE SUPPORT SERVICES - CAL OES
24,476.49
513
51303
422105
FFP NON OP - PARK FEES ZONF 9
(976,701.00)
513
51303
422080
FFP NON OP - PARK FEES ZONE 4
506,789.00
Subtotal
$ (345,435.51)
EXPENDITURES
Fund #
Org
Object Project
Description
Increase or (Decrease) $
010
0106053
841004
DESIGNATED GIFTS- PROGRAMMING
30,000.00
010
01035353
713002
PATROL - OVERTIME SAFETY & 1/2 TIME
70,000.00
010
0103522
871017
POLICE IT - SOFTWARF LICENSE RENEWAL
24,476.49
010
01050504
861008
BUILDING - CASP CERTIFICATION & TRAINING
[20,000.00)
180
1805042
861008
CASP TRAINING - CASP CERTIFICATION & TRAINING
35,000.00
756
75604
911024
FIRE EQUIPMENT NON OP - EQUIPMENT N.O.C.
56,400.00
Subtotal
$ 195,876.49
FUND BALANCE
Fund #
Object
Description
Increase or (Decrease) $
300000
GENERAL FUND FUND BALANCE CONTROL
20,000.00
300000
RESTRICTED PROGRAMS FUND - FUND BALANCE CONTROL
(35,000.00)
F
300000
FIRE EQUIPMENT FUND - FUND BALANCE CONTROL
(56,400.00)
300000
FACILITIES FINANCING
PLAN - FUND BALANCE CONTROL
(469,912.00)
Subtotal
$ (541,312.00)
Fund Balance Change Required
13-8
ATTACHMENT B
Reporting Quarter: Q1
Amendment
City of Newport Beach
Fiscal Year 2024-25 Budget Amendments
Quarter Ending September 30, 2024
Net Effect on Fund Balance
BA # Date Type Fund Number Fund(s) Revenues Expenditures Increase/(Decrease) Department Explanation To appropriate structural surplus to increase expenditure 001 07/01/2024 City Council 010 GENERAL FUND $ - $ 5,000,000.00 $ (5,000,000.00) Finance appropriations. Funds will be allocated to CalPERS UAL Additional To recognize revenues from a donation from the Newport Beach 002 07/23/2024 City Council 010 GENERAL FUND $ 40,000.00 $ 40,000.00 $ - Library Public Library Foundation and increase expenditures for Library Materials, Office Furniture and Fixtures, and Hardware for the Newport Beach Public Library.
To transfer budget from Police Traffic Services Professional to Public 003 07/01/2024 City Manager 010 GENERAL FUND $ - $ 15,000.00 $ - Police/PW Works Facility Maintenance - Maintenance and Repair Building for the PW is not planning another Sewer Lift Station project in FY2024-25, so PW requests to appropriate funds from the Sewer Lift Station Improvement project (23SO4) to the Sewer Main Lining Repairs project (25503). These funds will be used for the sewer force mains crossing the harbor from Little Balboa Island to CDM. Wastewater Funds had not yet been set aside for these crossings in the Bay Crossing CIP 004 07/04/2024 City Manager 712 WASTEWATER CAPITAL FUND $ - $ 1,000,000.00 $
- Public Works
project, which will occur in 24-25. Originally, PW thought this project would occur in FY2025-26 and cost double what they are now estimating. The project will incorporate a new lining technology which will replace the previous full replacement of the lines. According to F-3 7b, the City Manager can approve project appropriations if the project utilize the same funding source and are for substantially the same project purpose and physical location.
FACILITIES FINANCING PLAN & PARKS &
To appropriate funds from the 513 FFP Fund to the 562 Parks and 005 07/23/2024 City Council 513 & 562 COMMUNITY CENTERS $ $ 805,874.00 $
(805,874.00) Public Works
Community Center Fund for the Lower Sunset View Park project (15T09).
To appropriate funds from the Environmental Liability unappropriated 006 07/23/2024 City Council 160 ENVIRONMENTAL LIABILITY FUND $ - $ 49,681.00 $
(49,681.00) Public Works
fund balance due to increased expenditures as requested by contractor Bums & McDonnell Amendment No. 5 for the Newport Bay Water Wheel project.
To recognize revenues from a donation from the Friends of Newport 007 08/27/2024 City Council 010 GENERAL FUND $ 200,000.00 $ 200,000.00 $
- Library
Beach Library and increase expenditures for Library Materials and Proqramminq for the Newport Beach Public Library.
GENERAL FUND & SPECIAL PURPOSE
To increase revenue estimates and expenditure appropriations from 008 07/18/2024 City Manager 010 & 017 DEPOSIT FUND $ 4,000.00 $ 4,000.00 $
- Library
the Literacy Services Special Deposit Account. Funds will be allocated to the orq-objects as highlighted below.
To increase revenue estimates and expenditure appropriations from 009 08/27/2024 City Council 010 GENERAL FUND $ 56,860.00 $ 56,860.00 $
- Police
the approval and acceptance of the Carrfomia Department of Alcoholic Beverage Control (ABC) 2024-25 Alcohol Policing Partnership Proqram (APP) Grant.
To increase expenditures in the Newport Beach Arts Foundation 010 08/07/2024 City Manager 180 RESTRICTED PROGRAM FUND $ - $ 9,906.32 $
(9,906.32) Library
Programming account from donations for the City Arts Commission Accept Department of Homeland Security Operation Stonegarden 011 09/10/2024 City Council
010
GENERAL FUND
$ 125,000.00 $
125,000.00 $
- Police
Grant Funds - Grant supports enhanced cooperation and coordination among Customs and Border Protection, United States Border Patrol, and local law enforcement.
010
GENERAL FUND
To reflect the additional city pickup of CaIPERS contribution rates 100
TIDE & SUBMERGED LANDS FUND
through June 2025 for applicable bargaining units, increase 701
WATER ENTERPRISE FUND
Human
contributions to health coverage through June 2025 for safety 012 08/27/2024 City Council
711
WASTEWATER ENTERPRISE FUND
$ 13,778.09 $
1,931,800.00 $
(1,918,021.91)
Resources
bargaining groups, and to apply an agreed upon bonus that will be paid 752
EQUIPMENT FUND
quarterly throughout FY25 for safety bargaining units and eligible K&M 764
IT ISF
positions. Funds are appropriated from the fiscal year end FY 24 surplus endinq balance.
To increase budget for the purchase of real property at 301 E Balboa 013 08/27/2024 City Council
010 & 012
GENERAL FUND
$ 8,500.00 $
2,832,000.00 $
(2,823,500.00) CDD
Blvd. Estimated costs include the purchase, title/escrow closing costs,
GENERAL FUND CAPITAL PROJECTS
due diligence, and relocation costs. Additional revenue based on reported lease rates for three months are estimated.
13-9
Reporting Quarter: Q1
Amendment
City of Newport Beach
Fiscal Year 2024-25 Budget Amendments
Quarter Ending September 30, 2024
Net Effect on Fund Balance
BA# Date Type Fund Number Fund(s) Revenues Expenditures Increase/(Decrease) Department Explanation 014 09/10/2024 City Council 010 GENERAL FUND $1,110,112.00 $ 441,584.00 $ 668,528.00 Fire Accept Medi-Cal IGT Program revenue and appropriate expenditure account.
To increase revenue estimates and expenditure appropriations from 015 09/09/2024 City Manager 010 & 017 GENERAL FUND $ 300.00 $ 300.00 $ - Librathe Literacy Services Special Deposit Account. Funds will be allocated Library SPECIAL PURPOSE DEPOSIT FUND to the org-objects as highlighted below. The money will be used to pay 017
09/24/2024 City Council
101
TIDELANDS HARBOR CAP FUND
$
- $
430,893.00
$ (430,893.00) Public Works To appropriate expenditures from the unappropriated Tidelands Capital Fund balance for the Citywide Public Dock Rehabilitation Project. 010
GENERAL FUND
100
TIDE & SUBMERGED LANDS FUND
701
WATER ENTERPRISE FUND
Human
To reflect the additional city pickup of CaIPERS contribution rates 018
09/24/2024 City Council
711
WASTEWATER ENTERPRISE FUND
$
20,668.00 $
241,418.00
$ (220,750.00)
Resources
through June 2025 for applicable bargaining units. Funds are 752
EQUIPMENT FUND
appropriated from the fiscal year end FY 24 surplus ending balance. 764
IT ISF
GENERAL FUND
To transfer budget from the Library Foundation New PC Purchases to 019
09/25/2024 City Manager
010
$
- $
1,127.00
$ Library
Software License Renewal for the annual renewal of the Wayfinding Kiosk software.
To recognize revenues in the Library Admin SLS Grant Fund OC 020
09/25/2024 City Manager
010
GENERAL FUND
$
4,399.12 $
4,399.12
$ - Library
Library account and increase expenditures in the Library Materials 13-10