Finance & Management Committee
April 11, 2022
AGENDA REPORT
TO: Edward D. Reiskin FROM: Erin Roseman
City Administrator Finance Director
SUBJECT: Status of Negative Funds Citywide
Through June 30, 2021
DATE: March 16, 2022
City Administrator Approval Date: Mar 21, 2022
RECOMMENDATION
Staff Recommends That The City Council Receive An Informational Report On The Status of Negative Funds Through June 30, 2021.
EXECUTIVE SUMMARY
The City has made significant progress in reducing negative fund balances since 2010. As of June 30, 2021, negative balances in the City’s funds totaled $83.6 million, a reduction of more than 40 percent from 2010 levels. Negative balances remain substantial despite this progress and sustained effort will be required to achieve further reductions.
The City’s negative balances result from funds where operating expenses have exceeded available revenues. In many funds these imbalances arose years ago, but in some funds negative balances have developed more recently. Reviewing negative funds periodically allows the City to measure progress in addressing past imbalances and highlight new areas for action.
Negative funds impact the City’s financial strength by reducing the overall fund balance and net position reported in its financial statements. External auditors, rating agencies, and investors look to these metrics to assess the City’s financial health and creditworthiness. By addressing negative balances, the City can strengthen its finances and improve its standing with these audiences.
In response to recent fiscal challenges, City Council authorized a postponement of scheduled repayments of negative balances for several funds as part of the Fiscal Year (FY) 2020-21 Midcycle Budget Amendment. Payments towards these negative balances have been restored in the FY2021-23 Adopted Policy Budget. In addition, the Finance Department is working with operating departments to address funds with new or increasing negative balances.
Edward D. Reiskin, City Administrator
Subject: Status of Negative Funds Citywide Through June 30, 2021 Date: March 16, 2022 Page 2
Finance & Management Committee
April 11, 2022
BACKGROUND / LEGISLATIVE HISTORY
The City has taken a variety of policy actions over the years to address negative fund balances.
On June 30, 2009, City Council adopted Ordinance No. 12946 C.M.S., amending the reserve policy to establish criteria for the use of excess real estate transfer tax (RETT) revenues and one-time revenues. As one-time revenues are received by the City (e.g., sales of property or proceeds from the refinancing of debt), 50 percent of these revenues (unless legally restricted to
other purposes) will be used to repay negatives in the Internal Service Funds, and 50 percent will be used to repay negatives in all other funds.
On December 9, 2014, City Council adopted Ordinance No. 13279 C.M.S., amending the City’s Consolidated Fiscal Policies to include designated reserves for both the Vital Services Stabilization Fund and for the acceleration of long-term obligations, in addition to the mandated
7.5% General Purpose Fund (GPF) Emergency Reserve (refer to City of Oakland Consolidated Fiscal Policy, Section I, Part C: Use of Excess Real Estate Transfer Tax). The City’s Consolidated Fiscal Policy is available in its entirety on the City’s website.
The FY 2015-17 Adopted Policy Budget allocated additional one-time repayments to the Facilities Fund (4400) negative balance of $4.0 million, $1.76 million to the Kaiser Convention Center Fund (1730), and $1.21 million to the Contract Administration Fee Fund (1791) which reduced the on-going repayments from the GPF.
The FY 2017-19 Adopted Policy Budget allocated an additional one-time payment to the Facilities Fund (4400) of over $8.0 million to eliminate the remaining negative balance.
On April 17, 2018, City Council adopted Resolution No. 87140 C.M.S., authorizing the City Administrator to eliminate appropriation balances in the Municipal Capital Improvement Fund (5500) in the amount of up to $2.81 million, Capital Fund (5510) in the amount of up to $2.04 million, and to restore the appropriations in alternative funds as funding sources become available. The City Administrator was also authorized to identify one-time sources of revenue to pay down negative fund balances from sources including, but not limited to, the Long-Term Obligations set-aside in accordance with the City’s Consolidated Fiscal Policy, and to present a revised Repayment Schedule for specified funds as part of the FY 2019-21 proposed budget.
On May 15, 2018, Ordinance No. 13487 C.M.S. was adopted amending the City’s Consolidated Fiscal Policies to facilitate various goals and objectives, including policies to reduce the potential for future increases in negative fund balances. Specific items in support of this goal include requirements for departments to submit corrective action plans in the event of overspending and revised criteria for GPF project carryforwards and encumbrances.
The FY2019-21 Adopted Policy Budget provided for additional negative fund repayments and included a schedule for repayments through FY 2028-29 for selected funds. The FY2020-21 Midcycle Policy Budget postponed many of these repayments to address anticipated revenue shortfalls. The FY2021-23 Adopted Policy Budget restores these previously deferred repayment plans.
Edward D. Reiskin, City Administrator
Subject: Status of Negative Funds Citywide Through June 30, 2021 Date: March 16, 2022 Page 3
Finance & Management Committee
April 11, 2022
ANALYSIS AND POLICY ALTERNATIVES
The City has historically identified three categories of negative funds:
1. Negative Funds on Repayment Plan
2. Reimbursable Negative Funds
3. Non-Reimbursable Negative Funds
As shown in Table 1, the City’s total negative balances have declined substantially since FY 2009-10, largely because of budgeted repayments.
Table 1: Repayment Progress for Major Negative Fund Categories, FY 2009-10 to FY 2020-21
Negative Fund Category
Audited
Fund
Balance FY
2009-10
Audited
Fund Balance
FY 2020-21
Total
Repayment
to Date
Negative Funds on Repayment Plan (114,484,975) (37,398,507) 77,086,468 Reimbursable Negative Funds (23,055,796) (44,954,370) (21,898,574) Non-Reimbursable Negative Funds
without Repayment Plans
(4,380,319)
(1,206,423)
3,173,896
Total Negative Funds (141,921,090) (83,559,300) 58,361,790
Negative funds on repayment plans include both Internal Service Funds (ISFs) and selected funds within the General Fund. ISFs are funds used to centralize core services and allocate their costs to Departments, consistent with generally accepted accounting principles. These funds developed negative balances due to under-collection of revenues from operating departments, and the City has made steady progress in reducing these historic balances over the past decade. Negative funds with repayment plans in the General Fund support ongoing City services, such as the Self Insurance Liability Fund, but this category also includes a variety of legacy and special-purpose initiatives, such as the Miscellaneous Capital Projects Fund and the Underground District Revolving Fund. Negative balances within these funds generally result from historical spending in excess of revenue collections.
Reimbursable negative funds are primarily comprised of grant funds where the City receives reimbursement following its expenditures. The City’s primary strategy to address these negative balances is to accelerate grant drawdowns. Some funds in this category, however, include historic negative balances that are unlikely to be restored by the original grantors, regardless of the City’s efforts. In such cases the City’s only option may be to write off longstanding negative balances. Negative balances for reimbursable funds increased materially in each of the last three fiscal years. The Finance Department is working with operating departments to accelerate grant drawdowns and reverse the trajectory of these negative balances.
Non-reimbursable negative funds with no repayment plans include the Golf Fund, which has expended more than it collects in revenues for the last four years.
Edward D. Reiskin, City Administrator
Subject: Status of Negative Funds Citywide Through June 30, 2021 Date: March 16, 2022 Page 4
Finance & Management Committee
April 11, 2022
Millions ($)
120
100
80 60
40 20
-
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Negative Funds on Repayment Plan
Reimbursable Negative Funds
Non-Reimbursable Negative Funds without Repayment Plans
Annual changes in negative balances over the past decade are illustrated in Figure 1. Negative funds on repayment plans have declined steadily while increased negative balances have arisen in reimbursable funds over the past several years. Addressing these negative balances will require ongoing efforts by operating departments to manage external funding sources.
Fund-level detail on negative balances is also provided in Attachment A.
Figure 1: Negative Fund Balances by Category – FY 2009-10 to FY 2019-21
FISCAL IMPACT
This is an informational report only; there is no fiscal impact.
PUBLIC OUTREACH / INTEREST
This item did not require any additional public outreach other than the required posting on the City’s website.
COORDINATION
This report was prepared in coordination and with input from the Finance Department and fiscal staff citywide.
Edward D. Reiskin, City Administrator
Subject: Status of Negative Funds Citywide Through June 30, 2021 Date: March 16, 2022 Page 5
Finance & Management Committee
April 11, 2022
SUSTAINABLE OPPORTUNITIES
Economic: There are no economic opportunities associated with this informational report.
Environmental: There are no environmental opportunities associated with this informational report.
Race & Equity: There are no race or equity opportunities associated with this informational report.
ACTION REQUESTED OF THE CITY COUNCIL
Staff recommends that the City Council receive an informational report on the status of negative funds through June 30, 2021.
For questions regarding this report, please contact Stephen Walsh, Controller, at (510) 238- 4906.
Respectfully submitted,
ERIN ROSEMAN
Finance Director
Finance Department
Prepared by:
Stephen Walsh, Controller
Controller’s Bureau
Attachment (1):
• Attachment A: Status of Negative Funds FY 2016-17 to FY 2020-21 Status of Negative Funds, FY 2016-17 to FY 2020-21 Attachment A
Fund
Fund Description
Assigned Agency / Dept
Audited
Fund Balance
FY 2016-17
Audited
Fund Balance
FY 2017-18
Audited
Fund Balance
FY 2018-19
Audited
Fund Balance
FY 2019-20
Audited
Fund Balance
FY 2020-21
Explanation of Negative Fund Balance
Negative Funds with Repayment Schedules:
1100 Self Insurance Liability Finance (10,310,411) (4,784,433) (7,260,192) (14,160,367) (19,067,725) Repayments resumed in FY2021-23 Budget after COVID deferral. Growth in balance reflects recent claims experience.
1600 Underground District Revolving Fund Public Works (979,283) (993,791) (1,016,342) (925,386) (924,468) Repayments resumed in FY2021-23 Budget after COVID deferral 1700 Mandatory Refuse Program Finance (1,347,158) (1,346,080) - - - Negative balance cleared. 1730 Henry J Kaiser Convention Center Finance (8,854) (8,985) - - - Negative balance cleared. 1750 Multipurpose Reserve Public Works (635,706) - - - (662,188) Negative balances have recurred due to COVID-related declines in parking garage revenues.
1760 Telecommunications Reserve City Clerk - - - (210,908) (484,834) Negative balances have recurred due to shortfalls in cable franchise revenues relative to KTOP expenses.
2232 Gas Tax RMRA Transportation - (559,723) - - - Negative balance cleared. 2241 Measure Q-Library Services Ret Library - (386,057) - - - Negative balance cleared. 2310 Lighting and Landscape Assessment District Public Works (1,468,846) (1,105,854) (746,293) (1,009,715) - Negative balance cleared. 2992 Parks and Recreation Grants Parks & Recreation (2,587,228) (2,593,208) (2,597,201) (2,315,314) (2,025,504) Repayments resumed in FY2021-23 Budget after COVID deferral 4100 Equipment* Public Works - - (4,221,422) - - Negative balance cleared. 4300 Reproduction* Information Technology (1,853,889) (1,769,605) (1,791,568) (1,500,693) (1,265,876) Repayments resumed in FY2021-23 Budget after COVID deferral 4400 City Facilities* Public Works (9,651,781) (2,347,587) (418,093) - - Negative balance cleared. 4500 Central Stores* Finance (4,231,973) (4,248,984) (4,257,382) (3,697,376) (3,573,613) Repayments resumed in FY2021-23 Budget after COVID deferral 4550 Purchasing* Finance (577,956) (530,078) (449,684) (124,983) (213,702) Repayments resumed in FY2021-23 Budget after COVID deferral 5012 JPFA Admin Building: Series 1996 Public Works (1,637,379) (1,661,636) (1,699,343) (1,532,369) (1,350,741) On repayment schedule per FY2021-23 Budget 5500 Municipal Capital Improvement Finance (5,494,985) (5,602,415) (5,729,550) (5,145,449) (5,140,343) Repayments resumed in FY2021-23 Budget after COVID deferral 5510 Capital Reserves Public Works (769,989) (1,138,319) (1,213,884) (1,102,248) (1,101,154) Repayments resumed in FY2021-23 Budget after COVID deferral 5999 Miscellaneous Capital Projects Finance/Public Works (3,197,490) (3,170,791) (2,846,895) (2,183,787) (1,588,348) Repayments resumed in FY2021-23 Budget after COVID deferral Subtotal Negative Funds with Repayment Schedules (44,759,051) (32,253,760) (34,247,848) (33,908,606) (37,398,507) Status of Negative Funds, FY 2016-17 to FY 2020-21 Attachment A
Fund
Fund Description
Assigned Agency / Dept
Audited
Fund Balance
FY 2016-17
Audited
Fund Balance
FY 2017-18
Audited
Fund Balance
FY 2018-19
Audited
Fund Balance
FY 2019-20
Audited
Fund Balance
FY 2020-21
Explanation of Negative Fund Balance
Reimbursable Negative Funds:
1610 Successor Redevelopment Agency Economic & Workforce Dev - (121,351) (128,475) (144,145) (142,385) Reimbursement anticipated from ORSA 1770 Telecommunications Land Use Information Technology (52,930) (253,765) - - - Negative balance cleared 1831 Central City East Project Ar Economic & Workforce Dev (718) - - - - Negative balance cleared 1882 Multi Service Center/Rent Economic & Workforce Dev - - - - (20,231) EWD staff to address. 1883 2000 Subordinated Housing Se Economic & Workforce Dev (129,312) (129,611) (129,810) (129,817) (129,321) Reimbursement anticipated from ORSA 2063 FEMA Declarations Public Works/Fire (614,330) (457,875) - (2,127,909) (1,082,979) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2102 Department of Agriculture Human Services (219,118) (29,924) (21,828) (367,837) (70,901) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2103 HUD-ESG/SHP/HOPWA Human Services (4,656,863) (1,805,546) (9,610,708) (5,655,382) (5,217,582) Historical negative balance (pre FY1999-2000) requires one-time offset of $3.9M. Remaining balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2105 HUD-EDI Grants Housing (608,582) (839,985) (824,974) (822,561) (819,412) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2107 HUD-108 Housing (1,863,969) (1,389,416) - - - Negative balance cleared 2108 HUD-CDBG Housing (1,124,875) (1,367,264) (1,341,128) (3,663,442) (6,691,844) Negative fund balance reflects excess expenditures charged to grant over multi- year period and requires one-time offset.
2109 HUD-Home Housing (782,942) - - - - Negative balance cleared 2111 2000 Local Law Enforcement B Police (80,249) (80,434) (80,558) (80,563) (80,254) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2112 Department of Justice Police (110,899) - (361,889) (414,151) (811,243) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2113 Department of Justice- COPS Human Services (1,864,312) (1,176,117) (1,400,907) (1,347,687) (1,519,456) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2116 Department of Transportation Public Works (3,118,186) (1,404,423) (4,118,089) (3,189,562) (1,992,634) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2120 Federal Action Agency Human Services (98,357) (24,998) - - (37,608) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2123 US Dept of Homeland Security Fire (10,468) (44,258) (351,037) (56,627) (36,678) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2124 Federal Emergency Management Housing (1,974,548) (267,908) (472,329) (1,405,105) (2,835,044) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2128 Dept. of Health and Human Services Human Services (1,843,286) (2,923,818) (3,240,714) (299,985) (6,874,352) Historical negative balance (pre-FY 2000) requires one-time offset; recurring negative balance is due to time lag between spending grant funds and receiving reimbursement from the grantor.
2129 Trade Corridor Improvement F Economic & Workforce Dev (1,397,196) (1,400,865) - - - Negative balance cleared 2134 California Parks and Recreation Public Works (1,848,212) - (327,656) (357,107) (70,719) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2140 California Department of Trans Public Works (1,760,959) - (68,132) (351,258) (464,009) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2144 California Housing and Community
Development
Housing/Human Services (1,604,310) - - (965,532) (696,081) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2152 California Board of Corrections Police - (3,307,037) (2,388,846) (2,251,341) (3,683,005) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2154 California Integrated Waste Management
Board
Public Works (98,303) (64,003) (70,350) (71,047) (138,875) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2162 Metro Transportation Com: TD Public Works (193,189) (27,514) - (9,044) (243,327) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2163 Metro Transportation Com: Program Grant Public Works (810,965) (291,802) (455,850) (336,840) (291,930) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2164 Congestion Mitigation & Air Public Works (91,680) (91,892) (92,033) (92,038) (91,686) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2166 Bay Area Air Quality Management
District
Public Works (433,384) - (61,239) (937,820) (410,671) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2190 Private Grants Various (482,691) (118,672) - - - Negative balance cleared 2214 ACTIA Reimbursable Grants Public Works (361,046) (865,292) (995,089) (1,629,688) (1,500,525) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
Status of Negative Funds, FY 2016-17 to FY 2020-21 Attachment A
Fund
Fund Description
Assigned Agency / Dept
Audited
Fund Balance
FY 2016-17
Audited
Fund Balance
FY 2017-18
Audited
Fund Balance
FY 2018-19
Audited
Fund Balance
FY 2019-20
Audited
Fund Balance
FY 2020-21
Explanation of Negative Fund Balance
2217 Measure BB - OAB Roadway Infrastructure Economic & Workforce Dev -
- (4,397,826) (4,370,446) (93,600) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2244 Measure Q - Parks & Recreation Parks & Recreation - - - (326,915) - Negative balance cleared 2251 Measure Y: Public Safety Act Finance - - - - (107,226) Shortfall results from accounting errors and will be addressed in FY22. 2260 Measure WW: East Bay Regional Parks
District Local Grant
Public Works (565,059) (547,787) (1,979,386) (867,751) (570,081) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2270 Vacant Property Tax Act Fund Finance - - (35,318) (417,902) - Negative balance cleared 2411 False Alarm Reduction Program Police (387,241) (1,315,781) (1,673,860) (2,310,775) (2,941,313) False Alarm program revenue is insufficient to cover expenses. 2416 Traffic Safety Fund Transportation - - (28,228) (195,292) - Negative balance cleared 2418 Traffic Impact Program (TIP) Public Works (118,830) (119,018) (119,147) (119,152) (118,830) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2419 Measure C: Transient Occupancy Tax
(TOT) Surcharge
Non-departmental - - - (159,607) - Negative balance cleared 2605 Dept of Health & Human Services Human Services (129) (117) (99) (85) - Negative balance cleared 2613 Port Security Grant Program Fire (51,094) (51,094) (51,094) (51,094) (51,094) Negative fund balance is due to lag time between spending grant funds and receiving reimbursement from the grantor.
2990 Public Works Grants Public Works (916,631) (710,719) (993,915) (1,279,779) (1,358,837) PWA are pursuing options to recover funds from grantor. $0.7 million reflects historical negative balances and may require one-time offset. 5008 Emergency Response: GOB Series 1992 Public Works (158,097) (160,439) (164,080) - - Negative balance cleared 5200 JPFA Capital Projects: Series 2005 Economic & Workforce Dev - - - (103,004) (102,214) EWD staff to address. 5320 Measure DD: 2003A Clean Water, Public Works (78,038) (77,644) (71,252) (8,346) - Negative balance cleared 5660 West Oakland Projects Economic & Workforce Dev (1,398,883) (1,419,623) (1,451,867) (1,477,023) (1,475,557) EWD staff to address. 5642 Central City East TA Bonds Series 2006A-
TE
Economic & Workforce Dev - - - (18,743) (18,665) EWD staff will move balance to positive funds in FY22.to address. 5653 Coliseum: TA Bonds Series 2003 Economic & Workforce Dev - - - (38,572) (105,235) EWD staff will move balance to positive funds in FY22.to address. 5655 Coliseum: TA Bonds Series 2006B-TE Economic & Workforce Dev - - - (49,789) (49,617) EWD staff will move balance to positive funds in FY22.to address. 5670 Oakland Base Reuse Authority Economic & Workforce Dev - (202,893) (297,039) (335,685) (267,135) EWD staff to address. 6570 JPFA Pooled Assessment: 1996 Revenue
Bonds
Non-Departmental (95,503) (97,357) (99,567) (101,292) (101,191) Fund balance was expected to be covered by assessments but plan must be re- examined in light of recurring negative balance
6612 JPFA Lease Revenue Refunding Non-Departmental (3,132) (3,867) (8) - - Negative balance cleared 7130 Employee Deferred Compensati Human Resources (215,575) (72,557) (5,317) (32,259) - Negative balance cleared 7450 Affordable Housing Housing - (1,043,836) (848,434) (853,229) - Negative balance cleared 7760 Grant Clearing Finance - - - (639,029) (2,953,830) Negative balance reflects overhead expenses in excess of overhead charged to projects, and results from higher vacancies than anticipated; may require one-time offset.
7780 Oakland Redevelopment Agency Projects ORSA (24,798) (25,044) (32) - - Negative balance cleared Subtotal Reimbursable Negative Funds (32,248,888) (24,331,549) (38,758,109) (39,041,294) (44,954,370) Status of Negative Funds, FY 2016-17 to FY 2020-21 Attachment A
Fund
Fund Description
Assigned Agency / Dept
Audited
Fund Balance
FY 2016-17
Audited
Fund Balance
FY 2017-18
Audited
Fund Balance
FY 2018-19
Audited
Fund Balance
FY 2019-20
Audited
Fund Balance
FY 2020-21
Explanation of Negative Fund Balance
Negative Funds without Repayment Plan:
3200 Golf Course* Parks & Recreation - (226,228) (321,447) (810,018) (1,206,423) Revenues are insufficient to cover operating costs Subtotal Non-Reimbursable Negative Funds - (226,228) (321,447) (810,018) (1,206,423)
Total Negative Funds (77,007,939) (56,811,537) (73,327,404) (73,759,918) (83,559,300)
Notes:
Closed funds, funds with no negative balances for five years, and funds with negative balances below $5,000 are not displayed but are included in the totals shown above. * Negative balance reported on cash basis for funds subject to full accrual accounting.