Attachment C
Attachment C – Page 1 of 7
Preliminary FY 2024 2nd Quarter Financial Status
General Fund
Overall, the General Fund is tracking closely to adopted estimated revenues and at or below adopted expenses. Actual total revenue increased slightly compared to the same period in fiscal year 2023. Though data continues to be uncertain as 2nd Quarter data will not be finalized until March 2024, staff believe recommended adjustments are measured and align more closely with the current financial outlook.
Revenues
The FY 2024 Adopted revenue budget totals $237.1 million (excluding Operating Transfers‐in), of which $93.3 million or 38.4% of the budget, has been collected as of the end of the 2nd quarter. Overall, tax revenue estimates in the FY 2024 Adopted budget are $ 10 million higher than the FY 2023 Adjusted revenue, from approximately $141 million to $151 million.
Adjustments to align revenue with estimates included in the FY 2025‐2034 Long Range Financial Forecast are recommended in this Mid‐Year Budget Report, including adjustments for Sales Tax ($1.6 million increase), Utility Users Tax (UUT) ($1.2 million increase), Investment Earnings ($1.1 million increase), and Property Tax ($0.8 million increase), partially offset by Transient Occupancy Tax (TOT) ($1.3 million decrease) and Documentary Transfer Tax (DTT) ($0.1 million decrease) based on trends experienced in the first half of FY 2024.
Table 2 below outlines General Fund revenue performance, as of the end of the 2 nd quarter,
compared to the adjusted budget. The adjusted budget does not assume staff’s recommended adjustments presented in this Mid‐Year report.
Table 2
Revenues Inc / (Dec) % change FY 2024 % FY 2023 %
Property Tax $929 4.8% $63,785 32.0% $59,770 32.6%
Sales Tax 1,041 8.9% 36,272 35.1% 32,580 35.8% Charges for Services (792) ‐ 5.2% 35,131 40.7% 30,786 49.1% Transient Occupancy Tax 670 6.8% 26,834 39.1% 18,199 53.9% Utility User Tax 539 6.7% 18,457 46.3% 15,579 51.4% Permits and Licenses 2,087 66.9% 10,256 50.8% 9,794 31.9% Documentary Transfer Tax 327 13.3% 5,920 47.1% 7,217 34.1% Business Tax ‐ ‐ ‐ 1,660 0.0% ‐ 0.0% All Other Revenue Sources (2,267) ‐ 10.7% 44,856 42.2% 41,851 50.7%
Total Revenue 2,534 2.8% $243,171 38.4% $215,776 42.1% General Fund Revenue
FY 2024 2nd Quarter YTD
(000's)
2nd Quarter Actuals Adjusted Budget
FY 2024 FY 2023
$20,428 $19,499
12,715 11,674
14,313 15,105
10,479 9,809
8,550 8,011
$93,421 $90,887
5,208 3,121
2,791 2,464
18,937 21,204
‐
Attachment C
Attachment C – Page 2 of 7
Property Tax
The FY 2024 Adopted Budget is $63.8 million, a $0.7 million or 1.1% increase from the FY 2023 actual receipts of $63.1 million. Transfer of ownership has been a significant driver of growth; however, this growth is expected to moderate due to economic slowdown and higher mortgage interest rates. For example, the median sales price for a single‐family residential home in the 1st quarter declined by 3% compared to the previous quarter. Staff recommends a modest $0.8 million increase in this Mid‐Year report.
As of the end of FY 2023, the reserve for Excess Education Revenue Augmentation Fund (ERAF), representing the at‐risk amount related to the State Controller’s Office auditing finding on Marin County, totaled $4.1 million. As of December 2023, the State Controller’s Office has issued a negative audit finding against Marin County. The state’s assertion is former Redevelopment Agency funds, which are now part of the regular property taxes, should be excluded from the excess ERAF calculation. Marin County is challenging this finding and in late‐ December 2023, the County of Santa Clara filed a lawsuit against the State Controller’s Office on this. The estimate is, if this audit finding is sustained, 22% of excess ERAF is at risk for fiscal years 2021, 2022, 2023 and 2024. If the finding holds, the County of Santa Clara, as well as other Excess ERAF counties, could face similar audit findings likely starting in FY 2025. This reserve is consistent with prior year methodology of assumptions for this challenge.
Sales Tax
The FY 2024 Adopted Budget is $36.3 million, a slight decrease of 1.6% compared to the actual Sales Tax receipts of $36.9 million in FY Sale Tax for the first four months of FY 2024 is 8.9% higher than the same period of the prior year. During this period, inflation is still elevated but declining and consumer spending has remained steady. The expectation is that consumer spending growth will slow down but remain strong, so Sales Tax is anticipated to generate more than the conservatively budgeted amount in FY 2024. Staff recommends increasing the budget by $1.6 million in this report.
Transient Occupancy Tax (TOT)
The FY 2024 Adopted Budget assumed an estimate of $26.8 million, a 5.1% increase from FY 2023 actual receipts of $25.5 million and slightly lower than the pre‐pandemic actuals of $25.7 million in FY 2019. TOT economic performance for the first five months of FY 2024 is 5.9% higher than the same period of the prior year. Table 2 shows a 6.8% increase in TOT; however, the primary driver of this increase is payment timing difference and does not reflect economic performance. For the 2nd quarter, the average occupancy rate is 69.3% (prior year it was 73.2%) and the average room rate is $246 (prior year it was $266). TOT revenue remained stagnant in the 1st quarter, then experienced double digit growth in the first two months of the 2nd quarter.
Staff continues to monitor trends and conservatively estimates that TOT levels will remain flat compared to FY 2023 actuals. Staff recommends a $1.3 million decrease to TOT revenue and a corresponding reduction of $0.3 million to the transfer to the Capital Fund for funding allocated for capital improvements.
Attachment C
Attachment C – Page 3 of 7
Utility User Tax (UUT)
The FY 2024 Adopted Budget assumed an estimate of $18.5 million, slightly lower than the $18.8 million FY 2023 actual receipts. Actual UUT receipts in FY 2023 were above year end estimated levels, due to commodity price increases which resulted in higher UUT revenue. As a result, this trend continues in FY 2024 as 2nd quarter UUT revenue totals $8.6 million, or 46.3% of the FY 2024 adjusted budget. Staff recommends increasing the budget by $1.2 million in this report as a result of higher utility revenues.
Permits and Licenses
The FY 2024 Adopted Budget assumed an estimate of $10.7 million, slightly higher than the $9.8 million FY 2023 Adjusted Budget. Cash receipts as of 2nd quarter total $5.2 million, or 50.8% of the FY 2024 adjusted budget and is $2.1 million, or 66.9%, higher compared to FY 2022 2nd quarter revenue. The increased revenue levels for FY 2024 is driven by new construction and permit activity.
Documentary Transfer Tax
The FY 2024 Adopted Budget is $5.9 million, an assumed decline of 18% from the FY 2023 Adjusted budgeted of $7.2 million. Cash receipts as of 2nd quarter total $2.8 million, or 47.1% of the FY 2024 adjusted budget and is $0.3 million, or 13.3% higher compared to FY 2023 2nd quarter revenue due to the higher total property sales value. This revenue source is highly unpredictable, as it is dependent on the value of properties being sold. Staff continues to monitor these receipts closely due to significant fluctuations that can occur anytime depending on the real estate sales activity. The budgeted amount of $5.9 million is 2.9% higher than the actual receipts of the prior year and expected to be realized. Staff recommends decreasing the budget by $0.1 million in this report.
Business Tax
The FY 2024 Adopted Budget includes $2.4 million for Business Tax revenue across all funds and as of the 2nd quarter, revenue collected totals $0.5 million. The first due date for the tax is January 1st for the 2023 calendar year, with February 1st being the date that penalties and interest will begin. In January 2024, an additional $0.5 million was collected. Staff will continue to monitor collections and expect to begin compliance and enforcement activities in February 2024, before assessment and collection of the first quarter of calendar year 2024 begins. A small increase of $41,000 in business tax revenue is recommended in this report to align with increased contractual administration costs for business tax and business registry.
A technical correction is also recommended in this report to consolidate all business tax revenue in the General Fund. As part of the FY 2024 Adopted Budget $0.8 million in business tax revenue was budgeted in the Capital Improvement Fund to support transportation capital projects. This report will move the budget for this $0.8 million to the General Fund and establish a transfer of $0.8 million to the Capital Improvement program to maintain the Attachment C
Attachment C – Page 4 of 7
allocation of the funding in alignment with the Council's adopted Advisory Spending Resolution to fund transportation and grade separation projects.
Charges for Services & Permits and Licenses
The FY 2024 Adopted Budget assumed an estimate of $34.6 million in Charges for Services, a $4.0 million, or 13.1% increase, compared to the FY 2023 Adjusted Budget. The FY 2024 Adopted Budget assumed an estimate of $10.7 million in permit and license revenue, a $0.9 million or 9.2% increase compared to the FY 2023 Adjusted Budget. Together, these revenue categories make up nearly half of all non‐tax revenues. In total, $42.5 million was received during FY 2023, above the revised budget estimates by $2.0 million. These revenue categories consist of charges to Stanford for fire services and paramedic services, fees related to the City’s golf course, arts and science classes, plan check fees, Building Permits, Fire Permits, and miscellaneous health and safety‐related licenses. Several minor adjustments to revenue in Charges for Service are recommended in this report and discussed below; however, overall revenues in these categories are in line with activity levels anticipated thus far.
Community Services (CSD): The demand for CSD programming remains at elevated levels. Total departmental revenue through the end of the second quarter is approximately $6.1 million or 47% of the FY 2024 total budgeted revenue. At this same time last year, CSD’s total revenue was tracking at 46% of FY 2023 budgeted revenue levels through the second quarter. CSD is recommending adjustments to an Art Center program with high demand. Due to the popularity of art classes, the Kids and Teens Studio Program has requested $50,000 in additional contract dollars to help meet demand with an offset of $50,000 of increased revenue from class fees to remain cost‐ neutral.
Golf Course: Golf revenue continues to perform well in the first and second quarters of FY 2024 and slightly higher by 2% from this time last year. This could be attributed to better weather than FY23, which experienced several weeks of heavy rains which deterred play both at the course and the driving range. Revenue guidance is recommended to remain at its current budgeted level due to the unpredictability of winter storms in the coming months. The proposed FY 2025 budget will reassess golf revenue and expenditures based on additional information from third‐quarter results. In addition, the division is working on a feasibility study of adding a second story to the driving range with additional potential revenue as an element of the study. Projections will be included as a part of future revenue estimates if that potential project moves forward.
Junior Museum & Zoo (JMZ): Through the first two quarters of FY 2024, revenue is roughly at 40% of budgeted levels (approximately $0.7 million in actual revenue vs. $1.6 million in budgeted revenue). Memberships remain the best‐performing revenue Attachment C
Attachment C – Page 5 of 7
category (41% of FY 2024 target), while facilities rentals are the lowest performing (5% of FY 24 target), reflecting similar trends as the prior year.
Staff is working with a consultant on a comprehensive operational analysis of the Palo Alto Junior Museum and Zoo. The consultant is preparing a business plan to inform ongoing operational and budgetary decisions. The study will examine financial, operational, and programmatic status and make recommendations for future operations to include ticket and membership prices, and how pricing will impact consumer demand. Once the study is completed, staff will review the results and present recommendations for financial and operational efficiencies to Council. In addition, Staff is currently working with purchasing for a new reservation and ticketing platform for the JMZ. Staff expects to implement the new system in 2024.
Development Services: Preliminary FY 2024 Development Services revenue is up 3.1% compared to last year and is currently at 43.8% of the FY 2024 revenue target. This is mainly driven by increased single family residential permit activity. Department‐ managed expenses are currently under or on pace to meet the budget. The table below articulates Development Services revenues from January 2021 through December 2023.
Table 3: Development Services Revenue – 2021 through 2023
Attachment C
Attachment C – Page 6 of 7
Expenditures
Overall General Fund expenses are currently expected to remain within the FY 2024 Adjusted budget levels of $284.3 million (not including transfers to infrastructure or other funds).
General Fund expenses (excluding operating transfers) for second quarter are 17.4% higher than the prior year and are tracking at 39.0% of the Adjusted Budget (excluding encumbrances); this trend is consistent with prior year expenditure levels.
Table 4
Salaries and Benefits
As a service driven organization, the largest expenses are salaries and benefits. Preliminary salary and benefits expenditures through December 2023 are approximately $81.7 million, or 49% of the $166.9 million FY 2024 Adopted Budget, compared to $71.3 million in the same period in the prior year. The City continues to maintain vacancies of approximately 74 positions; though this changes frequently, this reflects approximately a 13% vacancy rate.
Vacancy levels impact service capacity; however, departments use vacancy savings to mitigate these impacts through other staffing strategies such as filling staffing gaps by contracting for professional services, hiring ahead to allow overlap and smooth transitions, piloting new technologies to increase efficiency in the absence of staff, and supporting a summer internship program.
Expenditures FY 2024 FY 2023 Inc/(Dec) % change FY 2024 % FY 2023 % Police 26,032 $ 23,934$ 2,098$ 8.8% 52,241$ 49.8% 47,723$ 50.2% Fire 23,925 20,420 3,505 17.2% 47,464 50.4% 41,479 49.2% Community Services 17,976 13,379 4,597 34.4% 40,356 44.5% 34,690 38.6% Public Works 9,761 9,264 497 5.4% 25,763 37.9% 22,764 40.7% Planning and Development Services 10,938 8,916 2,022 22.7% 33,049 33.1% 26,426 33.7% Library 5,289 4,272 1,017 23.8% 12,599 42.0% 10,524 40.6% Administrative Services 4,971 4,705 266 5.7% 11,250 44.2% 10,107 46.6% All Other Departments 12,022 9,609 2,413 25.1% 61,530 19.5% 54,672 17.6%
Total Expenditures 110,914 $ 94,499$ 16,415$ 17.4% 284,252$ 39.0% 248,385$ 38.0% General Fund Expenditures
FY 2024 2nd Quarter YTD
(000's)
2nd Quarter Actuals Adjusted Budget
Attachment C
Attachment C – Page 7 of 7
Public Safety Overtime
Table 5
As shown in Table 5 above, Police Department overtime is trending higher compared to FY 2023 due to a number of factors including backfilling shifts due to vacancies; benefited leave or industrial injuries; and five recruits in training, either in house or at the police academy. As of the end of the 2nd quarter, 12% of positions are vacant, another 7% of staff are unavailable to work due to benefited leave or industrial injury, and 5% of filled positions have new staff in training (in‐house or at the police academy). The Department is anticipating overtime to continue trending over FY 2024 budget levels, with a leveling off if the hiring cycle continues to stay ahead of departures. See Attachment D For more information on vacancy and overtime staffing.
Fire Department overtime expenses are tracking higher compared to FY 2023 due to backfilling entry level firefighters while completing the Joint Fire Academy and continued vacancies. In the spring of 2023, the Department hired a total of 13 entry level firefighters which accounts for 16% of all on‐shift personnel positions. Although the positions are filled, those 13 recruits must complete a 6‐month academy before being able to work on shift. In August 2023, the 13 entry level firefighters graduated from the academy and are now working on shift.
The Department continues to struggle to fill vacancies; as of writing of this report, the Department is still carrying 13 vacancies among the International Association of Fire Fighters (IAFF) ranks. The overtime hours will remain high as backfill is required to maintain daily operations with a high vacancy rate.
Police and Fire
Salaries and Overtime Expense
FY 2024 2nd Quarter YTD
(000's)
FY 2024 FY 2023 % change FY 2024 % FY 2023 %
Inc (Dec)
Police ‐ Salaries 9,110 $ 8,659$ 5.2% 21,577$ 42% 19,186$ 45.1% Police ‐ Overtime 1,687 1,509 11.8% 1,029 164% 973 155.1% Total Police 10,797 10,168 6.2% 22,606 48% 20,159 50.4% Fire ‐ Salaries 8,413 7,450 12.9% 18,417 46% 15,291 48.7% Fire ‐ Overtime 2,050 1,799 13.9% 2,146 95% 3,801 47.3% Total Fire 10,462 9,249 13.1% 20,564 51% 19,092 48.4% Total Public Safety
Salaries & Overtime 21,259$ 19,418$ 9.5% 43,169$ 49% 39,251$ 49.5% 2nd Quarter YTD Actuals Adjusted Budget