Exhibit A
CITY OF PATTERSON
Mid-Year Budget Review Report
Fiscal Year 2022-23
OVERVIEW
The City Council approved the Fiscal Year 2022-23 Adopted Budget on June 21, 2022. The MidYear Budget Status Report provides a tool for the City of Patterson (City) to monitor its finances, including the progress of the City’s economic recovery. This report provides an update of the City’s budgetary position at approximately midway in the fiscal year.
At mid-year, the Fiscal Year 2022-23 estimated General Fund revenues are $24.1 million, $6 million lower than budgeted. However, Expenditures are estimated at $23.6 million, $5.8 million below the Adjusted Budget (The Adjusted Budget includes staff’s mid-year recommended adjustments). The General Fund is currently estimated to end the fiscal year with a balance of $21.2 million, just slightly higher than the $21.1 million Adjusted Budget.
The major components to this report include the following:
I. Economic Update
An economic update on National, State, and local trends provides context to the Fiscal Year 2022-23 Mid-Year Budget Status Report.
II. Fiscal Year 2022-23 Mid-Year Budget Status Summary
This section of the report provides an estimated Fiscal Year 2022-23 operating results based on current revenue and expenditure trends for the fiscal year.
III. Proposed Mid-Year Budget Amendments
This section of the report includes proposed mid-year budget amendments, including amendments for newly approved labor agreements, for Fiscal Year 2022-23. 2 BACKGROUND AND ANALYSIS
I. ECONOMIC UPDATE
The economic conditions discussed below help inform the Fiscal Year 2022-23 Mid-Year Budget Status Report.
National
Inflation has been a major driver in the economy over the past year. As the national economy continues to recover from the COVID-19 pandemic, the Federal Reserve’s primary focus has been to rein in inflation. Inflation has been driven by factors related to initial government spending during the beginning of the pandemic, including stimulus checks, along with low interest rates helping to increase demand. At the same time, supply was being reduced in anticipation of slowing demand, and supply chain issues also reduced the supply of goods.
During the pandemic and recovery there has been a major shift in employment and priorities leading to a strong jobs market. Job creation remains strong and the unemployment rate at
3.4% is the lowest it has been in over 50 years. This has also placed upward pressures on pricing.
On top of the supply and demand imbalance and the increase in labor costs, the Invasion of Ukraine by Russia has contributed to the rise in inflation. Oil prices soared as countries attempted to find other sources of oil and lower their dependence on Russian oil. In addition, to millions of people being displaced, there has been a major impact to the global food supply, including wheat and corn. These factors are contributing to inflation. As shown in the chart below, annual inflation hit a peak of 9.1% in June 2022 and has declined to 6.5% in December 2022.
3 Source: U.S. Labor Department
In response to the high inflation rates experienced in the national economy, the Federal Open Market Committee (FOMC) has raised the Federal funds rate nine times since March 2022 to slow down inflation. The FOMC raised interest rates by 4.25% in 2022 alone, the most in a single year since the 1980s. These increases have helped curb inflation, but more increases are still on the horizon to reduce inflation to the target rate of 2%.
State
In January 2023, Governor Gavin Newsom released his Fiscal Year 2023-24 Proposed Budget, which projects a $22.5 billion shortfall. Because the State Constitution requires the budget to be balanced, the Governor has proposed a combination of solutions to address the budget shortfall, including delays or reductions in previously planned spending and cost shifts, but not the use of the State’s substantial reserves, which are projected to total $35.6 billion as of June 30, 2024.
According to the Legislative Analyst’s Office (LAO) of the State of California, the Governor’s emphasis on spending solutions, rather than the use of reserves to address the budget problem, is prudent. The LAO believes there is a higher probability for revenues to come in lower than the administration’s projections for Fiscal Years 2022-23 and 2023-24 and recommends the Legislature plan for a larger budget gap. In response to the larger-thanexpected budget gap, the LAO recommends the Legislature should identify more spending reductions, including reductions to one-time and temporary spending.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Annual Inflation Rates
4 The State’s budget shortfalls could have potential impacts to city revenues, particularly in the form of Grants.
Local
The local economy continues to experience a rebound from the COVID-19 pandemic. Patterson benefits from a more diverse revenue structure including Measure L, the ½ cents transaction and use tax over 25 years, SB1 revenue and new businesses such as the Loves Travel Center, Valero Gas Station, Grocery Outlet, and others. New businesses that will be coming to Patterson include a new 1,000,000 sf industrial Warehouse, a 120,000-sf furniture manufacturing company and Dutch Bros Coffee. A new truck maintenance facility was recently added to the Loves Travel Center and the 700,000-sf building in the Keystone Business Park is completed. The Villages of Patterson project has sold approximately 400 homes to date.
II. FISCAL YEAR 2022-23 MID-YEAR BUDGET STATUS SUMMARY
The Mid-Year Budget Status Report represents staff’s best estimate of the City’s budgetary position at this point in time, approximately midway through the fiscal year, and making certain assumptions regarding revenues and expenditures for the remainder of the fiscal year. This section of the report includes a discussion of Fiscal Year 2022-23 revenue and expenditure estimates compared to budget for major funds.
5 A comparison of mid-year estimated amounts to budget for the General Fund follows (dollars in thousands):
2022-23
Adopted
Budget
2022-23
Adjusted
2022-23
Estimated
Variance of
Estimated
to Adjusted
Revenues
Taxes
Property
Sales
Other
Licenses and Permits
Charges for Services
Intergovernmental
Miscellaneous
Total Revenues
$ 6,926
13,081
462
1,994
530
6,507
399
29,899
$ 6,926
13,081
462
1,994
530
6,507
699
30,199
7,097
12,944
632
894
299
1,209
1,040
24,115
172
(137)
170
(1,100)
(231)
(5,299)
341
(6,084)
Expenditures
Salaries and Benefits
Maintenance & Operations
Capital Outlay
Debt Service
Total Expenditures
(12,472)
(12,007)
(3,254)
(209)
(27,942)
(13,282)
(12,340)
(3,614)
(209)
(29,445)
(11,844)
(9,580)
(2003)
(209)
(23,636)
1,438
2,760
1,612
-0-
5,810
Revenues Over
(Under) Expenditures
Issuance of bonds
Transfers In
Transfers Out
Change in Balance
(1,957)
-0-
4,275
(2,339)
3,893
754
-0-
4,275
(2,339)
2,689
(479)
-0-
3,116
(780)
2,815
(274)
-0-
(1,159)
1,559
126
Beginning Balance 18,426 18,426 18,426 -0-
Ending Balance $22,319 $21,115 $21,241 $126
_______________________________
Adjusted Budget includes staff Mid-year Budget recommendations pending approval by the City Council.
Miscellaneous Revenues includes Fines and Forfeitures, Investment Earnings and Other Miscellaneous Revenues 6 General Fund
Revenues
The chart below is a comparison of the Fiscal Year 2021-22 Audited and Fiscal Year 2022-23 Adopted and Estimated for General Fund major revenue categories. _______________________________
Other Taxes include Franchise Fees and Transient Occupancy Taxes; Miscellaneous includes Fines and Forfeitures, Investment Earnings and other Miscellaneous Revenues.
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
General Fund Revenues
FY 21-22 Audited FY 22-23 Adopted FY 22-23 Estimated
7 Estimated results of the major revenue categories, Property Taxes and Sales Tax are trending higher than budget. A detailed discussion of major revenue categories is as follows:
Taxes represent the major sources of revenue for the City including property taxes, sales taxes and other local taxes.
Property Taxes is estimated at $7.1 million, higher than the budget by $171,581 or 2.5%. The Fiscal Year 2022-23 Adopted Budget included projected growth based on a positive 2.0% CCPI applied to most properties plus increased values related to changes in ownership and new development.
Sales Tax revenue is currently estimated at $12.9 million, $137,229 lower than the original budget. However, the estimate is higher than last year’s actuals of $12.3 million primarily due to new businesses continuing to choose Patterson to locate, including Loves Travel Center, Dutch Bros. Coffee, Grocery Outlet and others.
Other Local Taxes represent Franchise Fees and Transient Occupancy Taxes and is estimated higher than budgeted by $170,000.
Licenses and Permit is estimated at $894,00 or $1.1 million lower than budget. This is primarily due to the Cannabis program not realizing the revenues projected.
Charges for Services revenue is estimated at $299,000, which is $231,000 less than budgeted primarily due to lower than budgeted revenues in COPS AB 3229 and Fire Permits.
Intergovernmental revenue is estimated at $1.2 million, $5.3 million less than budgeted as grants for Urban Greening, Prop 68, Safer, SJVAPCD and FEMA have not yet been received. In the future grants will be budgeted only after the grants are awarded to the City, rather than budgeting funds not yet committed to the City.
Miscellaneous Revenues include Fines & Forfeitures, Investment Earnings and other miscellaneous revenues. Miscellaneous Revenues are estimated at $1.0 million, $341,000 higher than the Adjusted Budget, primarily due to a payment from the Speno and Patterson Hotel Association and higher than budgeted Salary Reimbursements.
Expenditures
The underspending of expenditures, or budget savings, are expected each fiscal due to vacant positions and not expenditures are incurred during the fiscal year. Total estimated expenditures are $23.6 million, $5.8 million less than the Adjusted Budget. 8 A brief explanation of the assumptions and changes in expenditures follows:
Salaries and Benefits expenditures are estimated at $11.8, $1.4 million or 10.8% below the adjusted budget. Savings in Salaries and Benefits are expected as not all positions are filled for the entire fiscal year. The Adjusted Budget and Estimated includes the projected expenditures for salary and benefit increases for all labor groups related to the recently approved agreements and an estimate for the remaining Fire group that is still pending.
Maintenance & Operations expenditures are estimated at $9.5 million, $2.7 million below the Adjusted Budget. The variance is primarily the result of the normal underspending of expenditures.
Capital Outlay expenditures are estimated at $2 million, $1.6 million lower than the Adjusted Budget. Many Capital Outlay expenditures have been delayed, including improvements to Centennial Park, Aquatic Center, Hammon Senior Center, Sports Park, North and South parks are in progress, but many of the funds will need to be carried forward into the new fiscal year to complete these projects.
Interfund Transfers In are estimated at $3.1 million, $1.2 million lower than budgeted. This is primarily due to a variety of transfers that are calculated based on expenditures, where expenditures were lower than budgeted.
Interfund Transfers Out are estimated at $780,000, $1.6 million less than budgeted. This is related to the $1.6 million to fund projects to be reimbursed by Grants that have not been received.
Debt Service is estimated at $209,000, the same as budgeted.
Patterson Public Financing Authority (Funds 205 and 252) The Patterson Public Financing Authority (“PPFA”) was formed in 2001 pursuant to a joint exercise of powers agreement between the City of Patterson and the former Redevelopment Agency of the City of Patterson. The Authority is authorized to borrow money for the purpose of financing the acquisition of bonds, notes, and other obligations of, or for the purpose of making loans to, public entities, including the City and to provide financing for public capital improvements for lease to public entities, including the City. The members of the City Council also sit as the Board of Directors of the Authority. 9 A comparison of mid-year estimated amounts to budget for Patterson Public Financing Authority follows (dollars in thousands):
2022-23
Adopted
Budget
2022-23
Adjusted
Budget
2022-23
Estimated
Variance of
Estimated to
Adjusted
Budget
Revenues $3,535 $3,535 $3,669 $ 134
Debt Service (6,304) (6,505) (6,505) -0-
Revenues Over
(Under) Expenditures (2,769) (2,970) (2,836) 134
Transfer In
Transfer Out
523
(1,000)
523
(1,000)
523
(1,000)
0 0
Change in Balance (3,246) (3,247) (3,313) 134
Beginning Balance 60,662 60,662 60,662 -0-
Ending Balance $57,416 $57,215 $57,349 $134
________________________________________________________ 1Adjusted Budget includes staff Mid-year Budget recommendations pending approval by City Council.
Revenues are estimated at $3.7 million, $134,000 higher than budgeted. Debt Service is estimated at $6.5 million, $201,000 higher than the Adopted Budget. This is the result of bond calls made at the time of the debt service payment. Bond calls are paid for from prepayments received from the property owners. The amount budgeted is insufficient because the budget did not include any estimated bond calls, therefore, staff is recommending an additional $201,000 appropriation to match the actual debt service requirements. The additional budget of $201,000 is included in the Adjusted Budget.
Enterprise Utility Funds
The City’s three enterprise utility funds (Water, Sewer, and Garbage) are funded by the rates charged to customers. A rate study for each of the utilities is performed every 5 years, with rates modifications developed for the 5-year period. The rates are designed to comply with Article 13D of the California Constitution and to a) recover the City’s cost of providing water, sewer or garbage services, and b) allocate costs in proportion to the cost for serving each customer class.
Water Fund
This fund accounts for all financial transactions relating to the City's water service. Services are on a user charge basis to residents and business owners in Patterson. The city owns and operates its own water system and provides service to approximately 7,000 customers. 10 Groundwater wells are the City’s sole source of water supply. The city operates nine wells and three water storage facilities. The city continues to invest in expanding its water infrastructure to meet the demands of rapid population growth.
A comparison of mid-year estimated amounts to budget for the Water Fund follows (dollars in thousands):
2022-23
Adopted
Budget
2022-23
Adjusted
Budget
2022-23
Estimated
Variance of
Estimated to
Adjusted
Budget
Charges for Services
Other Revenues
Total Revenues
$ 7,441
182
7,623
$ 7,441
182
7,623
$ 7,131
566
7,697
$ (310)
384
74 Expenditures (4,350) (4,755) (3,911) 834
Operating Balance 3,273 2,868 3,776 908
Debt Service (849) (849) (849) -0-
Capital Projects
Capital Contribution
Transfers In
(10,757)
1,930
963
(10,757)
1,930
963
(5,428)
1,930
911
5,329
-0-
(52)
Transfers Out (2,809) (2,809) (2,496) 313
Changes in Balance (8,249) (8,654) (2,156) 6,498
Beginning Balance 25,133 25,133 25,133 -0-
Ending Balance $16,884 $16,479 $22,977 $6,498
_________________________________________________________ 1Adjusted Budget includes staff Mid-year Budget recommendations pending approval by City Council.
Water rates were increased 11% each year from 2018-2022. The combination of incremental rate increases and prudent fiscal management has allowed the City to cover expenditures and build fund reserves.
The latest water rate study was completed in 2022 and recommended overall rate increases of
2.0% each year over the next five years. Rate increases are proposed to be effective January 1 of each year. In the rate study, a survey was conducted comparing the typical water bills of regional agencies. Based on the survey performed, Patterson’s typical monthly residential water bill is in the middle range in the region.
There are two outstanding bond issues, Water Revenue Bonds, Series 2019A and 2019B. There is also a State Revolving Fund Loan for the water meter retrofit program outstanding.
Total revenues are estimated at $7.7 million, slightly higher than budgeted. Water Service Charge Revenues are estimated lower than budget, primarily due to a wet winter. Other 11 Revenues are higher than budget due to higher Late and Credit Card Fees received. The Water Fund collects these fees and reallocates the fees to the other utilities at year end.
Operating expenditures are estimated at $3.9 million, $834,000 (17.5%) below the Adjusted Budget. The underspending of expenditures is normal and expected as not all positions are filled for the entire fiscal year and not all budgeted expenditures are spent.
Capital Project Outlay is less than the budget as not all projects are completed. The Other Financing Source of $1.9 million is for a State Revolving Fund Loan for the Water Meter Replacement Project. As the project has expended the $1.9 million, it is estimated the full loan will be drawn by year end. The Water Fund is estimated to have an ending balance of $22.9 million, $6.5 million higher than the Adjusted Budget of $16.5 million.
Sewer Fund
This fund accounts for all financial transactions relating to the City's wastewater collection and treatment. The city provides wastewater service to approximately 6,700 customers, on a user charge basis. The majority are single family residents, and approximately 542 customers in Diablo Grande. The city owns, operates and maintains its own wastewater system which includes a treatment plant, three lift stations, and a collection system. 12 A comparison of mid-year estimated amounts to budget for the Sewer Fund follows (dollars in thousands):
2022-23
Adopted
Budget
2022-23
Adjusted
Budget
2022-23
Estimated
Variance of
Estimated to
Adjusted
Budget
Charges for Services
Other Revenues
Total Revenues
$ 5,304
131
5,435
$ 5,304
131
5,435
$ 5,238
42 5,280
$ (66)
(89)
(155)
Expenditures (4,145) (5,083) (4,847) 236
Operating Balance 1,290 352 433 81
Debt Service (611) (611) (611) -0-
Capital Projects
Other Financing Sources
Transfers In
(13,798)
2,000
10,149
(13,798)
2,000
10,149
(4,810)
1,244
3,152
8,988
(756)
(6,997)
Transfers Out (731) (731) (369) 362
Changes in Balance (1,701) (2,639) (961) (1,678)
Beginning Balance 18,373 18,373 18,373 -0-
Ending Balance $16,672 $15,734 $17,412 $(1,678)
___________________________________
1Adjusted Budget includes staff Mid-year Budget recommendations pending approval by City Council.
The 2020 Sewer Rate study proposed rate increases of 6% each year. The first increase was effective January 1, 2022, subsequent rates are effective each July 1 through July 1, 2025.
The Sewer Fund accounts for five outstanding debt issues and an additional CWSFR loan.
Total revenues are estimated at $5.3 million, $155,000 (2.9%) lower than the budget. Charges for services are essentially as budgeted and may be slightly lower due to some commercial sewer is tied to water usage and there was less water usage due to a wet winter. Other Revenues are below budget due to late fees to be allocated and solar rebate revenues not received.
Estimated operating expenditures of $4.8 million are trending $236,000 (4.6%) below budget.
This is primarily due to the normal underspending of the budget and vacant positions during the fiscal year. Capital Outlay is less than budget as projects continue to progress, and correspondingly Interfund Transfers In are less than budgeted. Other Financing Sources of $2.0 million represent the State Revolving Fund Loan for the WQCF Administration Building Project.
The project is not yet completed so the estimated loan to be received is lower than budgeted. 13 The fund is estimated with an ending balance of $17.4 million, $1.7 million higher than the Adjusted Budget.
Garbage Fund
This fund accounts for all financial transactions relating to the City's garbage services. Services are on a user charge basis to residents and business owners located in Patterson. The city operates and maintains a solid waste system that serves approximately 6,700 customers, primarily residential. The City contracts with a third party to collect and dispose of its solid waste and has a contract with the County of Stanislaus to use its solid waste disposal sites.
A comparison of mid-year estimated amounts to budget for the Garbage Fund follows (dollars in thousands):
2022-23
Adopted
Budget
2022-23
Adjusted
Budget
2022-23
Estimated
Variance of
Estimated to
Adjusted
Budget
Charges for Services $3,982 $3,982 $4,063 $ 81
Other Revenues 81 81 21 (60)
Total Revenues 4,063 4,063 4,084 21
Total Expenditures (3,880) (4,245) (3,735) 510
Operating Balance
Transfers Out
183
(773)
(182)
(773)
349
(497)
531
276
Changes in Balance (590) (955) (148) 807
Beginning Balance 1,461 1,461 1,461 -0-
Ending Balance $ 871 $ 506 $1,313 $807
__________________________________________________________________ 1Adjusted Budget includes staff Mid-year Budget recommendations pending approval by City Council.
The last Solid Waste Rate study was done in 2019 and proposed rate increases of 4.9% each fiscal year from FY 2019-20 through FY 2023-24.
Service Charge revenues are estimated at $4.1 million, $81,000 (2%) higher than budget. Other Revenues are estimated at $21,000, below the Adjusted Budget due to late fees to be allocated at year end.
Estimated expenditures of $3.7 million are trending $510,000 (12%) below adjusted budget.
This is due to the normal underspending of the budget and vacant positions that occurs during the fiscal year. Transfers out are below budget by $267,000 due to the admin cost to the General Fund being lower than budget.
14 The fund is estimated with an ending balance of $1.3 million, $807,000 higher than the Adjusted Budget.
IV. RECOMMENDED MID-YEAR BUDGET ADJUSTMENTS
The mid-year budget review provides an opportunity for the city to adjust the budget to recognize unanticipated revenues and costs and to propose expenditures to address highpriority community and operational needs. Any proposed adjustments are made with consideration of the resources needed to provide services to the public and the fiscal capacity to fund this level of resources. Each department continuously reviews its programs and operations, as well as changing conditions and emerging community needs.
The following sections describe the proposed mid-year adjustments and recommendations.
Salary Plan Changes
On December 20, 2022, the Council approved Memorandum of Understandings (MOUs) for American Federation of State, County, and Municipal Employees (AFSCME) and Patterson Management and Mid-Management Employee Association (PMMEA) effective July 1, 2022, through June 30, 2025. On March 14, 2023, the Council also approved salary and benefits for Unrepresented employees. As these agreements and other agreements were not finalized prior to budget adoption, the cost implications were not included in the budget for Fiscal Year 22-23. The estimated costs associated with these agreements were included in the agenda reports, however, the request for the associated appropriations was not. Therefore, staff is proposing to include the fiscal impact of the associated labor agreements and pending agreement with Fire to be included as Mid-year adjustments as follows:
Salaries & Benefits
General Fund $ 747,000
CFD Fund 84,100
Water Fund 195,800
Sewer Fund 197,700
Garbage Fund 72,500
Total $1,297,100
Purchase Orders outstanding at Fiscal Year End
At the end of each fiscal year, there are typically purchase orders for goods and services that were issued during the fiscal year, but not completed by the end of the fiscal year. Typically, these purchase orders and the associated budget are carried over into the new fiscal year.
However, due to staff turnover during this past year, the appropriations for the outstanding purchase orders were not carried over into the new fiscal year. The Purchas Orders in the amount of $1.2 million needs to be reappropriated for the current fiscal year. A listing of the 15 purchase orders, with account numbers, vendor name, description and amounts is included as Attachment 1.
Other Miscellaneous Recommended Mid-Year Adjustments
Departments have requested other miscellaneous Mid-year Adjustments totaling $1.4 million.
The major recommendations are as follows:
• $300,000 Revenue increase for the County Tax Sharing Agreement • $281,000 for Council Chambers AV project. The funds were budgeted in the prior fiscal year, but not carried over to the new fiscal year. The project has been completed and expended in the current fiscal year; therefore, the budget needs to be reestablished for FY 2022-23.
• $250,000 for Aid to Nonprofit – Safehouse for children • $185,000 to continue the design phase of the I-5/Sperry Avenue interchange project.
The design is moving quicker than originally planned and this adjustment is recommended to keep the design moving forward.
• $50,000 for a new vehicle in Recreation
• $201,000 for additional debt service not budgeted due to bond calls from prepayments received from property owners.
A listing of all recommended increases is included as Attachment 2.
Attachments
1. Recommended Purchase Order carry over Mid-year Adjustments
2. Recommended Other Miscellaneous Mid-year Adjustments