CITY OF POMONA
COUNCIL REPORT
March 21, 2022
To: Honorable Mayor and Members of the City Council
From: James Makshanoff, City Manager
Submitted By: Andrew Mowbray, Finance Director/City Treasurer SUBJECT: Fiscal Year 2021-22 General Fund Mid-Year Budget Review RECOMMENDATION:
It is recommended that the City Council take the following actions:
Review the Fiscal Year (FY) 2021-22 General Fund Mid-Year Budget Report Adopt the following resolution:
RESOLUTION NO. 2022-51 – A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF POMONA, CALIFORNIA, Amending the Fiscal Year 2021-22 Operating Budget AND AMENDING THE FY 2021-22 AUTHORIZING STAFFING LEVELS EXECUTIVE SUMMARY: This report summarizes the City’s General Fund overall financial position for the current fiscal year through December 2021. The General Fund is the largest operating fund in the City and is used to account for all the City’s general revenues such as Taxes, Charge for Services, Permit Revenue, Investment Income and Intergovernmental Revenues which are mostly revenues from the County and State. General Fund expenditures are related to the rendering of general services, including by not limited to Public Safety, Parks and Recreation services, Public Works, Administration and Legislative services for the City. This report will cover the following areas:
General Fund Overview
General Fund Summary of Revenue
General Fund Expenditure Detail By Category and Detail By Department General Fund Recommended Mid-Year Budget Amendments
General Fund Fiscal Year 2021-22 Anticipated Fund Balance Based On Budget Recommended Staffing Changes
FISCAL IMPACT: The adoption of Resolution No. 2022-51(Attachment No.1) will increase the FY 2021-22 Operating Budget as reflected in Table 1.
Table 1 - Fiscal Year 2021-22 Mid-Year Requests
PREVIOUS RELATED ACTION: City Council approved the Budget Preparation Calendar, Guiding Principles and Process for FY 2020-21 on January 4, 2021, City Council adopted the FY 2021-22 Operating Budget, Housing Authority Budget, and the Five-Year Capital Improvement Program on June 7, 2021, with amendments to the General Fund operating budget approved on October 4, 2021, November, 15, 2021 (Fiscal Year 2021-22 General Fund 1st Quarter Budget Review), December 20, 2021, February 28, 2022, and March 7, 2022.
DISCUSSION: As adopted on June 7, 2021, the General Fund budgeted revenues were $121.1M and appropriations were $121.1M, resulting in small surplus of $6.5k. On November 15, 2021, the 1st Quarter Mid-Year report was approved and appropriations resulted in an overall estimated surplus of $1.3M. As noted in Table 2 the General Fund has expended nearly $14M more than it has collected as of December 31, 2021. This negative cash flow is normal due to the timing of tax receipts and is one of the significant reasons that a Fund Balance Reserve Policy is necessary. 2021-22 General Fund Mid-Year Overview – At adoption on June 7, 2021, and as shown in Table 2, FY 2021-22 General Fund revenues were $121.1M and appropriations were $121.1M, with an adopted surplus of $6.5k. The General Fund budget has been amended since adoption, with revenues to now exceed appropriations by $1.3M. With regard to actuals for the year, with 50% of the year complete, General Fund revenues are at 35% of projections and expenditures are at 46%. With the disparity of revenue collections versus expenditures, General Fund has expended $14M more than it has collected in the current fiscal year (as of December 31, 2021). This cash flow is normal due to the timing of tax receipts and is one of the primary reasons the 17% Fund Balance called for within the City’s Fiscal Sustainability Policy is necessary. The revised revenue estimates and appropriations proposed within this report will increase the current surplus of $1.3M to $1.6M. Based on year-end estimates, a surplus in the amount of $12M could be realized. It is important to note that $6.8M in American Rescue Funds (ARP) are accounted for in this amount and future discussion about returning this amount to the ARP fund will be forthcoming as part of the FY 2022-23 Proposed Budget.
Table 2 - Fiscal Year 2021-22 Mid- Year Summary
2021-22 General Fund Operating Revenue – General Fund revenues received as of December 2021 are only 35% of the estimated amended revenues. This is due to revenue sources that are received in July and August that are accrued back to the prior fiscal year and other large revenue sources that are received on a quarterly or bi-annual basis in January and throughout the spring season. Overall, the General Fund revenues in FY 2021-22 are trending in line with the same reporting period in FY 2020-21 in some categories. Tax revenues make up 83% of the General Fund’s budgeted revenue and, therefore, merit a more detailed discussion as presented below.
Table 3 - Fiscal Year 2021-22 Mid-Year Revenue Summary
Property Taxes – Typically, property tax revenues are received from November through August. In addition, due to various State actions, the City receives “In Lieu” property tax twice a year in January and June. Property Tax revenues are expected to bring in $1.7M less than last year which is partially due to the value growth for FY 2021-22 being somewhat diminished due to a 1.036% inflation adjustment rather that the full 2% that has existed in the past several years. Due to this lower inflation growth, the City’s assessed value growth was less than it was for FY 2020-21. The City also experienced an increase in the Residual RPTTF category due to an increase of County tax revenue and a large disallowance on the FY 2021-22 ROPS submission resulting in a $950k increase in the FY 2021-22 year end estimate. However, the overall Property Tax category is expected to end the fiscal year approximately $1.2M higher than originally budgeted.
Sales and Use Tax – The total revenue budget from Sales Tax is derived from three distinct sources; a 1.0% share of local sales (from the State and County Pools), allocations of Public Safety Augmentation Fund (PSAF) sales tax from the County, and the 3/4 cent Transaction and Use Tax (Measure PG) revenues. These three sources were originally budgeted at $32.6M when adopted in June 2021. At the November 15, 2021 City Council as part of the 1st Quarter Review revenue estimates were increased $4.2M due to economic circumstances bringing the total to $36.7M. Based on information provided by the City’s Sales Tax Consultant and the revenues received through December 31, 2021, the total of these three sales tax revenue sources is anticipated to come in $2M over the current budget. The Measure PG - Transaction and Use Sales Tax (TUT) is projected to come in at $15.9M which is $1.3M over budget. Sales Tax highlights provided from the Consultant state that the increased tax revenue is mostly due to continued increases in online and marketplace purchases which have enlarged the county pool which in turn increased the share received by the City as well as increasing prices for wholesale groceries, higher wages, and rising menu prices pushing up receipts from restaurants-hotels. Crude oil prices have increased 63% in the last year, pushing up revenue from fuel-service stations.
Utility Users Tax (UUT) – Currently budgeted at $15.6M, utility tax revenue represents 12% of General Fund revenues. Based on a comparison of last year’s first two quarter receipts to the same two quarters this year, actuals continue to trend much lower in the telecommunication category, therefore the year-end estimate for the UUT Telecommunication category has been lowered by $200k. The continued decrease in telecommunication utility tax revenue is directly linked to the decrease in cell phone plan costs and the elimination of landlines. Recent information has shown UUT Gas category may increase as much as $300k, which overall would net this revenue category with a $100k increase in total.
Other Taxes – This category includes Business Licenses, Transient Occupancy Tax, Property Transfer Tax, and Franchise Fees, which represent 10% of total General Fund revenues. These sources, collectively, are budgeted at $12M. Receipts for Cannabis Business Tax, Property Transfer Tax, and Transient Occupancy Tax are coming in strong therefore year-end estimates have been increased by $2.7M. The increase in property deed transfers due to the unexpected increase in property sales is estimated to increase the Property Transfer Tax revenues by $1M in FY 2021-22. Per the City’s Tax Consultant, the resumption of inbound international tourists and an uptick in business travel will keep the growth rate high for FY 2021-22. Recent results from hotels and entertainment venues demonstrate consumer desire to travel and spend more. It is estimated that the increase in events and tourism in and around Pomona will result in an increase of $1M in Transient Occupancy Tax Revenues for FY 2021-22. Cannabis Business Tax revenues have surpassed the FY 2021-22 budget. With the recent opening of an additional cannabis-based business and another estimated to open before the close of this fiscal year the year-end estimate for this tax was increased by $360k.
Other Sources – All Other Sources include Fees, Licenses, Permits, and Revenue from Use and Property categories and make up 17% of General Fund Revenues. Currently the fines category is estimated to come in $400K higher than the FY 2021-22 budget due to the reimplementation of utility bill late fees. The fees category is expected to realize an increase of $1.4M from increased entertainment-based fee revenue and plan check fees for several multi-family residential projects throughout the City. Overall, this category is expected to receive $2.4M more than the Mid Year budget for FY 2021-22.
Revenue Summary – In summary, the budgeted revenues from tax related items discussed above represent 83% of the City’s General Fund and is projected to come in $6.1M higher than originally budgeted for FY 2021-22. The Other Sources category represents 17% of the City’s General Fund and is projected to come in over budget by $2.4M. Although at this time the City is experiencing an undeterminable economic upswing, several forecasts continue to warn that the economy and sudden inflation will flatten in the coming year(s) resulting in a less positive situation for many cities in California. This will be covered in more detail in the economic outlook section. There is a $606k net increase in the revised revenue estimates requested in this mid-year report. Revenue estimates are projected to end the year above estimated budgeted expenditures in a significant amount.
Expenditures
At the halfway point of the Fiscal Year, as of December 31, 2021 overall General Fund appropriations are 46% expended. Most Departments are within budget at Mid-Year. All categories are within an acceptable range of year-to-date expenditures in relation to the total appropriations for the year. The following provides a breakdown of the FY 2021-22 appropriations, and Mid-Year Expenditures by Category (Table 4) and then by Department (Table 5).
Table 4 - Fiscal Year 2021-22 Mid-Year Expenditure Summary As reflected in Table 4, expenditures overall are trending 4% below the amended budget, with as much as $2.0M in savings compared to the FY 2021-22 Mid-Year budget primarily due to vacancies in many Departments, but also with personnel offsets increases in some area. All other categories are aligned with utilities going over by a minimal amount. Overall, the expenses are anticipated to achieve a $2.0M savings by year end. Staff is requesting the City Council to approve additional appropriations in the amount of $408k for 4 items discussed herein and one personnel item discussed on page 8, with two of the items offset with a corresponding revenue estimate. Four of the five recommended actions are covered in detail within the next section.
Table 5 displays that all Departments have expended 50% or less of budget at Mid-Year. Under current budgetary allocations, Public Safety represents 76% of all General Fund expenditures. The majority of Departments are projected to come in or under budget. General Services is anticipating as much $748k savings due mainly to the Humane Society Contract amount being much lower based on the revenue received to date, which offsets the annual payment. The Police Department is estimating to be about $131k over budget mainly due to unanticipated retirement/termination payouts. Overall Expenditures are projected to come in $2.0M less than the Mid-Year budget.
Table 5 - Fiscal Year 2020-21 Mid-Year Department Summary FY 2021-22 Recommended General Fund Budget Amendments
Appropriation Revised Revenue Estimates and Appropriation Items Debt Service Payment Allocation for Series BC – Staff is requesting an increase to appropriations in the amount of $211k as it relates to the annual debt service payment schedule. On July 11, 2016 former Series AG/AN bonds were refunded lowering the annual General Fund portion of this payment projected at $450k and total savings of $9M over the life of the bond (FY2036). Although this refinancing decreased the annual General Fund debt service, there was no savings for the other funding sources that funded the debt service on this bond. Those funds that made the other portion of payment included the Water Fund, Sewer Fund, and Development Impact Fes (DIFs). Their annual debt service remained the same with the refinancing of the new bond Series BC. The DIFs have been contributing an amount annually that has resulted in negative balances in certain DIF fund categories. This requested change in the debt payment schedule will make the DIF funds whole. On August 2, 2021, the City Council adopted Resolution 2021-89 adopting revising DIFs and Connection fees. With certain fees revised and a new schedule established, this shifting of the DIFs portion of the annual debt payment to the General Fund will increase the General Funds annual budget, however it with still be far less than the prefunded Series AG/AN annual debt service amount. Staff is requesting an appropriation to the FY 2021-22 Operating Budget of $211k (101-2501-89923-00000) and to update the Debt Service Allocation (Series BC) for the DIF portion be funded by the General Fund until Fiscal Year 2035-36 when the bonds are paid in full.
Update to the City’s Forecast Model and Fiscal and Financial Policies - A General Fund appropriation is requested for the Finance Departments to enter into an agreement with the City’s Financial Advisor Urban Futures (UFI) to provide an Update to the City's Financial Forecast Model as well as to update the City Fiscal and Financial Policies, including but not limited to updating the Fiscal Sustainability Policy with specifics included on the complimentary policies of Fund Balance, Debt Management Policy, and a proposed Pensions Management Policy. Also part of this update will be a review of the City’s Fund Balance Policy and deciding if the current 17% level is adequate to sustain the City’s needs long-term. Finally with the recent surplus of $15M via the year ending June 30, 2021 (FY 2020-21), UFI will do a short update to take this amount into consideration to last year’s forecast model. These proposed Policy updates and the financial forecast will all be brought forward around the time the FY 2022-23 Proposed Budget is delivered. Staff is requesting an appropriation to the FY 2021-22 Operating Budget of $20k (101-1101-52285-00000) Redistribution of ARP Funds budgeted for MOU onetime payments – On November 15, 2021 $1.8M was appropriated to the General Fund via the American Rescue Plan (ARP) to fund the respective portion for the one time payments included in the City bargaining groups agreements approved by the City Council in October 2021. When funds were allocated, the General Fund was over allocated $625k which after analysis and review should have been allocated to various Non-General Funds for employees who are budgeted in those funds. This request is to un-appropriate and decrease revenues estimates in the amount of $625k from the General Fund (101-xxxx-51012/80881-00000) which will then be reallocated to various Non-General Funds.
Building and Safety Contract (Development Services) – Staff is requesting an increase in appropriations for $800k due to the contract for Building and Safety services. This contract will need to increase by this amount as result of the building permit and plan check revenues increasing overall in the current fiscal year. The City contract with Interwest results in the company receiving a 65% share of Building and Safety Division revenues collected. With a $1.2Mk increase in Building permit revenue projected, this $800k appropriation needs to increase to fund the monthly contract (101-2521-52930-0000) with a revised revenue estimate needed in the amount of $1.2M (101-2521-40050-00000).
Fund Balance Policy
On June 20, 2011, the City Council adopted resolution 2011-63A approving the City’s Fund Balance Policy. The objectives of the Policy were to comply with the Governmental Accounting Standards Board (GASB) Statement Number 54 – Fund Balance Reporting and Governmental Fund Type Definitions, establish formal reserve policies, build adequate reserves, and guide the City toward meeting its short and long-term obligations.
The Policy states that at the end of each fiscal year, the City shall have a Committed Fund Balance equal to 17% of operating expenditures and transfers out in the General Fund. The 17% is to be considered the minimum level. Based on audited FY 2020-21 figures, the General Fund balance is $36.3M, which is about 30% of operating expenditures. However, based on the adopted budget, with additional General Fund budget amendments since July 1, 2021, and the appropriations/revised revenue estimates proposed within the mid-year report, the FY 2021-22 estimated fund balance could equal $37.9M, which would exceed the Fund Balance Policy ultimate target of 17%. Table 6 shows how the $197k increase in budget amendments combined with the anticipated surplus for FY 2021-22, if utilized would still result in a contribution to reserves. Another key factor to note is that if the FY 2021-22 year end estimate of $12M surplus did occur the fund could increase significantly bringing the fund balance to a level of 39%. However, as mentioned herein, $6.8M of this FY 2021-22 revenue is from ARP funds and if these trends continue, staff recommends that the $6.8M be transferred back to the ARP fund balance to use for future fiscal years potential revenue loss.
Table 6 – Updated Projected Fund Balance Fiscal Year 2020-21 Citywide Staffing Request - FY 2021-22
Finance Department – Staff is requesting of a reclassification of one Senior Accounting Technician to a Senior Executive Assistant in the Finance Department. One of the Senior Accounting Technician positions in the Finance Department duties have changed significantly over the last 3 years. This position in addition to performing accounting support duties such has processing of journal entries, tracking of council expenditure reports for public records, reconciliation of Department P-Cards, and reconciliation of the biweekly payroll distribution to ensure all expenses are paid to the proper fund and project number. Over the last few years this position has taken on additional administrative support roles to the Department and the Finance Director. In addition, this position attends and prepares the posted Citizen Oversight Committee (COC) for the Measure PG tax by creating the agenda template in the Granicus agenda system and communicating with the COC for the quarterly meetings. The position also oversees the records retention schedule for the Department and maintains the City’s Deferred Compensation accounting that is required and assists that committee. This position also creates all Business records that provide services to the City so they are listed as a vendor and obtains the W9s for those needing to be paid by the City. These added duties are beyond the duties of the Senior Accounting Technician and are more aligned with the job duties of a Senior Executive Assistant. The annual cost to reclassify this position is $6,264. The cost to fund this action for the remainder of the FY 2021-22 is $1,566 and will be funded via an appropriation in the General Fund (101-1110-51012-00000).
Non- General Fund Amendments
Public Works Traffic Operations Emergency Repairs - Two traffic signals one at Rio Rancho Road & Lone Ridge Drive and the other at Rio Rancho Road & Rancho Camino Drive within the City were severely damaged due to vandalism in January of 2022. All the wires were cut at various locations causing both traffic signals to be completely blacked out. To restore the traffic signals, all the wires have to be replaced before restoring the traffic signals back to normal operation. During the same month, the traffic signal mast arm pole at the northeast corner of Towne Avenue & Bonita Avenue was hit by a vehicle causing extensive damage to the base of the older style concrete pole. The damaged pole was leaning into the traffic lanes and had to be removed and replaced. Staff had to purchase a pole, foundation, and traffic signal gears before the traffic signal can return to normal operation. Due to these recent unplanned repairs the entire Traffic Operations maintenance budget within the Public Works Departments has been exhausted. Many scheduled maintenance and repairs had to be deferred until additional funds become available. Per City Code 2-998, the Procurement Officer determined the vandalism of these traffic signals required immediate repair due to the protection of City Property and the preservation of health, safety and welfare of the citizens of Pomona. Staff is requesting appropriations in the respective funds and amounts for these emergency repairs. 256-4073-52274-00000 $12,931
217-2506-52274-00000 $10,000
128-2563-52274-00000 $2,589
208-2563-52274-00000 $18,661
TOTAL $44,180
Redistribution of ARP Funds budgeted for MOU onetime payments – On November 15, 2021, $230k was appropriated to Non-General Funds via the American Rescue Plan (ARP) to fund the respective portion for the one-time payments included in the City bargaining groups agreements approved by the City Council in October 2021. When funds were allocated, the General Fund was over allocated $625k which after analysis and review should have been allocated to various Non-General Funds for employees who are budgeted there. This request is to appropriate and increase revenues estimates in the amount of $625k to several Non-General Funds (xxx-xxxx-51012/80881-00000). This item corresponds to the reduction of the same amounts from the General Fund covered in the previous section.
Conclusion (Fiscal Year 2021-22) Mid-Year Report
As stated in the Executive Summary, the purpose of this report is to give the City Council a financial update of the FY 2021-22 Budget at the Mid-Year. Based on this information, staff is recommending the City Council adopt the amendments proposed herein, as well as the requested change to the City’s authorized staffing level.
Although the budget surplus was increased to $1.3M at the 1st Quarter in November 2021 due to the increase in Sales Tax, the budget surplus will be increased to a total estimated amount of $1.5M with the various actions requested within this report. Based on year-end estimates a surplus in the amount of $12M could be realized if all year end estimates finish as anticipated. If the $12M surplus materializes, this would help the General Fund exceed the 17% policy requirement even more than the already anticipated 30% amount. With that said, $6.8M of the total revenue projected to be received has come via the Federal funds provided via the American Rescue Plan (ARP). If this trend continues staff will mostly likely recommend to the City Council as part of the Proposed FY 2022-23 General Fund Budget to return the $6.8M to the ARP fund.
The national economic situation will be closely monitored and reminds us of the importance of having adequate General Fund reserves that may need to be relied upon in future years. The situation in Ukraine continues to impact supply chain disruptions that factor into the continued increase in inflation rates. In addition, fuel costs are at an all-time high, and housing prices are beginning to taper off. These factors all bring attention that an economic downturn could be forthcoming. However, high levels of consumer savings along with improvement in the health situation and a strong labor market should continue to provide positive news in a difficult global environment.
In addition to the economic concerns, the FY 2022-23 budget will increase with negotiated personnel increases, increasing CalPers costs, additional Unfunded Accrued Liability (UAL) as well as the Pension Obligation Bond (POBs) payment to begin its first year of principal and interest payments in FY 2022-23. Per the City’s Fiscal Sustainability Policy, one-time revenues should not be relied on for current operations and instead should be set aside for future capital needs as well as contributed to fund balance. With that noted and as committed to the City Council, the City Fiscal Sustainability Policy will be reviewed with specifics analyzed on the complimentary policies of Fund Balance, Debt Management Policy, and a new proposed Pension Management Policy. Also, to be discussed will be a short update to the 10-year financial forecast as it relates to the many changes that have occurred over the last year. The proposed Policy updates and financial forecast update will be discussed during the Proposed FY 2022-23 process with a goal month of May 2022 to bring forward to begin the discussion to incorporate these policies into the annual process.
In closing, the FY 2022-23 process is underway, and a Budget study session will be held on March 30, 2022 at 7pm with another session held on the afternoon of April 6, 2022 at 3:00pm in an effort to get more citizens access to the budget process. Both meetings will be held in the zoom format and information can be found on the City’s webpage at https://www.pomonaca.gov/Home/Components/News/News/73/14. The FY 2022-23 Proposed Budget will be brought forward for discussion on Monday, May 9, 2022 at the annual Proposed Budget Study Session.
COUNCIL PRIORITIES & GOALS: This item supports the City Council Priorities and Goals - Priority 1 (GOAL A): Continue to insure that the City has sufficient financial reserves in accordance with the City Fund Balance Policy, including at least 17% of General Fund operational budget for General Fund Reserve.
ALTERNATIVE(S): None
Prepared by:
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Andrew Mowbray
Finance Director/City Treasurer
ATTACHMENT(S):
Attachment No. 1 – Resolution No. 2022-51
Exhibit A – Non-General Fund FY 2021-22 Reallocation of ARP MOU funds Attachment No. 2 – PowerPoint Presentation – FY 2021-22 Mid-Year Review Fiscal Year 2021-22 General Fund Mid-Year Budget Review