CITY OF POMONA
COUNCIL REPORT
November 6, 2023
To: Honorable Mayor and Members of the City Council
From: James Makshanoff, City Manager
Submitted By: Andrew Mowbray, Finance Director/City Treasurer SUBJECT: REcEIVE AND FILE THE Fiscal Year 2022-23 Unaudited Year-End Overview, REview THE Fiscal Year 2023-24 General Fund 1st Quarter Budget Review, AND Adopt A Resolution Amending the Fiscal Year 2023-24 Operating BUDGET AND PERSONNEL RELATED ACTIONS RECOMMENDATION:
It is recommended that the City Council take the following actions:
Receive and file the Fiscal Year (FY) 2022-23 Unaudited Year-End Overview Review the FY 2023-24 General Fund 1st Quarter Budget Report Adopt the following Resolution:
RESOLUTION NO. 2023-210– A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF POMONA, CALIFORNIA, Amending the FY 2023-24 operating budget by increasing revenue estimates by $172,064 and Appropriations BY $1,065,397, AND AUTHORIZING THE ADDITION OF THREE SWORN POSITIONS IN THE POLICE DEPARTMENT EXECUTIVE SUMMARY: This report contains the Fiscal Year (FY) 2022-23 Unaudited Year-End Overview and a review of the FY 2023-24 General Fund 1st Quarter Budget, which represents 25% of the year complete, from an accounting standpoint. FY 2023-24 General Fund revenues are 11% of projections, and expenditures are 21%, as of September 2023. While actual General Fund revenues are only at 11% of budget or $17M, they are in line overall with prior year actuals during this same time. Actual General Fund expenditures are 21% or $33M, which aligns with the current FY 2023-24 Budget. This report includes General Fund requests to revise appropriations, including the Public Finance Authority (PFA) funds salary allocation clean-up moving to a portion of the salary distribution in the PFA Fund to the General Fund and carryover the prior year Youth Commitment divisions unspent funds from Community Services Department Budget and the Library Youth Commitment portion. In addition, there are Non-General Fund requests, including creating a new Opioid Settlement Fund and moving revenue estimates and appropriations from Fund 215 – Miscellaneous Grants to Fund 120 - Opioid Settlement Fund and reducing the CalVIP Fund revenue estimates and appropriations to align with the correct carryover amount. There is also a need to increase appropriations in the Refuse Fund for temporary services by adding $30k to help support the Finance Department-Revenue Management Division staff to support the new refuse contractor, Athens. Related to the Athens contract, there is movement of the original budget locations for the Housing and School Grants to the appropriate City funds. Three full time equivalent (FTE) positions will be added to be authorized to the Police Department that were part of the original CalVIP grant awarded in June 2022 and are budgeted within the grant.
FISCAL IMPACT: The adoption of Resolution No. 2023-210 will increase the FY 2023-24 General Fund revenue estimates by $50k and appropriations by $1M. In addition, this action will increase FY 2023-24 Non-General Fund Operating revenue estimates by $122k and appropriations by $31k as reflected in Table 1.
Table 1 – Fiscal Year 2023-24 Appropriations and Revised Revenue Estimates PREVIOUS RELATED ACTION: City Council approved the Budget Preparation Calendar, Guiding Principles and Process for the FY 2023-24 on January 3, 2023. On February 6, 2023 the City Council adopted the Updated Consolidated Fiscal Policies and Administrative Procedures via Council Resolution. The City Council adopted the FY 2023-24 Operating Budget, Housing Authority Budget and the Five-Year Capital Improvement Program on June 5, 2023. On June 5, 2023, the City Council approved the FY 2023-24 Annual Action Plan, which included funding for Community Development Block Grant (CDBG) Federal Entitlement Programs. There are budget amendments that were approved that impacted the General Fund on July 17, 2023, August 21, 2023, October 2, 202, and October 16, 2023.
DISCUSSION:
GENERAL FUND FY 2022-23 UNAUDITED YEAR-END OVERVIEW
Based on the unaudited figures to date, the FY 2022-23 General Fund revenues will end at 106% of budget; and expenditures are on track to end at 97% of budget, which creates a preliminary net surplus of $13.1M. See Table 2.
Table 2 – Unaudited Fiscal Year 2022-23 General Fund Summary Actual General Fund revenues exceeded expenditures by $13.1M due mainly to unanticipated increases in Sales Tax, Utility User Tax, Property Tax and the All Other Tax Category. In addition, conservative spending in all Departments contributed with specific savings in controllable expense category. This surplus of $13.1M will be accounted for in the General Fund reserves. With the status of the FY 2023-24 budget, as well as the net budget changes discussed herein this report the General Fund balance will be at a level over the 23% which is the requirement to be met by June 30th each year per the City of Pomona Consolidated Fiscal Policies and Administrative Procedures. The current state of the General Fund balance will be discussed herein.
FY 2022-23 GENERAL FUND REVENUES
As adopted, the City’s FY 2022-23 General Fund Revenue Budget reflected $141.5M in anticipated revenues, after approved budget adjustments the total was amended to $148.5M. Year-end estimates provided at last year’s Mid-Year estimated revenues to total $152.5M. To date, $157.2M in revenue has been received and no other significant sources are forthcoming. Actual revenues for Property Tax, Sales & Use Tax and Utility User Tax (also known as the “Big 3” revenues sources) exceeded year-end estimates by $5M. Besides the $1M increase in Property Tax this change was mainly due to the post-Covid reimplementation of utility collections which has resulted in a $2.8M increase in the utility tax category as well as an increase of $2.2M in sales tax revenue resulting from historically high inflation rates. The All-Other Taxes category resulted in a $3.6M increase primarily due to a $1M increase in Cannabis Business Tax and a $900k increase in Property Transfer Taxes. Other revenue categories that came in under budget estimates offset some of these other increases, bringing the total revenues estimates $7.6M higher than expected.
FY 2022-23 GENERAL FUND EXPENDITURES
As adopted, the City’s FY 2022-23 General Fund Expenditures Budget reflected $141.5M in appropriations. With approved budget adjustments the total was amended to $148M. To date, the preliminary overall expenditures are at $144M, which creates an estimated savings of $4M compared to the amended budget and $1M compared to year end estimates. The main contributor to this savings is the almost $3M in controllable costs savings within several operating Departments that had contracts not utilized or were spent in a conservative manner which in full netted $2.4M in savings. In addition, $360k in savings in reduced expenses than anticipated in the City Attorney contract contributed as well.
This $13.1M surplus will increase the fund balance and will be discussed more in detail herein. It is important to note that the City Council approved the Consolidated Fiscal Policies and Administrative Procedures in February 2023 and as stated the “The City Manager may recommend the unassigned fund balance be used for one-time expenses.” Also related to this topic, the City Council directed staff on December 19, 2022, to purse a Pension 115 Trust that allows the City to build its pension reserve while maintaining oversight of investment management and control over the risk tolerance of the portfolio. With this additional surplus available and these fiscal policies established to guide the City to be fiscally prudent, a City Council action will be brought forward in December 2023 to discuss the use of the unassigned fund balance and the establishment of the Pension 115 trust.
GENERAL FUND
FY 2023-24 First Quarter Review – As adopted on June 5, 2023 the General Fund budgeted revenues were $155.8M and appropriations were $154.6M, resulting in an estimated surplus of $1.2M. Additional budget amendments impacting the General Fund approved by City Council after July 1, 2023 are listed below:
$1.3M for carryover items budgeted in FY 2022-23, but not received until FY 2023-24 including vehicles and equipment on July 17, 2023 $25k using General Fund reserves for Capital Improvement Program for Parks and Facilities Master Plan on August 21, 2023 Unappropriated $158k from General Fund Storm Water Lift Stations Rehabilitation and appropriated $158k to General Fund Community Home Energy Revolution Project (CHERP) on August 21, 2023. No fiscal impact to the General Fund $250k using General Fund reserves for Capital Improvement Program for traffic signal modification at Towne and Benita Avenue on October 2, 2023 $510k for salary increase for the Sworn classifications on October 2, 2023 $95k for sport court at Palomares Park on October 16, 2023 With the above-mentioned post-budget amendments, the estimated deficit through October 2023 is $2M. As noted in Table 3 the General Fund has expended $15.5M more than it has collected as of September 30, 2023. This negative cash flow is normal due to the timing of tax receipts and is one of the significant reasons that a 23% Fund Balance Reserve is necessary.
Table 3 - Fiscal Year 2023-24 1st Quarter Summary
*Includes appropriations approved from July 2023-October 2023 Revenues
While it may appear General Fund revenues are not performing as projected (11% received at 25% of the year), the reason is many revenue sources are accrued back to the prior fiscal year; while others are received on a quarterly or bi-annual basis and with some not received until late December, January, or spring. Because of this, actual FY 2023-24 year-end results are difficult to predict at this time; however, staff has prepared a preliminary analysis of the top revenue sources based on FY 2023-24 receipts to date. As reflected in Table 4, General Fund revenues in FY 2023-24 are coming in as expected based on the budget at 1st quarter end. Sales tax is coming in a little stronger compared to 1st quarter of FY 2022-23. All Utility Tax categories are trending as expected. The “All Other Sources” category is higher compared to this time last year due to increases in Building Permit, New Construction, and Contractor Job Fees. Property Taxes are slightly under when compared to last fiscal year. Tax revenues make up 83% of the General Fund budgeted revenue and therefore merit a more detailed discussion as presented below.
Table 4 - Fiscal Year 2023-24 1st Quarter Revenue Summary Property Taxes – Typically, a large portion of the property tax revenues are received during the months of November through May. In addition, due to various State actions (i.e. VLF Swap), the City receives “In Lieu” property tax twice a year in January and June. Based on the revenues received through September 30, 2022, the actuals are slightly lower this year, yet they are expected to come in stronger than FY2022-23, as property values remain steady. The Los Angeles County Assessor’s Roll is released each year after budget adoption. Based on this year’s Roll and analysis from the City’s Tax Consultant, the City has experienced a growth in value of 5.9% for the 2023-24 tax roll. Staff does not recommend any changes to property tax categories until after the tax remittances are received in January 2024.
Sales Tax – The total revenue budget from Retail Sales Tax is derived from three distinct sources: a 1.0% share of local sales (from the State and County pools), the Transactions and Use Tax at .75% (Measure PG) and allocations of Public Safety Augmentation Fund (PSAF) sales tax from the County. These three sources were budgeted at $42.4M. This source of revenue is typically responsive to economic circumstances. Based on the revenues received through September 30, 2023, the total received of these three sales tax revenue sources are about $3.6M. Based on a thorough review of our sales tax patterns and comparisons to last fiscal year’s revenues conducted by the City’s Tax Consultant, it has been suggested that the City hold off on any increases to revenue projections pending a forecasted reduction in consumer spending that would directly affect sales tax revenues.
Utility Users Tax (UUT) – Currently budgeted at $19.5M, Utility User Tax revenue represents 12% of General Fund revenues. The current amount received of $3.9M does not represent a full quarter of receipts as the revenues received in July and August are accrued back to FY 2022-23. Based on a comparison of last year’s first-quarter receipts to the same quarter this year, funds are coming in slightly higher and are expected to remain in line with the budget. At this time staff is not recommending a change to the revenue estimate.
Other Taxes – Other taxes include Business License, Transient Occupancy Tax (TOT), Property Transfer Tax, Franchise Fees, and the Cannabis Business Tax - Measure PC (CBT), which combined represent 13% of the total General Fund revenues. Business License revenue is trending slightly higher, as the City has experienced an increase in business license renewal revenue as well as delinquent account renewals. Property Transfer Tax and Franchise Fees are trending as expected. The Cannabis Business Tax is on track, but staff will be monitoring as additional locations have recently opened and sales are expected to spread among the various operators. Staff is not recommending an increase to revenue estimates at this time.
Other Sources – All Other Sources include Fees, Permits, Licenses, and Other Miscellaneous categories that appear to be trending higher than this time last year. The increase is primarily due to increased building and construction in the City. Staff is not recommending an increase to the revenue estimate for Other Sources at this time due to other line items coming in lower than anticipated, however, it may be implemented as part of the FY 2023-24 Mid-Year report if these trends continue.
Summary – In summary, the budgeted revenues from tax-related items discussed above represent over 85% of the City’s General Fund. Although it is still early in the year, and knowledge of significant revenue indicators have not yet been received, prior year actuals and current receipts indicate the City is likely to surpass its revenue budget for the current year if the current positive revenue trends continue. Meanwhile, due to inflation and the current fuel prices, economic forecasts continue to predict a slight downturn in the economy in 2024. As always, staff will carefully monitor events for impacts to the forecast presented herein, and other related developments as they relate to the City’s revenues and will report to the City Council upon receipt of substantive and/or noteworthy information.
Expenditures
As of September 30, 2023 (25% of the fiscal year) overall General Fund appropriations are 21% expended. All Departments were within an acceptable range of year-to-date expenditures in relation to the total appropriations for the year. The following tables provide a breakdown of the FY 2023-24 appropriations and 1st Quarter Expenditures first by Department (Table 5) and then by Category (Table 6).
Table 5 - Fiscal Year 2023-24 1st Quarter Expenditure By Department Summary As reflected in Table 5, all Departments have expended 25% or less of budget at 1st Quarter and the City's expenditures are on track to end the fiscal year within the amended General Fund budget. Besides the Fire Department budget, which is paid on a set monthly payment schedule, all Departments are under 25% as many controllable contracts are not paid until mid-year. There are also vacancies in some Departments which provide savings. More detail will be provided in the FY 2023-24 Mid-Year Report that will be presented in March 2024.
Table 6 - Fiscal Year 2023-24 1st Quarter By Category Summary GENERAL FUND APPROPRIATION REQUESTS – FY 2023-24
+$121.5k increase due to Public Financing Authority (F364) salary allocation clean-up moving appropriations to the General Fund. +$696k carryover of unspent Youth Commitment appropriations in the Community Services Department. $1M was budgeted in FY 2022-23, actual expenditures came in much lower and will be utilized in FY 2023-24. +$167k carryover of unspent Youth Commitment appropriations in Library Department. $300k was budgeted in FY 2022-23, actual expenditures came in much lower and will be utilized in FY 2023-24. +$50k increase due to the Athens Donation for school grants moving from the Refuse Administration Fund (F145) to the General Fund.
NON-GENERAL FUND APPROPRIATION REQUESTS – FY 2023-24
($121.5k) decrease due to Public Financing Authority (F364) salary allocation clean-up moving appropriations to the General Fund.
Created Opioid Settlement Fund (F120) and moved funds from Grants – Miscellaneous (F215) to better track revenue and expenditures. Net zero fiscal impact. ($159.8) Reduce CalVIP revenue estimates and appropriations to align with Grant carryover. +$332k increase in ARP revenue estimates and appropriations related to carryover amounts from previous fiscal year. +$30k increase in Refuse Enterprise Fund (F582) for Temporary Services to help with the transition to support the Refuse contract provided by Athens for the remainder of fiscal year. ($50k) decrease due to the Athens Donation for school grants moving from the Refuse Administration Fund (F145) to the General Fund.
Net zero transfer of $100k from Refuse Administration Fund to the Housing Authority Budget to be used towards housing efforts in the city.
Authorized Staffing
The City was notified by the California Board of State and Community Corrections (BSCC) of the 2022 California Violence Intervention and Prevention (CalVIP) Grant award on June 9, 2022. The grant’s duration is from July 1, 2022 to December 31, 2025. The CalVIP program has been active and staff has been implementing and working on portions of the grant with Community Based Organization (CBOs) consultants. The CalVIP program application included adding 3.00 Full Time Equivalent (FTE) positions made up of 1.00 Police Sergeant and 2.00 Police Officer positions. As part of this report, staff is requesting the authorization to add these 3.00 FTE positions. Funds for these positions are budgeted within in the FY 2023-24 CalVIP budget.
Fiscal Year 2022-23 and Projected FY 2023-24 Fund Balance The projected ending fund balance for FY 2023-24, including the unaudited FY 2022-23 projected available funds of $13.1M, will easily meet the FY 2022-23 benchmark goal of 22% reserves and should be 15.5% above the recommended reserve policy of 23% for FY 2023-24. If the City did not meet the reserve requirement, the City’s bond rating could be impacted. It would also reduce the amount of funds available for emergency situations, cash flow needs in the first six months of the fiscal year and one-time capital replacement projects in the future. The projected use of reserves for FY 2023-24 is based on items discussed in the report including the current FY 2023-24 budget amendments that have been approved by the City Council after July 1, 2023, as well as items requested in this 1st Quarter Budget report. Two primary use of the current year fund balance was the carryover of $1.3M for items budgeted in FY 2022-23, but not received until FY 2023-24 including vehicles and equipment, and the proposal to re-appropriate $863k for Youth Commitment funds that were not spent in FY 2022-23 to be available in FY 2023-24 for youth programing. Combined this totals $2M use of General Fund reserves. The $13.1M estimated contribution to reserves is still an estimate as the City’s audit will not be complete until early 2024. Refer to Table 7 for the breakdown of the estimate City’s General Fund Balance.
Table 7 - FY 2022-23 and Projected FY 2023-24 Fund Balance Conclusion
As stated in the Executive Summary, the purpose of this report is to give the City Council an overview of FY 2022-23 Unaudited actuals at this time, and a detailed 1st Quarter financial update for FY 2023-24. The General Fund budget adjustment recommendations included herein, if approved, will result in an overall $2M deficit. As noted, $2M in reserves are being carried over from items not spent in FY 2022-23 (Vehicles and Youth Commitment funds). The current estimated fund balance far exceeds the reserve policy amount of 23%. All City Departments will continue to operate within budget while carefully monitoring expenditures, and all revenues will need to come in on target or above projections before the year ending June 30, 2024. Finance Department Staff will continue to apprise the Mayor and City Council of any significant financial impacts. Many factors such as high inflation passed along in the cost of goods and services, unstable fuel prices, supply chain and raw material interruptions, and increased interest rates have contributed to forecasting obstacles as well as a threat to economic changes that are predicted to occur. The threat of a recession is constantly looming, and the need for sufficient reserves is more critical than ever. Opinions from various City Consultants all agree across the board that a recession is insight, but the magnitude and timeline is unknown.
With the approval of the Consolidated Fiscal Policies in February 2023, staff will bring forward items for consideration to address long term liabilities that need onetime contributions when surpluses are available as well as annual budget line items incorporated within to remain sustainable. The FY 2023-24 General Fund Mid-Year Budget review will be brought forward in the spring of 2024 with more supporting detail as it relates to year-end expenditures and revenue projections. As mentioned, staff is optimistic that some revenue sources will be increased once six months of revenue has been collected. Employee contracts with some of the respective bargaining units will be on this concurrent agenda, and other units will be forthcoming on future City Council agendas during the fiscal year and will impact the operating budget as well.
COUNCIL PRIORITIES & GOALS: This item supports the City Council Priorities and Goals - Priority 1 (GOAL A) Continue to ensure that the City has sufficient financial reserves in accordance with City’s Fund Balance Policy, including at least 23% of General Fund operational budget for General Fund reserve.
Prepared by:
___________________________
Andrew Mowbray
Finance Director/City Treasurer
ATTACHMENT(S):
Attachment No. 1 – Resolution No. 2023-210
Attachment No. 2 – 1st Quarter Report Presentation
November 6, 2023
Receive and file the Fiscal Year 2022-23 Unaudited Year-End Overview, Review the Fiscal Year 2023-24 General Fund 1st Quarter Budget Review, and Adopt a Resolution Amending the Fiscal Year 2023-24 Operating Budget with Personnel Related Actions Page 11 of 11