Administrative
Report
N.3., File # 23-7305 Meeting Date: 12/19/2023
To: MAYOR AND CITY COUNCIL
From: WENDY COLLAZO, FINANCE DIRECTOR
TITLE
DISCUSSION AND POSSIBLE ACTION REGARDING RECOMMENDATION TO APPROVE ASSIGNMENTS OF GENERAL FUND BALANCE FOR THE FISCAL YEAR 2022-23, WHICH ENDED JUNE 30, 2023
ADOPT BY 4/5THS VOTE AND BY TITLE ONLY RESOLUTION NO. CC-2312-135, A RESOLUTION
OF THE CITY COUNCIL OF THE CITY OF REDONDO BEACH, CALIFORNIA, AUTHORIZING THE
RE-BUDGETING OF DEPARTMENTAL CARRYOVER REQUESTS AND CARRYOVER UNEXPENDED BALANCES AS OF JUNE 30, 2023 FOR DONATIONS, GRANTS, AND CAPITAL
PROJECTS
EXECUTIVE SUMMARY
Each year, the Financial Services Department presents the General Fund balance status at the close of the prior fiscal year, along with recommended budget carryovers and requests, to the City Council for its consideration. The carryovers and classifications are part of the City’s efforts, with independent outside auditors, to prepare the City’s Annual Comprehensive Financial Report (ACFR).
On November 28, 2023, the Budget and Finance Commission reviewed the FY 2022-23 year-end fund balance and provided input on the proposed carryovers and classifications. The Commission was supportive of staff’s carryover recommendations which, if approved by Council, would leave $289,404 of unallocated General Fund Balance.
BACKGROUND
The tables in this section and the General Fund Constraints schedule provide a detailed view of the General Fund restrictions, commitments, and recommended carryover items, leading to an available year-end fund balance. Recommended items to carry over to Fiscal Year 2023-24 include grants, donations, encumbrances, Department requests, and unspent capital funds to be used for future years of the multiyear capital budget plan. While this report focuses on the General Fund, total appropriations and the supporting attachments show detail and include requests for all funds.
The City’s General Fund performed well compared to budget in FY 2022-23, ending the year with greater than budgeted revenues and lower than projected expenditures. Recommended General Fund carryover is greater than in prior years primarily due to capital project budgeting in the General Fund. Because capital projects occur over multiple years, a large portion of the budget will remain unspent, requiring funds to roll over during the first few years of the project. Encumbrances - funds committed to contracts that will be spent in the following fiscal year - also show that capital projects have larger dollar value contracts than in prior years and higher committed amounts. An additional
N.3., File # 23-7305 Meeting Date: 12/19/2023
have larger dollar value contracts than in prior years and higher committed amounts. An additional factor in the final available fund balance is the recognition of Council’s appropriation during the FY 2023-24 of expected FY 2022-23 year-end savings ($1.6 million). Following recognition of all items described above, there is an available spendable fund balance of $289,404.
The City’s General Fund balance at the close of FY 2022-23 on June 30, 2023 is estimated at $25,311,149. This is up from $21,385,941 at the close of FY 2021-22, on June 30, 2022, due to better than anticipated revenues and lower than anticipated expenditures.
Of this balance, some portion can only be spent for the specific purposes stipulated, which include non-spendable and committed items. Non-spendable items are payments the City has committed to pay in the near future (prepaid costs) and Notes and Loans (these consist of computer loans made to employees through the City’s computer loan program). These are $148,160 and $21,839, respectively, for a total of $169,998. The Committed amount is for the General Fund Reserve, required by the City Council’s Financial Principles, and is set at 8.33% of the following year’s expenditure budget ($8,599,208). Total non-spendable and committed items reduce the available balance by $8,769,206 to approximately $16,541,943.
The General Fund also includes “assignments”: fund balance assignments represent intentional constraints placed on fund balance by the governing board or its appointees - although spendable or available for appropriation (not restricted by either policy or law), they are tentatively allocated for some specific purpose. General Fund assignments as of the end of FY 2022-23 include:
encumbrances ($2,029,853); traditional budget assignments (Petty Cash, $12,800 and Compensated Absences - the amount set aside to provide for vacation cash outs, funded at 30% of employee balances, $785,832); and the amount set aside to fund FY 2022-23 appropriations from the prior fiscal year ($8,691,279). These assignments reduce available fund balance by a further $11,519,764.
After including non-spendable, committed, and assigned items, the General Fund remaining available fund balance is $5,022,178.
Description Amount
Estimated Fund Balance Before Constraints $25,311,149
Non-spendable/ Committed (8,769,207)
Assignments (11,519,764)
Balance after Non-spendable/ Committed and Assignments $5,022,178 With this report, staff recommends additional traditional adjustments for the FY 2023-24 budget which include the appropriations made by City Council using estimated year-end fund balance during budget adoption ($1,659,081); carryovers of approved capital projects with general funds ($2,846,818); and the carryover of donation accounts ($226,876) and summarized as follows:
Additional Proposed General Fund Assignments Amount
FY 2022-23 Projected Savings Appropriated as part of Final FY 23-24 Budget Motion $1,659,081
Capital Projects Carryover $2,846,818
Donations Carryover $226,876
Total Proposed Assignments Page 2 of 5 $4,732,775
N.3., File # 23-7305 Meeting Date: 12/19/2023
Additional Proposed General Fund Assignments Amount
FY 2022-23 Projected Savings Appropriated as part of Final FY 23-24 Budget Motion $1,659,081
Capital Projects Carryover $2,846,818
Donations Carryover $226,876
Total Proposed Assignments $4,732,775
Detail for capital and donation carryover recommendations are included as Resolution Exhibits BDonations and D-CIP Summary.
Following these adjustments, $289,404 remains. This is consistent with staff’s estimate for remaining year-end balance during the FY 2023-24 budget discussion, which expected $238,732 following the City Council’s final budget motion. Staff recommends taking no action at this time to commit or spend the remaining funds, as further adjustments may be required with the finalization of the FY 2022-23 financial audit and/or following the FY 2023-24 mid-year review. Additionally, it is worth noting that the City’s most recent annual valuation report from the California Public Employees’ Retirement System (CalPERS) for the period ending June 30, 2022 is the first to incorporate the
6.1% investment loss experienced by the agency in FY 2021-22. The investment loss, according to the updated valuations, generated new Unfunded Accrued Liability (UAL) for the City that, unless offset by significant future investment gains, will cost millions of dollars a year over the next 20 plus years.
The following provides details of the General Fund constraints and answers questions that are likely to arise regarding the FY 2022-23 year-end report.
How is the Unassigned Fund Balance calculated, and how much funding remains after mandatory designations and transfers?
The estimated General Fund balance effective June 30, 2023 before any designations or transfers totals $25,311,149. There are mandatory designations of these monies as listed below:
Amount Item
25,311,149 General Fund Balance before mandatory designations/transfers -148,160
Prepaid Costs (payments for goods to be received or services to be rendered in the near future, such as postage and lease payments) -21,839
Notes and Loans
(City loans to employees for computer purchases)
-8,599,208 General Fund Contingency Reserve (one-month reserve) $16,541,943 General Fund Balance after mandatory designations/transfers In addition to the General Fund Contingency Reserve, what are the standard designations/transfers that happen at year-end to keep the budget in balance? Amount Item
$16,541,943 General Fund Balance after mandatory designations/transfers -2,029,853
Encumbrances (open General Fund purchase orders for contracted goods or services not yet received - See Exhibit C for detailed listing) -12,800
Petty Cash (small cash funds held by departments for cash register change drawer or reimbursement of expenses in the amount of $50 or less)
Compensated Absences (provision for vacation cash outs upon
N.3., File # 23-7305 Meeting Date: 12/19/2023
Amount Item
$16,541,943 General Fund Balance after mandatory designations/transfers -2,029,853
Encumbrances (open General Fund purchase orders for contracted goods or services not yet received - See Exhibit C for detailed listing) -12,800
Petty Cash (small cash funds held by departments for cash register change drawer or reimbursement of expenses in the amount of $50 or less)
-785,832
Compensated Absences (provision for vacation cash outs upon retirement/termination funded at 30% of employee balances as of June 30, 2023)
-8,691,279
Recommended use of FY 2021-22 fund balance to balance FY 2022- 23 budget, approved in FY 2022-23 Budget Motion
-1,659,081
FY 2023-24 Adopted Budget appropriations
(use of projected FY 2022-23 budgetary savings)
-3,073,694
Carryover Assignments (unspent FY 2022-23 funds to be used for FY 2023-24 departmental donations ($226,876) and capital expenditures ($2,846,818) as detailed in Exhibits B and D)
$289,404
General Fund Balance after
recommended designations/ transfers
What are the major contributors to this estimated General Fund balance after standard designations/transfers (as compared to $4.2 million at FY 2021-22 year-end? · Council appropriated $1,659,081 in anticipated year-end savings as part of the FY 2023-24 budget adoption.
· Greater than usual encumbrances ($2.0 million compared to $1.3 million in FY 2022-23) and greater than usual capital carryover ($2.8 million compared to zero in FY 2022-23) due to the significant number of one-time programs and projects approved in the prior two Fiscal Years.
Are there staff-recommended uses of this approximately $300,000 in uncommitted General Fund monies?
Staff recommends that the remaining General Fund balance remain unassigned pending FY 2022-23 audit completion and FY 2023-24 mid-year review.
The Budget and Finance Commission discussed these options at its November 28, 2023 meeting and concurred with staff’s recommendation to leave the remaining $289,404 of uncommitted General Fund balance unassigned.
COORDINATION
The Financial Services Department coordinated the preparation of all schedules related to the carryovers with the involved operating Departments. Year-end balances and recommendations were prepared by the Financial Services Department and City Manager’s Office in consultation with the City’s independent outside auditor. The Budget and Finance Commission reviewed the balances at their November 28, 2023 meeting and concurred with staff’s recommendations.
N.3., File # 23-7305 Meeting Date: 12/19/2023
FISCAL IMPACT
The General Fund constraints and recommended carryover assignments leave $289,404 of remaining unassigned fund balance.
APPROVED BY:
Mike Witzansky, City Manager
ATTACHMENTS
· General Fund Constraints
· General Fund Financial Report
· Re-Appropriation Summary
· Reso - Authorizing Re-Budget Department Carryover Requests and Carry Over Unexpended Balances as of June 30, 2023
o Exhibit A - Departmental Carryover Requests
o Exhibit B - Unexpended Balances for Donations
o Exhibit C - Unexpended Balances for Grants
o Exhibit D - Unexpended Balances for Capital Projects
· Outstanding Encumbrances