DATE: JANUARY 11, 2022
DEPARTMENT: FINANCE
FROM: MARK ROBERTS, DIRECTOR OF FINANCE
TITLE: FISCAL YEAR 2021 SPENDABLE FUND BALANCE
BACKGROUND:
Each year Department of Finance staff estimates the spendable fund balance* available in the City’s General Fund, Measure E Fund, and Measure G Fund (collectively, “general funds”) to allocate to the City’s reserves in accordance with Section II.J of the City’s “Financial Policies” document and to address other critical needs. Spendable fund balance is the unreserved cash balance resulting from prior fiscal years’ operations (essentially, revenues minus expenditures) offset by appropriations carried forward from the prior year to the current year. Appropriations carried forward from the prior year (“carryforwards”) are subtracted from the carryover balance because those amounts, while unspent, are obligated for specific purposes and are not free to be allocated for others and, therefore, should not be included.
Previously, the spendable fund balance was calculated by adding:
beginning unreserved cash balance for the prior fiscal year; revenues received (positive amount) and expenses paid (negative amount) during the previous July 1st through June 30th period; and accounts payable balance (negative) as of June 30th;
then deducting:
encumbrances (i.e., outstanding purchase order balances) as of June 30th and Capital Improvement Program (“CIP”) appropriations carried forward from the prior fiscal year to the current fiscal year.
Because only revenues received during the prior fiscal year, July 1st through June 30th, were included, accrued revenues – revenues received after June 30th but attributable to the prior fiscal year – were excluded from previous spendable fund balance calculations. Therefore, the totals did not include the accrued revenues for the fiscal year immediately preceding the then-current fiscal year. Instead, they included the accrued revenues for the fiscal year two years prior (to the then-current fiscal year), essentially a one-year delay. Conversely, accrued expenditures (i.e., those attributable to the immediately prior fiscal year) were included.
Since all expenditures attributable to the prior fiscal year were previously included but all revenues were not, the previous method used to calculate spendable fund balance could be considered to have been inconsistent. For this reason, the calculation has been changed to include accrued revenues for the prior fiscal year.
Because the previous (i.e., Fiscal Year 2021) calculation did not include accrued revenues for the then-prior fiscal year (Fiscal Year 2020), those revenues have been included in the current fiscal year’s total. And since accrued revenues for the immediately prior fiscal year (Fiscal Year 2020) will also be included, the spendable fund balance presented for the current fiscal year is significantly higher than the total presented in previous years. It is important to note the difference is not “new” money. Instead, the apparent “spike” is a one-time occurrence resulting from the inclusion of two years’ accrued revenues. Spendable fund balance reported for the next upcoming fiscal year will normalize, returning to an amount similar to those previously reported, when, again, only one year’s (i.e., the most recent year’s) accrued revenues will be included. The net effect of the change in methodology on future calculations of spendable fund balance is not expected to be significant since expenditures rarely change significantly from year to year (typically deviating by less than 5%).
DISCUSSION:
The general funds’ combined spendable fund balance for Fiscal Year 2022 is approximately $38.9M. Of the current year’s total, $20.3M represents the now-included accrued revenues from the immediately previous fiscal year, Fiscal Year 2021. And due to the exclusion of the accrued revenues for the corresponding previous fiscal year from previous balances reported, the total also includes Fiscal Year 2020 accrued revenues.
The table below compares the calculation of the spendable fund balance available for Fiscal Year 2022 including and excluding the most recent fiscal year’s (i.e., Fiscal Year 2021’s) accrued revenues, to illustrate the impact of the inclusion of those revenues in the calculation of the current year’s total. The table does not include the operating reserve balance, a combined $9.75M, or other reserve balances.
Estimated Spendable (Unreserved) Fund Balance
New Calculation
Previous Calculation
Difference
Cash Balance, June 30, 2021
$42,581,000
$42,581,000
$ -
Plus: Revenue Accruals
20,320,000
-
20,320,000
Less: Accounts Payable (Payments Due)
Operating
(4,903,000)
(4,903,000)
-
CIP
(429,200)
(429,200)
-
Less: Encumbrances
Operating
(1,055,000)
(1,055,000)
-
CIP
(1,289,000)
(1,289,000)
-
Less: CIP Appropriations Carried Forward
(16,280,000)
(16,280,000)
-
Spendable Fund Balance, as of June 30, 2021
$38,944,800
$18,624,800
$20,320,000
Although the inclusion of the most recent fiscal year’s accrued revenues has more than doubled the calculated spendable fund balance for the current fiscal year, the calculated balance would have been significantly higher than in previous years using the previous methodology. Fiscal Year 2021 revenues, especially sales-related taxes, significantly outperformed expectations, and substantial cost savings were realized in numerous expenditure accounts, particularly those in the “Salaries & Benefits” category. As shown in the table above, the Fiscal Year 2022 spendable find balance, if calculated without accrued revenues, would have been approximately reported as $18.6M, compared to $7.9M for Fiscal Year 2021.
CEQA CONSIDERATION:
Not a Project. The City of Salinas has determined that the proposed action is not a project as defined by the California Environmental Quality Act (CEQA) (CEQA Guidelines Section 15378).
FISCAL AND SUSTAINABILITY IMPACT:
Other than changing eliminating the one-year delay of the recognition of accrued revenues, the change in the method used to calculate spendable fund balance has no fiscal impact. As explained above, the difference resulting from the change in the method used to calculate spendable fund balance is not “new” money. It is the result of the inclusion of accrued revenues for the previous two fiscal years as part of the transition to a new, more consistent formula which accounts for accrued revenues for the fiscal year immediately succeeding the fiscal year to which they are attributable, rather than for the following fiscal year. And spendable fund balance reported will normalize for future years.
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* Previously referred to as “carryover balance” internally.* Previously referred to as “carryover balance” internally.Page | 1 * Previously referred to as “carryover balance” internally. * Previously referred to as “carryover balance” internally.
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