DATE: MARCH 7, 2023
DEPARTMENT: FINANCE
FROM: MARK ROBERTS, DIRECTOR OF FINANCE
TITLE: FISCAL YEAR 2023 mid-year BUDGET review & BUDGET ADJUSTMENTS RECOMMENDED MOTION:
Staff recommends the City Council approve a resolution to:
accept and file the Fiscal Year 2023 Mid-Year Budget Review report; approve various adjustments to the City of Salinas’ fiscal year 2023 operating and capital improvement program (CIP) budgets and use of fund balances as needed; authorize the establishment of AB 178 Officer Wellness and Mental Health Grant appropriation(s) in the Board of State and Community Corrections Fund totaling up to $96,887.41 and corresponding revenue budget to support AB 178 Officer Wellness and Mental Health Grant activities; approve the adjustment of the City’s workforce allocation, to add a Risk/Benefit Analyst position and a Human Resources Technician position and corresponding modification to the Classification – Salary Schedule; approve an agreement with Environmental Systems, Inc., of Northern California for emergency repair to the Sherwood Hall cooling tower for a not-to-exceed amount of $172,429; and authorize the City Manager to direct the transfer of appropriations for operating activities currently in the City’s CIP budget to the appropriate operating budgets and designate unspent appropriations for the activities at fiscal year-end as assigned fund balance.
EXECUTIVE SUMMARY:
This report provides the status of the Fiscal Year 2023 budgets for the City’s General Fund, Measure E Fund, and Measure G Fund (collectively, “general fund[s]”). In addition, the report recommends supplemental appropriations for various funds based upon staff analysis of actual fiscal-year-to-date expenditures and estimated expenditures through the end of the fiscal year. The recommended appropriation adjustments are summarized in the “Fiscal and Sustainability Impact” section of this report, and details, including an agreement related to one of the adjustments, are provided in Exhibit A to this report. Consistent with the recommended actions provided in this report, the City Manager will transfer appropriations from the CIP budget to operating budgets, as a clean-up measure, to appropriately reflect non-CIP appropriations in the applicable operating budgets, and designate unspent appropriations for the related activities at fiscal year-end as assigned fund balance until expended.
BACKGROUND:
The City’s Fiscal Year 2023 operating and capital budgets were adopted on June 14, 2022. As adopted, the combined general funds budget included a budgetary surplus of approximately $2.2 million.
DISCUSSION:
Revenues & Transfers In
Overall, Fiscal Year 2023 revenues through December 31, 2022 were strong. Table 1 below compares revenue totals for the general funds through the mid-point of the current fiscal year and previous fiscal year, while Table 2 reflects current fiscal-year-to-date revenues versus their budgeted totals.
Table 1
General Fund1 Revenues & Transfers In as of December 31st Fiscal Year 2023 vs Fiscal Year 2022
Category
FY 23
FY 22
Difference
Sales & Use Tax
$20,966,000
$19,169,000
$1,797,000
Transactions & Use Taxes2
26,933,000
26,007,000
926,000
Property Taxes
11,529,000
10,969,000
560,000
Property Tax in Lieu of VLF
7,861,000
7,416,000
445,000
Other Revenues
15,847,000
13,822,000
2,025,000
Transfers In
1,488,000
2,044,000
(557,000)
Total
$84,624,000
$79,427,000
$5,196,000
1 Includes General, Measure E, & Measure G Funds
2 Measures E & G tax revenues
Table 2
General Fund1 Revenues
Fiscal Year 2023 Budget vs Fiscal-Year-to-Date Actual
Category
Adopted
Budget
Adjusted
Budget
FYTD
Actual
FYTD vs Adjusted
Sales & Use Tax
$ 37,570,000
$37,570,000
$20,966,000
$16,604,000
Transactions & Use Taxes2
49,269,000
49,269,000
26,933,000
22,336,000
Property Taxes
19,432,000
19,432,000
11,529,000
7,903,000
Property Tax in Lieu of VLF
15,621,000
15,621,000
7,861,000
7,760,000
Other Revenues
42,841,000
42,841,000
15,847,000
26,994,000
Transfers In
2,975,000
2,975,000
1,488,000
1,488,000
Total
$167,708,000
$167,708,000
$84,624,000
$83,085,000
1 Includes General, Measure E, & Measure G Funds
2 Measures E and G tax revenues
The general funds’ primary sources of revenue are the sales & use tax, the transactions & use tax, property taxes, and property tax in lieu of vehicle license fees. During the first six months of the current fiscal year, these revenues were approximately $67.3 million, $3.7 million ahead of last year, while general fund revenues and transfers in, as a whole, totaled $84.6 million, approximately $5.2 million more than the same period last year. The most significant factor in the year-to-year difference is receipts from sales-related taxes, which, combined, were $47.9 million, $2.7 million higher than those received for the same period of the prior fiscal year. Combined, sales-related taxes currently are projected to end the year $2.6 million above their budgeted amounts (Sales & Use +$0.9 million, Transactions & Use +$1.7 million). Property taxes are projected to be $0.8 million more than budgeted. And property tax in lieu of VLF will be $0.1 million higher. “Other Revenues” comprises all other general fund revenues not specifically identified in the above table, e.g., franchise fees and business license taxes. These revenues were $2.0 million higher during the first half of the year compared to the first half of last year. As is to be expected, some of the accounts are ahead of last year’s amounts and some are behind, because of the nature of the funding source and variations that occur from year to year in the timing of receipts. Staff has been unable to estimate revenues to be collected or allocated at year end; however, as a whole, these revenues are expected to meet, or slightly exceed their budgeted total. “Transfers In” primarily represents transfers from its Gas Tax funds, to fund some of the City’s street-maintenance-related expenditures, which are budgeted in the General Fund. In addition, it includes the furlough transfers to the General and Measure E Funds from the Measure G Fund and transfers from the Traffic Safety Fund, to support enforcement of the California Vehicle Code. At the fiscal year mid-point, transfers to the general funds were $0.6 million lower for the current fiscal year than for fiscal year 2022, due to a combined $0.5 million decrease in the furlough transfers, which is being phased out over a two-year period, ending in fiscal year 2024. This is amount is offset by a corresponding decrease of $0.5 million (rounded) in transfers out from the Measure G Fund to the General and Measure E Funds, which is referenced in the “Operating Expenditures” section below. Transfers in, individually and overall, are not expected to deviate from their budgeted amounts.
Operating Expenditures & Transfers Out
Expenditures through December 31, 2022 are ahead of last year’s pace overall. A comparison of fiscal-year-to-date general fund expenditures as of the mid-point of the current and previous fiscal years are shown in Table 3 below. Fiscal-year-to-date expenditures and their budgeted totals are reflected in Table 4.
Table 3
General Fund1 Operating Expenditures by Category as of December 31st Fiscal Year 2023 vs Fiscal Year 2022
Category
FY 23
FY 22
Difference
Personnel Compensation
54,666,000
$51,343,000
$3,323,000
Maintenance & Operations
10,452,000
8,045,000
2,407,000
Capital Outlays
642,000
340,000
302,000
Transfers Out
16,307,000
19,932,000
(3,625,000)
Total
$82,067,000
$79,660,000
$2,407,000
1 Includes General, Measure E, & Measure G Funds
Table 4
General Fund1 Expenditures
Fiscal Year 2023 Budget vs Fiscal-Year-to-Date Actual
Category
Adopted
Budget
Adjusted
Budget
FYTD
Actual
FYTD vs Adjusted
Personnel Compensation
$105,295,000
$105,299,000
$54,666,000
$50,632,000
Maintenance & Operations
27,352,000
28,863,000
10,452,000
18,411,000
Capital Outlays
1,092,000
1,609,000
642,000
967,000
Transfers Out
31,776,000
51,751,000
16,307,000
35,444,000
Total
$165,514,000
$187,522,000
$82,067,000
$105,455,000
1 Includes General, Measure E, & Measure G Funds
As of December 31, 2022, expenditures and transfers in totaled $82.1 million, above those at the same point last year by $6.0 million, with higher costs in all three categories. The primary factors in the year-to-year differences in these categories were:
Personnel Compensation – higher salary and benefit costs are primarily the result of increased employee compensation per the City’s collective bargaining agreements and compensation plans with/for its labor groups, in addition to a $1.7 million increase in the combined unfunded accrued liability of the City’s pension plans and a $0.5 million increase in health insurance premium costs.
Maintenance & Operations – expenditures are up in nearly all departments. Although no item accounts for a majority of the $2.4 million increase, the sum of drivers such as professional services, utilities, fuel, supplies, and maintenance have increased costs City-wide.
Staff also has been unable to complete thorough analyses of operating expenditures. But due to the vacancy factor included in personnel-related appropriations for the current fiscal year and projected overtime costs, particularly in the public safety departments, little, if any salary-related savings are anticipated for the current fiscal year. Maintenance & operations expenses are similarly expected to end the year near their budgeted totals. “Transfers Out” includes both capital transfers (i.e., to the CIP Fund for capital project expenditures and vehicle purchases) and operating transfers to support the activities of various other City funds, including payment of debt service. Transfers to the CIP Fund at the fiscal year mid-point were $0.8 million higher for the current fiscal year than for fiscal year 2022, due to vehicle costs, which were $2.0 million greater, and $1.2 million lower spending on capital projects, primarily as the result of typical year-to-year variations in the timing of work and invoicing from contractors. Debt service transfers were $6.5 million lower than at the same point last year primarily due to a transfer from the Measure G Fund for a $7.4 million payment for early redemption (call) of some of the 2018 Lease Revenue Bonds for the City’s Public Safety Building Project made in the prior year but not the current year. Operating transfers to other funds were $2.1 higher compared to the prior fiscal year with the changes below primarily accounting for the difference:
Industrial Waste Fund – $1.7 million;
Internal Service – General Liability Self-Insurance (Internal Service) Fund – $0.5 million; Internal Service – Insurances Fund – $0.3 million;
Emergency Medical Services Fund – $0.2 million;
General Fund (furlough transfer from Measure G Fund) – ($0.4 million); Measure E Fund (furlough transfer from Measure G Fund) – ($0.2 million).
CIP appropriations unspent at fiscal year-end are not considered savings, as the remaining appropriations (and corresponding transfers) are carried forward to the succeeding fiscal year(s) until the applicable projects are completed and closed. Transfers to support the activities of other funds, including those for debt service, are not expected to deviate significantly from their budgeted amounts.
Staff will continue to monitor all revenues and expenditures and will provide updates as necessary and in conjunction with the Fiscal Year 2024 budget development process.
Capital Improvement Program (CIP) Expenditures
The total Fiscal Year 2023 CIP budget is $132.6 million and includes $36.6 million budgeted as part of the Fiscal Year 2023 adopted budget, $10.2 million in adjustments through December 31st, and $85.8 million of projects in progress for which appropriations are carried forward year-to-year until completed. Year-to-date CIP expenditures totaled $11.5 million, and encumbrances totaled $15.2 million at the mid-point of the year.
Department
Adjusted Budget
FYTD
Actual
Budget - Actual
% Budget
Used
Administration
$ 89,000
$ 77,000
$ 12,000
86.5%
Finance
199,000
39,000
161,000
19.6%
Comm. Development
17,095,000
648,000
16,447,000
3.8%
Police
5,114,000
1,553,000
3,561,000
30.4%
Fire
4,426,000
958,000
3,469,000
21.6%
Public Works
83,322,000
7,778,000
75,543,000
9.3%
Library & Comm. Services
22,364,000
435,000
21,929,000
1.9%
Total Exp. Budget
$ 132,609,000
$ 11,488,000
$ 121,122,000
8.7%
Operating and Capital Expenditure Adjustments
General Funds (General Fund, Measure E Fund, & Measure G Fund) Approval is requested for up to a combined $1.8 million of operating budget appropriation adjustments to the General and Measure G Funds and up to $0.8 million of adjustments to the CIP budget. Detailed costs and explanations for these requests are included in Exhibit A to this report. A summary of requests by department and budget type (operating and CIP) are shown below. For the CIP amounts, supplemental appropriations would occur in the CIP Fund with corresponding increases to the capital transfer budgets of the applicable fund.
Department
Operating
CIP
Total
General Fund
Administration (IT)
$ -
$ 352,000
$ 352,000
Human Resources
69,400
-
69,400
Community Development
46,500
-
46,500
Police
430,000
-
430,000
Fire
52,900
-
52,900
Public Works
250,000
97,000
347,000
Non-Departmental1
814,300
-
814,300
Subtotal, General Fund
$ 1,663,100
$ 449,000
$ 2,112,100
Measure G Fund
Comm. Dev.
$ 82,000
$ -
$ 82,000
Library & Comm. Services
15,000
373,900
388,900
Subtotal, Measure G Fund
$ 97,000
$ 373,900
$ 470,900
Total
$ 1,760,100
$ 822,900
$ 2,583,000
1 Includes transfers to other operating funds
Other Funds
Approval is also requested for appropriation adjustments for non-general funds. Detailed costs and explanations for these requests are included in Exhibit A to this report. A summary of requests by fund and budget type are shown below. All funds listed are funded by restricted funding sources. As with the general fund adjustments above, for the CIP amounts, supplemental appropriations would occur in the CIP Fund with corresponding increases to the capital transfer budgets of the applicable fund.
Fund
Operating
CIP
Total
Harden Ranch Land. Dist. Fund
$ 46,000
$ -
$ 46,000
Mira Monte Maint. Dist. Fund
41,000
-
41,000
Monte Bella Maint. Dist. Fund
80,200
-
80,200
Gas Tax - Motor Veh. Fuel Tax Fund
-
53,000
53,000
Emergency Medical Svc Fund
157,500
-
157,500
Int. Svcs – Insurance Fund
20,000
-
20,000
Int. Svcs – Workers’ Comp. Fund
39,800
-
39.800
Int. Svcs – Fleet Maint. Fund
90,000
-
90,000
Grants / Intergovernmental Allocations
Ratification is requested for appropriation increases and corresponding revenue budgets of $160,000 and $110,233 to the Selective Traffic Enforcement Fund and Pedestrian & Bike Safety Program Fund, respectively, for grant-funded activities. Acceptance of these funds was approved by the City Council on September 20, 2022; however, approval of the required appropriations and corresponding revenue budget for the grant funds was not requested at that time.
Approval is requested for establishment of AB 178 Officer Wellness and Mental Health Grant appropriation(s) in the Board of State & Community Corrections Fund totaling up to $96,887.41 and corresponding revenue budget to support AB 178 Officer Wellness and Mental Health Grant activities. California’s 2022 Budget Act (AB 178, Chapter 45, Statutes of 2022) established the Officer Wellness and Mental Health Grant Program which provides $50 million for city and county law enforcement agencies for the purpose of improving officer wellness and expanding mental health sources. The City of Salinas’ share, which is based on the number of peace officers, is $96,887.41. This allocation does not require an application or a State Agreement for receipt. The funds have been sent in advance, and the City is required to abide by all typical grant requirements, including restrictions on use and annual reporting regarding how funds are spent and the resulting impact.
Workforce Allocation Adjustments
Approval is requested for adjustment of the City’s workforce allocation and corresponding modification to the Classification – Salary Schedule for two positions in the Human Resources Department. Human Resources assumed administration of the City’s Workers’ Compensation Program from the City Attorney’s Office, effective September 1, 2022. Human Resources is requesting to add a Risk and Benefits Analyst and one Human Resources Technician. These positions will administer the Workers’ Compensation Program in addition to Human Resources’ risk management functions which include, among other things, safety, employee leaves, and employee benefit programs, such as employee health benefits, life insurance, Employee Assistance Program (EAP), flexible spending programs, deferred compensation, and unemployment.
Agreements
Ratification/Approval is requested for an agreement for emergency repair of the Sherwood Hall cooling tower, which failed in January 2023. Sherwood Hall was serving as an emergency shelter at the time of the failure, and this repair was necessary to continue operation of the shelter. In January, the Library & Community Services Department received notice that the Sherwood Hall cooling tower was inoperable. The cooling tower three-way valve had failed, and the chiller would not stay online. The water condenser was short cycling into the tower basin only. Upon further investigation, it was found that the tower piping had also failed due to debris and mineral deposit build up preventing air flow. Due to the nature of the repairs and with the facility being used as a Shelter due to the storm, consistent with Salinas Municipal Code section 12-24, given the emergency need to protect the public health and safety, the City entered into an agreement with Environmental Systems Inc. in the amount of one hundred and seventy-two thousand, four hundred and twenty-nine dollars ($172,429.00). Environmental Systems was selected due to their familiarity of the cooling tower and is the only semi-local vendor certified to work on the Delta System that runs the HVAC system at Sherwood Hall; no other local vendors possess the ability to complete this sort of repairs.
CIP Appropriations
As part of its ongoing efforts to improve the City’s financial operations and management, Department of Finance staff is reviewing the manner in which activities have been budgeted and has determined appropriations for operating activities appear in the CIP budget, where only capital activities should be appropriated. To correct this, the appropriations for these activities/programs should be transferred from the CIP budget to the operating budgets for their funding sources. These transfers will have a “net zero” affect upon the City’s total combined operating and capital budget, as the appropriations will be moved from the CIP budget to the operating budget in equal amounts.
Due to the nature of these activities, their unspent appropriations at year-end should be reserved in the same manner as they would be if left in the CIP budget, i.e., as assigned fund balance until the appropriations have been expended. Further, since some of these activities have significant costs and multiple funding sources, the appropriations for these activities have been established to set aside funding in advance for the costs. In these cases, establishment of a separate fund may be necessary. As noted above, however, transfer of the appropriations will have no net impact upon the City’s overall budget.
CEQA CONSIDERATION:
The City of Salinas has determined the proposed action is not a project as defined by the California Environmental Quality Act (CEQA) (CEQA Guidelines Section 15378).
STRATEGIC PLAN INITIATIVE:
Monitoring the growth of revenues and expenditures, including determining when supplemental appropriations are necessary, supports the City of Salinas Strategic Plan 2023-2025 goal of Effective Government.
DEPARTMENTAL COORDINATION:
Preparation of this report and supplemental appropriation schedule required collaboration amongst all departments.
FISCAL AND SUSTAINABILITY IMPACT:
If approved, the budget adjustments requested would increase the City’s combined general fund appropriations & transfers out by up to $2,583,000. This amount exceeds the current fiscal year’s net budgetary surplus of $2.2 million. However, assets accrued from prior years’ operations and the current fiscal year’s revenues, which are projected to exceed their overall budgeted totals, are expected to be sufficient to accommodate all of the requests. The fund balances of the other funds for which supplemental appropriations are requested are sufficient to accommodate those requests.
As noted above, transfers of CIP Fund appropriations to operating budgets will have no fiscal impact, nor will the establishment of AB 178 Officer Wellness and Mental Health Grant appropriation(s) totaling up to $96,887.41 in the Board of State and Community Corrections Fund, due to the establishment of a corresponding revenue budget in the same amount.
ATTACHMENTS:
Resolution – Fiscal Year 2023 Mid-Year Budget Adjustments Exhibit A – Fiscal Year 2023 Supplemental Appropriation Requests Agreement – Environmental Systems, Inc., of Northern California Page | 3
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