FOURTH QUARTER FINANCIAL REPORT
FOR FISCALYEAR 2021-2022
Public Safety, Finance and
Strategic Support Committee
Prepared by the Finance Department
August 18, 2022
COMMITTEE AGENDA: 08/18/2022
ITEM:( D)1
FILE: CC22-169
ATTACHMENTA
FOURTH QUARTER
DEBT MANAGEMENT REPORT
FOR FISCALYEAR 2021-2022
2 3
OUTSTANDING DEBT ISSUED
(CITY AND ALL AGENCIES)
Outstanding Debt as of June 30, 2022: $4.7 Billion
FY 2021-22 Year to Date Debt Issuance: $877 Million
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Annual Debt Issuance
($ million)
Outstanding Debt
($ million)
Fiscal Year Ended June 30
City and Related Entity Debt Outstanding Conduit Debt Outstanding Annual Debt Issuance
DIRECT OUTSTANDING DEBT
(CITY AND ALL AGENCIES)
4 Outstanding Debt as of June 30, 2022: $3.94 Billion
(Excluding Multifamily Housing Revenue Bonds)
DEBT ISSUANCE ACTIVITIES
DURING FOURTH QUARTER (APRIL –J UNE 2022)
•CSJ Financing Authority Lease Revenue Bonds, Series 2022A – $165.8 million
Convention Center Refunding Project – refunded Special Hotel Tax Bonds, Series 2011; CSJFA Lease Revenue Bonds, Series 2011A; and Exhibit Hall and South Hall Commercial Paper Notes in April • Regional Wastewater Facility Revenue Tax-Exempt Notes Issued $40 million in May and $10 million in June
5 SELECTED DEBT MANAGEMENT ACTIVITIES
DURING FOURTH QUARTER (APRIL –J UNE 2022)
•Debt Management
Pre-Issuance Activities
* 2022 Tax and Revenue Anticipation Notes (TRANs) – to facilitate the prefunding of certain employer retirement contributions in 2022-2023 Payment of Commercial Paper (CP)
* $8.4 million (Exhibit Hall) and $42.4 million (South Hall) outstanding CSJFA CP notes were refunded from Lease Revenue Bonds, Series 2022A proceeds in April * $380k (Floods) and $725k (ESCO) CSJFA CP were retired in April * $17.8 million Airport CP was retired in June
6 SELECTED DEBT MANAGEMENT ACTIVITIES
DURING FOURTH QUARTER (APRIL –J UNE 2022)
•Reporting
Annual Debt Service Compliance Certificate
* CSJFA Commercial Paper (June)
Annual Compliance Budget Requirement
* Airport Commercial Paper (May)
* CSJFA Commercial Paper (June)
* CSJFA Lease Revenue Bonds, Series 2013B (June)
Material Event Notices Filed with Municipal Securities Rulemaking Board * Standard & Poor’s Rating Upgrade for Airport Revenue Bonds from A- to A 7 UPCOMING DEBT ISSUANCE AND MANAGEMENT
THROUGH SEPTEMBER 30, 2022
• Debt Issuance
$275 million – 2022 Tax and Revenue Anticipation Notes (TRAN) issued July 1, 2022 Pre-Issuance Activity
* RWF Financing (Revenue Bonds) – Underwriters selected:
• Wells Fargo as Senior Manager (book runner)
• Morgan Stanley as Co-Senior Manager
• Debt Management
Issuance of RFP for Arbitrage Rebate Services and Continuing Disclosure/Audit Compliance Services
Issuance of RFP for Municipal Advisory Services for various debt programs Selection of Underwriter(s) for pools for various credits ROPS 23-24 Prior Period Adjustments (Due to County on October 1, 2022) 8 10-year history of tax-
exempt long-term (20-year
term) interest rates
averaged 3.03% and are
currently at 3.43% (as of
7/20/22)
9 TAX-EXEMPT MARKET INDEX
(20-YEAR FIXED RATE)
Taxable LIBOR monthly
interest rates paid by the
City averaged 1.05% in Q4.
The Taxable LIBOR and
SOFR monthly interest rates
currently are at 1.97% and
1.42% (as of 7/12/2022)
10 VARIABLE INTEREST RATES
(TAXABLE)
GENERAL CREDIT RATINGS
CITY OF SAN JOSÉ
•City continues to maintain very high credit ratings:
T ype of Rating Moody’s S&P Fitch
Issuer Rating Aa1
(stable)
AA+
(stable)
AA+
(stable)
General Obligation Bonds Aa1
(stable)
AA+
(stable)
AAA
(stable)
Lease Revenue Bonds
(Essential Assets)
Aa2
(stable)
AA
(stable)
AA
(stable)
Lease Revenue Bonds
(Less Essential Assets)
Aa3
(stable)
AA
(stable)
AA-
(stable)
11 GENERAL OBLIGATION CREDIT RATINGS
•City GO Ratings are higher than the State of California’s ratings and similar to Santa Clara County’s ratings, which is not surprising given the extent of the tax base and other credit fundamentals shared by the City and County:
[1] Moody’s does not currently rate Santa Clara County’s General Obligation Bonds but maintains an Issuer rating of Aa1. 12 Entity Moody’s S&P Fitch
City of San José Aa1 AA+ AAA
State of California Aa2 AA- AA
Santa Clara County [1] AAA AA+
OTHER CITY CREDIT RATINGS
13 T ype of Rating Moody’s S&P Fitch
San José Airport Bonds A2
(stable)
A*
(stable)
A
(stable)
SARA Senior Tax
Allocation Bonds Not Rated AA
(stable)
AA-
(stable)
* In June 2022, S&P raised the credit rating of the Airport Bonds from A- to A.
FOURTH QUARTER
INVESTMENT REPORT
FOR FISCALYEAR 2021-2022
14 INVESTMENT POLICY
(COUNCIL POLICY /g20-/g202)
•Investments meet the requirements of the City’s Investment Policy and conform with California Government Code section 5360/g20 •Authorized investments are only highly-rated fixed income securities •Investment Policy is reviewed annually and was last adopted by resolution of the City Council on March /g205, 2022
•Investment Program is audited semi-annually for compliance purposes 15 INVESTMENT OBJECTIVES & REPORTING
• Manage investments to meet the City’s Investment Policy objectives:
Safety
Liquidity
Yield
• Quarterly reports are available to the public
Online
In PSFSS Committee agenda packets
In City Council agenda packets (for acceptance)
16 SOCIALLY RESPONSIBLE INVESTMENT GOALS
• Articulated in Section 22 of the Investment Policy:
Support community well-being through:
* Safe and environmentally sound practices
* Fair labor practices
Support equality of rights
Serve all members of the local community
Promote community economic development
17 PORTFOLIO PERFORMANCE SUMMARY
Size of T otal Portfolio $2,725,410,958
Earned Interest Yield 1.111%
Weighted Average Maturity 533 days
Fiscal Year-to-Date Net Income Recognized $21,189,153
Exceptions to the City Investment Policy this Quarter 1 †
18 † Pursuant to Section 20.0 (Reporting Policy Exceptions) of the City of San José Investment Policy, the Director of Finance reported a violation of the Policy to the City Manager within three business days of discovery, and reported to the City Council on June 30, within ten days of discovery. Additional details can be found in the following slide.
SUMMARY OF POLICY EXCEPTIONS
19 • On June 28, 2022, a review of the investment portfolio holdings identified a violation of the City of San José Investment Policy (Policy) with respect to the applicable limitations of investments in Joint Power Authority Pools (JPAPs) as outlined in Section 9.11 of the Policy. Section 9.11(f) of the Policy states no more than 10% of the portfolio shall be invested in any single JPAP • Following City Council approval of the addition of JPAPs as permitted investments, the City began its participation in the California Asset Management Program (CAMP), a JPAP investment option • Initial CAMP investment of $400 million on June 24, 2022, resulted in CAMP representing 14.38% of the portfolio, a violation under Section 9.11(f) of the Policy; subsequent investments in CAMP of $79 million on June 28, 2022, and $26 million on June 27, 2022, resulted in CAMP representing
16.78% and 17.49%, respectively
• As the corrective action, the Finance Department withdrew $236 million from CAMP on June 30, 2022, and brought the portfolio into Policy compliance, with approximately 9.87% of the portfolio invested in CAMP; funds withdrawn from CAMP were reinvested in money market funds and used to make the final 2021 TRANs payment. No negative impact on the City’s investment return U.S. Treasury
$35,238,198 (1.3%)
U.S. Agency
$1,181,514,796 (43.4%)
Supranationals
$232,385,632 (8.5%)
Negotiable Certificate of Deposit (NCD)
$50,000,000 (1.8%) JPAP $269,000,000
(9.9%) Corporate Notes
$284,061,383 (10.4%)
Asset Backed Securities
$11,452,196 (0.4%)
Muni Bonds
$178,805,665 (6.6%)
Mortgage Backed Securities
$125,388,451 (4.6%)
Money Market Fund
$272,564,638 (10.0%)
LAIF $85,000,000
(3.1%)
T otal Investment Portfolio: $2,725,410,958
PORTFOLIO INVESTMENTS
20 INVESTMENTS BY FUND
21 The $943.3 million in the
General Fund presented includes
$610,528,367 of General Fund
monies, as well as $332,800,084
in other, separately tracked
general funds, such as the
Emergency Reserve Fund, the
Coronavirus Aid, Relief, and
Economic Security (CARES) Act,
the American Rescue Plan (ARP)
Act of 2021 and other smaller
funds and reserves
Internal Services
Fund
$22,486,050
Airport
$242,643,725 Capital Projects
$127,107,347
Debt Service
$36,704,338
Development Fees
$54,319,112
General Fund
$943,328,451
Muni Water
$36,489,372
Parking
$45,046,135
Housing
$317,775,524
Special Revenue
Funds
$402,767,462
Wastewater
$443,133,264
Trust & Agency
$3,831,727
SJ Clean Energy
$54,832,856
GENERAL FUND BALANCE
•General Fund balance increased by $389.2 million during the quarter and ended at $943.3 million as of June 30, 2022
General Fund balance usually peaks during the months of January and June, when the bulk of property taxes are received; declines in the summer due to retirement prefunding; and declines throughout the rest of the year due to debt service payments and operational expenditures
This quarter included repayment of the remaining balance of the 2021 TRANs for $142.5 million
•Projected investment maturities and revenues are sufficient to cover anticipated expenditures for the next six months
22 $0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1000
Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Dollars in millions
General Fund Wastewater Airport Housing Special Revenue Fund City’s advance receipt of
federal relief and recovery
assistance over the past
two fiscal years has altered
the pattern of cash
receipts
COMPARISON OF CASH BALANCES
(BY SELECT FUNDS)
23 •“City” refers to City's Fund 3
Portfolio, and the yield data are
month-end weighted average
yields
•“LAIF” refers to the State of CA
Local Agency Investment Fund
and yield data are average
monthly effective yields
•“BAML” refers to Bank of
America Merrill Lynch 1-3 Year
AAA-A US Corporate &
Government Index and yield data
are rolling 2-year effective yield
BENCHMARK COMPARISONS
24 0.00
0.50 1.00
1.50 2.00
2.50 3.00
Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Yield (%)
City LAIF BAML
Yield WAM
CITY: 1.301% 537
LAIF: 0.861% 311
BAML: 0.737% 679
FY2021-22 INTEREST RATE COMPARISONS
1FQ22
9/30/2021
2FQ22
12/31/2021
3FQ22
3/31/2022
4FQ22
6/30/2022
Current
8/5/2022
Portfolio (Fund 3) 0.89% 0.86% 0.92% 1.30% 1.56%
Fed Funds Rate 0.08% 0.08% 0.33% 1.58% 2.33%
Money Market 0.03% 0.03% 0.14% 1.36% 2.06%
LAIF 0.21% 0.22% 0.40% 0.92% 1.21%
Treasur y
Notes/Bills
90 Day 0.04% 0.04% 0.50% 1.67% 2.50%
1 Year 0.07% 0.38% 1.61% 2.78% 3.24%
3 Year 0.51% 0.96% 2.51% 3.01% 3.17%
5 Year 0.97% 1.26% 2.46% 3.04% 2.96%
25 INVESTMENT STRATEGY
•Continue matching known expenditures with suitable investments within the 24-month horizon
•Extend a portion of the portfolio beyond two-year term, when appropriate, to provide income and structure to the portfolio •Maintain the diversification of the portfolio
•Focus on core objectives of safety, liquidity, and yield 26 FOURTH QUARTER
REVENUE MANAGEMENT REPORT
FOR FISCALYEAR 2021-2022
27 REVENUE MANAGEMENT PROGRAMS
• Finance Department Revenue Management focuses on collecting all outstanding receivables, with an emphasis on reducing delinquent accounts and enhancing revenue compliance, through four primary collection programs:
Accounts Receivable
Business Tax
Compliance and Monitoring
Utility Billing
• Efforts may span several reporting periods, and actual collections are reported as funds are received by the City
28 T otal Revenue: $4.242B
Source: 2020-21 City Manager’s
Budget Office Annual Report
(Graph is updated annually)
REVENUE MANAGEMENT PORTFOLIO
FY 2020-21 REVENUE ($ IN MILLIONS)
Lodging T axes and
Fees
$27.8
2.4%
Franchise Fees
$45.6
4.0%
Utility Users T ax
$107.0
9.3%
T elephone Line T ax
$20.9
1.8%
Real Property Transfer
Ta x
$50.5
4.4%
Utility Billing
$405.5
35.2%
Sales T ax
$284.0
24.6%
Misc. Billing
$154.8
13.4%
Business T axes
$56.3
4.9%
Revenue Management
$1,152
City-Wide Revenue
(excluding Revenue Management)
$3,090
29 Includes invoices billed through the
Business Tax System, the centralized
Accounts Receivable system (RevQ),
and the Utility Billing System.
(Graph is updated annually)
INVOICING AND PAYMENTS
(5 YEAR HISTORY)
99.4% 99.5% 99.3% 99.1% 96.1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$-
$100
$200
$300
$400
$500
$600
$700
$800
FY 16-17 FY 17-18 FY 18-19 FY 19-20 FY 20-21
In Millions
Payments Outstanding Percentage Collected
30 OUTSTANDING RECEIVABLES
(3 YEAR HISTORY)
31 -50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
19-20
Q1
19-20
Q2
19-20
Q3
19-20
Q4
20-21
Q1
20-21
Q2
20-21
Q3
20-21
Q4
21-22
Q1
21-22
Q2
21-22
Q3
21-22
Q4
Quarter to Quarter % Change
Millions
Revenue Management Aging
Total Receivables Delinquent (91+ days) Delinquency Percentage Change 32 DELINQUENT RECEIVABLES
COLLECTION STATUSSUMMARY ($ IN MILLIONS)
*Rounded
As of June 30, 2022
Write-Off Pending
$3.1M
1,481 Invoices
Liens
$0.7M
274 Invoices
Restitution Payment Plan
$0.9M
290 Invoices
Legal, Bankruptcy
$3.3M
679 Invoices
Collection Agency
$18.1M
27,019 Invoices
Active
$29.0 M
28,225 Invoices
To t a l
Current
$18.5M
T otal Delinquent
$55.1M
4.5 7.5
8.0 5.6
9.7 7.8
12.4 5.3
0.00 2.00
4.00 6.00
8.00 10.00
12.00 14.00
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
$5.0
20-21 Q1 20-21 Q2 20-21 Q3 20-21 Q4 21-22 Q1 21-22 Q2 21-22 Q3 21-22 Q4 Return on Investment (ROI)
Millions
Business Tax Accounts Receivable Revenue Compliance & Monitoring Actual ROI Target ROI: 5.5
33 COLLECTIONS & RETURN ON INVESTMENT
REVENUE MANAGEMENT COLLECTIONS
COVID-19 BUSINESS TAX
HARDSHIP EXEMPTION PROGRAM
• COVID-19 Business Tax Hardship Exemption Program
was available for City businesses from October 1, 2020, through June 30, 2022, a 21-month span
• Finance Department and Office of Economic
Development partnered with the Communications Office
to reach the approximately 60,000 businesses potentially eligible for the Program, utilizing social media, business chambers, direct emails and invoice inserts, with collateral materials transcreated from English into Spanish, Chinese and Vietnamese and distributed online and in City
Libraries
• 5,267 COVID-19 Business Tax Hardship Exemption
applications were received, with 99.9% processed to date • Current estimated business tax revenue loss for
approved exemptions is $800,452 vs. the original forecast of $1.9 million
Approved
3,896
74.0%
Denied
1,365
25.9%
Pending
6 0.1%
COVID-19 Business T ax Hardship
Exemption Applications
34 ACCOUNTS RECEIVABLE AMNESTY
PROGRAM PILOT (EQUITY LENS)
• On June 21, 2022, as part of the adoption of the 2022-2023 Operating Budget, the City Council approved Manager’s Budget Addendum (MBA) #38, Accounts Receivable Amnesty Program Pilot (Equity Lens), directing the Administration to pilot an Accounts Receivable Amnesty Program
• This program will address unpaid penalties and interest accruing to the City of San José General Fund and select fees within other funds for certain accounts billed from April 2020 through August 2021, with an estimated gross accounts receivable of $4.7 million, up to an estimated $1.3 million in waived unpaid penalties and interest, and an estimated Accounts Receivable Amnesty Program implementation expense of $192,000 • Finance Department will bring forward the Program for Council approval in September 2022 and the Department will implement and report on this pilot program in quarterly reports to the PSFSS Committee during FY 2022-23
35 FOURTH QUARTER
PURCHASING AND
RISK MANAGEMENT REPORT
FOR FISCALYEAR 2021-2022
36 PURCHASING PROGRAM
The Purchasing Division of the Finance Department is responsible for the centralized procurement of equipment, supplies, materials, Information T echnology (IT), and non-consulting services, pursuant to the City of San José Municipal Code Title 4, Chapter 4.12. 37 PURCHASING TRANSACTIONS COMPLETED
FY2021-22, FOURTH QUARTER
38 PROCUREMENT IMPROVEMENT UPDATE
•Procurement Improvement is a Strategic Support initiative under the City Roadmap
Finance re-engaged with Procurement Consultant (Guidehouse) in September 2021 Assessment included both Finance/Purchasing-managed and department-led procurements Guidehouse drafted Current State Assessment Report, completed 5 visioning sessions with City leadership, and produced the Future State Assessment Report •Completed Activities
Presented key recommendations from to Smart Cities and Services Improvement Committee on April 7, 2022 and City Council on May 10, 2022
•Staff evaluating recommendations and are working on prioritizing and implementing key recommendations
November 2022 Report to PSFSS Committee on Proposed Municipal Code Changes 39 DISPARITY STUDY UPDATE
• On January 12, 2021, the City Council directed the Administration to explore options for implementing a Citywide Disparity Study to evaluate and potentially determine the need for new procurement policies that facilitate participation of Minority-, Women-, and Other-Owned Business Enterprises (MWOBE) • Budgetary actions were taken on June 22, 2021 and additionally on June 21, 2022 resulting in fully funding the consulting services as described in FY 2020-21 Manager’s Budget Addendum #14, Disparity Study
• Completed Activities this Quarter
Negotiated and executed a contract with MGT of America Consulting, LLC for this Disparity Study and related services as authorized by City Council at its June 14, 2022 meeting Initial Kick-Off Meeting held and Data Collection Commenced 40 RISK MANAGEMENT PROGRAM
The Division is responsible for the procurement and oversight of the City’s property and casualty insurance programs and providing contractual risk management services, property subrogation claims reporting and
other key services to City Departments
41 42
RISK MANAGEMENTTRANSACTIONS COMPLETED
FY2021-22, FOURTH QUARTER
RISK MANAGEMENT BUSINESS PROCESS
AUTOMATIONS (BPAS) IMPLEMENTED
•Risk Management, in collaboration with ITD and departmental City stakeholders, implemented two Business Process Automations (BPAs) to replace manual processes and improve response times in the following two areas:
1) Request for Contract Insurance Specifications
2) Insurance Certificate Review for Insurance Compliance • As result, Risk Management average response times for each request is 1-2 business days, well below the departmental key performance metric target of 5 business days
43