Public Safety, Finance and Strategic Support Committee (psfss)
June 15, 2023

PSFSS COMMITTEE AGENDA: 6 /15/2023
ITEM: (c)1
TO: PUBLIC SAFETY, FINANCE, AND

STRATEGIC SUPPORT COMMITTEE
FROM: Jim Shannon
SUBJECT: BI-MONTHLY FINANCIAL REPORT
FOR MARCH/APRIL 2023
DATE: June 7, 2023

Approved Date

RECOMMENDATION
Accept the Bi-Monthly Financial Report on actual revenues and expenditures as compared to the 2022-2023 Budget for the ten months ending April 2023.

The Bi-Monthly Financial Report for March/April 2023 was jointly prepared by the City Manager’s Budget Office and the Finance Department and is presented for the Public Safety, Finance and Strategic Support Committee’s review. The City Manager’s Budget Office has analyzed actual expenditures as compared to the 2022-2023 Modified Budget and the Finance Department has prepared a report that reflects the financial results for the ten months ending April 2023.

Through the first ten months of the fiscal year, revenues and expenditures were generally tracking within the budgeted estimates in the majority of City funds. The Administration continues to closely monitor economic conditions and the performance in all City funds, and will bring forward adjustments, as appropriate, to the City Council as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum, which will be reviewed at the June 20, 2023 City Council meeting. Following are key highlights in this report:
• General Fund revenues are anticipated to exceed budgeted levels by $30 million. As further described in this report, several revenue categories are performing stronger than anticipated, including Property Tax, Sales Tax, Transfers and Reimbursements, Transient Occupancy Tax, and Utility Tax. Budget adjustments are included in the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum to recognize a significant portion of the additional revenue to more closely align the budget with anticipated collections.

• Overall, General Fund expenditures are anticipated to end the year approximately $25 million below budgeted levels, primarily due to vacancy savings. Expenditures will continue to be controlled and monitored to ensure appropriations stay within or below the approved levels.

This net savings accounts for necessary adjustments to address a very limited number of

OVERVIEW
6/7/2023

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

appropriations that are anticipated to exceed budgeted levels, which are included in the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum. • When combined with the $9.4 million included in the 2022-2023 Ending Fund Balance Reserve that was established with the City Council’s approval of the 2022-2023 Mid-Year Budget Review and the assumed liquidation of prior year carryover encumbrances, approximately $65 million of unrestricted Ending Fund Balance in the General Fund will be available as a source for the 2023-2024 Proposed Budget. Of this amount, $30 million was assumed in the 2024-2028 Five-Year General Fund Forecast and $35 million will be factored into the development of the 2023-2024 Proposed Budget.
• Transient Occupancy Tax activity levels are continuing to experience gains after the complete collapse of hotel room demand during the pandemic and are anticipated to end the year approximately $4.0 million above budgeted levels.
• Building and Structure Construction Tax collections are anticipated to end the year above budgeted levels; however, Construction Excise Tax collections are experiencing year-overyear declines and will likely fall below budgeted levels. Both of these revenue sources are dependent on construction activity, which has decreased compared to prior year levels.

• As a result of the struggling local real estate market, Construction and Conveyance Tax (C&C) revenue and Real Property Transfer Tax revenues are performing significantly below prior year levels and both are anticipated to end the year below budgeted levels. • The Norman Y. Mineta San José International Airport (SJC) has enplaned and deplaned 9.95 million passengers through April, an increase of 28.7% from the figures reported through April of the prior year. This year-over-year increase is due to the ongoing recovery of passenger traffic, which was significantly impacted as a result of the pandemic. • Through April 2023, SJCE’s Energy Sales (including encumbrances) totaled $359.4 million, or 97.4% of the 2022-2023 Modified Budget; Energy Sales totaled $417.1 million, or 82.4% of the budgeted estimate. Actions to increase Cost of Energy (expenditures) and Energy Sales (revenue) will be brought forward for City Council consideration as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council on June 20, 2023.
• Based on performance through April, all Development Fee Programs revenues, with the exception of the Planning Fee Program, are anticipated to meet or exceed budgeted levels by year-end.

OVERVIEW (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

Economic Environment
While Silicon Valley
continues to show
overall positive
economic performance,
several potential
indicators of a future
economic weakening
have begun. These
economic indicators
include a slow-down in
the local real estate
market and raising
unemployment rates.

While employment
figures continue to be relatively strong, layoffs, especially in the technology sector, have begun impacting unemployment rates.

The April 2023 employment level of 1.18 million in the San José-Sunnyvale-Santa Clara Metropolitan Statistical Area (San José MSA) grew by 32,200 jobs, or 2.8%, from April 2022 level of

1.15 million. This increase includes private education and health services increasing by 9,700 jobs; leisure and hospitality gaining by 9,600 jobs; and professional and business services growing by 7,500 jobs.
1 It is important to note that although April 2023 employment levels experienced year-overyear gains, they are still lower than the December 2022 employment figures by 10,300 jobs, or 0.9%.

The local unemployment rate for April
2023 was 3.0%, which is below the
March 2023 rate of 3.3%, but is higher
than the December 2022 rate of 2.4%.

It is important to note, that the San
José Metropolitan Statistical Area
unemployment rate continues to be
lower than the unadjusted employment
rate for the State (4.3%) and the nation
(3.1%).

Overall construction activity through
April 2023 decreased 19.4% from prior-year levels primarily due to activity for the residential and commercial land use categories experiencing year-over-year decreases from the prior year. The 2022-2023 Adopted Budget was developed with the expectation that development activity would increase slightly from the levels experienced in 2021-2022. If current trends continue, construction activity would moderately underperform the activity projected by the Planning, Building and Code Enforcement Department in the 2024-2028 Five-Year Forecast, which was released in February 2023.
1 State of California Employment Development: Labor Market Information Division Press Release, May 19, 2023 Unemployment Rate (Unadjusted)
April
2022
Dec.
2022
March
2023
April
2023**
San Jose
Metropolitan
Statistical Area*

2.5% 2.4% 3.3% 3.0%
State of California 4.0% 3.9% 4.8% 4.3%
United States 3.3% 3.3% 3.6% 3.1%
* San Benito and Santa Clara Counties Source: California Employment Development Department.
** April 2023 estimates are preliminary and may be updated.

OVERVIEW (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

Through April, residential permit valuation
has decreased 14.3% from prior-year levels
($281.5 million in 2022-2023 from $328.5
million in 2021-2022). Residential activity
through April included 971 multi-family units
and 391 units of single-family construction for
a total of 1,362 units. A notable project for
March and April includes a permit for a
twelve-unit townhouse located on Redberry
Way between San Tomas Expressway and
Winchester Boulevard.

Commercial valuation through April 2023 was 31.4% lower than the 2021-2022 level ($493.5 million in 2022-2023 from $719.4 million in 2021-2022). Alterations accounted for almost 60% of the commercial activity for March and April ($48.0 million). A notable project for March and April includes a permit issued for an eight-story hotel located on W. San Carlos St. west of State Route 87 and north of Highway 280.

Industrial construction valuation through April 2023 was 6.4% higher than prior-year levels, with receipts totaling $289.2 million in 2022-2023 and $271.7 million in 2021-2022. Alterations accounted for all the industrial activity in March and April ($17.6 million).

While construction activity and employment levels are still relatively strong, an area of concern is the local real estate market has continued to weaken. Beginning in mid-2020, the local real estate market performed extremely strong; posting record high median single home prices, very strong sales activity, and properties sold quickly. However, beginning in December 2021, property sales started to dip, with year-over-year transactions (from the same time period in the prior year) declining most months. Further, in order to combat high inflation rates, the Federal Reserve has significantly raised interest rates over the past year, and they have indicated they will continue to implement aggressive monetary policies until inflation begins to moderate. As interest rates increase, so have
mortgage rates, which are
expected to continue to
negatively impact the
number and price of
property sales.

According to data from
the Santa Clara County
Association of Realtors, in
April 2023, the median
single-family home price
totaled $1.5 million,
which is 13.7% lower
than the April 2022 price
Private Sector Construction Activity
(Valuation in $ Million)
April
2022
(YTD)
April
2023
(YTD)
%
Change
Residential $328.5 $281.5 (14.3%)
Commercial $719.4 $493.5 (31.4%)
Industrial $271.7 $289. 6.4%
TOTAL $1,319.6 $1,064.2 (19.4%)
OVERVIEW (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

of $1.75 million. In addition, homes are staying on the market for longer periods of time before selling. The average days-on-market through April 2023 totaled 20 days, which is significantly above the average of 14 days experienced year-to-date through April 2022. In addition, as discussed, property sales activity has been significantly declining. Property Sales through April 2023 dropped almost 36% compared to the prior-year sales. Local real estate activity will continue to be closely monitored.

On a national level, consumer confidence decreased in April. Ataman Ozyildirim, Senior Director of Economics at The Conference Board, stated “While consumers’ relatively favorable assessment of the current business environment improved somewhat in April, their expectations fell and remain below the level which often signals a recession looming in the short-term. Consumers became more pessimistic about the outlook for both business conditions and labor markets Compared to last month, fewer households expect business conditions to improve and more expect worsening of conditions in the next six months. They also expect fewer jobs to be available over the short term.”
2 Economic conditions were taken into consideration in the development of the 2023-2024 Proposed Budget, which was released in May 2023.

REVENUES
General Fund revenues through April 2023 totaled $1.26 billion, which represents a decrease of $11.4 million from the April 2022 level of $ 1.27 billion. This decrease is primarily attributable to a transfer that occurred in 2021-2022 from the American Rescue Plan Fund ($45.0 million) and lower Real Property Transfer Tax proceeds ($42.0 million). In 2021-2022, General Fund revenues included a one-time transfer of $45.0 million from the American Rescue Plan Fund to partially reimburse the City for revenue losses resulting from the pandemic. Additionally, Real Property Transfer Tax collectionstotaled $110.0 million in 2021-2022 due to the large number of high-dollar commercial real estate sales. However, due to the tightened real estate market discussed previously, Real Property Transfer Tax activity is anticipated to decrease in 2022-2023 (2022- 2023 Adopted Budget estimate totals $65.0 million). Partially offsetting these significant yearover-year declines is increased revenue from Property Tax revenue ($60.1 million) and Utility Tax revenue ($19.5 million).

Other categories that are experiencing smaller year-over-year declines include: Other Revenue ($37.5 million), which is primarily attributable to lower levels of the Tax and Revenue Anticipation Notes (TRANs) proceeds and payments ($10.0 million), and commercial paper proceeds received in 2022-2023 ($12.7 million); Sales Tax ($9.2 million); Licenses and Permits ($2.7 million); and Telephone Line Tax ($1.0 million). However, offsetting these declines are increases in every other revenue category, the largest of which include Franchise Fees ($13.4 million), Revenue from Use of Money/Property ($7.3 million), Revenue from the State of California ($6.1 million), Transient Occupancy Tax ($4.1 million), and Business Taxes ($2.7 million). These higher collections are due to the timing of payments and higher activity levels. Through April, a total of $60 million is 2 The Conference Board, Consumer Confidence Survey, April 25, 2023 OVERVIEW (CONT’D.)

GENERAL FUND

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

anticipated to be available in 2023-2024 from a combination of excess revenues and expenditure savings, including: $9.4 million from the 2022-2023 Ending Fund Balance Reserve established with City Council’s approval of the 2022-2023 Mid-Year Budget Review; $30 million from excess revenue; $25 million from expenditure savings; and $500,000 from the liquidation of prior year carryover encumbrances. Of this amount, $30 million was assumed as part of the 2024-2028 General Fund Forecast, with the remaining $35 million being factored into the development of the 2023-2024 Proposed Budget. The discussion on the following pages highlights General Fund revenue activities through April 2023.

KEY GENERAL FUND REVENUES
Revenue
2022-2023
Budget Estimate
YTD
Actual
Prior YTD
Collections
Property Tax $ 437,000,000 $ 286,399,428 $ 226,348,608
The Property Tax category consists of Secured Property Tax, Unsecured Property Tax, SB 813 Property Tax (retroactive collections back to the point of sale for reassessments of value due to property resale), Aircraft Property Tax, and Homeowner’s Property Tax Relief. Based on the most recent information that has been received from Santa Clara County, Property Tax receipts in 2022- 2023 are estimated at $446.8 million, which is 7.9% above the 2021-2022 collection level of $414.1 million. In addition, the estimated revenue is approximately $10 million higher than the 2022- 2023 Modified Budget estimate. This increase is primarily due to higher Secured Property Tax receipts ($4.5 million), SB 813 collections ($3.0 million), and Unsecured Property Tax receipts ($2.0 million). A budget adjustment to increase Property Tax by $10.0 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023. Additional information about each of the Property Tax sub-categories is provided on the following pages.

Secured Property Taxes represent over 90% of the revenue in the Property Tax category. The Secured Property Tax category includes general Secured Property Tax, Successor Agency to the Redevelopment Agency (SARA) Residual Property Tax, and Educational Revenue Augmentation Fund (ERAF) revenues. Based on the most recent information provided by Santa Clara County, Secured Property receipts are anticipated to total $415.6 million in 2022-2023. The estimate is comprised of General Secured Property Tax receipts of $355.8 million, excess ERAF funds of $37.7 million, and SARA Residual Property Tax receipts of $22.0 million. A budget adjustment to increase the Secured Property Tax by $4.6 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

As mentioned above, the general Secured Property Tax estimate totals $355.8 million in 2022- 2023, which assumes growth of approximately 7.5% from the 2021-2022 collection level. This growth primarily reflects an increase in assessed value due to the California Consumer Price Index (CCPI) increase of 2% and increased valuation due to changes in ownership or new construction of 5.2%. Under Proposition 13, assessed values of all real property adjust with the CCPI, with a 2% limit, unless there is a change in ownership, new construction, or a property has received a Proposition 8 adjustment.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

As a result of the SARA bond
refunding that occurred in
December 2017, the City
began receiving a residual
property tax distribution. In
2022-2023, receipts are
estimated at $22.0 million,
which is 20.5% higher than the
2021-2022 collection level of
$18.3 million.

Beginning in 1992, agencies
have been required to reallocate
a portion of property tax
receipts to the ERAF, which offsets the State’s General Fund contributions to school districts under Proposition 98. Once there are sufficient funds in ERAF to fulfill obligations, the remainder of the funding is returned to the taxing entities that contributed to it, which generally occurs in March of each fiscal year. Based on information recently provided by the State of California and Santa Clara County, 2022-2023, receipts are estimated at $37.7 million, which is $2.7 million higher than the 2022-2023 budget estimate of $35.0 million, but are $1.1 million below the 2021-2022 collection level of $38.9 million.

The Unsecured Property Tax category refers to property that can be relocated and is not real estate. The most common forms of unsecured property include boats, business personal property, and undeveloped land. In 2022-2023, receipts of $16.0 million are estimated, which is $2.0 million above the 2022-2023 Modified Budget estimate of $14.0 million. A budget adjustment to increase the Unsecured Property Tax by $2.0 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

The SB 813 Property Tax category represents the retroactive taxes reassessed property valuation from the period of resale to the time that the Santa Clara County Assessor formally revalues the property. The 2022-2023 Modified Budget estimate of $7.5 million is consistent with the 2021- 2022 actual collection level. However, based on the most recent information provided by Santa Clara County, receipts are anticipated to total $10.5 million. A budget adjustment to increase the SB 813 Property Tax by $3.0 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

Aircraft Property Tax receipts are primarily received in October of each year. Revenue in 2022- 2023 are anticipated to total $3.9 million, which is $400,000 above the 2022-2023 Modified Budget estimate. A budget adjustment to increase the Aircraft Property Tax by $400,000 will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

In the Homeowners Property Tax Relief category, revenue in 2022-2023 are expected to be at the budgeted estimate of $900,000, which is consistent with the 2021-2022 collection level.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

Revenue
2022-2023
Budget Estimate
YTD
Actual
Prior YTD
Collections
Sales Tax $ 331,000,000 $ 205,344,272 $ 214,536,307
The Sales Tax category includes General Sales Taxes, Local Sales Taxes, and Proposition 172 Sales Taxes. Based on collections through the first three quarters, Sales Tax revenues are expected to end 2022-2023 at 337.2 million, which is $6.2 million above the 2022-2023 Modified Budget estimate of $331.0 million and $14.1 million above the 2021-2022 collection level of $323.1 million. A budget adjustment to increase Sales Tax by $6.2 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

Information related to Sales Tax payments is distributed from the California Department of Tax and Fee Administration (CDTFA) four times throughout the year: November (representing JulySeptember activity), February (representing October-December activity), May (representing January-March activity), and August (representing April-June activity). The final Sales Tax payment (representing April-June activity) is anticipated to be received at the end of August 2023 and will be discussed as part of the 2022-2023 Annual Report that will be released on September 30, 2023. Additional information about each of the Sales Tax sub-categories is provided on the following pages.

General Sales Tax is the largest driver of the Sales Tax category and accounts for over 80% of all Sales Tax receipts. As mentioned above, three-quarters of General Sales Tax receipts have been received; the first quarter reflected year-over-year growth of 11% and the second quarter reflected year-over-year growth of 15%, which reflected significantly high inflation rates and moderate economic growth. The third quarter receipts, however, were recently received and reflected yearover-year growth of only 3.8%, which is the result of the slowing economy. The final General Sales Tax payment will not be received until late August and is anticipated to reflect a slight decline from the prior year collection level. In total, 2022-2023 General Sales Tax receipts are estimated at $272.0 million, which is $4.0 million over the 2022-2023 Modified Budget and $12.1 million higher than the 2021-2022 actual collection level of $259.9 million. A budget adjustment to increase General Sales Tax by $4.0 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023. As mentioned above, the final payment for General Sales Tax will be received at the end of August 2023. A final update on the General Sales Tax performance will be included as part of the 2022-2023 Annual Report, which will be released on September 30, 2023
GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

The City’s Sales Tax consultant, Avenu Insights & Analytics, has provided performance data for General Sales Tax revenue, as displayed on the chart below. This analysis measures the first and second quarter General Sales Tax receipts for 2021-2022 and 2022-2023, excluding Sales Tax associated with the Revenue Capture Agreement. As mentioned, the third quarter payment has recently been received, however, detailed information about the revenue is not yet known.

General Sales Tax Revenue Economic Performance
First – Second Quarter Payments
Category
2022-2023
% of Total Revenue
2021-2022
% of Total Revenue
% Change by
Category
General Retail 18.9% 19.8% 6.1%
Business-to-Business 18.3% 15.7% 30.0%
Transportation 18.0% 18.1% 10.9%
Food Products 13.2% 13.1% 12.2%
Construction 9.0% 9.4% 7.1%
Miscellaneous 0.5% 0.7% (11.5%)
County Pool 22.1% 23.2% 6.3%
Total 100.0% 100.0%
As can be seen in the table above, almost all categories have experienced year-over-year growth, the largest of which include General Retail (apparel stores, department stores, furniture/appliance stores, drug stores, recreation products, and florists/nurseries), Business-to-Business (office equipment, electronic equipment, business equipment, energy sales), Transportation (auto parts, auto sales, service stations), Food Products (restaurants, markets, liquor stores), and Construction (wholesale and retail building materials).

In addition, the County Pool, which is where the majority of online transactions are captured, has continued to grow. This growth is attributable to the pandemic’s sustained impact of redirecting a significant amount of activity to online sales. The recent growth in County Pool receipts has been fueled by online purchases during the pandemic and is facilitated by the South Dakota vs.

Wayfair, Inc. Supreme Court decision in 2018, which provided states with the authority to require online retailers to collect sales tax even without a local presence in that State. The County Pool revenue is distributed to all cities within Santa Clara County based on a distribution formula administered by the CDTFA. This formula is based each quarter on each jurisdiction’s total General Sales Tax receipts divided by the Total General Sales Tax receipts for the entire County. The City typically receives between 45% - 50% of the total County Pool.

Local Sales Tax

In June 2016, San José voters approved a ¼ cent Local Sales Tax, which was implemented in October 2016. Local Sales Tax is generated based on the destination of the purchased product; therefore, all out-of-state online retailers’ (including marketplace facilitators) sales tax collections are directly distributed to the City of San José, versus the General Sales Tax revenue that is GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

deposited in the
County Pool, where
the City only receives
approximately 45% -
50% of the
proceeds. Due to this
distinction, Local
Sales Tax revenue
may not always
experience the same
growth and decline
rates as General Sales
Tax receipts. Similar
to General Sales Tax,
Local Sales Tax
receipts for the first
quarter (sales tax activity for July-September) and for the second quarter (sales tax activity from October-December) were received in November 2022 and February 2023 and continue to reflect strong year-over-year growth of approximately 10% per quarter. However, third quarter receipts received in April (sales tax activity for January-March) and reflects more moderate growth of

3.6%. The final Local Sales Tax payment will not be received until late August and is anticipated to reflect a slight decline from the prior year collection level. Based on these assumptions, 2022- 2023 Local Sales Tax are estimated at $57.0 million, which is $3.0 million above the 2022-2023 Modified Budget estimate and $2.1 million over the 2021-2022 collection level. A budget adjustment to increase Local Sales Tax by $3.0 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023. A final update on the Local Sales Tax performance will be included as part of the 2022-2023 Annual Report, which will be released on September 30, 2023.

Proposition 172 Sales Tax collections represents the ½ cent tax that is allocated to counties and cities on an ongoing basis for funding public safety programs. The 2022-2023 budgeted estimate of $9.0 million requires growth of 7.6% from the 2021-2022 collection level of $8.4 million.

Through April 2023, Proposition 172 Sales Tax revenue totals $5.5 million, which is 1.8% below the prior year collection level. Therefore, it is anticipated that 2022-2023 receipts will end the year approximately $800,000 below the budgeted level. A budget adjustment to decrease Proposition 172 Sales Tax by $800,000 will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

Revenue
2022-2023
Budget Estimate
YTD
Actual
Prior YTD
Collections
Transient Occupancy Tax $ 11,000,000 $ 10,545,972 $ 6,468,033 The 2022-2023 budget estimate for the General Fund Transient Occupancy Tax (TOT) allocation (40% of the total tax) is $11.0 million. When the 2022-2023 Adopted Budget was developed, it was anticipated that 2021-2022 collections would total $9.0 million and conservatively estimated growth of 22% to $11.0 million in 2022-2023. However, 2021-2022 ended the year at $10.5 million, due to stronger than anticipated year-end hotel activity. As a result, 2022-2023 collections require growth of only 4.6% in 2022-2023 to meet the budgeted estimate. Through April 2023, TOT receipts total $10.5 million, which is 63.0% above the prior year collection level of $6.5 million. This growth level is indicative of an increase in demand for hotel rooms following the unprecedented impacts from the pandemic. Based on performance through April, receipts are anticipated to exceed the budgeted estimate by approximately $4 million. A budget adjustment to increase TOT by $4.0 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

Overall room demand and
revenues have continued to
improve in 2022-2023, with
occupancy and room rates
peaking at 68.81% and
$160.77 in August 2022 –
the second highest monthly
performance levels to date
since April 2020 and the
height of the pandemic’s
impacts, only surpassed by
June 2022 performance of

72.35% and $162.92.

Performance declined in
November and December, with incremental gains experienced through March until a slight downturn in April - largely following the normal holiday and seasonal pattern. Through April 2023, the cumulative average hotel occupancy rate reported for the San José market was 62.29%, compared to 55.90% through April 2022. Additionally, cumulative average room rates increased by 27.4%, from $123.91 to $157.83, and the year-to-date average revenue-per-available room (RevPAR) increased by 41.93%, from $69.27 to $98.31, relative to the same period in 2021-2022.

Reported hotel performance through April 2023 highlights a consistent growth pattern, building on the gains seen during 2021-2022. However, impacts related to a possible upcoming recession introduces a new uncertainty into this already volatile revenue source. In partnership with Team San Jose (the City’s operator of convention and cultural facilities, as well as the Convention and Visitors Bureau), the Administration will continue to actively monitor hotel and revenue performance and provide a final update on the TOT performance as part of the 2022-2023 Annual Report that will be released on September 30, 2023.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

Revenue
2022-2023
Budget Estimate
YTD
Actual
Prior YTD
Collections
Utility Tax $ 114,450,000 $ 96,017,649 $ 76,486,819
The Utility Tax category includes the Electricity Utility Tax, Gas Utility Tax, Water Utility Tax, and the Telephone Utility Tax. Through April, Utility Tax receipts total $96.0 million, which is significantly higher than the prior-year level of $76.5 million. The year-over-year increase represents higher collections in all Utility Tax categories, with the exception of the Telephone Utility Tax. The increase in Electricity, Water, and Gas receipts is primarily attributable to increased rates and activity levels and the timing of payments being processed in the City’s financial system. Based on current collection trends, Utility Tax receipts are anticipated to end the year $6.5 million above the 2022-2023 budgeted estimate of $114.5 million. A budget adjustment to increase the Utility Tax budgeted estimate by a net of $6.5 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

In the Electricity
Utility Tax
category, collections
through April 2023
totaled $52.3
million, which is
significantly higher
than the $39.5
million received in
the prior year. This
increase is primarily
due to increased
rates and activity
levels as well as the
timing of when
payments were
received and booked
in the City’s financial system. The 2022-2023 Modified Budget estimate totals $64.0 million.

Based on collections through April, receipts are anticipated to exceed the budgeted estimate by approximately $2 million. Therefore, a budget adjustment to increase the Electricity Utility Tax budgeted estimate by $2.0 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

In the Gas Utility Tax category, collections through April totaled $13.5 million, which is significantly higher than the prior year receipts of $10.9 million. This increase is primarily due to increased rates and activity levels as well as the timing of when payments were received and booked in the City’s financial system. The 2022-2023 Adopted Budget estimate totals $14.0 million.

Based on collections through April, receipts are anticipated to exceed the budgeted estimate by approximately $5 million. Therefore, a budget adjustment to increase the Gas Utility Tax budgeted estimate by $5.0 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

In the Water Utility Tax category, collections through April totaled $17.0 million, which is significantly higher than the prior year receipts of $12.1 million. This increase is primarily due to increased rates and activity levels as well as the timing of when payments were received and booked in the City’s financial system. The 2022-2023 Adopted Budget estimate totals $18.0 million and it is currently anticipated receipts will end the year at the budgeted level.

Collectionsin the Telephone Utility Tax category of $13.2 million through April are 5.7% below the prior-year collections of $14.0 million. The 2022-2023 Adopted Budget estimate of $18.5 million allows for a 4% drop from the 2021-2022 actual collection level of $19.2 million. Based on collections through April, receipts are anticipated to fall approximately $500,000 below the budgeted estimate. Therefore, a budget adjustment to decrease the Telephone Utility Tax budgeted estimate by $500,000 will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

Revenue
2022-2023
Budget Estimate
YTD
Actual
Prior YTD
Collections
Business Taxes $ 86,000,000 $ 71,082,024 $ 68,359,670
The Business Taxes category consists of the Cannabis Business Tax, Cardroom Tax, Disposal Facility Tax, and General Business Tax. Through April, overall collections of $71.1 million are

4.0% above the prior-year collection levels of $68.4 million. This year-over-year growth reflects higher Cardroom Business Tax, General Business Tax and Disposal Facility Tax collections, partially offset by lower Cannabis Business Tax collections. The 2022-2023 Adopted Budget estimate of $86.0 million requires growth of 1% from the 2021-2022 actual collection level. Based on overall Business Taxes performance through April, it is anticipated that receipts will exceed the overall budgeted level by $1 million. Therefore, a budget adjustment to increase the Business Taxes budgeted estimate by a net of $1.0 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

Cannabis Business
Tax collections
reflect cannabis
business tax as well
as cannabis business
tax compliance
revenues. Cannabis
Business Tax
collections began
after San José voters
approved Ballot
Measure U on
November 2, 2010,
which allowed the
City to tax marijuana
businesses. Further,
in November 2016, the California Marijuana Legalization Initiative (Proposition 64) was approved by voters, which legalized recreational marijuana use in California. As a result, the sale of recreational cannabis at the 16 registered businesses in San José began in January 2018. Through April, receipts of $11.7 million are 12.1% below the prior-year collection level of $13.3 million.

The 2022-2023 Modified Budget estimate for Cannabis Business Tax revenue totals $18.0 million, which is consistent with the 2021-2022 collection level. However, based on performance levels through April, receipts may end the year approximately $3 million below the budgeted level.

Therefore, a budget adjustment to decrease the Cannabis Business Tax budgeted estimate by $3.0 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

Through April, Cardroom Business Tax receipts totaling $22.3 million have been received, which is 11.2% higher than the prior year level of $20.0 million. These collections are inclusive of the ballot measure approved by voters in November 2020 that increased taxes on cardroom operators beginning in January 2021. The 2022-2023 Modified Budget estimate for Cardroom Tax revenue totals $29.0 million, which is consistent with the 2021-2022 actual collection level. Based on performance through April, receipts may end the year $3 million above the budgeted level.

Therefore, a budget adjustment to increase the Cardroom Business Tax budgeted estimate by $3.0 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

Disposal Facility Tax (DFT) are business taxes received based on the tons of solid waste disposed of at landfills within the City. DFT revenue through April totaled $10.0 million, which is 7.7% above the prior-year collection level of $9.3 million. The 2022-2023 Adopted Budget estimate of $13.0 million requires growth of 2.1% from the 2021-2022 collection level of $12.7 million. Based on performance through April and historical collection patterns, receipts in this category are anticipated to meet or slightly exceed the budgeted estimate by year-end.

Through April, General Business Tax receipts of $27.1 million are 5.4% above the prior year collection level of $25.7 million. The 2022-2023 Adopted Budget estimate of $26.0 million requires growth of 1.1% from the 2021-2022 collection level of $25.7 million. Based on the performance through April, receipts in this category are anticipated to end the year approximately $1 million above the budgeted estimate. Therefore, a budget adjustment to increase the General Business Tax budgeted estimate by $1.0 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE June 7, 2023
Subject: Bi-Monthly Financial Report for March/April 2023

Revenue
2022-2023
Budget Estimate
YTD
Actual
Prior YTD
Collections
Real Property Transfer Tax $ 65,000,000 $ 44,008,557 $ 86,010,582 On March 3, 2020, San José voters approved Measure E, the Real Property Transfer Tax. This new tax, which became effective on July 1, 2020, isimposed at a tiered levelfor property transfers (sales) over $2.0 million. In accordance with City Council Policy 1-18, Section 22, this tax revenue is allocated for the development of new affordable housing, homelessness prevention, and homelessness support programs.

Through April 2023, Real Property Transfer Tax collections totaled $44.0 million, which is significantly below the prior-year level of $86.0 million. In addition, the City has received the May tax receipts from Santa Clara County, which total $3.2 million. When taking into account total receipts through April and the May remittance, total Real Property Transfer Tax receipts in 2022-2023 total $47.2 million, compared to the prior year level of $92.7 million. This significant variance is due to several factors. First, due to the timing of when a payment from Santa Clara County was processed, funding of $9.7 million was reflected in 2021-2022 but was attributable to 2020-2021 activity. In addition, a larger amount of high-value property transfers occurred in the prior year. As a decrease in activity was anticipated, the 2022-2023 Adopted Budget estimate of $65.0 million is significantly below the 2021-2022 collection level of $110.0 million. However, the drop-off in activity has deepened in recent months. It is currently anticipated that Real Property Transfer Tax revenue will likely fall short of the budgeted estimate by approximately $5 - $10 million. Collections will continue to be closely monitored, with a final report on the Real Property Transfer Tax performance and reconciliation budgetary adjustments being included in the 2022-2023 Annual Report that will be released on September 30, 2023.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE December 2, 2022
Subject: Bi-Monthly Financial Report for September/October 2022

EXPENDITURES
Through April, General Fund expenditures (without encumbrances) of $1.2 billion were 5.5% above the prior-year level of $1.1 billion. Encumbrances of $90.3 million were 8.8% above the prior-year level of $83.0 million. General Fund expenditures and encumbrances through April of $1.3 billion constitute 56.2% of the total budget including reserves and 65.9% of the budget excluding reserves. Overall, General Fund expenditures are anticipated to end the year approximately $25 million below budgeted levels, primarily as the result of position vacancy savings throughout the organization.

Through April, departments are overall performing within estimated levels for personal services expenditures, with the exception of the City Attorney’s Office, Environmental Services Department, Fire Department, Police Department, Public Works Department, and Library Department. Expenditures will continue to be controlled and monitored to ensure appropriations stay within approved levels, to the extent possible. Actions will be included in the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023 to adjust funding levels for the Fire Department, Police Department, and Public Works Department. In addition, other adjustments will be included in the memorandum to ensure expenditure appropriations end the year within the budgeted levels, such as shifting funds from the Library Non-Personal/Equipment appropriation to the Library Personal Services appropriation. Following is a discussion of the performance of the Police and Fire Departments, the largest General Fund departments, as well as the Public Works Department.

KEY GENERAL FUND EXPENDITURES
Department
2022-2023
Budget
YTD
Actual
Prior YTD
Actual
Police $ 504,527,737 $ 395,566,875 $ 390,739,027
Overall, Police Department expenditures are slightly above estimated levels through April, which is driven by high Personal Services expenditures. Personal Services expenditures of $367.4 million are slightly above the anticipated level for this point of the year (79.73% expended, compared to the par level of 79.18%), with overtime expenditures of $43.2 million (105.93% of the total $40.8 million Modified Budget). Year-to-date overtime expenditures are 20.87% above 2021-2022 levels and overtime hours through April (484,218) increased by approximately

15.22% over the same period in the prior fiscal year (420,268). The increased overtime usage is attributed to staffing shortages, backfilling street-ready vacancies, and increased caseload in the Homicide, Sexual Assault, Robbery, and Covert Response Units. The Department is on pace to exceed its overall Personal Services budget of $460.8 million by approximately $4 - $5 million.

Actions will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023 to increase the Personal Services budget and to realign funding between salaries and overtime to rebalance allocations.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE December 2, 2022
Subject: Bi-Monthly Financial Report for September/October 2022

A total of $28.2 million (64.42%) of the Department’s Non-Personal/Equipment budget ($43.8 million, including carry-over encumbrances) has been expended through April. Excluding the remaining balances for centrally-determined details ($7.6 million), which include electricity, gas, and water utilities, as well as vehicle operations, maintenance, and replacement, the Department has approximately $8.0 million, or 18.2% of its Non-Personal/Equipment budget available for the remainder of the fiscal year. Non-Personal/Equipment expenditures are well below estimated levels (64.42% expended, compared to the par level of 79.18%) and are anticipated to end the year within budgeted levels. However, most of this savings is attributable to vehicle replacements that cannot be spent due to supply chain issues and will be recommended to be rebudgeted into 2023-2024.

Overtime consists of both overtime expenditures and compensatory time. The Memorandum of Agreement (MOA) with the Police Officer’s Association (POA) limits how much overtime can be earned for pay versus compensatory time. The Police Department continues to diligently work to fill vacancies in both sworn and civilian positions. Through the use of vacancy savings and the $7.4 million in one-time funding from the Sworn Hire Ahead Program, funding is made available to pay for Police Academy Recruits as well as to backfill vacant patrol and investigative positions on overtime. While the goal is to fill vacancies and eliminate the need to backfill positions, the normal duration for the academy and field training is approximately 10-12 months, requiring overtime to backfill vacancies in patrol until the new recruits are ready to serve as solo beat officers. Effective vacancy levels, which include vacancies of field training officers, academy recruits, and sworn personnel on disability, modified, or other leaves, reduce the amount of street-ready sworn officers available and are the most significant contributing factor to overtime usage. The effective vacancy rate was 20.9% as of May 5, 2023. Historically, the effective vacancy rate has averaged 20.4% (based on the 5-year period between 2017-2018 and 2021-2022), resulting in the build-up of compensatory time balances for sworn personnel, for which there is a limit of 480 hours after which sworn personnel are paid in overtime for any additional hours worked.

In accordance with the POA MOA, the Police Department is enforcing compensatory time controls by requiring all sworn staff, outside of the Bureau of Field Operations (BFO), to reduce compensatory time balances by the end of each calendar year, or to submit a request for an extension and to prioritize compensatory time as requested time off (outside of sick leave purposes). On November 22, 2021, the Chief issued an order to reduce compensatory time balances for any sworn staff member who believes they will not be able to take the excess time off before the end of the calendar year. This order requires sworn staff to submit a plan to their immediate supervisor each year, consistent with MOA section 13.6.5.1, by December 1, excluding sworn staff assigned to Patrol. Each plan must outline how a sworn staff member will reduce their compensatory time by March 31. These changes are intended to reduce the number of officers reaching the 480-hour limit. The plans have been implemented, but due to the needs of the Department (staffing, workload, and specific assignments), there has been limited flexibility in allowing staff to take time off; however, the Department has seen a large majority of individuals taking at least a portion of their excess time off, which has contributed to a reduction in compensatory time hours across the Department. Additionally, on December 13, 2022, the City Council approved a new POA MOA which contains a provision to require all vacation requests for an employee whose compensatory time balance has reached 300 hours to come from the employee’s compensatory time balance until the balance falls below 240 hours.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE December 2, 2022
Subject: Bi-Monthly Financial Report for September/October 2022

Finally, the Police Chief’s Office and City Manager’s Budget Office are meeting later this month to discuss alternative approaches around workload and overtime that account for the need to ensure appropriate levels of public safety response while also managing within existing budgetary levels, especially given the growing number of vacant sworn positions and smaller than desired recruit academies.

The City Auditor’s March 2021 Police Staffing, Expenditures, and Workload audit report included several recommendations to increase the number of compensatory time-related data that should be included in the Mid-Year Budget Review, Bi-Monthly Financial Reports, and Annual Report. The table below summarizes this data.

April
2022[1]
April
2023
% Change
from 2022
to 2023
% Change
from 2021
to 2022
# of Sworn Personnel at 480-hour
limit
402 413 2.74% (14.29%)
# of Sworn Personnel between
240 and 480 hours
317 307 (3.15%) 31.54%
Sworn Compensatory Time
Balance Liability (hours)
351,988 347,433 (1.29%) (0.14%)
Sworn Compensatory Time
Balance Liability ($)
$26.9 M $27.9 M 3.70% 8.40%
YTD Overtime Expenses for Staff
at 480-hour Limit ($)[2]
$15.6 M $18.7 M 19.96% (6.22%)
The table on the following page provides a summary of sworn staffing vacancies and street-ready officers. The June 2022 Academy graduated 22 recruits that are in the next phase in their career as Field Training Officers. There are currently two active academies, October 2022 (19 recruits) and February 2023 (17 recruits). The Department is anticipating that the June 2023 academy will draw 17 recruits. As of May 5, 2023, of the 1,173 authorized sworn staff, 58 were in training (4.9%) and 73 were on disability/modified duty/other leaves (6.2%). 2021-2022
(as of 5/06/2022)
2022-2023
(as of 5/05/2023)
Authorized Sworn Positions 1,153 1,173
(Vacancies)/Overstaff (17) (114)
Filled Sworn Positions[3] 1,136 1,059
Field Training Officer/Recruits (93) (58)
Street-Ready Sworn Officers Available 1,043 1,001
Disability/Modified Duty/Other Leaves (84) (73)
Street-Ready Sworn Officers Working 959 928
GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE December 2, 2022
Subject: Bi-Monthly Financial Report for September/October 2022

The table below further identifies the length of time that sworn officers have been on leave status, as of May 5, 2023. Although the Department makes every effort to support the health and wellbeing of all staff members, as well as the safe resumption of duties as quickly as possible, the particularly physical and dangerous nature of the work performed by sworn positions results in a higher potential for injury. Over the last five years, between 2017-2018 and 2021-2022, the number of sworn positions on leave ranged from a high of 147 to a low of 51. During this time, the average number of sworn positions on leave was approximately 75 with a standard deviation of approximately 11 sworn positions. The current number of sworn positions on leave (73) is lower than the historical average (75) but within the expected normal range of variability seen over the last five years.

Length of Leave Status (as of 5/05/2023)
Type of Leave 0-3 Months 3-6 Months 6-12 Months 1 Year + Total Disability 5 1 5 4 15
Modified Duty 18 5 8 5 36
Other 16 1 1 4 22
Total 39 7 14 13 73
[1] The Bi-Monthly Financial Report for March/April 2022 was underreported due to the omission of the final pay period of April 2022. All data categories have been revised in this column to include the missing pay period. [2] The Bi-Monthly Financial Report for March/April 2022 included an overestimated calculation of the YTD Overtime Expenses for Staff at the 480-hour Limit. This report has corrected that error. [3] Filled sworn positions and authorized sworn positions may vary due to vacancies or the approval of over-strength (temporary) positions. The Police Department has special authority under the City’s Sworn Hire Ahead Program to overstaff sworn positions to get a head start on training recruits due to retirement and other separation.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE December 2, 2022
Subject: Bi-Monthly Financial Report for September/October 2022

Department
2022-2023
Budget
YTD
Actual
Prior YTD
Actual
Fire $ 277,665,381 $ 223,741,759 $ 215,547,763
The Fire Department’s budget totals $277.7 million, which is comprised of $265.1 million for Personal Services and $12.6 million for Non-Personal/Equipment expenditures. Overall, Fire Department expenditures are performing slightly above estimated levels through April 2023.

Personal Services expenditures of $213.6 million, or 80.60% of the Modified Budget, are trending higher than the par level of 79.18% for this point in the year and are anticipated to exceed current budgeted levels by $4 million. This variance can largely be attributed to reimbursable wildfire deployments, vacation, and sick time payouts, and increases in overtime to backfill positions and maintain the daily minimal staffing level for deployed resources of 190 personnel. Through the end of April, the Department responded to 86,621 incidents (Priority 1 and Priority 2 type calls) compared to the 79,917 incidents (8.4% increase) during the same period in 2021-2022. Budget adjustments totaling an estimated $3.8 million will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023, partially offset by reimbursements of $2.2 million for prior wildfire deployments (Strike Team) for a net increase of $1.6 million. The Department will continue to remain vigilant in their efforts in maintaining minimum staffing levels to keep pace with the increased demand in emergency call volume.

The Fire Department’s Non-Personal/Equipment budget of $12.6 million was 80.08% expended or encumbered through April 2023, exceeding the par level of 79.18% due to current encumbrances ($2.35 million), reimbursable costs incurred for prior wildfire deployments, and higher than anticipated costs for vehicle operations and maintenance. Budget adjustments totaling an estimated $694,000 will be brought forward as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023, including $300,000 to address the expected overage for vehicle operations and maintenance and $394,000 associated with reimbursed expenditures for wildfire deployments (Strike Team).

The average sworn vacancy rate of 8.75% through April 2023, with 63 sworn positions currently vacant, is higher than the vacancy rate of 8.21% experienced at this time last year, and above the budgeted rate of 2.5%. At the 2021-2022 Annual Report, the Mayor and City Council authorized $1.5 million in seed funding to implement the Fire Department’s Lateral Firefighter/Paramedic recruitment program to address the current nationwide paramedic shortage. A 10-week Lateral Firefighter/Paramedic Academy (23-01) began in March 2023 with a graduation of 13 recruits in May 2023. Another Lateral Fire Fighter/Paramedic Academy is scheduled for early August 2023.

The Department will maintain efforts to address paramedic recruitment challenges, continuing to recruit, hire, and train personnel to address vacancies and keep pace with staffing attrition.

In accordance with the City Council’s approval of a March 2010 report on annual vacancy and absence rates, the Fire Department has committed to limiting administrative assignments for sworn administrative personnel for overtime control purposes. As of the end of April, of the 31 current authorized staffing levels, the Fire Department had 31 sworn personnel on administrative assignments.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE December 2, 2022
Subject: Bi-Monthly Financial Report for September/October 2022

Department
2022-2023
Budget
YTD
Actual
Prior YTD
Actual
Public Works $ 45,910,845 $ 40,937,689 $ 34,541,089
The Public Works Department expenditures are currently trending above estimated levels through April, which is due to both higher personal services and non-personal/equipment costs. Personal services expenditures of $21.0 million are above the anticipated level for this point of the year (80.5% expended, compared to the par level of 79.18%). Non-personal/equipment expenditures of $19.9 million (includes $4.0 million in encumbrances) are also above the 79.18% anticipated levels with 100.5% of the Modified Budget committed through April.

Through April, Personal Services expenditures are slightly above expected levels primarily due to higher than anticipated expenditures in Facilities Maintenance and Operations from maintenance work in the summer and fall months, and from capital project costs that were temporarily charged to the Personal Services appropriation that have not yet been reallocated to the specific capital project budget. Once the capital project charges have been correctly reallocated, the Department anticipates remaining within their Personal Services budget. Overall, overtime expenditures totaled $1.2 million compared to the budgeted amount of $841,000 (146.5%, compared to the par level of 79.18%) and temporary staffing expenditures totaled $2.0 million compared to the budgeted amount of $1.5 million (132.5%, compared to the par level of 79.18%), through April.

The elevated overtime expenditures can be attributed to more temporary part-time staffing and overtime usage by regular staff to offset a large number of vacancies (17%) throughout the Public Works Department. The Public Works Department has been able to utilize savings in other Personal Services expenditures to support overages in overtime and temporary staffing expenses.

As previously mentioned, the Department will continue to monitor personal services costs and is expecting to end the year within budgeted levels.

Non-personal/equipment expenditures, including encumbrances, are well above budgeted levels at 100.5% committed through April. This is primarily due to the encumbrances of consultant contracts for facilities repairs and maintenance, janitorial services, and the hiring of contracted temporary staff across all divisions within the department, due to a high level of vacancies.

Additionally, utilities including gas and electricity are tracking above expected levels due to higher utilization and rate increases. Overall, non-personal/equipment expenditures are anticipated to exceed budgeted levels by year-end. As part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by City Council in June 2023, a recommendation will be brought forward to increase the Non-Personal/Equipment budget approximately by $2.2 - $2.6 million to cover expenditures which exceeded budgeted levels. The Public Works Department will work with the City Manager’s Budget Office to re-examine expenditure monitoring methodologies and tools to ensure that the Department remains within budgeted levels in 2023-2024.

GENERAL FUND (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE December 2, 2022
Subject: Bi-Monthly Financial Report for September/October 2022

CONTINGENCY RESERVE
The General Fund Contingency Reserve was amended as part of the 2021-2022 Annual Report, increasing the reserve by $5.0 million, from $41.0 million to $46.0 million. This reserve level complies with Council Policy 1-18, Operating Budget and Capital Improvement Program Policy, which requires the Contingency Reserve to be at a minimum of 3% of the operating budget.

Airport Funds
On a fiscal year-to-date basis, the San José Mineta International Airport (SJC) has enplaned and deplaned 9.95 million passengers, an increase of 28.7% from the figures reported through April of the prior year. The chart below depicts the year-over-year change for the month of April and Fiscal Year-to-Date for the last six years.

Fiscal year-to-date mail, freight, and cargo totaled 61.3 million pounds, which represents a 2.9% increase over year-to-date April 2022. All revenue-generating activities posted increases over the same period of the prior fiscal year: Ground Transportation by 43.6%, Parking Exits by

27.4%, Landed Weights by 26.8%, Gallons of Aviation Fuel sold by 21.1%, and lastly Traffic Operations (landings and takeoffs) increased by 14.6%.

Year-to-date Airport revenue through April tracked 15% above estimated levels. Airport revenue categories continued to experience strong performance through this period and tracked above benchmark levels: Terminal Concessions (+48%), Parking & Roadway (+25%), General and Non-Aviation (+23%), and Airfield revenues (+10%). Terminal Rentals revenue tracked slightly below estimates (-2%) and Landing Fee revenues were in line with budgeted levels. The strong GENERAL FUND (CONT’D.)

OTHER FUNDS

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE December 2, 2022
Subject: Bi-Monthly Financial Report for September/October 2022

performance when compared to budgeted levels can be attributed to the increased passenger levels that have continued throughout the fiscal year. Airport passenger numbers are on track to exceed the projection of 12 million passengers by year-end. Additionally, the total budgeted revenue of $208.5 million includes American Rescue Plan Act funding of $28.9 million in 2022-2023 to partially offset reduced revenue from the pandemic’s effect on passenger activity and can be used to reimburse operating expenses. To date, the Airport has received $9.8 million. Airport revenues will continue to be closely monitored through this fiscal year.

Through April, both the Airport Customer Facility and Transportation Fee Fund and Airport Maintenance and Operation Fund expenditures tracked below budgeted levels. In the Maintenance and Operation Fund, personal service expenditures were 73.5% of the budget compared to the benchmark of 80.8%, while non-personal/equipment expenditures (excluding encumbrances) were 52.4% compared to the benchmark of 74.5%. Non-personal/Equipment expenditures (excluding encumbrances) in the Customer Facility and Transportation Fee Fund were 43.8% compared to the straight-line benchmark of 83.3%. The Administration will continue to closely monitor and report activity levels, revenue, and expenditure status of the Airport Funds.

San José Clean Energy Fund
The Community Energy Department operates San José Clean Energy (SJCE), supplying residents and businesses of San José with cleaner energy options than PG&E and access to energy efficiency community programs. SJCE’s City Council approved rate package for 2022 (first half of 2022- 2023) set rates for its GreenSource standard service at 8% above PG&E’s rates – inclusive of the Power Charge Indifference Adjustment (PCIA) and Franchise Fee Surcharge – based on a PG&E rate increase of 33% that was approved by the California Public Utilities Commission in February 2022. SJCE also increased the renewable energy content of its products, to 60% for the GreenSource standard service and 40% for its GreenValue service (TotalGreen continued at 100%).

On December 6, 2022, City Council approved SJCE’s rate package for 2023 (second half of 2022- 2023) and its shift to cost-of-service rate setting in place of setting rates at a fixed discount or premium to PG&E’s standard generation rates, inclusive of PG&E added fees. SJCE’s new rates began on January 1, 2023, and are 1-3% below PG&E rates, inclusive of the PCIA and Franchise Fee Surcharge, depending on customer class and usage.

Since City Council approval of the 2023 SJCE rate package, PG&E launched a new residential Electric Home rate as an option for customers with electric vehicles, energy storage, or an electric heat pump for water heating or climate control. SJCE added a corresponding set of rates to its rate package for 2023.

PG&E’s PCIA fees are highly volatile and are a significant component for SJCE when setting rates. For example, the PCIA increased significantly through 2021, then decreased considerably in 2022 (down 75% from 2021). This decrease was the result of a credit applied to the 2022 PCIA to correct for overcollection of PCIA revenue in 2021 (principally because 2021 market prices for brown power were higher than forecast, increasing the value of PG&E generation resources and OTHER FUNDS (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE December 2, 2022
Subject: Bi-Monthly Financial Report for September/October 2022

thus reducing the PCIA). Lower PCIA fees combined with high market energy prices created a favorable environment for SJCE, which is a marked improvement from 2021 when SJCE’s financials projected a cash flow shortage for which the City Council approved a total Commercial Paper Notes authorization of up to $95.0 million. In 2020-2021 and 2021-2022 combined, SJCE drew a total of $60.0 million of Commercial Paper notes. A portion of the outstanding commercial paper debt, $20.0 million, was repaid upon City Council’s approval of the budget actions included in the 2022-2023 Mid-Year Budget Review. A budget action to repay an additional $20.0 million before the end of the fiscal year will be brought forward for City Council consideration as part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023. The Community Energy Department anticipates repaying the remaining outstanding commercial paper debt of $20.0 million by the end of 2023- 2024.

Through April, Energy Sales totaled $417.1 million, or 82.4% of the Modified Budgeted estimate of $505.9 million. Cost of Energy expenditures including encumbrances totaled $359.4 million, or 97.4% of the total Modified Budget. It is typical for SJCE to encumber a significant amount of funds for contracted energy early in the fiscal year. The Department monitors energy procurement activities closely and estimates that Energy Sales will end the year at approximately $516.5 million, or 2.1% above the current Modified Budget estimate of $505.9 million. Similarly, Cost of Energy is estimated to end the year above the Modified Budget of $365.0 million at $376.5 million, or 3.2% above the current budget. The Unrestricted Ending Fund Balance for San José Clean Energy Fund is estimated to end the year at $166.8 million. Budget actions to increase Energy Sales and Cost of Energy allocations will be brought forward for City Council consideration as part of the Approval of Various Budget Actions for Fiscal Year 2022- 2023 memorandum that will be reviewed by the City Council in June 2023.

Construction and Conveyance Tax Funds
Through April 2023,
Construction and
Conveyance (C&C)
Tax receipts totaled
$27.8 million, which
represents 6 1 . 7%
of the 2022-2023
Modified Budget
estimate ($45.0
million). This
amount is 42.1%
below the prior year
collection level of
$47.9 million. In
addition, the City
has received the May
Conveyance receipts from Santa Clara County, which total $2.5 million and is 56.5% below the May 2022 Conveyance collection level of $5.8 million. When taking into account total receipts through April and the estimated May collections, C&C receipts in 2022-2023 total $30.3 million, OTHER FUNDS (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE December 2, 2022
Subject: Bi-Monthly Financial Report for September/October 2022

75.7% of the 2022-2023 estimate used to develop the 2023-2024 Proposed Capital Budget, and

43.6% below the prior-year collection level of $42.7 million.

Over 99% of the total Construction and Conveyance Taxes are comprised of conveyance receipts, a tax based on the value of property transfers (sales). As discussed in the Economic Environment section of this Bi-Monthly Financial Report, there is concern regarding declines in sales activity in the local real estate market. Since housing statistics are a key driver for the overall C&C collection levels, significant changes in the housing market will drastically affect the C&C Tax receipts. Based on the continued tightened local real estate market resulting in significantly lower property sales and declining median home prices, C&C Taxes are anticipated to fall approximately $5 million below the budgeted estimate. Therefore, the 2024-2028 Proposed Capital Improvement Program is being built on the assumption that C&C revenue will total $40.0 million in 2022-2023.

The local market will continue to be closely monitored, with a final report on the C&C performance included in the 2022-2023 Annual Report that will be released on September 30, 2023.

Other Construction-Related Revenues
Construction activities drive revenue collection in several categories, including the Building and Structure Construction Tax and the Construction Excise Tax (which are described in further detail below) that help fund the City’s Traffic Capital Program, and are an indicator of future activity for several other categories, such as storm and sanitary sewer system fees. Based on information known through April, Capital Fund revenues associated with construction activity are anticipated to meet budgeted levels, with the exception of the Construction Excise Tax.

Through April, the
Building and Structure
Construction Tax
collection level of
$13.9 million
represents 73.2% of the
budgeted estimate of
$19.0 million, and is

20.8% below 2021-
2022 receipts of $17.6
million. The year-overyear decrease is
primarily attributable
to lower construction
permit valuation for
residential and
commercial categories. When the 2022-2023 Adopted Capital Budget was developed, it was anticipated that 2021-2022 Building and Structure Construction Tax receipts would total $19.0 million, and remain flat in 2022-2023. However, since 2021-2022 receipts ended the year at $21.2 million, the 2022-2023 budgeted estimate allows for a 10.4% decline from the prior-year OTHER FUNDS (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE December 2, 2022
Subject: Bi-Monthly Financial Report for September/October 2022

level. Based on collections through April, it is anticipated that Building and Structure Construction Tax Revenue are expected to meet the budgeted estimate.

Through April, the Construction Excise Tax collection level of $9.1 million represents 56.6% of the budgeted estimate of $16.0 million, and is 27.6% below the 2021-2022 year-to-date receipts of $12.5 million. The year-over-year decrease is attributable to lower construction permit valuation for residential and commercial categories. When the 2022-2023 Adopted Capital Budget was developed it was anticipated 2021-2022 Construction Excise Tax receipts would total $15.0 million, then increase by approximately 7.0% to 16.0 million in 2022-2023. However,since 2021-2022 receipts ended the year at $16.2 million, the 2022-2023 budgeted estimate allows for a

1.4% decline from the prior-year collection level. Based on collections through April, it is anticipated Construction Excise Tax Revenue will fall approximately $2.0 - $3.0 million below the budgeted estimate.

Development Fee Program Funds
Development Fee Programs include the Building Development Fee Program, Citywide Planning Fee Program, Fire Development Fee Program, Planning Development Fee Program, and Public Works Development Fee Program Fund. Based on performance through February, all Development Fee Programs, with the exception of the Planning Development Fee Program, are anticipated to meet or exceed the budgeted estimates. Additional information about each of the Development Fee Program Funds is provided below.

The Building Development Fee Program issues building permits and oversees construction on private property. Building Permit revenues of $30.7 million through April are 1.1% higher than the 2021-2022 collection level for the same period. The 2022-2023 Adopted Budget estimate of $33.6 million allows for a 7.4% drop from the 2021-2022 collection level of $36.3 million. Based on current collection trends at this point in the year, Building Fee revenues are anticipated to exceed the budgeted estimate by year-end by approximately $3 million. It should be noted that effective January 2023, the City of San José building and fire codes was amended to meet the State of California code standards, resulting in a surge of activity among developers and contractors to obtain project approvals under the current building codes. Overall activity levels are expected to stabilize as the new building codes just became effective.

The Citywide Planning Fee Program provides funding for the City’s long-range planning projects, such as developing and updating the City’s General Plan, to match the City’s planning goals. The Citywide Planning Fee is an 11.97% fee applied to Entitlement, Building Permit Fees, and Building Plan Check Fee Categories. Through April, Citywide Planning Fee revenues of $2.88 million are 1.0% above the prior-year collection level of $2.85 million. The 2022-2023 Adopted Budget estimate of $3.3 million anticipates a 3.0% decrease from the 2021-2022 actual collection level of $3.4 million. Based on current collection trends, Citywide Planning Fee revenues are anticipated to meet or slightly exceed the budgeted revenue estimate by year-end.

OTHER FUNDS (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE December 2, 2022
Subject: Bi-Monthly Financial Report for September/October 2022

Development Fee Program Funds
The Fire Development Fee Program provides both operational and development permits and inspections to ensure that economic activities remain compliant with the City of San José’s fire codes. Revenues through April 2023 totaled $6.83 million, an increase of $1.01 million (17.4%) relative to the same period in 2021-2022. The $7.8 million revenue estimate included in the 2022- 2023 Adopted Budget assumed an increase of 12.6% from the actual 2021-2022 collection level of $6.9 million. Based on current collection trends, Fire Development Fee revenue is projected to exceed budgeted levels by approximately $300,000, primarily due to higher than anticipated revenue from Fire Code Plan Inspections, which exceed prior year levels by 17.5% ($552,634).

Effective January 2023, the City of San José building and fire codes were amended to meet the State of California code standards, resulting in a surge of activity among developers and contractors to obtain project approvals prior to the building code change. Overall activity levels have now begun to stabilize.

The Planning Development Fee Program processes land development applications for planning permits and services, such as zoning review, to match the City’s planning goals. Through April, Planning Fee revenues of $6.4 million are 16.6% below the prior-year collection level of $7.7 million. The 2022-2023 Adopted Budget estimate of $8.3 million anticipates a 1.4% increase from the 2021-2022 actual collection level of $8.2 million. Based on current collection trends, Planning Fee revenues are anticipated to end the year below the budgeted revenue estimate by approximately $1 million.

The Public Works Development Fee Program ensures that developments comply with regulations and provide appropriate public infrastructure, such as sidewalks, traffic signals, and streetlights. Revenues through April 2023 of $12.5 million increased 18.7% from the prior year level of $10.5 million. The Public Works Development Fee Program total revenue collections are comprised of $6.7 million from the Development Services Fee Program, $5.7 million from the Utility Fee Program, and approximately $66,000 of interest earnings. Based on activity through April, revenue collections in the Public Works Development Fee Program is anticipated to exceed the 2022-2023 budgeted revenue estimate by approximately $1.5 million. As part of the Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum that will be reviewed by the City Council in June 2023, a recommendation is included to conservatively increase the Public Works Development Fee revenue estimate by $800,000 with an offsetting adjustment to the Personal Services.

OTHER FUNDS (CONT’D.)

PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE April 13, 2022
Subject: Bi-Monthly Financial Report for January/February 2022

Although economic conditions remain positive on an overall basis, persistent high inflation rates and rising interest rates have begun to negatively impact several sectors of the economy, most notably the real estate market.

Based on collections and information known at this point, a total of $65 million in the General Fund is currently anticipated to be available at the end of 2022-2023 for use in 2023-2024 from a combination of excess revenues and expenditure savings, including: $9.4 million from the 2022- 2023 Ending Fund Balance Reserve established with the City Council’s approval of the 2022-2023 Mid-Year Budget Review, $30 million from excess revenue, $25 million from expenditure and reserve savings, and $500,000 from the liquidation of prior year carryover encumbrances. Of this amount, $30 million was assumed as part of the 2024-2028 Genera Fund Forecast, with the remaining $35 million being factored in the development of the 2023-2024 Proposed Budget.

Most other City funds are performing within expected levels, with some exceptions. Airport passenger activity is higher than prior year levels, revenues and expenditures are tracking within estimated levels. The Transient Occupancy Tax collections are performing above anticipated levels and are estimated to end the year above budgeted levels. In addition, all Development Fee Program revenues, with the exception of the Planning Fee Program are anticipated to meet or exceed budgeted estimates. However, due to constrictions within the local real estate market, C&C Tax revenue and Real Property Transfer Tax collections are anticipated to end the year below budgeted levels. Construction Excise Tax collections are experiencing year-over-year declines and are anticipated to fall below the budgeted estimate. Finally, in the SJCE Fund, Cost of Energy (expenditures) and Energy Sales (revenue) are both anticipated to be revised upward at year-end.

The Approval of Various Budget Actions for Fiscal Year 2022-2023 memorandum also includes recommendations to adjust both the General Fund and various Special and Capital Funds to align the budget with current estimates to avoid any overages in individual appropriations and to recognize new revenues and associated expenditures and reserves. The final outcome of the 2022- 2023 budget performance will be reported through the 2022-2023 Annual Report, scheduled to be released on September 30, 2023 and reviewed by the City Council in mid-October 2023.

JIM SHANNON
Budget Director
Attachment: Finance Department Monthly Financial Report

CONCLUSION