FOURTH QUARTER FINANCIAL REPORT
FISCALYEAR 2022-2023
Public Safety, Finance and
Strategic Support Committee
Prepared by the Finance Department
August 2, 2023
COMMITTEE AGENDA: AUGUST 17, 2023
ITEM: (d)1.
FILE: CC 23-159
ATTACHMENTA
FOURTH QUARTER
DEBT MANAGEMENT REPORT
FISCAL YEAR 2022-2023
2 Outstanding Debt as of June 30, 2023: $4.61 Billion
FY 2022-23 Debt Issuance: $838.9 Million
3 OUTSTANDING DEBT ISSUED
(CITY AND ALL AGENCIES)
$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 Outstanding Debt as of June 30, 2023: $3.74 Billion
(Excluding Multifamily Housing Revenue Bonds)
4 DIRECT OUTSTANDING DEBT
(CITY AND ALL AGENCIES)
CSJ GO Bonds, $548,595,000,
14.65%
CSJFA Bonds/ CP Notes,
$683,912,000, 18.26%
Airport Revenue Bonds/ CP,
$1,054,800,000, 28.17%
Wastewater Revenue
Bonds/RWF Notes,
$268,453,484, 7.17%
Successor Agency Tax
Allocation Bonds,
$1,188,750,000, 31.75%
DEBT ISSUANCES
5 • Multifamily Housing Revenue Bond Issuances
• Short-T erm Debt Issuances in June 2023
T otal Issuance
AIRPORT COMMERCIAL PAPER, SERIES A-1 (NON-AMT) $10,000,000 CSJFA COMMERCIAL PAPER (TAXABLE) – FLOOD IMPROVEMENT PROJECTS $417,000 SUBORDINATEWASTEWATERREVENUE NOTE, SERIES A $98,500
TOTAL $10,515,500
Project Name Issue Date T axable T ax-Exempt T otal Issuance 1860 ALUM ROCK APARTMENTS 5/23/2023 $2,345,543 $28,917,579 $31,263,122 THE CHARLES 6/9/2023 $8,331,928 $44,159,700 $52,491,628 777 WEST SAN CARLOS APARTMENTS 6/12/2023 $1,300,000 $70,700,000 $72,000,000 TAMIEN STATIONAFFORDABLE 6/30/2023 - $66,100,000 $66,100,000 TOTAL $11,977,471 $209,877,279 $221,854,750
DEBT REDEMPTIONS
6 • 2022 Tax and Revenue Anticipation Note was fully redeemed on June30 • San José Clean Energy repaid $20.0 million of Taxable CSJFA Lease Revenue Commercial Paper in May
• San José Airport repaid $24.6 million of Airport Commercial Paper, Series B (AMT) in June; No Series B (AMT) is outstanding
DEBT MANAGEMENT ACTIVITIES
7 • Debt Administration
▪ Subordinate Wastewater Revenue Notes, Series A
➢ Extended the Credit Agreement for additional three years; through October 2026 ➢ Reduced the Credit Facility from $300 million to $200 million ▪ Completed RFP solicitation for Municipal Advisory Services and selected advisors for six engagements
▪ Rating surveillance from Moody’s and S&P
• Reporting
▪ Annual Debt Service Compliance Certificate – CSJFA Commercial Paper (June) ▪ Annual Compliance Budget Requirement – Airport Commercial Paper (May), CSJFA Commercial Paper (June), and CSJFA Lease Revenue Bonds, Series 2013B (June)
UPCOMING PROJECTS
THROUGH SEPTEMBER 30, 2023
• Debt Issuance
▪ CSJFA Commercial Paper (Tax-Exempt) for Muni Water – Administration and Operations Facility in September 2023
▪ Airport Commercial Paper, Series A-1 (Non-AMT)
▪ Explore Airport bonds refunding opportunities
• Debt Administration
▪ Request for Proposals for Arbitrage Rebate Services and select arbitrage rebate consultant
▪ Execute contracts for newly selected municipal advisors 8 • 10-year history of higher rated
(“AA+”) General Obligation
debt (20-year term) yield
averaged 3.03% and is currently
at 3.54% (as of 7/6/2023).
9 BOND BUYER GO BONDYIELD INDEX
3.03%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Jun-22
Jun-23
Interest Rate
Bond Buyer 11-Bond GO Index ('AA+') avg. rating)
Index Average 6/13 - 6/23 (3.03%)
• Taxable LIBOR interest rates
paid by the City averaged
5.39% in Q4. The Daily SOFR
interest rate which replaced
the LIBOR as of July is
currently 5.06% (as of
7/7/2023).
• The graph shows the increase
in variable interest rates in FY
22-23.
10 VARIABLE INTEREST RATES
(TAXABLE)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Jun-22
Jul-22
Aug-22
Sep-22
Oct-22
Nov-22
Dec-22
Jan-23
Feb-23
Mar-23
Apr-23
May-23
Jun-23
Interest Rate
3-Month LIBOR (Taxable)
Daily SOFR
GENERAL OBLIGATION CREDIT RATINGS
• The City’s GO Ratings are higher than the State of California’s ratings and analogous to Santa Clara County’s ratings, which is to be expected, given the extent of the tax base and other credit fundamentals the City and the County share:
11 Entity Moody’s S&P Fitch
CITY OF SAN JOSÉ Aa1 AA+ AAA
STATE OF CALIFORNIA Aa2 AA- AA
SANTA CLARA COUNTY N/A AAA AA+
[1] Moody’s does not currently rate Santa Clara County’s General Obligation Bonds but maintains an Issuer rating of Aa1.
GENERAL CREDIT RATINGS
CITY OF SAN JOSE
• The City of San José continues to maintain very high credit ratings. 12 T ype of Rating Moody’s S&P Fitch KBRA (Kroll)
ISSUER RATING Aa1
(stable)
AA+
(stable)
AA+
(stable) N/A
GENERAL OBLIGATION BONDS Aa1
(stable)
AA+
(stable)
AAA
(stable) N/A
LEASE REVENUE BONDS
(ESSENTIAL ASSETS)
Aa2
(stable)
AA
(stable)
AA
(stable) N/A
LEASE REVENUE BONDS
(LESS ESSENTIAL ASSETS)
Aa3[2]
(stable)
AA
(stable)
AA-[3]
(stable) N/A
WASTEWATER REVENUE BONDS N/A[1] AAA
(stable)
AAA
(stable)
AAA[4]
(stable)
[1] Moody’s does not rate CSJFA Wastewater Revenue Bonds. [2] Moody’s assigns a rating of Aa3 to CSJFA 2020B and 2022A bonds which the rating agency considers less essential assets. [3] Fitch assigns a rating of AA- to CSJFA 2020B bonds which the rating agency considers less essential assets. [4] KBRA (Kroll) has assigned a rating to the CSJFA Wastewater Revenue Bonds exclusively.
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 N/A AA
(stable)
AA
(stable)
SARA SUBORDINATETAX
ALLOCATION BONDS N/A AA-
(stable)
AA-
(stable)
FOURTH QUARTER
INVESTMENT MANAGEMENT REPORT
FOR FISCAL YEAR 2022-2023
14 INVESTMENT POLICY
(COUNCIL POLICY 1-12)
• Investments meet the requirements of the City’s Investment Policy and conform with California Government Code section 53601 • 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 14, 2023
• 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
▪ On-line
▪ In PSFSS Committee agenda packets
▪ In City Council agenda packets (for acceptance)
16 INDEPENDENT ACCOUNTANT’S REPORT ON
APPLYINGAGREED-UPON PROCEDURES
The report noted two findings for the period of July – December 2022, and no exceptions to the Investment Policy
▪ The first finding noted a difference in market value of 0.03% due to outdated fair market values (FMVs) in the City’s investment management system ➢The City has subsequently corrected the FMVs in the City’s investment management system
▪ The second finding noted a net variance of $11 million between the Investment Report and the City’s general ledger due to posting errors ➢The City has subsequently corrected all variances
➢Finance staff has implemented an additional reconciliation process to prevent similar posting errors in the future
17 PORTFOLIO PERFORMANCE SUMMARY
SIZE OF TOTAL PORTFOLIO $2,889,664,128
EARNED INTEREST YIELD 2.858%
WEIGHTED AVERAGE MATURITY 530 days
FISCAL YEAR-TO-DATE NET INCOME RECOGNIZED $62,078,780
EXCEPTIONS TO THE CITY INVESTMENT POLICY THIS QUARTER None 18 T otal Investment Portfolio:
$2,889,664,128
19 PORTFOLIO INVESTMENTS
U.S. Treasury
$313,700,163 10.9%
U.S. Agency
$1,325,358,147 45.9%
Supranationals
$167,120,211 5.8%
Negotiable
Certificate of
Deposit (NCD)
$15,614,720 0.5%
Commercial Paper
$48,821,660 1.7%
Corporate Notes
$305,287,468 10.6%
Asset Backed
Securities $47,778,089
1.7%
Muni Bonds
$327,269,251
11.3%
Mortgage Backed
Securities
$159,008,763 5.5%
JPAP
$159,363,164 5.5%LAIF $20,342,492
0.7%
The $832.2 million in the General
Fund presented includes $564.1
million of General Fund monies, as
well as $268.1 million in other,
separately tracked general funds,
such as the Emergency Reserve
Fund, the American Rescue Plan Act
(ARPA) of 2021 and other smaller
funds and reserves.
20 INVESTMENTS BY FUND
Internal Services
Fund $4,295,471
Airport
$282,553,592 Capital Projects
$96,938,351
Debt Service
$62,213,805
Development Fees
$58,921,605
General Fund
$832,231,084
Muni Water
$35,949,656 Parking
$42,803,290
Housing
$321,578,204
Special Revenue
Funds
$414,856,322
Wastewater
$446,895,040
Trust & Agency
$1,775,440
SJ Clean Energy
$167,820,510
GENERAL FUND BALANCE
• General Fund balance increased by $173 million during the quarter due to debt service payments and ended with a balance of $832.2 million as of June 30, 2023
▪ General Fund balances usually peak during the months of January and June, when the bulk of property taxes are received, decline in the summer due to retirement prefunding; and decline throughout the rest of the year due to debt service payments and operational expenditures
• Projected investment maturities, cash and revenues are sufficient to cover anticipated expenditures for the next six months
21 22
COMPARISON OF CASH BALANCES
(BY SELECT FUNDS)
The following graph compares
monthly balances of the five largest
City funds as reported by FMS.
$0
$200
$400
$600
$800
$1000
$1200
Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Dollars in millions
General Fund Wastewater Airport Housing Special Revenue Fund • 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.
23 BENCHMARK COMPARISONS
0.00 0.50
1.00 1.50
2.00 2.50
3.00 3.50
Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Yield (%)
City LAIF BAML
Yield WAM
LAIF: 3.167% 260
CITY: 3.133% 530
BAML 2.777% 679
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 24 FOURTH QUARTER
REVENUE MANAGEMENT REPORT
FOR FISCAL YEAR 2022-2023
25 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.
26 T otal Revenue: $4.624B
Source: 2021-22 City Manager’s
Budget Office Annual Report
(Graph is updated annually)
27 REVENUE MANAGEMENT PORTFOLIO
FY 2021-22 REVENUE ($ IN MILLIONS)
Lodging Taxes
and Fees
$37.6M
2.7%
Franchise Fees
$49.9M
3.6%
Utility Users Tax
$103.6M
7.6%Telephone Line Tax
$21.3M
1.6%Real Property
Transfer Tax
$110.0M
8.0%
Utility Billing
$429.5M
31.3%
Sales Tax
$323.1M
23.6%
Misc. Billing
$223.8M
16.3%
Business Taxes
$72.6M
5.3%
Revenue
Management
$1.372B
City-wide Revenue
(excluding Revenue
Management)
$3.252B
Includes invoices billed through the
Business Tax System, the centralized
Accounts Receivable system (RevQ),
and the Utility Billing System.
(Graph is updated annually)
28 INVOICING AND PAYMENTS
FIVE-YEAR HISTORY (FY 2017-18 TO FY 2021-22)
99.6% 99.5% 99.6% 98.9% 96.2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$-
$100
$200
$300
$400
$500
$600
$700
$800
FY 17-18 FY 18-19 FY 19-20 FY 20-21 FY 21-22
In Millions
Payments Outstanding Percentage Collected
29 OUTSTANDING RECEIVABLES
THREE-YEAR HISTORY (Q1 FY 2020-21 TO Q4 FY 2022-23)
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
$-
$20
$40
$60
$80
$100
$120
20-21
Q1
20-21
Q2
20-21
Q3
20-21
Q4
21-22
Q1
21-22
Q2
21-22
Q3
21-22
Q4
22-23
Q1
22-23
Q2
22-23
Q3
22-23
Q4
Quarter to Quarter % Change
Millions
Revenue Management Aging
Total Receivables Delinquent (91+ days) Delinquency Percentage Change 30 FY 2022-23 Q4 DELINQUENT RECEIVABLES
COLLECTION STATUSSUMMARY ($ IN MILLIONS*)
*Rounded
As of June 30, 2023
Write-Off Pending (A/R only)
$2.8M
1,611 Invoices
Liens (A/R only)
$0.7M
242 Invoices
Restitution, Payment Plan (A/R only)
$1.1M
303 InvoicesLegal Bankruptcy
$3.4M
685 Invoices
Collection Agency
$18.5M
26,623 Invoices
Active
$31.1M
30,698 Invoices
Total Current
$42.2M
Total Delinquent
$57.6M
Revenue Management
COLLECTIONS & RETURN ON INVESTMENT
REVENUE MANAGEMENT COLLECTIONS (Q1 FY 2021-22 TO Q4 FY 2022-23) Target ROI: 5.0
31 11.2
10.6 10.8
5.8 5.6
5.3 5.7
5.0 0.00
5.00 10.00
15.00 $0.0
$0.5
$1.0
$1.5
$2.0
$2.5
21-22 Q1 21-22 Q2 21-22 Q3 21-22 Q4 22-23 Q1 22-23 Q2 22-23 Q3 22-23 Q4 Return on Investment (ROI)
Millions
Revenue Management Collections
Business Tax Accounts Receivable Average ROI
ACCOUNTS RECEIVABLEAMNESTY
PROGRAM
• The Amnesty Program was a limited-time opportunity for individuals and entities to pay the principal invoice amount owed in exchange for forgiveness of associated penalties and interest
• Amnesty Application Period: November 1, 2022 – June 30, 2023 • Invoice Eligibility: Billed from April 2020 – August 2021 • Invoice may not pertain to a tax, license or lien
• Debtor must have outstanding delinquent fees (Invoices paid in full prior to Amnesty are not eligible) • Payments Received as of June 30, 2023: $184.3K
• Payment Plan Pending Amount as of June 30, 2023: $37.5K • Amnesty Outreach:
• 3,046 letters sent in January and February 2023
• 2,471 final notices sent in June 2023
32 FOURTH QUARTER
PURCHASING AND
RISK MANAGEMENT REPORT
FOR FISCALYEAR 2022-2023
33 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. 34 PURCHASINGTRANSACTIONS COMPLETED
FOURTH QUARTER FY2022-23
PROCUREMENTTYPE
FOURTH QUARTER
TRANSACTIONS
FISCALYEAR
TO DATE
REQUEST FOR QUOTES AWARDED 13 49
REQUEST FOR BIDS AWARDED 5 43
REQUEST FOR INFORMATION COMPLETED 1 5
REQUEST FOR PROPOSALS AWARDED 0 3
PURCHASE ORDERS AND PURCHASE ORDER ADJUSTMENTS ISSUED 417 2,043 NEW AGREEMENTS NEGOTIATEDAND EXECUTED 2 17
AMENDMENTS, CHANGE ORDERS, SERVICE ORDERS, OPTIONS EXECUTED 37 138 COUNCIL MEMORANDA ISSUED 21 56
PURCHASE ORDER & CONTRACT DOLLARS PROCURED $66,848,819 $398,811,493 35 PROCUREMENT IMPROVEMENT UPDATE
• Procurement Improvement is a Strategic Support initiative that was created under the legacy City Roadmap structure.
• Staff presented a status report on the efforts to implement the recommendations at the last quarterly meeting.
• City Attorney's Office has completed the initial draft of the ordinance to implement the proposed changes to Title 4. The planned date to return to Council with the proposed ordinance is September 2023. • Staff will continue to review and consider other recommendations from Procurement Improvement Study for adoption and implementation. 36 DISPARITY STUDY UPDATE
• A Citywide Disparity Study is underway to evaluate any need for new or updated procurement policies to facilitate participation of diverse business enterprises in City contracting.
• Finance-Purchasing, in collaboration with the City Manager's Office of Communications, Racial Equity and Economic Development & Cultural Affairs, is working with MGT of America Consulting, LLC to deliver this scope of work. • Completed Activities this Quarter
▪ MGT conducted more targeted outreach to contractors resulting in increased participation. ▪ The Mayor recorded a call-to-action video which will be hosted on the study website. ▪ In anticipation of study completion in October, MGT has begun developing the final report. 37 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.
38 39
RISK MANAGEMENTTRANSACTIONS COMPLETED
FY2022-23, FOURTH QUARTER
TRANSACTIONTYPE Fourth Quarter
Transactions
Fiscal Y ear
to Date
REQUEST FOR CONTRACT INSURANCE SPECIFICATIONS 347 1,151 REQUEST FOR INSURANCE COMPLIANCE REVIEW 244 679
REQUEST FOR LETTERS OF SELF-INSURANCE 27 82
SUBROGATION DOLLARS BILLED TO RESPONSIBLE THIRD PARTIES $99,840 $681,000 COUNCIL AND COMMITTEE MEMORANDUMS ISSUED 2 5
RISK MANAGEMENT PROGRAM ACTIVITIES
• Facilitated property loss prevention visits at the Civic Auditorium Complex and Montgomery Theater
• Completed San José Mineta International Airport property appraisal • Negotiated $323,844 in insurance recoveries related to capital projects at the San José – Santa Clara Regional Wastewater Facility • Implemented Special Events Liability Insurance Program 40