PSFSS COMMITTEE: 10/19/2023
ITEM: (c)1.
TO: PUBLIC SAFETY, FINANCE, AND
STRATEGIC SUPPORT COMMITTEE
FROM: Jim Shannon
SUBJECT: BI-MONTHLY FINANCIAL REPORT
FOR JULY/AUGUST 2023
DATE: October 10, 2023
Approved Date
RECOMMENDATION
Accept the Bi-Monthly Financial Report on actual revenues and expenditures as compared to the 2023-2024 Budget for the two months ending August 2023.
OVERVIEW
The Bi-Monthly Financial Report for July/August 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 2023-2024 Modified Budget and the Finance Department has prepared a report that reflects the financial results for the two months ending August 2023.
Through the first two months of the fiscal year, revenues and expenditures were generally tracking within the budgeted estimates in the majority of City funds. The Administration will continue to closely monitor economic conditions and the performance in all City funds, bringing forward budget adjustments to the City Council during the year as appropriate. The following are key highlights of this report:
• While it is very early in the fiscal year and there is minimal data, overall, General Fund revenues appear to be tracking within estimated levels in the General Fund. • Overall, General Fund expenditures tracked within estimated levels through August.
Expenditures will continue to be controlled and monitored to ensure appropriations stay within approved 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 below prior year levels and may fall below budgeted levels; however, it is still very early in the fiscal year and receipts will be closely monitored. As appropriate, budget adjustments may be brought forward for City Council consideration as part of the 2023-2024 Mid-Year Budget Review (scheduled for release on January 31, 2024).
10/11/2023
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
OVERVIEW (CONT’D.)
• Construction Excise Tax collections are anticipated to end the year within budgeted levels; however, Building and Structure Construction Tax collections may fall below budgeted levels.
Both of these revenue sources are dependent on construction activity, which has grown compared to prior year levels.
• Transient Occupancy Tax activity levels are trending above prior year levels. At this early point in the year, it is anticipated to meet budgeted levels. • At this early point in the fiscal year, all Development Fee Programs revenues, with the exception of the Public Works Development Fee Program, are tracking to fall below budgeted levels by year-end. This sector will continue to be closely monitored in the coming months to better understand and forecast activity levels through the remainder of the fiscal year. • The San José Mineta International Airport (SJC) has enplaned and deplaned 2.2 million passengers through August, an increase of 0.8% from the figures reported through August of the prior year. This year-over-year increase is due to increased international passenger activity. • Through August, Energy Sales totaled $108.6 million, 1.4% above prior year levels of $107.1 million and 21.0% of the 2023-2024 Adopted Budget estimate of $517.5 million. Cost of Energy expenditures including encumbrances totaled $276.0 million, 44.3% above prior year levels of $191.3 million and 62.6% of the Modified Budget. As a significant amount of funds for contracted energy are encumbered early in the year, it is anticipated SJCE will end the year within budgeted levels.
• The Administration will continue to report to the City Council all significant developments through future Bi-Monthly Financial Reports and the 2023-2024 Mid-Year Budget Review.
Economic Environment
While Silicon Valley
continues to show overall
positive economic
performance, there are
several areas of economic
weakness, including the local
real estate market and
unemployment rates. While
employment figures continue
to be relatively strong,
unemployment rates have
been steadily rising.
The August 2023 employment level of 1.19 million in the San José-Sunnyvale-Santa Clara Metropolitan Statistical Area (San José MSA) grew by 22,100 jobs, or 1.9%, from the August
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
OVERVIEW (CONT’D.)
2022 level of 1.17 million. This increase includes private education and health services increasing by 13,100 jobs; leisure and hospitality expanding by 7,500 jobs; and construction growing by 3,500 jobs. Notable employment reductions include manufacturing decreasing by 2,000 jobs and professional and business services declining by 1,900 jobs. 1 As can be seen on the table to the left, the
local unemployment rate has been steadily
increasing over the past year with the
August 2022 unemployment rate totaling
2.7%, and the August 2023 rate growing to
3.9%. While the August 2023
unemployment rate is lower than the
unadjusted employment rate for the State
(5.1%), it is consistent with the federal rate.
Overall construction activity through August
2023 increased 5.9% from prior-year levels
primarily due to activity for the residential land
use categories experiencing significant year-overyear increases from the prior year. The 2023-2024 Adopted Budget was developed with the
expectation that development activity would
increase slightly from the levels experienced in
2022-2023. If current trends continue,
construction activity would moderately
outperform the activity projected by the Planning, Building and Code Enforcement Department in the 2024-2028 Five-Year Forecast, which was released in February 2023.
Through August 2023, residential permit valuation has increased 149.1% from prior-year levels ($127.3 million in 2023-2024 from $52.6 million in 2022-2023). Residential activity through August included 504 multi-family units and 99 units of single-family construction for a total of 603 units. Major projects for July and August include permits for a six-story affordable multifamily residence with 135 units on Lick Avenue between Floyd Street and Humboldt Street and a seven-story multi-family residence with 271 units on Blossom Hill Road, west of Winfield Road. 1 State of California Employment Development: Labor Market Information Division Press Release, September 15, 2023
Unemployment Rate (Unadjusted)
August
2022
July
2023
August
2023
San Jose
Metropolitan
Statistical Area*
2.7% 3.6% 3.9%
State of California 4.1% 4.8% 5.1%
United States 3.8% 3.8% 3.9%
* San Benito and Santa Clara Counties Source: California Employment Development Department.
** August 2023 estimates are preliminary and may be updated.
Private Sector Construction Activity
(Valuation in $ Million)
August
2022
(YTD)
August
2023
(YTD)
%
Change
Residential $52.6 $127.3 149.1%
Commercial $105.1 $95.3 (9.3%)
Industrial $98.8 $48.8 (50.6%)
TOTAL $256.4 $271.4 5.9%
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
OVERVIEW (CONT’D.)
Commercial valuation through August 2023 was 9.3% lower than the 2022-2023 level ($95.3 million in 2023-2024 from $105.1 million in 2022-2023). Additions/alterations accounted for 55% of the commercial activity for July and August ($52.2 million). A notable project for July and August is a permit for a three-story, 102,000 square foot assisted living facility on South Bascom Avenue, near the intersection with Dry Creek Road.
Industrial construction valuation through August was 50.6% – noticeably lower than 2022-2023 level ($48.8 million in 2023-2024 from $98.8 million in 2022-2023). Alterations accounted for 36% of the activity for July and August. A notable project for July and August is permit for a new 302,000 square foot warehouse located on Rue Ferrari, north of Highway 101.
According to data from
the Santa Clara County
Association of
Realtors, in August
2023, the median
single-family home
price totaled $1.53
million, which is 12.3%
above the August 2022
price of $1.40 million.
In addition, these more
expensive homes are
selling at a quicker rate.
The average days-onmarket through August
2023 totaled 18 days,
while the average days
through August 2022 totaled 22 days. While both the median home price and average days-onmarket are positive indicators, sales activity has been consistently declining. Property sales for the first two months of the fiscal year dropped almost 10% compared to the prior-year sales. Yearover-year property sales have been consistently dropping since winter 2021. Local real estate activity will continued to be closely monitored with updates being provided in future bi-monthly financial reports and the 2023-2024 Mid-Year Review, which will be released on January 31, 2024.
On a national level, Americans felt more pessimistic about the economy in August, after two straight months of growing confidence. Dana Peterson, Chief Economist at The Conference Board, stated “Consumer confidence fell in August 2023, erasing back-to-back increases in June and July. August’s disappointing headline number reflected dips in both the current conditions and expectations indexes (consumers’ short-term outlook for income, business, and labor market conditions). Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular.” 2 2 The Conference Board, Consumer Confidence Survey, August 29, 2023
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
OVERVIEW (CONT’D.)
Economic conditions will continue to be closely monitored and will be factored into the assessment of the City’s performance in 2023-2024 as well as the development of the 2025-2029 General Fund Forecast that will be released in February 2024.
GENERAL FUND
REVENUES
General Fund revenues through August 2023 totaled $116.2 million, which represents a decrease of $261.5 million from the August 2022 level of $377.7 million. This decrease is primarily attributable to the City not issuing Tax and Revenue Anticipation Notes (TRANs), which were previously issued for cash flow purposes to facilitate the annual prefunding of Tier 1 employer retirement contributions for both Federated and Police and Fire retirement systems. However, in 2023-2024, due to increased interest rates for short-term borrowing, the City is only prepaying Tier 1 contributions for the Police and Fire retirement systems using available cash balances, which will not require TRANs issuance. In addition, Real Property Transfer Tax revenue has experienced year-over-year declines ($4.9 million) due to a more constrained real estate market resulting in fewer high-value property transfers occurring. Offsetting the revenues performing below prior year levels, there are several categories experiencing increases, including, Transfers and Reimbursements ($9.7 million), Utility Tax ($3.1 million), Licenses and Permits ($2.5 million), Fees, Rates and Charges ($2.4 million), Use of Money and Property ($2.0 million), and Revenue from the Federal Government ($2.1 million). These higher collections are due to the timing of payments and higher activity levels.
Based on activity levels through August 2023, several revenue categories are anticipated to exceed budgeted levels, including Property Tax, and Fees, Rates and Charges. However, it is important to note that only very preliminary information is currently known for all revenue categories. If warranted, budget adjustments to align revenue with revised estimates will be brought forward for City Council consideration as part of the 2023-2024 Mid-Year Budget Review, which will be released on January 31, 2024.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
GENERAL FUND (CONT’D.)
KEY GENERAL FUND REVENUES
Revenue
2023-2024
Budget Estimate
YTD
Actual
Prior YTD
Collections
Property Tax $ 460,400,000 $ 0 $ 0
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 2023- 2024 are estimated at $470.7 million, which is approximately 2.2% higher than the 2023-2024 budgeted estimate of $460.4 million. This increase is primarily due to higher Secured Property Tax receipts (6.2 million), Unsecured Property Tax ($2.2 million) and SB 813 Property Tax ($1.1 million). Additional information about each of the Property Tax sub-categories is provided below.
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 $441.2 million in 2023-2024. This estimate is comprised of general Secured Property Tax receipts of $378.0 million, excess ERAF funds of $40.9 million, and SARA Residual Property Tax receipts of $22.4 million. The Secured Property Tax receipt estimate is $6.2 million higher than the Adopted Budget estimate; however, as it is still very early in the year, this estimate will likely change as additional information is known.
As mentioned above, the general Secured Property Tax estimate totals $378.0 million in 2023- 2024, which assumes growth of approximately 6.1% from the 2022-2023 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 4.1%. 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.
As a result of the SARA bond refunding that occurred in December 2017, the City began receiving a residual property tax distribution. According to the most recent information from Santa Clara County, 2023-2024 receipts are estimated at $22.4 million, which is consistent with the 2022-2023 collection level. However, the estimated collection level is $1.6 million below the 2023-2024 Adopted Budget estimate of $24.0 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
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
GENERAL FUND (CONT’D.)
of each fiscal year. According to the most recent information from Santa Clara County, 2023- 2024 receipts are estimated at $40.9 million, which is $4.9 million higher than the 2023-2024 Adopted Budget estimate of $36.0 million and $3.1 million above the 2022-2023 collection level of $37.7 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. According to the most recent information from Santa Clara County, 2023- 2024 receipts are estimated at $17.2 million, which is $1.3 million above the 2022-2023 collection level of $16.0 million and $2.2 million above the 2023-2024 Adopted Budget estimate of $15.0 million.
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. According to the most recent information from Santa Clara County, 2023-2024 receipts are estimated at $7.1 million, which is $1.1 million higher than the 2023-2024 Adopted Budget estimate of $6.0 million, but $4.7 million below the 2022-2023 collection level of $11.9 million.
Aircraft Property Tax receipts are typically received in October of each year. According to the most recent information from Santa Clara County, 2023-2024 receipts are estimated at $4.3 million, which is $800,000 higher than the 2023-2024 Adopted Budget estimate of $3.5 million and $400,000 above the 2022-2023 collection level of $3.9 million.
In the Homeowners Property Tax Relief category, revenues in 2023-2024 are expected to be at the budgeted estimate of $900,000, which is consistent with the 2022-2023 collection level.
Revenue
2023-2024
Budget Estimate
YTD
Actual
Prior YTD
Collections
Sales Tax $ 336,400,000 $ 0 $ 8,400,411
The Sales Tax category includes General Sales Taxes, Local Sales Taxes, and Proposition 172 Sales Taxes. The 2023-2024 Budget estimate totals $336.4 million, which is 2.1% below the 2022-2023 collection level of $343.5 million. This drop is due to the anticipated slowdown in the economy, which may impact Sales Tax receipts. 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 July-September activity), February (representing October-December activity), May (representing January-March activity), and August (representing April-June activity). The first Sales Tax payment for 2023-2024 will not be received until November 2023. Once the payment is received and analyzed, additional information will be included in future Bi-Monthly Financial Reports and the 2023-2024 Mid-Year Budget Review, which will be released on January 31, 2024. Additional information about each of the Sales Tax sub-categories is provided below.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
GENERAL FUND (CONT’D.)
General Sales Tax is the largest driver of the Sales Tax category and accounts for over 80% of all Sales Tax receipts. The General Sales Tax 2023-2024 Adopted Budget estimate totals $271.0 million, which allows for a 2.4% drop from the 2022-2023 actual collection level of $277.6 million. As previously mentioned, the first quarter collections for General Sales Tax will be received in late November. After analyzing the receipts, updated information on General Sales Tax collections will be provided in the 2023-2024 Mid-Year Budget Review, which will be released on January 31, 2024.
In 2022-2023 all Sales Tax categories, with the exception of Construction, experienced year-overyear growth. Categories with the largest level of growth included Business-to-Business (28%), Food Products (10%), Transportation (4%), and General Retail (1%; includes apparel stores, department stores, furniture/appliance stores, drug stores, recreation products, and florists/nurseries).
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, and 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.
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 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.
In 2023-2024, Local Sales Tax collections are estimated at $57.0 million, which allows for a slight (1.2%) drop from the 2022-2023 actual collection level of $57.7 million. As previously discussed, first quarter 2023-2024 Local Sales Tax collections (July to September 2023 activity) are anticipated to be received in late November 2023. After analyzing the receipts, updated information on Local Sales Tax collections will be provided in the 2023-2024 Mid-Year Budget Review, which will be released on January 31, 2024.
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 2023-2024 budgeted estimate of $8.4 million requires growth of 2.7% from the 2022-2023 collection level of $8.2 million. At this very early point in the fiscal year, it is anticipated that collections will meet or fall slightly below the budgeted estimate.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
GENERAL FUND (CONT’D.)
Revenue
2023-2024
Budget Estimate
YTD
Actual
Prior YTD
Collections
Transient Occupancy Tax $ 16,000,000 $ 1,012,046 $ 856,574 The 2023-2024 budget estimate for the General Fund Transient Occupancy Tax (TOT) allocation (40% of the total tax) is $16.0 million. When the 2023-2024 Adopted Budget was developed, it was anticipated that 2022-2023 collections would total $16.0 million and remain flat in 2023-2024.
However, 2022-2023 ended the year at $14.9 million, therefore 2023-2024 collections require growth of 7.1% to meet the budgeted estimate. Through August 2023, TOT receipts total $1.0 million, which is 18.2% above the prior year collection level of $857,000; however, this increase may be partially due to the timing of payments received. TOT receipts will be closely monitored and updated information will be provided in the 2023-2024 Mid-Year Budget Review, which will be released on January 31, 2024. Based on the preliminary information known at this very early point in the year, receipts are anticipated to meet the budgeted estimate by year-end.
Through August 2023, the average hotel occupancy rate reported for the San José market was
65.06%, a slight decrease from the average of 68.03% through the same period in 2022-2023. The average daily room rate decreased by 2.5%, from $159.52 as of August 2022 to $155.48 as of August 2023; and the year-to-date average revenue-per-available room (RevPAR) decreased by
6.79%, from $108.52 to $101.15, relative to the same period in 2022-2023.
Reported gross hotel revenue performance for the first two months of 2023-2024 is tracking above estimated levels; however, due to a timing of the remittances being received and booked, not all revenue related to the high hotel performance is captured in the August 2023 receipts.
Additionally, preliminary data reported for September 2023 indicates improving occupancy, room rate, and RevPar metrics. 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 updates in the 2023-2024 Mid-Year Review (released on January 31, 2024) and future Bi-Monthly Financial Reports.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
GENERAL FUND (CONT’D.)
Revenue
2023-2024
Budget Estimate
YTD
Actual
Prior YTD
Collections
Utility Tax $ 126,550,000 $ 12,911,146 $ 9,846,862
The Utility Tax category includes the Electricity Utility Tax, Gas Utility Tax, Water Utility Tax, and the Telephone Utility Tax. Through August, Utility Tax receipts totaled $12.9 million, which is 31.1% higher than the prior-year level of $9.8 million. The year-over-year increase represents higher collections in the Electricity and Water Utility Tax categories, partially offset by lower Gas and Telephone Utility Tax receipts. The overall increase in Utility Tax collections is attributable to the timing of payments being received and higher activity levels.
The 2023-2024 Adopted Budget was built on the assumption that 2022-2023 Utility Tax revenue would end the year at $121.0 million and increase by almost 5% to $127.6 million in 2023-2024.
However, 2022-2023 ended the year at $124.3 million, due to stronger year-end collections. As a result, 2023-2024 collections require growth of only 2% to meet the budgeted estimate. Based on the preliminary information known at this very early point in the year, receipts are anticipated to exceed the budgeted estimate by year-end. As it is still very early in the year, receipts will continue to be closely monitored and updated information will be provided in the 2023-2024 Mid-Year Budget Review, which will be released on January 31, 2024.
In the Electricity Utility Tax category, collections through August totaled $8.6 million, which is
40.2% higher than the $6.1 million received in the prior year. This increase is due to the timing of payments being received and higher activity levels. The 2023-2024 Adopted Budget estimate totals $70.0 million, which requires growth of 4.7% from the 2022-2023 collection level of $66.9 million. Based on collections through August and historical collection patterns, receipts are anticipated to exceed the budgeted estimate by year-end.
In the Gas Utility Tax category, collections through August 2023 totaled $685,000 compared to the prior year level of $774,000. This decrease is primarily due to the timing of payments being received and lower activity levels. The 2023-2024 Adopted Budget estimate totals $19.0 million, which is 5.4% below the 2022-2023 collection level of $20.1 million. Based on collections through August and historical collection patterns, receipts are anticipated to meet the budgeted estimate.
In the Water Utility Tax category, collections through August 2023 totaled $2.0 million, which is 58.9% higher than prior year receipts of $1.3 million. This increase is due to the timing of payments being received and higher activity levels. The 2023-2024 Adopted Budget estimate totals $19.0 million, which is consistent with prior year receipts. Based on collections through August and historical collection patterns, receipts are anticipated to exceed the budgeted estimate.
Collections in the Telephone Utility Tax category of $1.6 million through August are slightly below the prior-year collections of $1.7 million. The 2023-2024 Adopted Budget estimate totals $18.6 million, which is consistent with prior year receipts. Based on collections through August and historical collection patterns, receipts are anticipated to meet the budgeted estimate.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
GENERAL FUND (CONT’D.)
Revenue
2023-2024
Budget Estimate
YTD
Actual
Prior YTD
Collections
Business Taxes $ 87,500,000 $ 11,642,149 $ 11,813,503
The Business Taxes category consists of the Cannabis Business Tax, Cardroom Tax, Disposal Facility Tax, and General Business Tax. Through August, overall collections of $11.6 million are
1.5% below the prior-year collection levels of $11.8 million. This slight year-over-year drop reflects lower Cardroom Business Tax and General Business Tax collections, partially offset by higher Cannabis Business Tax and Disposal Facility Tax collections.
The 2023-2024 Adopted Budget was built on the assumption that 2022-2023 Business Taxes would end the year at $86.8 million and increase by almost 1% to $87.5 million in 2023-2024.
However, 2022-2023 ended the year at $89.6 million, due to stronger year-end collections. As a result, 2023-2024 collections can drop by 2.4% and meet the budgeted estimate. Based on the preliminary information known at this very early point in the year, receipts are anticipated to exceed the budgeted estimate. As it is still very early in the year, receipts will continue to be closely monitored and updated information will be provided 2023-2024 Mid-Year Budget Review, which will be released on January 31, 2024.
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 August, receipts of $1.3 million are 38.7% above the prior-year level of $933,000. This year-over-year increase is due to higher activity levels and increased compliance revenue. The 2023-2024 Adopted Budget estimate of $15.0 million is $1.6 million below the 2022-2023 collection level of $16.6 million. Based on the performance through August, receipts in this category are anticipated to meet or slightly exceed the budgeted estimate by year-end.
Through August, Cardroom Tax receipts, which are inclusive of the ballot measure approved by voters in November 2020 that increased taxes on cardroom operators beginning in January 2021, totaled $2.8 million. This collection level is 15.2% lower than the prior year receipts of $3.3 million. When the 2023-2024 Adopted Budget estimate was developed, it was assumed 2022- 2023 collections would total $32.0 million and remain steady in 2023-2024. However, due to lower than anticipated collections in the last few months of the fiscal year, 2022-2023 collections totaled $29.9 million. Therefore, the 2023-2024 Adopted Budget estimate of $32.0 million requires growth of 6.9% from 2022-2023 receipts. It is not anticipated Cardroom Tax revenue will grow in 2023-2024, therefore, a recommendation was included in the 2022-2023 Annual Report (which was released on September 29, 2023 and will be considered by the City Council on October 17, 2023) to decrease the budgeted estimate by $2.0 million, from $32.0 million to $30.0 million.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
GENERAL FUND (CONT’D.)
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 August totaled $1.1 million, which is 26.8% above the prior-year collection level of $853,000, which is primarily due to the timing of payments received. The 2023-2024 Adopted Budget estimate of $13.0 million is slightly below the 2022- 2023 collection level of $13.3 million. Based on performance through August and historical collection patterns, receipts in this category are anticipated to meet or slightly exceed the budgeted estimate by year-end.
Through August, General Business Tax receipts of $6.5 million are slightly below the prior-year collection level of $6.75 million. When the 2023-2024 Adopted Budget estimate was developed, it was assumed 2022-2023 collections would total $26.0 million and grow slightly to $27.5 million in 2023-2024. However, due to higher than anticipated collections in the last few months of the fiscal year, 2022-2023 collections totaled $29.8 million. Therefore, the 2023-2024 Adopted Budget estimate of $27.5 million allows for a 7.6% drop from the prior year collection level. It is not anticipated General Business Tax revenue will drop in 2023-2024; therefore, a recommendation was included in the 2022-2023 Annual Report (which was released on September 29, 2023 and will be considered by the City Council on October 17, 2023) to increase the budgeted estimate by $2.0 million, from $27.5 million to $29.5 million.
Revenue
2023-2024
Budget Estimate
YTD
Actual
Prior YTD
Collections
Real Property Transfer Tax $ 50,000,000 $ 3,911,448 $ 8,837,789 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, is imposed at a tiered level for 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 August 2023, Real Property Transfer Tax collections totaled $3.9 million, which is significantly below the prior-year level of $8.8 million. In addition, the City has received the September tax receipts from Santa Clara County, which totaled $3.4 million. When taking into account total receipts through August and the September remittance, total Real Property Transfer Tax receipts in 2023-2024 totaled $7.3 million, compared to the prior year level of $14.7 million.
This significant variance is primarily due to a more constrained real estate market resulting in a larger amount of high-value property transfers occurring in the prior year. The 2023-2024 Adopted Budget estimate totals $50.0 million, which allows for a 11.2% drop from the 2022-2023 collection level of $56.3 million. As it is still very early in the year, Real Property Transfer Tax receipts will continue to be closely monitored and updated information will be provided 2023-2024 Mid-Year Budget Review, which will be released on January 31, 2024.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
GENERAL FUND (CONT’D.)
EXPENDITURES
Through August, General Fund expenditures (without encumbrances) of $164.6 million were 8.6% below the prior-year level of $180.0 million. Encumbrances of $120.9 million were 52.2% above the prior-year level of $79.4 million. General Fund expenditures and encumbrances through August of $285.4 million constitute 13.5% of the total budget including reserves and 16.6% of the budget excluding reserves. Overall, General Fund expenditures are anticipated to end the year within budgeted levels.
Through August, departments are overall performing within estimated levels for personal services expenditures. Expenditures will continue to be controlled and monitored to ensure appropriations stay within approved levels. Following is a discussion of the performance of the Police and Fire Departments, the largest General Fund departments.
KEY GENERAL FUND EXPENDITURES
Department
2023-2024
Budget
YTD
Actual
Prior YTD
Actual
Police $ 509,122,485 $ 74,053,131 $ 70,940,647
Overall, Police Department expenditures are slightly above estimated levels through August 2023, which is driven by personal services expenditures. Personal services expenditures of $66.0 million are above the anticipated level for this point of the year (14.35% expended, compared to the par level of 13.66%), with overtime expenditures of $8.5 million (33.9% of the total $25.1 million Adopted Budget). Year-to-date overtime expenditures are 23.1% above 2022-2023 levels and overtime hours through August (117,516) increased by approximately 13.5% over the same period in the prior fiscal year (103,553). The increased overtime usage is attributed to staffing shortages, academy and training for new officers, backfilling street-ready vacancies, and increased caseload in the Homicide, Sexual Assault, Covert Response and Robbery Units. Discussion on the Department’s steps to reduce overtime expenditures while also maintaining minimum staffing and service levels follow below.
A total of $8.0 million (16.43%) of the Department’s non-personal/equipment budget ($48.9 million, including carry-over encumbrances) has been expended through August 2023. Excluding the remaining balances for centrally-determined details ($22.8 million), which include electricity, gas, and water utilities, as well as vehicle operations, maintenance, and replacement, the Department has approximately $18.0 million, or 36.9% of its non-personal/equipment budget available for the remainder of the fiscal year. Although non-personal/equipment expenditures are tracking high at this point of the fiscal year due to encumbrances of $4.1 million (52.0% of the year-to-date activity), overall expenditures are expected to remain within budget levels as this encumbrance balance is expended for planned activities. The Police Department is committed to
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
GENERAL FUND (CONT’D.)
maintain both its personal services and non-personal/equipment expenditures within the current overall budgeted levels.
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 available vacancy savings and the $5.0 million in one-time funding from the Police Department Sworn Backfill Reserve, 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 21.1% as of September 1, 2023. Historically, the effective vacancy rate has averaged 18.9% (based on the 5-year period between 2018-2019 and 2022-2023), 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.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
GENERAL FUND (CONT’D.)
Finally, the Police Chief’s Office and City Manager’s Budget Office met in September and October 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.
August
20223
August
2023
% Change
from 2022
to 2023
% Change
from 2021
to 2022
# of Sworn Personnel at 480-
hour limit
443 384 (13.32%) 2.31%
# of Sworn Personnel between
240 and 480 hours
287 322 12.20% 1.06%
Sworn Compensatory Time
Balance Liability (hours)
354,300 340,206 (3.98%) (0.13%)
Sworn Compensatory Time
Balance Liability ($)
$27.1 M $28.4 M 4.94% 0.31%
YTD Overtime Expenses for
Staff at 480-hour Limit ($)
$3.9 M $4.7 M 20.21% 16.30%
The table on the following page provides a summary of sworn staffing vacancies and street-ready officers. The February 2023 academy graduated 13 officers in September 2023, and the June 2023 academy started with 27 recruits. The October 2023 academy is expected to begin with 30 recruits.
As of September 1, 2023, of the 1,173 authorized sworn staff, 59 were in training (5.0%) and 73 were on disability/modified duty/other leaves (6.2%).
3 The Bi-Monthly Financial Report for July/August 2022 was under reported due to the omission of the final pay period of August 2022. All data categories have been revised in this column to include the missing pay period.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
GENERAL FUND (CONT’D.)
2022-2023
(as of 09/02/2022)
2023-2024
(as of 09/01/2023)
Authorized Sworn Positions 1,1534 1,173
(Vacancies)/Overstaff (51) (115)
Filled Sworn Positions51,102 1,058
Field Training Officer/Recruits (75) (59)
Street-Ready Sworn Officers Available 1,027 999
Disability/Modified Duty/Other Leaves (64) (73)
Street-Ready Sworn Officers Working 963 926
Department
2023-2024
Budget
YTD
Actual
Prior YTD
Actual
Fire $ 283,030,694 $ 42,596,180 $ 41,685,363
The Fire Department’s budget totals $283.0 million, which is comprised of $267.3 million in personal services and $15.7 million in non-personal/equipment expenditures. Overall, Fire Department expenditures are performing slightly above estimated levels through August 2023.
Personal services expenditures of $37.8 million, or 14.13% of the budgeted levels, are trending slightly higher than the expected level of 13.66% at this point in the year. This trend can be partially attributed to the demand for frontline personnel to respond to incidents during the wildland fire season in 2023, while continuing to maintain the daily minimal staffing levels of deployed resources of 191 personnel. The Department responded to approximately 17,895 incidents (Priority 1 and Priority 2 type calls) through August 2023, resulting in a 1.4% increase in emergency response services compared to 17,643 incidents over the same period in 2022-2023.
The Fire Department’s non-personal/equipment budget of $15.7 million was 30.61% expended or encumbered through August 2023. The Department’s non-personal/equipment expenditures are above the expected levels of 13.66% primarily due to encumbrances ($3.1 million). At this point in the year, it is expected the Fire Department will remain within budgeted levels. 4 The amount of authorized sworn positions were increased to 1,173 in October 2022, as the 20.0 new Police Officer positions included in the 2022-2023 Adopted Budget were budgeted to take effect with the October academy. 5 Filled sworn positions and authorized sworn positions may vary due to vacancies or the approval of overstrength (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.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
GENERAL FUND (CONT’D.)
Through the 2023-2024 Adopted Budget, the Fire Department was allocated funding to conduct a second lateral academy that began in August 2023 with six candidates anticipated to complete the academy in October 2023. The Department vigilantly works to increase the pool of qualified Firefighter/Paramedics in hopes to mitigate the impacts from the continued shortage of paramedics experienced nationwide. To extend their reach for recruitment and to pull from a larger, diverse audience, the Department is advancing outreach efforts through partnerships with local, regional, and nationwide public safety agencies. The Department is continuing efforts to address paramedic recruitment challenges and will recruit, hire, and train personnel to keep pace with staffing attrition and address key vacancies.
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 forsworn administrative personnel for overtime control purposes. As of the end of August, of the 33 current authorized staffing level, the Fire Department had 33 sworn personnel on administrative assignments.
CONTINGENCY RESERVE
The General Fund Contingency Reserve remained at $47.0 million through August, with no revisions through the first two months of the fiscal year. However, the 2022-2023 Annual Report, which was released on September 29, 2023 and will be brought forth for City Council consideration on October 17, 2023, includes a recommendation to increase the Contingency Reserve by $3.0 million, to $50.0 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.
OTHER FUNDS
Airport Funds
On a fiscal year-to-date basis, the San José Mineta International Airport (SJC) has enplaned and deplaned 2.2 million passengers, an increase of 0.8% from the figures reported through August of the prior year. Year-to-Date domestic passengers have decreased 1.9%, while international passengers have increased 77.7%. The increase in international passengers is due to the addition of ZipAir flights to Tokyo, Japan and an increase in passengers and destinations in Mexico. The chart below depicts the year-over-year change for the month of August and Fiscal Year-to-Date for the last six years.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
OTHER FUNDS (CONT’D.)
Fiscal year-to-date mail, freight and cargo totaled 11.0 million pounds, which represents a 12.4% decrease over year-to-date August 2022. Revenue-generating activities posted mixed results from prior year-to-date levels, with decreases in Traffic Operations (landings and takeoffs) by 6.6%, Gallons of Aviation Fuel sold by 4.3%, and Landed Weights by 1.3%, offset by increases in Ground Transportation by 12.2% and Parking Exits by 9.7% year-over-year. Year-to-date Airport revenue through August primarily reflects just one month of receipts. Revenues will continue to be closely monitored through this fiscal year.
Through August, 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 12.9% of the budget compared to the benchmark of 13.7%, and non-personal/equipment expenditures were 5.3% compared to the benchmark of 7.1%. Non-personal/Equipment expenditures in the Customer Facility and Transportation Fee Fund were 5.8% compared to the straight-line benchmark of 16.7%. The activity levels, revenues and expenditure status of the Airport Funds will continue to be closely monitored throughout the fiscal year.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
OTHER FUNDS (CONT’D.)
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 2023 included a shift to a new 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 Power Charge Indifference Adjustment (PCIA) and Franchise Fee Surcharge, depending on customer class and usage. 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, and SJCE added a corresponding set of rates to its rate package for 2023. Energy content for SJCE’s GreenSource standard service remains at 60% renewable energy and up to 95% carbon-free power while SJCE’s TotalGreen product continues at 100% carbon-free power.
PG&E’s PCIA fees are highly volatile and are a significant factor when setting SJCE rates each year. Lower PCIA fees combined with high market energy prices created a favorable environment for SJCE in 2022 and 2023, 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. SJCE drew a total of $60.0 million of Commercial Paper notes in 2020-2021 and 2021-2022 combined and has already paid back $40.0 million. The Community Energy Department anticipates repaying the remaining outstanding commercial paper debt of $20.0 million by the end of 2023-2024.
Through August, Energy Sales totaled $108.6 million, 1.4% above prior year levels of $107.1 million and 21.0% of the 2023-2024 Adopted Budget estimate of $517.5 million. Cost of Energy expenditures including encumbrances totaled $276.0 million, 44.3% above prior year levels of $191.3 million and 62.6% of the Modified Budget. It is typical for SJCE to encumber a significant portion of funding for contracted energy early in the fiscal year. The Community Energy Department monitors energy procurement activities closely and, at this early point in the fiscal year, estimates that Energy Sales will end the year at approximately $517.0 million, or less than 1.0% below the budgeted estimate of $517.5 million. Similarly, Cost of Energy is estimated to end the year below the 2023-2024 Adopted Budget of $421.5 million at $402.1 million, or
4.6% below the current budget. Additionally, the Community Energy Department maintains a restricted operating reserve that City Council approved as part of SJCE’s Financial Reserves Policy. The policy sets a goal to build and maintain at least 180 days of operating reserves to achieve financial resiliency and rate stability. The 180-day reserve threshold is approximately $240 million; the Community Energy Department is still working to build up this reserve level, with an Adopted Budget amount of $136.0 million. The Community Energy Department monitors this fund closely. Any necessary budget actions to adjust Energy Sales and Cost of Energy allocations will be brought forward for City Council consideration in a future budget process.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
OTHER FUNDS (CONT’D.)
Construction and Conveyance Tax Funds
Through August 2023, Construction and Conveyance (C&C) Tax receipts totaled $3.0 million, which represents 7.5% of the 2023-2024 Adopted Budget estimate of $40.0 million. This amount is 28% below collections received through August 2022, which totaled $4.2 million. In addition, the City has received the September Conveyance receipts from Santa Clara County, which total $3.4 million. When taking into account total receipts through August and the estimated September collections, C&C receipts in 2023-2024 total $6.4 million, which represents a 21% decline from the 2022-2023 collection level of $8.1 million.
The 2023-2024 Adopted Budget estimate of $40.0 million was built on the assumption that C&C Tax receipts would total $40.0 million in 2022-2023 and remain flat in 2023-2024. However, since 2022-2023 receipts totaled $37.9 million, collections in 2023-2024 need to grow by 5.7% to meet the budgeted estimate. However, as previously discussed, C&C Tax collections through September have actually declined from prior year levels. Based on collections throughout the first few months of the year, C&C Tax receipts may fall short of the budgeted estimate.
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, the local real estate market has softened. 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. The local market will continue to be closely monitored, with updates provided in future Bi-Monthly Financial Reports and the 2023- 2024 Mid-Year Budget Review, which will be released on January 31, 2024.
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 the very preliminary information known for the first two months of the year, Capital Fund revenues associated with construction activity are anticipated to meet or fall slightly below budgeted levels.
These construction-related tax revenues will continue to be closely monitored, with updates provided in future Bi-Monthly Financial Reports and the 2023-2024 Mid-Year Budget Review, which will be released on January 31, 2024.
Through August, the Building and Structure Construction Tax collection level of $3.41 million represents 18.0% of the budgeted estimate of $19.0 million, and is 14.6% below receipts through August 2022 of $4.0 million. Overall permit valuation through August is higher than the permit valuation for the same period last fiscal year as a result of significantly higher residential permit activity. However, the year-over-year decrease is primarily attributable to lower construction permit valuation for commercial and industrial categories, especially for industrial activity.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
OTHER FUNDS (CONT’D.)
When the 2023-2024 Adopted Capital Budget was developed, it was anticipated that 2022-2023 Building and Structure Construction Tax receipts would total $19.0 million, and remain flat in 2023-2024. However, since 2022-2023 receipts ended the year at $16.4 million, the 2023-2024 budgeted estimate requires a 16.0% increase from the prior-year level. Based on collections through August, the Building and Structure Construction Tax Revenue is anticipated to fall short of the budgeted estimate. However, as it is still very early in the fiscal year and only preliminary information is known, this tax revenue will continue to be closely monitored.
Through August, the Construction Excise Tax collection level of $4.0 million represents 26.6% of the budgeted estimate of $15.0 million, and is significantly above receipts through August 2022 of $1.7 million. The year-over-year increase is attributable to significantly higher construction permit valuation for the residential land use categories compared to the same period last fiscal year. When the 2023-2024 Adopted Capital Budget was developed it was anticipated 2022-2023 Construction Excise Tax receipts would total $14.0 million, then increase by approximately 7.0% to $15.0 million in 2023-2024. However, since 2022-2023 receipts ended the year at $10.9 million, the 2023-2024 budgeted estimate requires a 37.8% increase from the prior-year collection level. At this very early point in the year, it is anticipated Construction Excise Tax Revenue will meet the budgeted estimate by year-end.
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 very preliminary information known at this point in the year, all Development Fee Programs are tracking to fall slightly below 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. Through August 2023, Building Permit revenues of $6.4 million are 12.5% below the prior-year collection level of $7.3 million. The 2023-2024 Adopted Budget estimate of $38.4 million requires growth of 3.2% from the 2022-2023 collection level of $37.2 million. Based on current collection trends, Building Fee revenues are tracking to fall below the 2023-2024 budgeted estimate.
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 August 2023, Citywide Planning Fee revenues of $593,100 are 16.2% below the prior-year collection level of $708,000. The 2023-2024 Adopted Budget estimate of $3.8 million requires growth of 10.0% from the 2022-2023 actual collection level of $3.4 million. Citywide Planning Fee revenue is tracking to fall below the 2023-2024 budgeted estimate.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
OTHER FUNDS (CONT’D.)
The Fire Development Fee Program provides operational and construction permits and inspections to ensure that development within San José meets the City’s fire codes. Fire Development related fees and charges through August 2023 totaled $1.4 million, which is 13.7% below the prior year collection level. The 2023-2024 Adopted Budget estimate of $8.9 million requires growth of 9.2% from the 2022-2023 actual collection level of $8.2 million. Based on current collection trends, Fire Development Fee revenues are tracking to fall below the 2023-2024 budgeted estimate.
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 August 2023, Planning Fee revenues of $1.0 million are 28.7% below the prior-year collection level of $1.46 million. The 2023-2024 Adopted Budget estimate of $7.7 million requires growth of 8.9% from the 2022-2023 actual collection level of $7.1 million. Based on current collection trends, Planning Fee revenue are tracking to fall below the 2023-2024 budgeted estimate.
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 August of $1.7 million were 1.1% higher than the prior-year level of $1.7 million. The Public Works Development Fee Program total revenue collections are comprised of $868,000 from the Development Services Fee Program, $822,000 from the Utility Fee Program, and approximately $17,000 of interest. The 2023-2024 Adopted Budget estimate of $15.4 million allows for an 9.0% decrease from the 2022-2023 actual collection level of $17.0 million. Based on activity through August, revenue collections in the Public Works Development Fee Program are tracking to meet or exceed the budgeted estimate.
CONCLUSION
The City ended the 2022-2023 fiscal year in solid position as the starting point for 2023-2024.
However, although overall economic conditions remain positive, persistent higher levels of inflation and high interest rates may negatively impact sectors of the economy, including local real estate. As a result, several revenue sources such as the Real Property Transfer Tax and Construction and Conveyance Tax (which are driven by real estate transactions) may have suppressed collection rates.
While it is still very early in the fiscal year, overall General Fund and other City funds revenues and expenditures are tracking within anticipated levels. Additionally, several revenue categories are currently projected to end the year above budgeted levels, including Property Tax and Fees, Rates and Charges. Conversely, as mentioned, Construction and Conveyance Tax and Real Property Transfer Tax revenue are performing below budgeted levels. In addition, Building and Structure Construction Tax and several Development Fee programs are tracking low through the first few months of the year.
PUBLIC SAFETY, FINANCE, AND STRATEGIC SUPPORT COMMITTEE October 10, 2023
Subject: Bi-Monthly Financial Report for July/August 2023
CONCLUSION (CONT’D.)
If warranted, budget adjustments to align revenue with revised estimates will be brought forward for City Council consideration as part of the 2023-2024 Mid-Year Budget Review, which will be released on January 31, 2024. However, since only very preliminary information is currently known for all categories, revenues and expenditures will continue to be closely monitored. The Administration will follow and report on economic indicators and revenues in 2023-2024 through future Bi-Monthly Financial Reports and the Mid-Year Budget Review process, and return to the Mayor and City Council with recommendations for any revisions, if necessary. As always, staff will continue to report to the City Council significant developments through this and other budget reporting processes.
JIM SHANNON
Budget Director
Attachment: Finance Department Monthly Financial Report