SECOND QUARTER FINANCIAL REPORT
FISCALYEAR 2023-2024
Public Safety, Finance and
Strategic Support Committee
Prepared by the Finance Department
January 31, 2024
COMMITTEE AGENDA: FEBRUARY 15, 2024
ITEM: (D.2)
FILE: CC 24-284
ATTACHMENTA
SECOND QUARTER
DEBT MANAGEMENT REPORT
FISCAL YEAR 2023-2024
2 Outstanding Debt as of December 31, 2023: $4.4 Billion FY2023-24 Debt Issuance: $79.2 Million
3 OUTSTANDING DEBT ISSUED
(CITY AND ALL AGENCIES)
*YTD Debt Issuance
$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 December 31, 2023: $3.6 Billion
(Excluding Multifamily Housing Revenue Bonds)
4 DIRECT OUTSTANDING DEBT
(CITY AND ALL AGENCIES)
CSJ GO Bonds,
$522,815,000, 14.56%
CSJFA Bonds/ CP
Notes, $662,025,000,
18.44%
Airport Revenue
Bonds/ CP,
$1,054,800,000, 29.37%
Wastewater Revenue Bonds/
RWF Notes, $264,503,484,
7.37%
Successor Agency Tax
Allocation Bonds,
$1,086,715,000, 30.26%
DEBT ISSUANCES
Multifamily Housing Revenue Bond (MHRB) Issuances
5 Project Name Issue Date Taxable Tax-Exempt Total Issuance Dry Creek Crossing 11/1/2023 $8,805,095 $31,194,905 $40,000,000 Parkmoor Apartments 11/2/2023 - $39,221,000 (1) $39,221,000 Total $79,221,000
(1) The bonds were issued in two series, 2023F-1 (M-TEMS) in an amount of $2,150,000 and 2023F-2 (Cash Collateralized) in an amount of $37,071,000.
DEBT MANAGEMENT ACTIVITIES
(OCTOBER – DECEMBER 2023)
6 • CSJFA Commercial Paper Redemption
▪ $20 million by San José Clean Energy
▪ $417,000 by Parks and Recreational Neighborhood Services • Refunding of Airport Revenue Bonds, Series 2014ABC
▪ The City issued an RFP for a Placement Agent and selected Raymond James & Associates, Inc. to serve as the placement agent.
• Reporting
▪ Annual Continuing Disclosure and Compliance Reporting ▪ 2023 Comprehensive Annual Debt Report (CADR)
RATING SURVEILLANCE
• Wastewater Revenue Bonds, Series 2022B
▪ November 2023, KBRA affirmed the City’s Wastewater Revenue Bonds rating of AAA with stable outlook
▪ November 2023, Fitch Ratings assigned a Review No Action and the City maintained the bond’s current rating and outlook
• Moody's Investors Services maintained its credit opinion on the City of San José Issuer Rating in December 2023
• Fitch Ratings upgraded the Successor Agency to the Redevelopment Agency of the City of San Jose, CA Series A and A-T senior tax allocation refunding bonds to 'AA+' from 'AA’ and Series B subordinate tax allocation refunding bonds to 'AA' from 'AA-’ in October 2023. The outlook is stable. 7 UPCOMING PROJECTS
THROUGH MARCH 31, 2024
• Complete refunding of 2014 Airport Revenue Bonds
• CSJFA and Airport CP issuances and remarketing
• Arbitrage Rebate Service RFP
• SB1029 Annual Debt Transparency Reporting (ADTR)
• SARA Recognized Obligation Payment Schedule (ROPS)
8 10-year history of higher rated
(“AA+”) General Obligation debt
(20-year term) yield averaged
3.00% and is currently at 3.21% (as
of 1/4/2024).
9 BOND BUYER GO BONDYIELD INDEX
3.00%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Dec-13Dec-14Dec-15Dec-16Dec-17Dec-18Dec-19Dec-20Dec-21Dec-22Dec-23 Interest Rate
Bond Buyer 11-Bond GO Index ('AA+') avg. rating)
Index Average 12/13 - 12/23 (3.00%)
• The Daily SOFR interest rate
is currently 5.31% (as of
1/10/2024).
• The graph shows the increase
in variable SOFR interest
rates in FY 23-24.
• The City uses SOFR as a
proxy to forecast taxable
financing rates.
10 SECURED OVERNIGHT FINANCING RATE
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Dec-22
Jan-23
Feb-23
Mar-23
Apr-23
May-23
Jun-23
Jul-23
Aug-23Sep-23
Oct-23
Nov-23Dec-23
Interest Rate
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 that 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 Type of Rating Moody’s S&P Fitch
Issuer Rating Aa1
(stable)
AA+
(stable)
AA+
(stable)
General Obligation Bonds Aa1
(stable)
AA+
(stable)
AAA
(stable)
Lease Revenue Bonds
(Essential Assets)
Aa2
(stable)
AA
(stable)
AA
(stable)
Lease Revenue Bonds
(Less Essential Assets)
Aa3[1]
(stable)
AA
(stable)
AA-
[2]
(stable)
[1] Moody’s assigns a rating of Aa3 to CSJFA 2020B and 2022A bonds which the rating agency considers less essential assets. [2] Fitch assigns a rating of AA- to CSJFA 2020B bonds which the rating agency considers less essential assets.
OTHER CITY CREDIT RATINGS
13 Type of Rating Moody’s S&P Fitch KBRA (Kroll)
San José Airport
Bonds
A2
(stable)
A
(stable)
A
(stable) N/A
Wastewater
Revenue Bonds N/A[1] AAA(stable)
AAA
(stable)
AAA[2]
(stable)
SARA Senior Tax
Allocation Bonds N/A AA(stable)
AA+
(stable) N/A
SARA Subordinate
Tax Allocation
Bonds
N/A AA-
(stable)
AA
(stable) N/A
[1] Moody’s does not rate CSJFA Wastewater Revenue Bonds. [2] KBRA (Kroll) has assigned a rating to the CSJFA Wastewater Revenue Bonds exclusively.
SECOND QUARTER
INVESTMENT MANAGEMENT REPORT
FOR FISCAL YEAR 2023-2024
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 PORTFOLIO PERFORMANCE SUMMARY
Size of Total Portfolio $2,385,783,590
Earned Interest Yield 3.106%
Weighted Average Maturity 682 days
Fiscal Year-to-Date Net Income Recognized $39,082,488
Exceptions to the City Investment Policy this Quarter None 17 Total Investment Portfolio:
$2,385,783,590
18 PORTFOLIO INVESTMENTS
U.S. Treasury
$64,335,494 2.7%
U.S. Agency
$1,042,208,416 43.7%
Supranationals
$215,866,025 9.0%
Corporate Notes
$310,079,385 13.0%
Asset Backed Securities
$43,000,612 1.8%
Muni Bonds
$360,334,294
15.1%
Mortgage Backed
Securities
$214,986,432 9.0%
JPAP
$114,322,642 4.8% LAIF $20,650,290
0.9%
The $458.0 million in the General
Fund presented includes
$442,840,960 of General Fund
monies, as well as $15,142,327 in
other, separately tracked general
funds, such as the Depositor Fund,
the American Rescue Plan Act
(ARPA) of 2021 and other smaller
funds and reserves.
19 INVESTMENTS BY FUND
Internal Services
Fund $36,265,128
Airport
$309,761,961 Capital Projects
$52,674,111
Debt Service
$68,487,612
Development
Fees $55,144,267
General Fund
$457,983,287
Muni Water
$39,267,902
Parking
$36,409,147
Housing
$346,384,170
Special Revenue
Funds $364,735,923
Wastewater
$402,759,086
Trust & Agency
$6,184,314
SJ Clean Energy
$207,643,915
GENERAL FUND BALANCE
• General Fund balances decreased by $24 million during the quarter and ended with a balance of $458 million as of December 31, 2023.
General Fund balances usually peaks during the months of January and June, when the bulk of property taxes are received; declines in the summer due to retirement prefunding; and declines throughout the rest of the year due to debt service payments and operational expenditures
• Projected investment maturities, cash and revenues are sufficient to cover anticipated expenditures for the next six months
20 21
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
Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Dec-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.
22 BENCHMARK COMPARISONS
0.00 0.50
1.00 1.50
2.00 2.50
3.00 3.50
4.00 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Yield (%)
City LAIF BAML
Yield WAM
BAML: 3.963% 679
LAIF: 3.929% 230
CITY: 3.166% 682
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 23 SECOND QUARTER
REVENUE MANAGEMENT REPORT
FOR FISCAL YEAR 2023-2024
24 REVENUE MANAGEMENT PROGRAMS
• Finance Department Revenue Management focuses on collecting 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.
25 Total Revenue: $4.749B
Source: 2022-23 City Manager’s
Budget Office Annual Report
(Graph is updated annually)
26 REVENUE MANAGEMENT PORTFOLIO
FY 2022-23 REVENUE ($ IN MILLIONS)
Lodging Taxes & Fees
$52M
3.8%
Franchise Fees
$44.8M
3.2%
Utility Users Tax
$124.3M
9.0%
Telephone Line Tax
$21.1M
1.5%
Real Property Transfer Tax
$56.3M
4.1%
Utility Billing
$469.4M
34.0%
Sales Tax
$343.5M
24.9%
Misc. Billing
$178.6M
12.9%
Business Taxes
$89.6M
6.5%
Revenue
Management
$1.380B
City-Wide Revenue
(excluding Revenue
Management)
$3.369B
Includes invoices billed through the
Business Tax System, the centralized
Accounts Receivable system (RevQ),
and the Utility Billing System.
(Graph is updated annually)
27 INVOICING AND PAYMENTS
FIVE-YEAR HISTORY (FY 2018-19 TO FY 2022-23)
99.4% 99.4% 99.0% 98.7%
95.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$-
$100
$200
$300
$400
$500
$600
$700
$800
FY 18-19 FY 19-20 FY 20-21 FY 21-22 FY 22-23
In Millions
Payments Outstanding Percentage Collected
28 OUTSTANDING RECEIVABLES
THREE-YEAR HISTORY (Q3 FY 2020-21 TO Q2 FY 2023-24)
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
$-
$20
$40
$60
$80
$100
$120
20-21
Q3
20-21
Q4
21-22
Q1
21-22
Q2
21-22
Q3
21-22
Q4
22-23
Q1
22-23
Q2
22-23
Q3
22-23
Q4
23-24
Q1
23-24
Q2
Quarter to Quarter % Change
Millions
Revenue Mangement Aging
Total Receivables Delinquent (91+ days) Delinquency Percentage Change 29 FY 2023-24 Q2 DELINQUENT RECEIVABLES
COLLECTION STATUS SUMMARY ($ IN MILLIONS*)
*Rounded
As of December 31, 2023
Write-Off Pending (A/R Only)
$2.4M
1,452 Invoices
Liens (A/R Only)
$0.9M
417 Invoices
Restitution,
Payment Plan (A/R Only)
$1.0M
313 Invoices
Legal,
Bankruptcy
$3.4M
644 Invoices
Collection Agency
$20.0M
31,962 Invoices
Active
$27.2M
25,363 Invoices
Total Current
$43.4M
Total Delinquent
$54.9M
Revenue Management
COLLECTIONS & RETURN ON INVESTMENT
REVENUE MANAGEMENT COLLECTIONS (Q3 FY 2021-22 TO Q2 FY 2023-24) Target ROI: 5.0
30 10.8
5.8 5.6
5.3 5.7
5.0 4.0
8.3 0.0
5.0 10.0
15.0 $0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
21-22 Q3 21-22 Q4 22-23 Q1 22-23 Q2 22-23 Q3 22-23 Q4 23-24 Q1 23-24 Q2 Return on Investment (ROI)
Millions
Business Tax Accounts Receivable Actual ROI
ACCOUNTS RECEIVABLE PILOT AMNESTY
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 Program 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: $210K
• Amnesty Waivers: $73K
• Recommendation: No extension/expansion at this time
31 SECOND QUARTER
PURCHASING AND
RISK MANAGEMENT REPORT
FOR FISCALYEAR 2023-2024
32 PURCHASING PROGRAM
The Purchasing Division of the Finance Department is responsible for the centralized procurement of equipment, supplies, materials, Information Technology (IT), and non-consulting services, pursuant to the City of San José Municipal Code Title 4, Chapter 4.12. 33 PURCHASING TRANSACTIONS COMPLETED
SECOND QUARTER FY2023-24
PROCUREMENT TYPE
SECOND
QUARTER
TRANSACTIONS
FISCALYEAR
TO DATE
PROCUREMENT SOLICITATIONS COMPLETED (RFX) 28 59
PURCHASE ORDERS AND PURCHASE ORDER ADJUSTMENTS ISSUED 430 1,122 NEW AGREEMENTS NEGOTIATED AND EXECUTED 6 8
AMENDMENTS, CHANGE ORDERS, SERVICE ORDERS, OPTIONS EXECUTED 41 56 COUNCIL MEMORANDA ISSUED 22 34
PURCHASE ORDER & CONTRACT DOLLARS PROCURED $134,951,147 $289,728,943 34 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 including the changes to Title 4 of the City of San Jose Municipal Code. The changes to Title 4 went into effect on November 16, 2023.
• Staff will continue to review and consider other recommendations from Procurement Improvement Study for adoption and
implementation.
35 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.
• MGT Consulting has provided staff with a full draft report of the study. Staff is reviewing the draft report and providing input to the consultant. Staff hopes to complete the review by the middle of February 2024.
• Target date for final completion of the study is end of March 2024. 36 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.
37 38
RISK MANAGEMENT TRANSACTIONS COMPLETED
SECOND QUARTER FY2023-24
Transaction Type Second Quarter
Transactions
Fiscal Year to
Date
Request for Contract Insurance Specifications 242 604
Request for Insurance Compliance Review 206 359
Request for Letters of Self-Insurance 19 39
Subrogation Dollars Billed to Responsible Third Parties $150,200 $343,203 Council and Committee Memorandums Issued 0 2
OTHER SECOND QUARTER RISK
MANAGEMENT ACCOMPLISHMENTS
• Other highlights include:
▪ Facilitated property loss prevention visits at the San Jose – Santa Clara Regional Wastewater Facility, the Central Service Yard, the San Jose Museum of Art, and the Police Department Administrative Building ▪ Negotiated $504,516 in insurance recoveries from property and builders risk insurers related to property losses at History Park and the San Jose-Santa Clara Regional Wastewater Facility
▪ Implemented business process automation for Self-Insurance Letter Requests 39