FOURTH QUARTER FINANCIAL REPORT
FISCALYEAR 2023-2024
Public Safety, Finance and
Strategic Support Committee
Prepared by the Finance Department
July 31, 2024
COMMITTEE AGENDA: AUGUST 15, 2024
ITEM: (d)1.
FILE: CC 24-374
ATTACHMENTA
Attachment A
FOURTH QUARTER
DEBT MANAGEMENT REPORT
FISCAL YEAR 2023-2024
2 Outstanding Debt as of June 30, 2024: $4.39 Billion
FY2023-24 Debt Issuance: $145.3 Million
3 OUTSTANDING DEBT ISSUED
(CITY AND ALL AGENCIES)
Outstanding Debt as of June 30, 2024: $3.60 Billion
(Excluding Multifamily Housing Revenue Bonds)
4 DIRECT OUTSTANDING DEBT
(CITY AND ALL AGENCIES)
CSJ GO Bonds,
$522,815,000, 14.52%
CSJFA Bonds/ CP Notes,
$638,982,000, 17.74%
Airport Revenue Bonds/
CP, $1,048,373,000,
29.11%
Wastewater Revenue
Bonds/ RWF Notes,
$304,503,219, 8.46%
Successor Agency Tax
Allocation Bonds,
$1,086,715,000, 30.17%
DEBT ISSUANCE ACTIVITIES
(APRIL– JUNE 2024)
5 • Regional Wastewater Facility (RWF) Credit Facility Draw, $40.0 million in April 2024
• City of San José Financing Authority (CSJFA) Commercial Paper issuance for $952.0 thousand in June 2024 for Parks and Recreation Neighborhood Services Floods project
• Issued $6.1 million in Airport Commercial Paper
• California Community Choice Financing Authority (CCCFA) Clean Energy Project Revenue Bonds (for San José Clean Energy)
▪ Completed solicitation of Commodity Swap Services Request for Proposal (RFP) ➢ Natixis and Royal Bank of Canada were selected
DEBT MANAGEMENT ACTIVITIES
(APRIL– JUNE 2024)
6 • Debt Administration
▪ Completed RFP solicitations related to the formation of a Community Facilities District (Berryessa)
➢Special Tax Consultant – Selected Goodwin Consulting Group, Inc. (June 2024) ➢Market Absorption – Selected RCLCO Real Estate Consulting (June 2024) ▪ Issuer Ratings and Rating Surveillance
➢SJCE received A2/A ratings from Moody’s and S&P with stable outlooks ➢S&P and Fitch affirmed Airport ratings of “A” (senior debt) and “A-” (subordinate debt) DEBT MANAGEMENT ACTIVITIES (CONT.)
(APRIL– JUNE 2024)
7 • Debt Administration
▪ Executed the following Consultant Agreements:
➢BLX Group LLC shall provide services related to Arbitrage Rebate, Private Activity and Senate Bill SB1029. The contract is set for an initial term of three years with two oneyear optional extensions through June 30, 2029. ➢Fieldman, Rolapp & Associates shall provide Municipal Advisory Services related to the formation of the Berryessa Community Facilities District. The contract is set for an initial term of three years with two one-year optional extensions through June 30, 2029.
UPCOMING DEBT ISSUANCE
THROUGH SEPTEMBER 30, 2024
• On July 15, 2024, the City extended the Airport Commercial Paper Bank of America Letter of Credit Reimbursement Agreement through September 10, 2026. • Close the issuance of 2024A Airport Revenue Refunding Bonds ▪ On July 16, 2024, the City locked the rate with TD securities. ▪ Net present value saving of ~3.30% or ~$2.5 million.
▪ Closing on July 30, 2024.
• Commercial paper issuance and remarketing for the Airport • CCCFA Project Revenue Bonds
▪ Trustee RFP – selected U.S. Bank (July 2024)
▪ Green Bonds Second Party Opinion RFP (expected July/August 2024) ▪ Investment Agreement Bidding Agent RFP (expected July/August 2024) 8 10-year history of higher rated
(“AA+”) General Obligation debt
(20-year term) yield averaged
2.95% and is currently at 3.84%
(as of 7/11/2024).
9 BOND BUYER GO BONDYIELD INDEX
2.95%
• The Daily Secured Overnight
Financing Rate (SOFR)
interest rate is currently 5.34%
(as of 7/12/2024)
• The Bloomberg 3-Month Short
Term Bank Yield (BSBY3M)
interest rate is currently at 5.40%
(as of 7/12/2024)
• The City uses SOFR as a proxy for
forecasting interest rates for RWF
and BSBY3M for CSJFA CP
interest rates.
10 SHORT-TERM RATES FOR FY23-24
4.0%
4.5%
5.0%
5.5%
6.0%
Jun-23
Jul-23
Aug-23Sep-23
Oct-23
Nov-23Dec-23
Jan-24
Feb-24
Mar-24
Apr-24
May-24
Jun-24
Interest Rate
Daily SOFR
BSBY3M
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 AAA(stable)
AAA
(stable)
AAA[1]
(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
San José Clean
Energy (Issuer)[2]
A2
(stable)
A
(stable) N/A N/A
[1] KBRA (Kroll) has assigned a rating to the CSJFA Wastewater Revenue Bonds exclusively. [2] SJCE was rated by Moody’s in May and S&P in June 2024.
FOURTH 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 5, 2024
• 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 $2,962,110,309
Earned Interest Yield 3.631%
Weighted Average Maturity 581 days
Fiscal Year-to-Date Net Income Recognized $86,651,974
Exceptions to the City Investment Policy this Quarter None 17 Total Investment Portfolio:
$2,962,110,309
18 PORTFOLIO INVESTMENTS
U.S. Treasury
$190,777,608 6.4%
U.S. Agency
$1,170,312,772 39.5%
Supranationals
$210,874,175 7.1%
Negotiable
Certificate of
Deposit (NCD)
$25,000,000 0.8%
Commercial Paper
$73,134,847 2.5%
Corporate Notes
$378,876,768 12.8%
Asset Backed
Securities
$39,295,776 1.3%
Muni Bonds
$364,497,164
12.3%
Mortgage Backed
Securities
$259,062,562 8.7%
JPAP
LAIF $28,658,314 $221,620,325 7.5%
1.0%
The $888 million in the General Fund
presented includes $623,853,760 of
General Fund monies, as well as
$263,937,062 in other, separately
tracked general funds, such as the
Depositor Fund, Developer Fees and
other smaller funds and reserves.
19 INVESTMENTS BY FUND
Internal Services
Fund $19,177,102
Airport
$325,117,106
Capital Projects
$87,342,634
Debt Service
$57,896,933
Development Fees
$54,165,037
General Fund
$887,790,822
Muni Water
Parking $39,435,092
$37,245,799 Housing
$312,710,079
Special Revenue Funds
$433,685,791
Wastewater
$450,349,670
SJ Clean Energy
$287,700,489
GENERAL FUND BALANCE
• General Fund balances increased by $290 million with the receipt of property tax in June and ended with a balance of $888 million as of June 30, 2024. 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
Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Mar-24 Jun-24 Dollars in millions
General Fund Wastewater Airport Housing Special Revenue Fund • City refers to City's 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.
• City Portfolio exceeding assumed
2.75% rate of return included in
FY 23-24 budget.
22 BENCHMARK COMPARISONS
0.00 0.50
1.00 1.50
2.00 2.50
3.00 3.50
4.00 4.50
5.00 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Mar-24 Jun-24 Yield (%)
City LAIF BAML
Yield WAM
BAML: 4.638% 726
LAIF: 4.480% 217
CITY: 3.748% 581
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 FOURTH 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, 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 (FY 2021-22 Q1 TO FY 2023-24 Q4)
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
$-
$20
$40
$60
$80
$100
$120
21-22
Q1
21-22
Q2
21-22
Q3
21-22
Q4
22-23
Q1
22-23
Q2
22-23
Q3
22-23
Q4
23-24
Q1
23-24
Q2
23-24
Q3
23-24
Q4
Quarter to Quarter % Change
Millions
Revenue Mangement Aging
Total Receivables Delinquent (91+ days) Delinquency Percentage Change 29 FY 2023-24 Q4 DELINQUENT RECEIVABLES
COLLECTION STATUS SUMMARY ($ IN MILLIONS*)
*Rounded
As of June 30, 2024
Write-Off Pending (A/R Only)
$1.4M
670 Invoices
Liens (A/R Only)
$0.7M
318 Invoices
Restitution, Payment Plan (A/R Only)
$0.9M
297 Invoices
Legal, Bankruptcy
$4.7M
651 Invoices
Collection Agency
$12.7M
12,206 Invoices
Active
$23.5M
24,611 Invoices
Total Current
$37.9M
Total Delinquent
$43.9M
Revenue Management
COLLECTIONS & RETURN ON INVESTMENT
REVENUE MANAGEMENT COLLECTIONS (FY 2022-23 Q1 TO FY 2023-24 Q4) Target ROI: 5.0
30 5.6 5.3
5.7 5.0
4.0 8.3
5.7 3.9
0.0 5.0
10.0 $0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
22-23 Q1 22-23 Q2 22-23 Q3 22-23 Q4 23-24 Q1 23-24 Q2 23-24 Q3 23-24 Q4 Return on Investment (ROI)
Millions
Revenue Management Collections
FY 2022-23 ROI: 5.42 Business Tax Accounts Receivable Actual ROI FY 2023-24 ROI: 5.51
REVENUE COMPLIANCE REVENUE
RECOVERY
• Revenue Compliance and Monitoring conducts cyclical tax and fee audits for a variety of programs (e.g., Sales and Use Tax, Hotel Taxes/Lodging Fees, Utilities, Telecommunications, and Cannabis). • In Q4, Revenue Compliance and Monitoring recovered ~$2M in compliance revenue, largely attributed to:
▪ One-time finding of ~$1.8M from the State of California, due to unclaimed property.
▪ One-time finding of ~$250K from a single taxpayer telecommunications audit, due to taxpayer under-remittance.
31 FOURTH 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
FOURTH QUARTER FY2023-24
PROCUREMENT TYPE
FOURTH QUARTER
TRANSACTIONS
FISCALYEAR
TO DATE
PROCUREMENT SOLICITATIONS COMPLETED (RFX) 29 114
PURCHASE ORDERS AND PURCHASE ORDER ADJUSTMENTS ISSUED 463 2,027 NEW AGREEMENTS NEGOTIATED AND EXECUTED 4 15
AMENDMENTS, CHANGE ORDERS, SERVICE ORDERS, OPTIONS EXECUTED 50 134 COUNCIL MEMORANDA ISSUED 33 80
PURCHASE ORDER & CONTRACT DOLLARS PROCURED $72,650,238 $460,226,727 34 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.
35 36
RISK MANAGEMENT TRANSACTIONS COMPLETED
FY2023-24, FOURTH QUARTER
Transaction Type Fourth Quarter
Transactions
Fiscal Year to
Date
Request for Contract Insurance Specifications 370 1,303 Request for Insurance Compliance Review 229 744
Request for Letters of Self-Insurance 31 93
Subrogation Dollars Billed to Responsible Third Parties $42,899 $471,436 Council and Committee Memorandums Issued 2 4
OTHER FOURTH QUARTER RISK
MANAGEMENT ACCOMPLISHMENTS
• Other highlights include:
▪ Facilitated seven insurer property loss prevention visits including visits to City Hall, the SAP Center, and Sharks Ice at San Jose
▪ Completed property appraisals of the McEnery Convention Center, Center for Performing Arts, Hammer Theater, Civic Auditorium, and all three Cityowned Golf Courses ▪ Negotiated $146,168 in collateral return to the Airport Department related to the Terminal Area Improvements Project Owner Controlled Insurance Program
37 RECOMMENDATION
(1) Accept the Fourth Quarter (period ended June 30, 2024) Financial Reports for Fiscal Year 2023-2024 for the following programs:
▪ (a) Debt Management;
▪ (b) Investment Management;
▪ (c) Revenue Management; and
▪ (d) Purchasing and Risk Management;
(2) Refer and cross-reference the Fourth Quarter Financial Reports for Fiscal Year 2023-2024 to the September 10, 2024 City Council meeting for full adoption
38