TO: Mayor and City Council
FROM: Philippe Eskandar, City Manager
BY: Hillary Guirola-Leon, Finance Director
Mark Siegfried, Accounting Manager/Controller
DATE: February 28, 2025
SUBJECT: REVIEW OF FISCAL YEAR 2024-25 MID-YEAR FINANCIAL
REVIEW, UPDATED FIVE-YEAR FINANCIAL FORECAST
AND LONG-TERM FINANCIAL PROJECTIONS, AND
APPROVAL OF BUDGET AMENDMENTS
STRATEGIC PLAN CRITICAL SUCCESS FACTORS
Fiscally Responsible and Transparent City Government
Efficient, Responsive, and Effective City Services
BACKGROUND
On May 31, 2024, City Council adopted the Fiscal Year (FY) 2024-25 budget.
The budget was established using Priority Initiatives as the City’s strategic goals.
Since budget adoption, staff has closely monitored the budget each month for both revenues and expenditures. On January 8, 2025, the Financial Report for the first quarter (July 2024-September 2024) was submitted to the City Council as required by the Citywide Financial Policies.
Now with 6 months’ worth of data, staff has analyzed budget projections against year-to-date actuals, current year trends, and current economic conditions.
Overall, the General Fund group is projected to end the fiscal year with a deficit of ($865,678). Included in the FY 2024-25 projections are one-time expenditures related to the Windstorm incident and workers’ compensation Gretchen Shepherd Romey, Mayor
Tony Chou, Vice Mayor
Hunter Chang, Council Member
John Chou, Council Member
Calvin Lo, Council Member
settlements paid during the year. The City is actively seeking reimbursement through our insurance provider and/or FEMA for costs incurred related to the Windstorm incident. A corresponding revenue is expected to cover this expenditure net of any insurance deductibles. At this time, staff is requesting a mid-year expenditure adjustment to cover the costs incurred while the reimbursement process is ongoing.
Staff has included Attachments 1 and 2 listing the recommended budget amendments for FY 2024-25 for Council’s approval.
As part of the mid-year process, the Five-Year Financial Forecast and LongTerm (29 Year) Financial Projections have also been updated. These are included as Attachments 4 and 5 as part of the staff report.
DISCUSSION
FY 2024-25 Mid-Year Financial Review
As part of the Mid-Year financial review, staff analyze both revenue and expenditures against year-to-date actuals and trends. City departments also review year-to-date activity, any operating changes, and the status of capital projects. The information obtained in the mid-year financial review is used to propose budget adjustments where necessary. Mid-year projections are then used to update the long-term forecasts.
General Fund Group: Revenues
The City’s primary revenue sources are Property Taxes, Utility Users Tax, Franchise Taxes, and Sales Tax; making up approximately 76% of the FY 2024-25 budgeted revenues. Year-to-date actuals were analyzed against budgeted amounts and projections were updated for FY 2024-25. Overall, the General Fund group revenues are projected to increase by $736,200 from budgeted amounts.
Table 1 below shows the current FY 2024-25 budget, projected year-end amounts, and the mid-year amendments proposed.
Table 1 – General Fund revenues by Revenue Source
• Note 1: In October 2024, staff met with HDL, the City’s property tax consultant, to review projections for FY 2024-25. The City's net taxable assessed value increased by 4.4% compared to the previous year.
As of December 2024, property taxes are showing a 4.4% increase compared to the previous year. This growth of 4.4% compares favorably with the 4% assumed growth in the FY 2024-25 budget projections.
Given the current trends and estimates from HDL, staff continues to project a 4% growth for the FY 2024-25 budget. No budget amendments are proposed.
• Note 2: Sales Tax revenues are projected to remain flat and end the fiscal year similar to FY 2023-24. Sales tax has experienced declines on a statewide level due to various economic factors specific to each business category. Based on the latest HDL sales tax projections and trends, a traditional growth of 2-3% is forecasted for future years. The proposed FY 2024-25 mid-year amendment is $18,000.
• Note 3: Utility Users Taxes are 20.1% higher than last year. The higher revenues are primarily due to usage as well as an increase in base rates charged by Edison and Cal American Water. The City has also seen an increase on the expenditure side related to utility costs. The proposed FY 2024-25 mid-year amendment for Utility Users Tax revenues is $327,000.
• Note 4: Charges for Services are $92K or 16.3% higher than last year.
The increase is primarily due to an increase in plan check fees. Overall, the mid-year adjustment proposed is $25,000.
• Note 5: Licenses & Permits revenue is trending higher than prior year primarily due to building permits increasing by $287K compared to last year. The mid-year adjustment is $342,000.
• Note 6: A mid-year adjustment of $24,200 is proposed to account for donations received during the fiscal year.
General Fund Group: Expenditures
As of December 2024, 54% of budgeted expenditures have been spent to date, with 46% remaining. As part of the mid-year process, expenditures were analyzed and proposed amendments are explained below. Overall, the proposed mid-year expenditure amendments for the General Fund group are approximately $1.77M.
Table 2 lists the FY 2024-25 budget, projected ending expenditures, and midyear amendments proposed.
Table 2 – General Fund Group Expenditures
• Note 1: Overtime costs in the Fire Department are trending higher than budgeted as of December 2024. The increase in overtime costs is due to shift coverage and a vacancy in the Department. Overall, a mid-year amendment is needed in Fund 103 related to Public Safety salaries in the amount of $169,803.
• Note 2: The Worker’s Compensation Fund is trending higher than budgeted. The increase is primarily due to one-time workers compensation settlements paid during the Fiscal Year. The total proposed mid-year amendment for FY 2024-25 is $1,030,802. • Note 3: The Legal Services account is trending higher than budgeted.
Recent legislation has imposed additional investigation and reporting requirements on the City for certain HR matters. Overall, a mid-year adjustment of $78,000 is needed.
• Note 4: A mid-year adjustment of $37,325 is needed to cover miscellaneous expenditures. Approximately $20,000 is the appropriation of donation funds received during the year. The remainder of the increase needed is due to an increase in Los Angeles County property tax administration costs.
• Note 5: A mid-year adjustment of $197,820 is needed for utility costs city-wide.
• Note 6: A mid-year adjustment of $261,277 is required to cover the Windstorm 2025 expenses incurred so far. The City has incurred emergency response costs due to the Windstorm incident and has initiated discussions with both our insurance provider and FEMA regarding the reimbursement process. This adjustment is necessary to cover the expenses to date, and staff will continue working with the City’s insurance provider and FEMA to recover these costs.
FY 2024-25 Year-End Projections
Table 3 shows the overall FY 2024-25 projections for the General Fund group.
Table 3 – General Fund Group Mid-Year Projections
Overall, the General Fund group is projected to end FY 2024-25 at a deficit of ($865,678).
Per the Citywide Financial Policies, General fund reserves should only be used for one-time expenditures and shall not be used to cover operating expenditures. This is also in line with best practice and supports fiscal sustainability in the long-term.
Table 4 below lists one-time expenditures that are included in the current projections.
The Windstorm expenditures of $261,277 reflect costs incurred to date related to emergency response and windstorm recovery. Staff will continue to assess the damage and update costs. The City is actively seeking reimbursement through our insurance provider and/or FEMA. The corresponding revenue is expected to cover this expenditure net of any insurance deductible. At this time, staff is requesting a mid-year expenditure adjustment to cover the costs incurred while the reimbursement process is ongoing.
Revised Budget
FY 2024-25
Projected YE
FY 2024-25
Mid Year
Proposed
Adjustments
Total Revenues $ 35,653,313 $ 36,389,513 $ 736,200
Total Expenditures $ 35,480,165 $ 37,255,191 $ 1,775,026 Annual Operating Surplus (Deficit) $ 173,148 $ (865,678) $ (1,038,826) Table 4 – One-Time Expenditures included in FY 2024-25 Projections Per City policy, reserves should not be used to fund ongoing operating expenditures but may be used to pay for one-time expenditures.
Approximately $956K of the projected expenditures are related to one-time expenditures in FY 2024-25. Therefore, reserves can be a funding source used in FY 2024-25.
Impact on Reserves
The General Fund group started FY 2024-25 with an unassigned reserve balance of $17.7M. Table 5 outlines the projected ending reserve balance at year-end, taking into account the proposed mid-year adjustments. The General Fund balance will continue to meet the minimum required by fiscal policy, with an estimated year-end balance of 47.8% of operating revenues.
The reserve above the required minimum is projected to be approximately $2.2M at June 20, 2026.
Table 5 – General Fund Reserves Projections
Use of Reserves (One-Time Items)
Windstorm Emergency Response 261,277
Worker's Compensation Settlements 695,126
TOTAL $ 956,403
Fund Balance at 7/1/2024 (Reserves) 17,706,613
Projected Deficit FY 2024-25 (865,678)
Estimated Ending Fund Balance at 6/30/25 16,840,935
Updated Five-Year Financial Forecast and Long-Range Financial Projections
Table 6 below shows the 5-year forecast for the General Fund group.
Table 6 – General Fund Group 5-Year Forecast
The Five-Year Financial Forecast (Attachment 4), is the fiscal projection for the next five fiscal years. The assumed projected growth rate was determined using various data points from prior year actuals, current pension valuations, three-year averages, current year trends, and other relevant information.
Revenues:
The forecast assumes the Public Safety Parcel tax expires and is not renewed for FY 2029-30. The forecast also assumes Utility Users Tax expires in March 2027 and is not renewed.
Expenditures:
In the forecast, total operating expenditures are projected to increase an average of 3% each fiscal year.
Based on these projections, operating revenues will not grow at the same rate as ongoing expenditures, causing a structural deficit. The projected deficit for the next 5-years ranges from $1.3M - $9.3M.
The Path Forward:
Although the structural revenue issues have been highlighted by staff for years, their impacts were significantly exasperated by the COVID-19 pandemic and the historic economic challenges it brought with it, resulting in a present-day need to address them head on as soon as possible. The compounding effects of inflation at rates not seen in decades, disruptions to workforce availability, and supply chain issues, have resulted in more dire impacts to cities with limited revenue streams or growth like San Marino. As a response to this mounting revenue issue, during the FY 2024-25 budget process, the City Manager outlined a roadmap of actions necessary to be undertaken in order to stabilize the City’s finances. This roadmap included short, mid- and long-term actions that must be implemented if the City Council and the community wish to maintain the current levels of service. A few of the actions implemented to date include the passage of the Public Safety Parcel Tax (Measure SM) by voters in the November 2024 election, the sale of excess Proposition A funds to the City of Pasadena, and the reallocation of COPS funds to better support Police Department operations.
In the mid-term, staff have been working to update the City’s user fees (fees for services delivered to individuals such as those necessary to inspect fire plans, obtain a conditional use permit, film permit, etc.), study revenue sources for maintaining the City’s aging sewer infrastructure, and addressing operational efficiencies to reduce expenses. One primary area of focus as outlined last year is to address the drivers of overtime expenses. As an example, the Fire Department is reducing the utilization of forced overtime hiring as a method of staffing when personnel are unable to fill shifts for various reasons. This is expected to result in significant reduction of unbudgeted expenditures while still ensuring that the high levels of life-safety services are delivered to the community.
In the long-term, over the course of the next one to two years, several additional actions will need to be taken to maintain the San Marino we know and love. These include renewal of the City’s utility users tax at a rate that more appropriately reflects the community’s expectations of the City by way of service delivery; a one cent district tax measure to keep dollars spent in San Marino; and working with The Huntington to better fund impacts to City services by their visitors, to name a few.
By implementing the actions outlined above, coupled with sound budgeting practices across the City’s budget, the City will be able to address the structural deficit over the next few years.
Budget Amendments
Attachments 1 and 2 are the budget amendments proposed for Council approval. The budget amendments needed have been discussed in detail in this report for the General Fund group.
There are also budget amendments needed for Special Revenue Funds.
Special Revenue Funds are related to grants and are analyzed as part of the mid-year financial review to assess its impact on the General Fund. There is no impact to the General Fund projected, all budget amendments proposed are projected to be covered by available grant funding.
FISCAL IMPACT & PROCUREMENT REVIEW
The proposed budget adjustments in Attachment 2 have a net impact of $1,038,826 in the General Fund. The General fund is projected to end FY 2024-25 at a deficit of ($865,678).
This report requires no procurement review.
LEGAL REVIEW
The City Attorney's office has reviewed and approved as to form.
RECOMMENDATION
Staff recommends that this report be received and filed, and that the Council approve the proposed FY 2024-25 budget adjustments as reflected in Attachments 1 and 2. If the City Council concurs with staff’s recommendations, the appropriate motion would be:
“I move to receive and file the FY 2024-25 Mid-Year Financial review, Updated Five-Year Financial Forecast, and Long-Term Financial Projections, and approve the FY 2024-25 proposed budget amendments.”
ATTACHMENTS
1. Proposed FY 2024-25 Budget Amendments Summary: General Fund Group
2. Proposed FY 2024-25 Budget Adjustments: Special Revenue Funds
3. FY 2024-25 Year-End Projections
4. Five-Year Financial Forecast
5. Long-Term Financial Projections
6. Revenue Summary at December 2024
7. Expenditure Summary at December 2024