Finance and Management Services
www.santa-ana.org/finance
Item # 13
City of Santa Ana
20 Civic Center Plaza, Santa Ana, CA 92701
Staff Report
June 4, 2024
TOPIC: FY 2023-24 Third Quarter Budget Report and Proposed Appropriation Adjustments
AGENDA TITLE
Fiscal Year 2023-24 Third Quarter Budget Report and Proposed Appropriation Adjustments
RECOMMENDED ACTION
1. Receive and file the Fiscal Year 2023-24 3rd Quarter budget update.
2. Approved the recommended appropriation adjustments. (Requires five affirmative votes)
GOVERNMENT CODE §84308 APPLIES: No
EXECUTIVE SUMMARY
The FY 2023-24 Third Quarter Budget Update provides a General Fund snapshot of the first nine months of the fiscal year. This report includes updates to revenue estimates, recommended appropriation adjustments, summary information, and a full-time staff vacancy report as of March 31, 2024. Other than the Internal Service Fund and Restricted Fund items noted below, there is nothing significant to report for other funds of the City.
General Fund Summary with Proposed Adjustments:
As noted in the Early Direction Report published for the March 19 agenda and discussed by City Council on April 2, staff has requested a General Fund subsidy to close the Central Stores Fund. Based on City Council direction on May 16, staff has requested a General Fund appropriation for the Dog Park. All other recommended adjustments have a net zero impact on the General Fund. The updated estimate of the Spendable General Fund Balance is $13.8 million as shown below.
FY 2023-24 Third Quarter Budget Report and Proposed Appropriation Adjustments June 4, 2024
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The materials provided for the May 16 Budget Work Session indicated a spendable balance of $12.8 million, with staff recommendations to appropriate that amount for one- time spending in FY 2024-25. The General Fund Reserve policy requires the City to maintain a balance equivalent to 18% of annual recurring revenue. With the expected increase of revenue in FY 2024-25, approximately $1 million of the spendable balance at June 30, 2024 shifts to the General Fund reserve for FY 2024-25, leaving only $12.8 million available for the budget FY 2024-25 process.
DISCUSSION
The Third Quarter Budget Update includes General Fund activity posted from July 2023 through March 2024.
General Fund Revenues
FY2023-24 3rd Quarter Budget Update
FY23-24 Adjusted
Budget
(As of 03/31/24)¹
Proposed 3rd
Quarter
Adjustments
Updated
Estimate
Beginning Balance at July 1,
2023 127,208,578 - 127,208,578
Revenue Estimate 400,845,809 (3,140,780) 397,705,029
Appropriated Spending (417,220,543) 1,730,800 (415,489,743) Pension Trust Set Aside (24,034,731) - (24,034,731)
Estimated Ending Balance at
June 30, 2024 86,799,113 (1,409,980) 85,389,133
Less: 18% Reserve 72,151,382 (565,340) 71,586,905
Estimated Spendable Balance 14,647,731 (844,640) 13,802,228 ¹Includes all Appropriation Adjustments through March 31, 2024, excluding Carry Forwards appropriated on September 19, 2023
Revenue Source Annual Estimate through Mid-Year Received As of 3/31/2024 % Received Property Tax+In-Lieu of + Residual 100,099,640 59,140,800 59.1% Sales Tax (Measure X) 85,693,500 49,198,318 57.4%
Sales Tax (Bradley Burns) 61,042,050 35,212,586 57.7%
Charges for Service 33,816,140 29,152,626 86.2%
Utility Users Tax 27,500,000 19,668,543 71.5%
All Other 25,970,049 19,511,951 75.1%
Business License Tax 16,000,000 11,263,986 70.4%
Cannabis Tax 13,060,130 10,359,793 79.3%
Jail Facility Revenue 17,209,500 8,277,160 48.1%
Hotel Visitor's Tax 9,500,000 6,092,989 64.1%
Franchise Fees 10,950,000 5,852,940 53.5%Total General Fund Revenue 400,841,009 253,731,692 63.3% FY 2023-24 Third Quarter Budget Report and Proposed Appropriation Adjustments June 4, 2024
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Through March 31, 2024, the City received $253.7 million in General Fund revenues, which is 63.3% of annual estimates. After analyzing revenues through March 2024, staff has adjusted estimates for various revenues to align with expectations. In particular, Sales Tax has continued a downward trend, with lower tax receipts across most economic segments, particularly in general retail and transportation. This declining trend is not expected to change until later in 2024.
•The original budget estimate for Bradley-Burns was $67.7 million. The First Quarter and Mid-Year budget report included overall adjustments to reduce the revenue estimate by $3.6 million. With the most recent quarterly update, the City’s Sales Tax consultant noted a decrease in the Transportation and General Retail (i.e., New Auto Sales) sectors. Therefore, the City’s Sales Tax consultant is projecting a further reduction of $1,626,700, bringing the revised Sales Tax estimate to $59,415,306.
•The original budget estimate for Measure X was $88.6 million. The First Quarter and Mid-Year budget report included overall adjustments to reduce the revenue estimate by $2.9 million. With the most recent quarterly update, the City’s Sales Tax consultant noted a decrease from the Transportation and General Retail (i.e., New Auto Sales) sector. Therefore, the City’s Sales Tax consultant is projecting a further reduction of $2,333,460, bringing the revised Sales Tax estimate to $83,360,040.
•Due to a higher-than-anticipated payment from Southern California Gas Company, the estimate for the annual Franchise payment can be increased by $247,465 for a revised total budget of $797,465. The higher payment is attributed to a prolonged winter with below average seasonal temperatures, resulting in higher demand.
•The annual Electric Franchise payment from Southern California Edison was also higher than originally estimated due to the multiple rate increases that occurred in 2023. Therefore, staff is recommending an increase of $417,090 bringing the new estimate to a total of $1,817,086.
•Because the Utility Users Tax is imposed on the consumer, Southern California Edison’s rate increases have also affected Utility Users Tax-Electric revenue, resulting in consumers paying more than originally projected. Consequently, staff is recommending a further increase of $500,000, bringing the revised total budget to $17,300,000.
•Investment earnings continue to outpace estimates due to higher interest rates and American Rescue Plan Act (ARPA) cash balances. Many of the City’s projects funded with ARPA take time to complete (e.g. Main Library renovation and Memorial Park), which means the City has been holding ARPA cash. Due to these two factors, staff is comfortable increasing estimates by $1,000,000, for a new total of $4,900,000.
•Based on actual and expected collections, staff proposes increasing permit revenues by $1,458,900. This is primarily due to large construction projects for residential and mixed-use development on The Warner, 4th & Mortimer, The Legado at the Met, Central Pointe, and Third & Broadway. The plan check FY 2023-24 Third Quarter Budget Report and Proposed Appropriation Adjustments June 4, 2024
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revenues collected for the third quarter were $3,755,757, representing only 53% of the annual budget estimate of $7,041,000. Therefore, staff has decreased the annual revenue for plan check by $2,777,860. When the building code changed in December 2022 there was a rush to get plans in under the old code. That FY 2022-23 rush and the high interest rate environment has resulted in a slowdown of activity for FY 2023-24. The overall net revenue reduction is $1,318,960 ($1,458,900 increase + $2,777,860 decrease).
•As reported previously, due to the PP-GEMT program of increased reimbursements for Medicare and Medi-Cal transports, Paramedic Service Charge revenue has increased. As a result, staff is recommending another increase of $4,173,785, which brings the revised budget to a total of $14,173,785.
•The jail revenue continues to decline due to staffing challenges and deferred maintenance, which prevents the jail from operating at full capacity. Therefore, staff recommends a decrease of $4,200,000 in jail revenue, bringing the revised budget total to $12,950,000. While the City continues to develop a plan to improve hiring at the jail, the FY 2024-25 budget includes recommendations to improve maintenance. Both solutions will be necessary to generate additional revenue
Summary of Changes to General Fund Revenue Estimates
Sales Tax (Bradley-Burns) $(1,626,700)
Sales Tax (Measure X) $(2,333,460)
Gas Franchise Fee $247,465
Electric Franchise Fee $417,090
Utility User Tax – Electricity $500,000
Earnings on Investments $1,000,000
Building & Planning Revenues $(1,318,960)
Paramedic Service Charges $4,173,785
Jail Revenues $(4,200,000)
Estimated Revenue Reduction $(3,140,780)
Corresponding adjustment to 18% Reserve $565,340
Net Impact of Revenue Adjustments $(2,575,440)
FY 2023-24 Third Quarter Budget Report and Proposed Appropriation Adjustments June 4, 2024
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General Fund Expenditures
As of March 31, 2024, General Fund expenditures are at 62.2% of budget. Due to an overall reduction in revenue projections as noted above, staff recommends the following adjustments to rebalance the General Fund budget.
•The FY 2023-24 budget included $1 million for the November 2023 recall election. The recall election costs were $617,800 less than anticipated. Staff recommends an appropriation adjustment accordingly.
•The Resident Vehicle Incentive Program expired on March 31, 2024. Staff recommends an appropriation reduction of $880,000 to adjust the budget to actual disbursements.
•The Orange County Fire Authority (OCFA) budget for fire services was prepared with an estimated contract increase of 4.50%. The City subsequently was notified of the final contract rate of 3.99%. Therefore, staff recommends an appropriation adjustment to reduce the OCFA budget by $250,000 to re-align it with the actual contract rate increase for FY 2023-24.
•The FY 2023-24 budget included a transfer of $1,182,400 to the Civic Center fund for our required contribution to the Civic Center Authority for maintenance.
Staff recommends an appropriation adjustment to reduce this by $582,400 to align it with the required contribution of $600,000 for FY 23-24.
Department
FY23-24 Mid-Year
Update¹
Spending as of
3/31/2024
%
Expended
City Attorney 4,470,880 2,321,667 51.9%
City Clerk 2,411,150 1,173,479 48.7%
City Council 1,048,470 577,292 55.1%
City Manager 3,637,880 2,503,274 68.8%
Community Development 10,088,776 3,640,422 36.1%
Finance & Mgmt Services 12,842,132 8,567,013 66.7%
Fire & Emergency Medical Svcs² 48,566,904 34,591,972 71.2% General Non-Departmental 51,699,579 27,880,078 53.9%
Human Resources 4,490,140 2,923,122 65.1%
Inter-Fund Transfers 33,994,854 25,138,232 73.9%
Library 13,040,751 5,091,209 39.0%
Museum Funding 1,674,210 1,259,457 75.2%
Parks, Recreation & Comm Svcs 29,403,747 11,630,037 39.6% Planning & Building 23,029,319 13,254,999 57.6%
Police 152,846,595 112,641,037 73.7%
Public Works 74,956,578 38,142,536 50.9%
Total General Fund Expenditures 468,201,965 291,335,827 62.2% ¹Includes all Appropriation Adjustments through March 31, 2024, including Carry Forwards ²Fire & Emergency Medical Services includes a one-month advance FY 2023-24 Third Quarter Budget Report and Proposed Appropriation Adjustments June 4, 2024
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•The FY 2023-24 budget included a carryover of $2.3 million from the unspent FY 2022-23 non-departmental set-aside for employee negotiations. Based on actual MOU requirements, we recommend a reduction of $1,275,600 for this appropriation, as the FY23-24 budget includes another non-departmental set- aside for employee negotiations.
•As previously reported on May 8, 2024, the estimated cost of $25,000 for the current fiscal year for Investment Management and Portfolio Services would be included with the third quarter report. Staff recommends an appropriation adjustment of $25,000, offset by an increase of revenue.
Stores and Property Control Internal Service Fund Close-Out The Early Direction report on March 19, 2024 included staff’s plan to close the Central Stores internal service fund by the end of the current fiscal year. The demand for Central Stores has declined over the years, due to just-in-time availability from vendors, placing the fund in a situation where it has become impossible to remain financially self- sufficient. Approximately 78% of the Central Stores inventory solely supports the Water Enterprise. The Central Stores remaining inventory and staffing that supports the Water Enterprise will be absorbed by that fund. Gas and diesel sales will transfer to the Corporate Yard, and all remaining Central Stores activity will be discontinued. After performing account reconciliation for the fund, staff recommends an appropriation adjustment of up to $850,000 to close the fund.
Dog Park Appropriation
Based on City Council direction from May 16, staff has developed a $4 million funding plan for the Dog Park. This plan will allow for future expansion as additional funding is identified.
•As noted above, staff has identified expenditure savings from the Non- Departmental set-aside for labor negotiations. Staff recommends an appropriation adjustment of $1,000,000 to reallocate this budget from Non- Departmental to PWA.
•The Community Development Agency (CDA) has $800,000 of available budget from money that has been carried forward for two consecutive fiscal years. Staff recommends an appropriation adjustment of $800,000 to reallocate this from CDA to PWA.
•The Public Works Agency (PWA) has a carryover budget of $5.2 million for various maintenance projects at the Santa Ana Regional Transportation Center (SARTC). We expect PWA to utilize $3.4 million of this budget in the near term, leaving $1.8 million available. When the books are closed for the current fiscal year, staff may request City Council approval to replenish the SARTC maintenance project budget with any available expenditure savings. As this reallocation is within the PWA budget, no appropriation adjustment is necessary. •The Parkland Acquisition & Development Fund for District 4 (including Centennial Park) has an available balance of $400,000. Staff recommends an appropriation adjustment of $400,000 from the available balance.
FY 2023-24 Third Quarter Budget Report and Proposed Appropriation Adjustments June 4, 2024
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Summary of Recommended General Fund Appropriation Adjustments Recall Election $(617,800)
Vehicle Incentive Program $(880,000)
Orange County Fire Authority Contract $(250,000)
General Fund transfer to Civic Center Authority $(582,400) Employee Negotiations unused amount $(1,275,600)
Appropriation for Investment Manager and Portfolio Services $25,000 Stores & Property Control Internal Service Fund Close-Out $850,000 Appropriate $1 million of savings for Dog Park $1,000,000 Reallocation from CDA to PWA for Dog Park, Net Zero Impact - Net Impact of Proposed Appropriation Adjustments $(1,730,800) Other Restricted Fund Adjustments
The City received updated information after the Midyear Budget Report for various restricted funding sources such as federal monies available for multiple programs. Staff recommends adjustments to align restricted money appropriations with available balances and authorizations.
•Approve two $490 appropriation adjustments aligning projected grant budgets for two Bristol Street Protected Bike Lane projects in the Measure M Street Construction (Fund 032) and Select Street Construction (Fund 059) Funds with actual award amounts. The amount listed on the original grant award letter did not match the amount on the actual grant award received. •Approve an appropriation adjustment recognizing $14,378 in the Department of Justice (DOJ) grant fund (12714002-52000), and appropriating the same amount to the Bulletproof Vest Grant expenditure account (12714411-63001) for expenditure in the current fiscal year.
•Reimburse the Local Drainage Area II Fund (Fund 222), with $275,028 in funds that were incorrectly recorded to the Emergency & Health Grants Fund (Fund 122) in FY 2022-23. This adjustment was recommended by the City’s Auditors as part of the Single Audit received and filed by City Council on May 7, 2024. •As stated in the General Fund section earlier in this report, Staff is recommending an appropriation adjustment to reduce the Civic Center Authority contribution by $582,400 to align it with the City’s required contribution of $600,000 for FY2023-24 (Fund 074).
•Two restricted fund adjustments are needed to formally fund the Dog Park Budget for District 4’s Park Acquisition & Development Fund (Fund 314). The first is recognizing $131,422 in District 4 Acquisition & Development Fee revenue and the second is appropriating $400,000 in expenditures.
Internal Service Fund Adjustments
The Public Works Agency utilizes the services from the Solis Group (Solis) on every Capital Improvement Project to ensure that contractors adhere to the Community FY 2023-24 Third Quarter Budget Report and Proposed Appropriation Adjustments June 4, 2024
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Workforce Agreement. The costs related to the services provided by Solis are paid by the contractor. Due to an oversight, the estimated revenues and corresponding expenditures were not included during the budget process. Therefore, staff recommends recognizing $300,000 in the Public Works Agency’s Administrative Services fund, CIP Construction Projects Permits revenue account (10117002-51708) and appropriate into the Contract Services-PWA-CIP Construction expenditure account (10117106051-62340).
Fiscal Impact
The General Fund fiscal impact is detailed in the body of the staff report on page 2.
EXHIBIT(S)
1. Line Item Changes to Revenue Estimates and Recommended Adjustments
2. Full-Time Position Vacancy Report as of March 31, 2024 Submitted By: Kathryn Downs, FMSA Executive Director
Approved By: Alvaro Nuñez, Acting City Manager