FOR THE COUNCIL MEETING OF MAY 17, 2022
COUNCIL AGENDA REPORT
TO: City Council
FROM: City Manager
Prepared by: Director of Finance
SUBJECT: FINANCIAL REPORT FOR THE THIRD QUARTER ENDING MARCH 31, 2022
RECOMMENDATION:
That the City Council receive and file the Financial Report for the Third Quarter Ending March 31, 2022.
BACKGROUND:
Four times each year, City staff completes a comprehensive analysis of City finances, including projected fund balances, revenues to date, departmental expenditures, encumbrances, and potential adjustments. This financial report summarizes the third quarter financial analysis.
DISCUSSION:
The attached report provides an overview of the current economic outlook on the State and National levels; General Fund, including Measure U revenues, expenditures, projected fund balances; and activity in the three Enterprise Funds. Though this information is not audited and does not contain all the usual year-end adjustments, accruals, or disclosures, the information does provide a general picture of the City's activity and the developing financial trends.
Impact to the Community:
The interim financial statement provides the community with an understanding of the financial activity of the City's primary funds.
MARY HARVEY
Director of Finance
Attachment A: Quarterly Financial Report Third Quarter Ending March 31, 2022
City of Santa Maria
I I Quarterly Financial Report
Third Quarter Ending March 31, 2022
Ma 17, 2022
OVERVIEW
The U.S. economy is in an unusual and challenging position. The job market, the most important pillar of the economy, remains robust with the unemployment rate near a 50 -year low of 3.6 percent and wages rising steadily. But inflation is 8.5 percent - the highest in four decades - prices for gasoline and diesel are up, mortgage rates are climbing, and the pace of growth is moderating.
The first quarter of 2022 was weak, decreasing at an annual rate of
1.4 percent, compared with the 6.9 percent growth in the fourth quarter. Last year's strong economic rebound of 5.7 percent growth was fueled in part by trillions of dollars in government aid and ultra - low interest rates. With stimulus checks and other government supports having ended, consumer spending has slowed from its blistering pace in the first half of last year. Mortgage rates are climbing, with the 15 -year average and the 30 -year average recently setting 13 -year highs. Both are nearly 2.8 percent higher than last August. Concerns persist about supply chain constraints.
Fortunately, the national economy has recouped 20.8 million or 95 percent of the 22 million jobs lost early in the pandemic. Over the 12 months ending in March, hires totaled 77.7 million and separations totaled 71.4 million, yielding a net employment gain of 6.3 million.
These totals include workers who may have been hired and separated more than once during the year.
The labor participation rate, however, lags around only 62.2 percent, still well below the pre -pandemic rate of 63.4 percent, and there was a record -high 11.5 million job openings, according to the Bureau of Labor Statistics. The so-called "Great Resignation" of job quits continues. Another 4.5 million Americans quit their jobs in March, bringing the total since January to 13.25 million.
Inflation accelerated to 8.5 percent as of March, after reaching 7.0 percent for 2021. Gains were driven by prices for food, energy, housing, and health care - and vehicle prices soared. In the Los Angeles - Long Beach -Anaheim area, prices overall rose by 8.6 percent in March compared with the same month a year ago. Over the past year in this region, food prices increased 8.6 percent, while prices for food at home jumped 11.7 percent. Energy prices surged 36.9 percent mostly because of a 49 percent increase in gasoline prices. The national average for a gallon of gasoline reached $4.30 in early May, with $5.80 the average across California (the record was $5.91 in late March), and $5.85 in Santa Barbara County.
The Federal Reserve is hiking interest rates to cool inflation, but economists say inflation will not sink back to pre -pandemic levels for quite a while. Most Wall Street economists do not expect a recession this year. More likely, they say, is a "hard landing" in 2023 linked to the Federal Reserve's move to hike interest rates.
California's budget surplus has soared to a record $68 billion, fueling a range of new spending proposals.
California's swelling coffers mark a sharp reversal from early in the pandemic when unemployment spiked and officials braced for steep budget cuts. Instead, a booming stock market, until recently, and the tech sector have brought in record revenues, even as Californians with lower incomes contended with job losses and sky-high housing costs.
California's unemployment rate fell to 4.9 percent in March, compared to 8.4 percent a year ago, as employers added 60,200 nonfarm payroll jobs. California has now regained nearly 90 percent of the 2.7 million nonfarm jobs lost during March and April of 2020 due to the COVID-19 pandemic. California had the worst unemployment rate of all 50 states as of December, as of March it ranked 45t. Santa Barbara County's jobless rate was 3.5 percent. Santa Maria's unemployment rate was 7.2 percent.
Mayor
Alice Patino
Mayor Pro-Tem
Mike Cordero
Council
Carlos Escobedo
Gloria Soto
Etta Waterfield
City Manager
Jason Stilwell
Report Prepared By
Mary Harvey
Director of Finance
206 East Cook Street
Santa Maria, CA 93454
(805) 925-0951 Extension 2215
www.cityofsantamaria.org
Attachment A
Quarterly Financial Report - Third Quarter Ending March 31, 2022
GENERAL FUND
General Fund Balance. The chart below shows,
with 75 percent of the year complete, revenues are
at 87.3 percent of projections while expenditures are
at 66.4 percent of appropriations.
General Fund
Balance, Start of Year
Revenues*
Expenditures*
Balance
• Includes Transfers
Budget 3rd Quarter Percent
$ 10,071,920 $ 10,071,920
75,179,420 65,594,620
78,675,240 52,210,260
$ 6,576,100 $ 23,456,280
87.3%
66.4%
The beginning fund balance is an estimate because
the City's annual audit is not finalized. Revenues are
more than budget primarily because of a one-time,
$10 million revenue loss allocation allowable under
the American Rescue Plan Act (ARPA). A
discussion of the changes in each category follows
in the "Major Revenue Variance" section of this
report.
The City adopted the 2021-22 Budget with the intent
of having to use approximately $1 million in one-time
Local Economic Augmentation Fund (LEAF) to help
balance the 2021-22 budget.
The chart below provides summary comparison
information on revenues, expenditures, and
transfers for the third quarter ending March 31,
2022, versus the third quarter ending March 31,
2021.
Year to Date Comparison to Prior Year
General Fund 2021-22 2020-21 Over(Under)
Revenues:
Taxes $ 41,249,440 $ 37,259,680
Licenses & Permits 3,501,480 2,162,800
Use of money 1,186220 1,186,720
Inter -governmental 11259,690 1,080,550
Charges for serviees 5,189,880 2,718,440
Other revenue 243,980 258,690
Operating revenues 62,630,690 44,666,880 17,963,810
Transfers -In 2,963.930 2,945,140 18,790
Total revenues $ 65,594,620 $ 47,612,020 $ 17,982,600
Expenditures:
Public Safety $ 30237,400 $ 30.346,690
Recreation & Parks 6.966280 6,307250
General Government 8,307,740 7,973,100
Community Dev. 2,709,100 2,922,210
Public Works 2,322,130 2,073,040
Operating Expenses 50,542,650 49,622290
Transfers -out 1,667,610 1,894,710
Total expenditures $ 52210260 $ 51,517.000
$ 3,989,760
1,338,680
(500)
10,179,140
2,471,440
(14,710)
$ (109290)
659,030
334,640
(213,110)
249,090
920,360
(227,100)
$ 693260
Measure U Fund: The following chart shows that
revenues received through 9 months are at 86.2
percent of budget, or $18.8 million. Expenditures
are at 64 percent of budget or $2.5 million under
budget.
Actual
Measure U Fund Budget 3rd Quarter Percent
Beginning Fund Balance $ 11,254,028 $ 11.254.028
Revenue
MeasureU Revenue $ 21,787.231 $ 18.790,220 86.2%
Expenditures
City Attorney 711,435 328,460 46.2%
City Manager's Office 20,000 19,290 96.5%
Finance 108,730 108,820 100.1%
Library 744.827 407220 54.7%
Recreation & Parks 2,334,214 1,323,740 56.7%
Fire 8,760,311 5,103,650 58.3%
Police 9,830,754 7,126,590 72.5%
Total Expenditures 22,510,271 14,417,770 64.0%
Revenue over (under)
Expenditures $ (723,040) $ 4,372,450
Ending Fund Balance $ 10,530,988 $ 15,626,478
Most of the budget underrun, $1.5 million is in the
Fire Department and is primarily due to $1.1 million
budgeted to partially fund the replacement of one
pumper engine and two new Type -6 engines.
Supply chain issues have caused a delay in
purchasing these vehicles and once ordered it
normally takes 12 to 18 months to receive the
engines. The Police Department is under budget by
$246,500 due to annual uniform and bulletproof vest
purchases scheduled to be made in the fourth
quarter. The City Attorney's Office is under budget
by $205,100 because of two Code Enforcement
Officer position vacancies. The Library and
Recreation & Parks programs are under budget by
$151,400 and $426,900, respectively because of
the continued COVID-19 restrictions limiting the
type and number of programs that were offered.
Now that there are fewer restrictions and with the
summer months right around the corner, Library and
Recreation and Parks staff are working hard to
provide more programs and activities. Expenditures
in the City Manager's Office are for the costs
associated with maintaining the City's mass
notification system database. Finance expenditures
include the final $106,630 annual levee loan
payment to the Solid Waste Collection Fund.
Through March, 91 percent of Measure U
expenditures have been spent on Public Safety, 4
percent on Youth Services, and 5 percent on Quality
of Life.
Quarterly Financial Report - Third Quarter Ending March 31, 2022
Major General Fund Revenue Variances: The five major General Fund revenue sources, as shown on the chart to the right, account for approximately 75 percent of total General Fund revenues, excluding one-time ARPA revenue loss
funding. All five key revenues are
showing increases with Sales Tax
revenue being the largest dollar
increase over last year.
There are numerous differences
between the individual revenues
received during this year and prior
years. Below gives a better picture
of what is driving these revenue
variances.
General Fund
Actual Receipts
Receipts Percent Prior Year
Budget 3rd Quarter Received 3rd Quarter
Sales Tax $ 26,102,400 $ 22.565.380 86.4% $ 20,066,420
Property Tax 22,972,390 12,257,560 53.4% 11,750,900
Hotel/Bed Tax 2,902,580 2,722,840 93.8% 1.881,990
NHIS 200,000 486,170 243.1% 450,980
Lkenses, Permits, & Fees 2,091,050 3,501,480 167.5% 2,162,800 Total Key Revenues 54,268,420 41,533,430 76.5% 36,313,090 All Other Revenues
Total Revenues
20,911,000 24,061,190 115.1% 11,298,930
$ 75,179,420 $ 65,594,620 87.3% $ 47,612.020
Key variances include:
• Sales Tax. Receipts through the third quarter are approximately 12.5 percent or about $2.5 million greater compared to last fiscal year. This increase is primarily due to strong growth in fuel and service stations, restaurants and hotels, autos and transportation, and general consumer goods categories.
Allocations from the county and state pools are the only industry category showing a (slight) decline in revenues during the quarter. These revenues are generated by out-of-state sales, including goods sold online, to customers within the state.
• Property Tax. The bulk of these payments is received from Santa Barbara County in December, January, April, and May of each year. Property taxes received to date are $506,660 or 4.3 percent greater than last fiscal year.
• HotellBed Tax. Through March, receipts are approximately $840,900 or 44.7 percent more than last fiscal year and ahead of estimates by about $545,900 or 18.8 percent. The increase in revenues is due to the retum of community events, such as the Elk's Rodeo and car shows, as well as being a destination for tourists wanting to make a weekend getaway from Los Angeles, San Francisco, and Bakersfield regions. The Transient Occupancy Tax (TOT) is estimated to generate only about four percent of General Fund revenues in 2021-22, down from the typical five percent. • Non -Hazardous Impacted Soils Program (NHIS). Revenues earned through March are $486,170, a three-month increase of only $17,000, which highlights the significant decline in NHIS activity anticipated by staff. The majority of NHIS material received during the third quarter came from the Housing Authority of the City of Santa Barbara. The City also received material from Pacific Coast Energy Company Orcutt Hill Field and the Vincent B Lease projects. The City continues to project a decline in NHIS projects and with changes in Landfill operations, the NHIS program is proposed to sunset at the end of fiscal year 2021-22.
• Licenses, Permits, & Fees. Permit revenue is at $3,501,480, exceeding projections by 67.5 percent or $1.9 million, and is about $1.3 million more than the third quarter of last fiscal year. During the third quarter, the City issued 152 permits for accessory dwelling units (ADUs), continuing the trend of an increasing number of ADUs, and an increase of 91 ADU permits compared to the third quarter of the prior year. The City also issued permits for three large apartment projects: 1) Santa Maria Studios, a senior apartment complex located at Santa Maria Way and Miller consisting of 160 units; 2) Centennial Gardens, an apartment complex located at Battles and Depot consisting of 160 units; and 3) Element Apartments located at Skyway and Hwy 135 consisting of 167 units. • American Rescue Plan Act (ARPA) Revenue Loss Funding. The U.S. Department of the Treasury issued the "Final Rule" for eligible uses of Coronavirus State and Local Fiscal Recovery Funds
Quarterly Financial Report - Third Quarter Ending March 31, 2022 Page 4 of 6 established under ARPA. The Final Rule includes an option for recipients to elect a revenue loss standard allowance of up to $10 million of the City's $37.2 million ARPA award, to fund any government services. By utilizing these funds for fiscal year 2021-22 General Fund expenditures, the City can use ongoing revenues, such as sales tax and property tax, to fund other City needs. The revenue loss standard allowance is the most versatile, meaning the fewest eligibility use requirements. Prior to this significant change, the City was not able to use any ARPA funds as revenue loss because the mandated revenue loss calculation did not take into consideration, that the higher one -cent Measure U sales tax was effective in April of fiscal year 2018-19, the base year of the calculation. In other words, under the ARPA revenue loss calculation, the City did not have a revenue loss and therefore could not utilize ARPA funds to replenish the General Fund (or any other fund) for any decrease in revenues.
Expenditures. For the third quarter, ended March 31, 2022, expenditures are at 66.4 percent of budget.
The below chart summarizes variances by department:
Key variances include:
General Fund
21-22 Percent 20.21
Budget YTD Actual Expended YTD Actual
Police $ 31,669,100 $ 20,893,570 66.0% $ 21,013,750
Fire 12,443,030 9,343,830 75.1% 9,332,940
Recreation & Parks 10,060,020 6,966,280 69.2% 6,307,250 Finance 3,364,970 2,310,870 68.7% 2,450,420
Community Dev. 5,658,630 2,709,100 47.9% 2,922,210
Public Works 3,644,500 2,322,130 63.7% 2,073,040
City Manager's Office 7,980,580 5,114,100 64.1% 4,520,970 City Attomey's Office 1,239,220 757,720 61.1% 876,130
Mayor & Council 181,700 125,050 68.8% 125,580
Sub -Total 76241,750 50,542,650 66.3% 49,622,290
Transfers 2,433,490 1,667,610 68.5% 1,894,710
Total $ 78,675240 $ 52,210,260 66.4% $ 51,517,000
• Police. Under budget by $2.9
million or about 9 percent,
primarily due to vacant positions
which have resulted in salary
(and benefits) savings of $2.5
million through March.
• Fire. Slightly over budget by
$12,000 because of the
extremely high level of overtime
incurred to provide Mutual Aid
support. Excluding these
reimbursable overtime costs,
Fire is under budget by 3.4
percent.
• Community Development. Under budget 27.1 percent or approximately, $1.5 million because of work on contractual services, in particular, the General Plan Update does not occur evenly during the year and will extend into the next fiscal year. In addition, vacancies in the Planning Division also contributed to the underrun.
• Public Works. Under budget by $411,200 or 11.3 percent chiefly due to vacancies in the Engineering and Facilities divisions. Fewer outside plan checks and inspections have occurred through contractual services and account for a portion of the underrun.
• City Manager's Office. Under budget 10.9 percent or $871,300, due to vacant positions in the Human Resources division during the first six months of the fiscal year, those positions are now filled. The Information Technology division is also achieving salary savings due to the tight labor market making it very difficult to attract well -qualified candidates. In addition, payments for the labor relations contract and the third quarter invoice for contractual services with Santa Barbara County for animal control services will occur in the fourth quarter.
• Other General Fund Departments. The remaining General Fund departments are underrun between 6 percent and 14 percent. The City Attorney's Office is showing the highest percentage under budget at 13.9 percent and Recreation and Parks has the largest dollar underrun of $578,700. Vacant positions, fewer contractual services, reduction in travel costs, and program expenses anticipated to be spent in the fourth quarter, account for budget savings achieved in these departments.
Quarterly Financial Report - Third Quarter Ending March 31, 2022 Page 5 of 6 Budget
21.22 YTD Actual
Over 20-21
(Under) YTD Actual
Staffing
Contracts & Services
Materials & Supplies
Maintenance & Operations
Capital Outlay
Sub -Total
Debt Service
Transfers
$ 54,717,820
8,690,760
3,183,250
8,097,560
632,210
$ 36,720,600
4,072,230
2,465,020
6,022,040
342,610
67.1%
46.9%
77.4%
74.4%
54.2%
$ 37,565,750
4,078,330
2,088,350
4,846,950
122,760
75,321,600
920,150
2,433,490
49,622,500
920,150
1,667,610
65.9%
100.0%
68.5%
48,702,140
920,150
1,894,710
The chart to the left
summarizes General Fund
costs by type and shows
that except for Materials
and Supplies, each type of
operating cost is within
budget. Staffing is under
budget by approximately
$4.3 million or 7.9 percent
due to numerous
vacancies throughout
Total $ 78,675,240 $ 52,210,260 operational departments, with the majority occurring
in the Police Department. Materials and Supplies are over budget by 2.4 percent or $77,600 and is caused by increases in electricity, gas, and water costs (rates), making it more expensive to operate the Paul Nelson Pool and maintain City parks. Contracts & Services is under budget by 28.1 percent or nearly $2.5 million due to services yet to occur, including work on the General Plan Update project, which is a multi -year contract and will continue in the next fiscal year. The timing of the third quarter payment toward the Animal Services contract is also contributing to the underrun. The debt service expenditure includes $653,240 for the annual payment from the Fire Department to the Solid Waste Collection Fund for the payoff of the CaIPERS Side Fund, and a total of $266,910 for semi-annual lease financing payments for the CAD/RMS system.
$ 51 517 000
ENTERPRISE FUNDS
The Statement of Revenues and Expenses for the third quarter ending March 31, 2022, for the three enterprise funds, are shown on the chart below.
Water/
Wastewater
Solid Waste
Public
Transit
Revenues
Charges for Service
Interest Income
Other Revenue
Total Revenues
Expenses
Operating
Capital Expenditures
State Water Payments
Debt Service
Total Expenses
Revenues/Expenses
$ 37,156,030
722,120
1,415,840
$ 21,016,350
370,690
159,540
$ 485,860
187,450
3,969,420
39,293,990
21,546,580
4,642,730
10,757,710 19,500,670 3,621,730
1,461,550 7,114,700 1,391,910
18,992,660
4,281,850
35,493,770 26,615,370 5,013,640
$ 3,800,220 $ (5,068,790) $ (370,910)
Water/Wastewater Fund.
Revenues exceeded
expenditures by $3.8
million, which is about
$851,000 more than last
year. This variance is chiefly
due to higher revenues
generated through
increases in City Council
approved water rates and
user fees. In addition, total
debt service payments of
$4.3 million for the 1997
Certificate of Participation
(97 COPs), 2012A
Refunding Bonds, and
2021A Refunding Bonds are
lower compared to the prior year's total debt service payments of $4.6 million. The 97 COPs and 2012A Refunding Bonds were refinanced in November 2021 with the issuance of 2021A Refunding Bonds.
Through the third quarter, Water and Wastewater operational expenses are under budget by 14.2 percent as a result of personnel savings from vacant positions and fewer repair and maintenance expenses incurred to date.
Solid Waste Fund. The Solid Waste Fund reports refuse collection and disposal activities. Through the third quarter, Solid Waste expenditures exceeded revenues by approximately $5.1 million chiefly due to
66.4%