FOR THE COUNCIL MEETING OF AUGUST 16, 2022
COUNCIL AGENDA REPORT
TO: City Council
FROM: City Manager
Prepared by: Director of Finance
SUBJECT: FINANCIAL REPORT FOR THE FOURTH QUARTER ENDING JUNE 30, 2022
RECOMMENDATION:
That the City Council receive and file the Financial Report for the Fourth Quarter Ending June 30, 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 fourth 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 Fourth Quarter Ending June 30, 2022
Smw Aivdv
City of Santa Maria
'III) Quarterly Financial Report
Fourth Quarter Ending June 30, 2022
Au•ust16,2022
OVERVIEW
The U.S. economy has contracted for a second straight quarter, fulfilling the criteria for one common definition of recession, and inflation roared to a fresh 40 -year high of 9.1 percent. The nation's gross domestic product shrank at a seasonally adjusted annual rate of 0.9 percent in the April -June period. That followed a 1.6 drop earlier this year.
Whether it all adds up to a recession remains to materialize, but across the economy, there is a slowdown in job growth, especially in the tech industry, the booming housing market, consumer sentiment, and four -decade -high inflation. The Federal Reserve has raised interest rates four times this year in hopes of slowing the economy enough to control inflation without leading to widespread job losses or recession. The Fed expects the unemployment rate to gradually rise from a near 50 -year low of 3.6 percent to 4.1 percent by 2024.
The number of job openings decreased to 10.7 million in June, down from the earlier record high of 11.5 million job openings, according to the Bureau of Labor Statistics. Nearly all the 20 million jobs lost in the early months of the pandemic have been recovered.
Red-hot inflation cooled slightly to 8.5 percent for the year ending in July, from the 9.1 percent rate in June which was the highest level in 40 years since the 9.6 percent rate in November 1981. Inflation continues taking a bigger toll on wages, which rose by 5.3 percent for the 12 months ending in June.
Gains were driven by gasoline — although the per -gallon cost has dropped from $5 to $4.19 nationally, and in California from the record $6.43 to about $5.58.
One of the hottest home seller's markets ever experienced in this country is now cooling because of rapidly rising interest rates and an increase in housing supply. Prices, however, reached record highs.
The median home price in the first quarter was $428,700. That is 30 percent more than in 2020 when the median was $329,000.
California's housing market continued to downshift in June as housing demand cooled further to levels not seen in the past two years. California's median home price declined 4.0 percent in June to $863,790 from the revised record -high of $900,170 recorded in May. The June price was 5.4 percent higher than the $819,630 recorded last June.
At the regional level, home prices in all major California regions increased in price from last year, with the Central Coast leading the way at a 10.1 percent increase. At the county level, while median prices in most counties may have already hit their peak for the year, nearly 9 out of 10 California counties continued to record an increase in their median price from a year ago. Santa Barbara County (including the South Coast) had the largest year -over -year gain in its median price at 33.7 percent, rising to $1.25 million in June 2022 compared to $900,000 a year ago.
California's economy is still recovering from the pandemic -induced slowdown. The State has regained 93 percent of the 2.7 million nonfarm jobs lost during March and April of 2020 due to the pandemic.
California had the worst unemployment rate of all 50 states as of December; as of March, it ranked 45th, and as of June it ranked 415' with a jobless rate of 4.2 percent. California has paid $183 billion in total jobless benefits since March 2020. The Golden State's unemployment rate dropped in June to 4.2 percent as employers added 19,900 nonfarm jobs. Santa Barbara County's jobless rate was 2.8 percent for June. Santa Maria's unemployment rate was 3.4 percent (1,700 jobless) for June.
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— Fourth Quarter Ending June 30, 2022
GENERAL FUND
General Fund Balance. The chart below shows,
with 100 percent of the year complete, revenues are
at 127.1 percent of projections while expenditures
are at 121.4 percent of appropriations.
General Fund
Balance, Start of Year
Revenues'
Expenditures'
Balance
• Includes Transfers
Budget 4th Quarter Percent
$ 10,071,920
75.179,420
78,675,240
$ 6,576,100 $ 10,071,920
$ 10,071.920
95.530,560
95,530,560
127.1%
121.4%
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), as well as
about $9.4 million from key revenues performing
better than estimates. A discussion of the changes
in each category follows in the "Major Revenue
Variance" section of this report.
Expenditures are more than appropriations by
approximately, $16.8 million due to the inclusion of
transfers totaling $23.6 million which represents the
amount of General Fund revenue over expenditures
as of June 30, 2022. The City Council authorized the
total year-end transfer to be split equally between
the General Capital Reserve Fund, Local Economic
Augmentation Fund, and General Fund Assigned
Fund Balance for Unfunded Pension Benefits.
The chart below provides summary comparison
information on revenues, expenditures, and
transfers for the fourth quarter ending June 30,
2022, versus the fourth quarter ending June 30,
2021.
Year to Date Comparison to Prior Year
General Fund
2021-22 2020-21 Over (Under)
Revenues:
Taxes
Licenses 8 Permits
Use of money
Intergovernmental
Charges for services
Other revenue
Operating revenues 90,469,170 69,845.560
Transfers -In
Total revenues $ 95,530,560 $ 74,595,600
$ 64,564,690 $ 57.774,350 $ 6,790,340
4,481.160 3,155,250 1,325,910
1,631,490 1,606,450 25,040
12,465,860 1,763,000 10, 702,860
6,992,810 5,048,570 1,944,240
333,160 497,940 (164,780)
5,061,390 4,750,040
20,623.610
311,350
Expendltures:
Public Safety
Recreation 8 Parks
General Government
Community Dev.
Public Works
Operating Expenses 69,746,230
Transfers -out 25,784,330
Total expenditures $ 95,530.560
$ 20,934,960
$ 40.894,630
9,622,120
11.979,380
3,977,210
3272,890
$ 40,694.880
8,720,000
11,011,200
3,915,180
2,868,880
67210,140
7,385,460
$ 74,595,600
$ 199,750
902,120
968,180
62.030
404,010
2,536,090
18,398,870
$ 20,934,960
Measure U Fund: The following chart shows that
revenues over the past 12 months are at 119.8
percent of budget, or $26.1 million. Expenditures
are at 89.7 percent of budget or $2.3 million under
budget.
Measure U Fund
Actual
Budget 4111 Quarter Percent
Beginning Fund Balance $ 11,254,028 $ 11,254,028
Revenue
Measure U Revenue
Expendltures
City Attorney 711,435
City Managers Office 20,000
Finance 108,730
Library 744,827
Recreation & Parks 2,334,214
Fire 8,760,311
Police 9,830,754
Total Expenditures
Revenue over (under)
Expenditures $ (723,040) $ 5,909,700
Ending Fund Balance $ 10,530,988 $ 17,163,728
$ 21,787,231 $ 26,105,380 119.8%
434,130
19.290
108,820
619,070
1,918,660
7,640,090
9,455,620
61.0%
96.5%
100.1%
83.1%
82.2%
87.2%
96.2%
22,510,271 20,195,680 89.7%
Most of the budget underrun, $1.1 million is in the
Fire Department and is primarily due to incomplete
capital projects, including $393,000 for facility
improvements, $548,600 for partial funding to
replace one pumper engine and two new Type -6
engines, as well as $203,400 for radios and
department -specific equipment. The Police
Department is under budget by $375,100 due to
vacant positions and delays in making two new
vehicle purchases. The City Attorney's Office is
under budget by $277,300 because of three Code
Enforcement Officer position vacancies. The Library
and Recreation & Parks programs are under budget
by $125,700 and $415,500, respectively because of
the continued COVID-19 restrictions limiting the
type and number of programs that were offered, as
well as challenges in hiring staff to run programs.
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 June, 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 - Fourth Quarter Ending June 30, 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 yea of what is driving these revenue variances.
Key variances include:
General Fund
Actual
Receipts Percent
Budget 4th Quarter Received
Receipts -
Prior Year
4th Quarter
Sales Tax
Property Tax
HotelBed Tax
NHIS
Licenses, Permits, 8 Fees
Total Key Revenues
All Other Revenues
Total Revenues
$ 26,102,400
22,972,390
2,902,580
200,000
2,091,050
54,268,420
$ 31,074,690
23,409,600
4,153,140
622,700
4,481,160
63,741,290
119.0%
101.9%
143.1%
311.4%
214.3%
117.5%
$ 26,765,530
22,293,590
3,145,270
723,440
3,155,250
56,083,080
20,911,000
$ 75,179,420
31,789,270 152.0% 18,512,520
$ 95,530,560 127.1% $ 74,595,600
r and prior years. Below gives a better picture
• Sales Tax. Receipts through the fourth quarter are approximately 16.1 percent or about $4.3 million greater compared to the last fiscal year. This increase is primarily due to strong growth in fuel and service stations, restaurants and hotels, and autos and transportation. Allocations from the county and state pools are the only industry category showing a decrease in revenues compared to the prior year. 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 are received from Santa Barbara County in December, January, April, and May of each year. Property taxes received to date are $1.1 million or 5 percent greater than last fiscal year. The majority of the gain is derived from increases in assessed values from the 1.036 percent Proposition 13 inflation adjustment, transfers of ownership, and recapture of previous reductions due to market value losses under Proposition 8. • Hotel/Bed Tax. Through June, receipts are approximately $1 million or 32 percent more than last fiscal year and exceeded estimates by about $1.2 million or 43.1 percent. The increase in revenues is due to the return of community events, such as the Elk's Rodeo and car shows, coupled with being a destination for tourists wanting to make a weekend getaway from Los Angeles, San Francisco, and Bakersfield regions. The Transient Occupancy Tax (TOT) was estimated to generate only about four percent of General Fund revenues (excluding one-time ARPA funds) in 2021-22 but achieved the pre-COVID level of about five percent.
• Non -Hazardous Impacted Soils Program (NHIS). Revenues earned through June are $622,700, compared to $723,440 last fiscal year, or about a 14 percent reduction in revenues. Material received from six different projects generated approximately $135,500 in revenues during the fourth quarter (April, May, and June). The City continues to anticipate a decline in NHIS projects and with changes in Landfill operations, the General Fund portion of the NHIS program sunsets at the end of fiscal year 2021-22.
• Licenses, Permits, Sr Fees. Permit revenue is at $4.5 million, exceeding projections by 114.3 percent or $2.4 million, and is about $1.3 million more than the fourth quarter of last fiscal year. During the fourth quarter, the City issued 122 permits for accessory dwelling units (ADUs), which is still reflective of a high number of submittals, compared to 111 permits for ADUs in the fourth quarter of the prior year. The City also issued permits for the Gateway
Quarterly Financial Report - Fourth Quarter Ending June 30, 2022 Page 4 of 6 Mixed Use project, which includes 18 apartments and ground floor retail commercial, located on the northwest corner of Main Street and Broadway.
• American Rescue Plan Act (ARPA) Revenue Loss Funding. Although ARPA funding is not an ongoing revenue source, the one-time revenue loss standard allocation is a significant amount and attributable to the sizable General Fund revenues exceeding estimates and expenditures. The U.S.
Department of the Treasury issued the "Final Rule" for eligible uses of Coronavirus State and Local Fiscal Recovery Funds 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. Before 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. Through the fourth quarter, which ended June 30, 2022, expenditures are at 121.4 percent of budget. As noted earlier, expenditures are more than appropriations because of the inclusion of transfers totaling $23.6 million, representing the amount of General Fund revenue over expenditures as of June 30, 2022. The City Council authorized the total year-end transfer to be split equally between the General Capital Reserve Fund, the Local Economic Augmentation Fund, and the General Fund Assigned Fund Balance for Unfunded Pension Benefits. The below chart summarizes variances by department:
Key variances include:
21.22 Percent 20-21
General Fund Budget YTD Actual Expended YTD Actual
Police S 31,669,100 S 28,368,250 89.6% S 28,424,350
Fire 12,443,030 12.526.380 100.7% 12,270.530
Recreation & Parks 10,060,020 9.622,120 95.6% 8,720,000 Finance 3,364,970 3,127,710 92.9% 3,131,890
Community Des. 5,658,630 3,977,210 70.3% 3,915,180
Public Works 3,644,500 3,272,890 89.8% 2,868,880
City Manager's Office 7,980,580 7,619,780 95.5% 6,496,520 City Attorney's Office 1,239,220 1,062,800 85.8% 1,213,020 Mayor 8 Council 181,700 169,090 93.1% 169,770
Sub -Total 76,241,750 69,746230 91.5% 67,210,140
Transfers 2,433,490 25,784,330 1059.6% 7,385,460
Total S 78,675,240 S 95,530,560 121.4% S 74,595,600
• Police. Under budget by $3.3
million or about 10.4 percent, due to
vacant positions which have resulted
in salary (and benefits) savings of $3
million through June.
• Fire. Slightly over budget by
$83,350 because of the extremely
high level of overtime incurred to
provide Mutual Aid support. Excluding
these reimbursable overtime costs,
Fire is under budget by 2.4 percent or
$288,300.
• Community Development. Under budget 29.7 percent or approximately, $1.7 million because of work on contractual services, in particular, the General Plan Update is a multi -year contract, and some expenditures will occur in the next fiscal year. In addition, vacancies in the Planning Division also contributed to the underrun.
• Public Works. Under budget by $371,600 or 10.2 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 4.5 percent or $360,800, 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
Quarterly Financial Report - Fourth Quarter Ending June 30, 2022 Page 5 of 6 it very difficult to attract well -qualified candidates. In addition, payments for the labor relations contract were less than expected and fewer contract services were utilized in Information Technology. • Other General Fund Departments. The remaining General Fund departments are underrun between 7 percent and 14.2 percent. The City Attorney's Office is showing the highest percentage under budget at 14.2 percent and Recreation and Parks has the largest dollar underrun of $437,900. Vacant positions, fewer contractual services, and reduction in travel costs account for budget savings achieved in these departments.
21-22 Over 20-21 The chart to the left summarizes
Budget vrDActual (Under) VTDActual General Fund costs by type and Staffing
Contracts & Services
Materials & Supplies
Maintenance & Operations
Capital Outlay
Sub -Total
Debt Service
Transfers
$
54,210,920
9,058,380
3,287,750
8,097,560
666,990
75,321,600
920,150
2,433,490
$
50,185,950
6,652,010
3,512,350
8.020,670
455,100
68.826,080
920,150
25,784,330
92.6%
73.4%
106.8%
99.1%
68.2%
$ 50,528.460
5,976,590
3,107,770
6,497,760
179,410
91.4%
100.0%
1059.6%
66,289,990
920.150
7,385,460
shows that except for Materials
and Supplies, each type of
operating cost is within budget.
Staffing is under budget by
approximately $4 million or 7.4
percent due to numerous
vacancies throughout operational
Total $ 78,675,240 $ 95,530,560 121.4% $ 74,595,600 departments, with the majority occurring in the Police
Department. Materials and Supplies are over budget by 6.8 percent or $224,600 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 26.6 percent or slightly more than $2.4 million due to services yet to occur on the multi -year General Plan Update project, as well as fewer contracts associated with recreation programs, engineering services, labor relations, and information technology. Capital is under budget by 31.8 percent or $211,900 primarily due to planned purchases for Fire and Police department's equipment being deferred to the next fiscal year. 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 Computer Aided Dispatch/Record Management System (CAD/RMS).
ENTERPRISE FUNDS
The Statement of Revenues and Expenses for the fourth quarter ending June 30, 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
$ 55,299,850
963,720
1,702,310
$ 30,387,600
473,860
331,870
$ 681,780
245,430
6,797,310
57,965,880
31,193,330
7,724,520
15,489,790
2,077,690
24,710,270
4,281,850
46,559,600
26,951,980
8,271,990
5,889,490
1,561,380
35,223,970
7,450,870
$ 11,406,280
$ (4,030,640) $
273,650
Water/Wastewater Fund.
Revenues exceeded
expenditures by $11.4
million, which is about the
same amount as last year.
Revenues increased 3.8
percent or $2.1 million
compared to the prior year,
chiefly due to higher
revenues generated
through increases in City
Council -approved water
rates and user fees.
Expenses are $2.1 million
more than last year
primarily due to higher
State water and dry year water purchase increases totaling $3.3 million. In addition, total debt service payments of $4.3 million for the 1997 Certificate of Participation (97 COPs), 2012A Refunding Bonds,
Quarterly Financial Report - Fourth Quarter Ending June 30, 2022 Page 6 of 6 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 fourth quarter, Water and Wastewater operational expenses are under budget by 12.5 percent as a result of personnel savings from vacant positions and fewer repair and maintenance expenses recorded to date.
Solid Waste Fund. The Solid Waste Fund reports refuse collection and disposal activities. Through the fourth quarter, Solid Waste expenditures exceeded revenues by approximately $4 million as a result of capital expenditures of $6.5 million toward the Landfill Liner Expansion project. Other notable capital expenditures to date include $518,000 for Los Flores Landfill development plan, $319,600 toward an additional refuse truck, and $624,000 for organics, residential, and recycling containers. Solid Waste operational costs are under budget by approximately $3.5 million or 11.5 percent.
Transit Funds. The City operates the Santa Maria Regional Transit (SMRT) and Breeze Transit systems, which are funded by a combination of Federal grants, State transportation funds, and user fares.
Fare revenue through the fourth quarter is approximately $682,000, which is about 45 percent or $213,000 more than fares (adjusted for fares waived) earned through the fourth quarter of the prior year.
The City waived transit fares for 16 months (March 2020 through June 2021) to assist customers during the emergency order and economic crisis relating to the coronavirus. Capital expenditures include $1 million for the purchase of two buses and $317,400 towards security surveillance system improvements at the transit center and bus yard facility. The farebox ratio through June 2022 is 11.6 percent based on fares received and operating expenses recorded to date.