FOR THE COUNCIL MEETING OF FEBRUARY 21, 2023
COUNCIL AGENDA REPORT
TO: City Council
FROM: City Manager
Prepared by: Director of Finance
SUBJECT: BUDGET AMENDMENTS — OPERATIONAL CHANGES RELATED TO THE FINANCIAL REPORT FOR THE SECOND QUARTER ENDING DECEMBER 31, 2022
RECOMMENDATION:
That the City Council adopt a Resolution approving second quarter amendments to the 2022-23 Budget for operational changes.
BACKGROUND:
As part of the City's budget process, staff presents to the City Council various personnel and operational changes in conjunction with the quarterly financial report. Staff is presenting a budget amendment request for incorporation into the 2022-23 Budget.
DISCUSSION:
PUBLIC WORKS/SANTA MARIA REGIONAL TRANSIT (SMRT) FUND
Increase appropriations by $4,900,000 in the Santa Maria Regional Transit (SMRT) Fund and authorize the purchase of five (5) Electric Expansion Buses in the Transit Fund in fiscal year 2022-23 and authorize a corresponding reduction in the 2023-24 Mid -cycle Budget update.
The Public Works Department -Transit Division requests authorization to move $4,900,000 for the purchase of five (5) Electric Expansion Buses listed in the Transit budget from fiscal year 2023-24 to fiscal year 2022-23 for the SMRT system. The Electric Expansion Buses will allow public transit operations to continue to process more efficiently, comply with the State zero - emission vehicle mandates, and continue the Transit Division's effort to become 100 percent electric by 2040. Additionally, authorizing the budget amendment will permit Transit to secure a place in the bus production process that is estimated to take 14 to 16 months before delivery.
PUBLIC WORKS FLEET/FIRE
Authorize Public Works Fleet division staff to initiate the procurement process and secure a price for a new fire ladder truck, by ordering and placing a down payment on the vehicle utilizing a portion of the $1 million appropriation in Measure U for a used fire ladder truck.
As part of the 2022-24 Budget, the City Council authorized a $1 million appropriation from Measure U for the purchase of a used second fire ladder truck, to help ensure the proper apparatus is available for multi -story structural fires. Staff began searching for a used ladder truck in July 2022, but have not been able to locate an apparatus in acceptable condition. Public Works Fleet division staff is recommending the purchase of a new fire ladder truck because of the inability to find a suitable used vehicle and the identification of approximately $850,000
replacement funds available as a result of a grant awarded to the City for the first and current ladder truck (which replaced an older fire engine). In addition, the current estimated build time is two to three years for a new fire ladder apparatus and for that reason manufacturers typically require a down payment when the order is placed. The down payment will also secure the price of the vehicle. No additional appropriation is being requested in 2022-23 as the existing the $1 million appropriation in Measure U for a used fire ladder truck is more than sufficient for the down payment. Any additional appropriation of available replacement dollars will be requested in 2023- 24 Mid -Cycle Budget Review.
Impact to the Community
The requested budget amendments will enable staff to maintain operations and meet new State regulatory requirements.
MARY HARVEY
Director of Finance
FOR THE COUNCIL MEETING OF FEBRUARY 21, 2023
COUNCIL AGENDA REPORT
TO: City Council
FROM: City Manager
Prepared by: Director of Finance
SUBJECT: FINANCIAL REPORT FOR THE SECOND QUARTER ENDING DECEMBER 31, 2022
RECOMMENDATION:
That the City Council receive and file the Financial Report for the Second Quarter ending December 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 second quarter financial analysis.
DISCUSSION:
The attached report provides an overview of the current economic outlook at 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.
aarei-f
ARY HARVEY
Director of Finance
Attachment A: Quarterly Financial Report Second Quarter Ending December 31, 2022
rl
City of Santa Maria
Quarterly Financial Report
Second Quarter Ending December 31, 2022
Februa 21, 2023
OVERVIE
Despite dire predictions by some business leaders, the national economy has proved resilient as consumers continue to spend and businesses continue to invest. Whether or not the economy slips into a recession will depend largely on inflation and any additional actions the Federal Reserve takes to bring down price increases.
Economic activity is slowing as the Federal Reserve has raised its key short-term interest rates eight times (seven times in 2022) in an aggressive campaign to beat inflation. Inflation remains well above the Fed's 2 percent target but has eased from a 40 -year high of 9.1 percent in June 2022 to 6.4 percent in January. The Fed is signaling a few more rate hikes to go.
The national economy grew by 2.1 percent in 2022. This is a much slower pace than the brisk 5.9 percent rate of 2021 juiced by an easing pandemic and trillions of dollars in Federal stimulus pending after the economy shrank 3.4 percent in 2020. In the last quarter of 2022, the economy expanded at an adjusted annual rate of 2.9 percent.
Home sales have fallen for 11 straight months, according to the National Association of Realtors, as a result of higher borrowing costs. Average mortgage rates more than doubled last year, from 3 percent to 7 percent. making homeownership considerably more expensive for would-be buyers.
The national unemployment rate was pegged at 3.5 percent in December, a historic low. Employers hired a record 76.4 million people and laid off the fewest on record. 16.8 million. in 2022, according to the Bureau of Labor Statistics. Job openings rose to a five -month high of 11 million in December — but below the record 11.9 million of last spring - a sign the labor market was still very tight despite a slowing economy and more layoffs in sectors such as high-tech. Overall labor force participation rate was little changed for the year, at 62.3 percent.
Job growth has declined to a solid average monthly pace of 247.000 in the past three months. About 50.5 million people quit their jobs in 2022, mostly to take new jobs, not to leave the workforce altogether.
Numerous job prospects. higher wages. and remote work helped fuel the trend.
Last year was a strong one for California. The state added more than 620,000 jobs, finally regaining the nearly 3 million jobs initially lost during the pandemic. The year ended with a near record -low 4.1 percent unemployment. The downside is the new proposed 2023-24 State budget. The $97 billion surplus in the current budget is now morphing into a projected $22.5 billion deficit due to sharp declines in projected revenue.
Mayor
Alice Patino
Mayor Pro-Tem
Maribel Aguilera-Hernandez
Council
Mike Cordero
Carlos Escobedo
Gloria Soto
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
California's economic growth is expected to continue, albeit at a slow pace, through 2024 as high -interest rates decrease demand, according to the Governor's Budget forecast. California's labor force is projected to grow by 1.4 percent in 2023, and moderately thereafter, averaging 0.7 percent growth between 2024 and 2026.
The UCLA Anderson Forecast projects California in 2023 seeing a more moderate slowing or, in the case of a recession, a milder downturn than for the U.S. overall.
Santa Barbara County's jobless rate was 3.1 percent in December. below the year-ago estimate of 3.9 percent. Santa Maria's unemployment rate was 5.7 percent (2,900 jobless), the same as a year earlier.
Quarterly Financial Report— Second Quarter Ending December 31, 2022
GENERAL FUND
General Fund Balance. The chart below shows,
with 50 percent of the year complete, revenues are
at 44.9 percent of projections while expenditures are
at 43.7 percent of appropriations.
General Fund
Balance, Start of Year
Revenues'
Expenditures'
Balance
Includes Transfers
Budget 2nd Quarter Percent
$ 10.071,920 $ 10,071,920
86,559.440 38,833,100
89.572.980 39.126,270
$ 7.058.380 $ 9.778.750
44.9%
43,7%
The beginning fund balance is an estimate because
the City's annual audit is not finalized. Revenues are
less than budget primarily because property tax in
lieu amounts are not received until late January and
late May each year. At the end of each fiscal year,
there are a number of projects, contracts, and
transactions not yet completed. The remaining
appropriations for those projects, contracts, and
transactions are carried forward into the current
fiscal year, which accounts for some of the reasons
why appropriations are exceeding estimated
revenues. A discussion of the changes in each
category follows in the "Major Revenue Variance"
section of this report.
The City adopted the 2022-23 Budget with the intent
of having to use approximately $2.7 million in one-
time Local Economic Augmentation Fund (LEAF) to
help balance the 2022-23 Budget
The chart below provides summary comparison
information on revenues, expenditures, and
transfers for the first quarter ending December 31,
2022, versus the first quarter ending December 31,
2021.
Year to Date Comparison to Prior Year
General Fund
2022-23 2021-22 Over(Under)
Revenues:
Taxes
Licenses & Permits
Use of money
Inter -governmental
Charges for services
Other revenue
Operating revenues
Transfers -in
Total revenues
Expenditures:
Public Safety
Recreation & Parks
General Government
Community Dev.
Public Works
$ 29,421.540
2.257.010
393.340
580.350
2,838,840
124,000
$ 26,463.270
1,577.530
673.850
988,820
2,301,610
177,630
$ 2.958,270
679,480
(280.510)
(408,470)
537,230
(53,630)
35,615,080
3,218,020
32.182,710
1.995,440
3.432,370
1.222,580
$ 38,833.100 $ 34.178,150 $ 4.654.950
$ 22,487.960 $ 20,985,600 $ 1,502,360
5,31 1,000 4,920,240 390,760
5,724.430 5.418,740 305.690
2,265.090 1.851,070 414.020
1,788,530 1,455,610 332,920
,Operating Expenses 37,577,010
Transfers -out 1,549,260
Total expenditures $ 39.126,270
34,631,260
1.111.740
2,945,750
437,520
S 35.743.000 $ 3,383.270
Measure U Fund: The following chart shows that
revenues over the first six months are at 56 percent
of budget, or $14.4 million. Expenditures are at 39
percent of budget or nearly $3.7 million under
budget.
Actual
Measure U Fund Budget 2nd Quarter Percent
Beginning Fund Balance 5 16,907,947 $ 16 907.947
Revenue
Measure U Revenue $ 25,787,354 $ 14,444.850 56.0%
Expenditures
Community Development 916,724 303,900 33.2%
City Manager's Office 22,500 19,760 87.8%
Finance 2,600 0.0%
Library 1,065,960 398.120 37 3%
Recreation & Parks 3,358,817 1,527.570 45 5%
Fire 15,363,935 5,207.320 33.9%
Police 12,614,692 5,548,100 44.0%
Total Expenditures 33,345,228 13,004,770 39.0%
Revenue over (under)
Expenditures $ (7,557,874) $ 1440,080
Ending Fund Balance
$ 9,350,073 $ 18,348,027
Most of the budget underrun, $2.5 million, is in the
Fire Department and is primarily due to $4.6 million
of budgeted capital projects and equipment
purchases of which only $205,000 has been
expended through the second quarter. Budgeted
capital projects include the design and construction
of a training center, the renovation design of the Fire administration building, and the purchase of a
second ladder truck. The Police Department is
under budget by $759,000 due to vacant positions
and capital purchases, including tasers and the
body camera system yet to be acquired. Community
Development is under budget by $154,500 because
of Code Enforcement vacancies. The Library and
Recreation & Parks programs are under budget by
$134,900 and $151,800, respectively because of
difficulties in hiring and retaining staff which
hampers the department's efforts to offer additional
programs. The budget in the City Manager's Office
is for the costs associated with maintaining the
City's mass notification system database. The
Finance budget is for the annual independent audit
of Measure U financial activity. Through December.
89 percent of Measure U expenditures have been
spent on Public Safety, 6 percent on Youth
Services, and 5 percent on Quality of Life.
Quarterly Financial Report - Second Quarter Ending December 31, 2022 Page 3 of 5 Major General Fund
Revenue Variances:
The four major General
Fund revenue sources. as
shown on the chart to the
right, account for
approximately 75 percent
of total General Fund
revenues. Three of the
four 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.
Key variances include:
• Sales Tax. Receipts through the second quarter are approximately 15.8 percent or about $2.3 million greater compared to the last fiscal year. All industry groups are contributing to this positive variance with fuel and service stations showing the highest percentage growth and general consumer goods showing the largest dollar increase. Allocations from the county and state pools had strong growth after having a decline in the previous 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 are received from Santa Barbara County in December, January, April, and May of each year. Property taxes received to date are $679,000 or 6.6 percent more than last fiscal year.
• Hotel/Bed Tax. Through September, receipts are approximately $114,000 or 5.8 percent more than last fiscal year and are exceeding estimates by about $481.000 or 15.3 percent. The increase in revenues is due to the tourism industry's continued recovery from the pandemic, coupled with consumers viewing Santa Maria as a very viable lodging option when visiting the Central Coast. The Transient Occupancy Tax (TOT) is estimated to generate about five percent of General Fund revenues in 2022-23.
• Licenses, Permits, & Fees. Permit revenue is at 73.2 percent of the budget or about $2.3 million and is about $679;000 greater than the second quarter of last fiscal year. Construction permit fees remain high and exceed estimates due to the high volume of permits issued for accessory dwelling units, including 104 for the second quarter. Permits were also issued for a new apartment complex, Centennial Square, located at Miller Street and Plaza Drive, consisting of 184 affordable apartments.
General Fund
Budget
Actual
Receipts
2nd Quarter
Percent
Received
Receipts -
Prior Year
2nd Quarter
Sales Tax
Property Tax
Hotel/Bed Tax
Licenses, Permits, & Fees
Total Key Revenues
All Other Revenues
Total Revenues
$ 30 694.440
24.419.910
3,152, 580
3,081,550
61,348,480
25.210, 960
$ 17,230.830
7,665.420
2,057, 700
2,257.010
29,210.960
9,622,140
$ 38,833.100 44.9% $ 34.178,150
56.1%
31,4%
65.3%
73.2%
47.6%
$ 14,883.110
7,193, 930
1,944,170
1,577,530
25,598.740
38.2% 8,579,410
$ 86.559,440
Expenditures Through the second quarter, which ended December 31, 2022, expenditures are at43.7 percent of budget. The below chart summarizes variances by department:
General Fund
22-23 Percent 21-22
Budget YTD Actual Expended YTD Actual
Police $ 35,977,170 $ 16.249.630 45.2% $ 14,312.030
Fire 12,648,310 6.238.330 49.3% 6,673,570
Recreation & Parks 11,941,770 5,311,000 44.5% 4,920,240 Finance 4,270.910 1,533,900 35.9% 1,400,750
Community Dev. 6,570,820 2.265.090 34 5% 1,851,070
Public Works 4,345.210 1,788,530 41 2% 1,455.610
City Manager's Office 8,926,950 3,518,760 39.4% 3,350,810 City Attorney's Office 1,323.640 581.550 43.9% 581,200
Mayor & Council 196,220 90,220 46.0% 85.980
Sub -Total 86,201,000 37,577.010 43.6% 34,631.260
Transfers 3,371,980 1,549,260 45.9% 1,111,740
Total $ 89,572.980 $ 39.126,270 43.7% $ 35.743.000
Quarterly Financial Report - Second Quarter Ending December 31, 2022 Page 4 of 5 Key variances include:
• Police. Under budget by $1.7 million or about 4.8 percent, due to vacant positions which have resulted in salary (and benefits) savings of $1.6 million through December. • Community Development. Under budget 15.5 percent or approximately $1 million because of vacancies in the Planning and Community Services divisions and the timing of expenditures for contractual services. The contract for the General Plan Update will continue throughout the year and may extend into the next fiscal year. In addition, the pending payment of the second-quarter invoice for contractual services with Santa Barbara County for the Animal Control Services accounts for a portion of the budget underrun. The quarterly payments for animal control services are $215,135 totaling $850,540 for fiscal year 2022-23.
• Public Works. Under budget by $384,000 or 8.8 percent and is attributable to vacancies in the Engineering and Facilities divisions.
• City Manager's Office. Under budget 10.6 percent or $944,700. due to vacant positions mostly in the Information Technology division. Contractual service agreements to occur in the second half of the fiscal year are contributing to the underrun.
• Finance. Under budget 14.1 percent or $601,600, due to vacant positions in the Accounting and Budget functional areas. In addition, several contractual service agreements will be performed later in the year.
• Other General Fund Departments. The remaining General Fund departments are under budget by less than seven percent as a result of vacant positions and incomplete contract service agreements.
The City Attorney's Office has the largest percentage of budget savings at 6.1 percent, and the Recreation and Parks Department has the largest dollar budget savings at approximately $660.000. • The chart to the left
22-23 Percent 21-22 summarizes General
Budget YTD Actual Expended YTD Actual Fund costs by type and Staffing $ 62,620.750 $ 27,260,060 43.5% $ 25,456,760
shows that each type of
Contracts & Services 10,650,260 3,770,380 35.4% 2,531,050 operating cost is within Materials & Supplies 3,656,720 1,811,140 49.5% 1,651,480 the budget. Staffing is Maintenance & Operations 7,722,590 3,856.080 49.9% 3,996,220 under budget by Capital Outlay 630.530 111.680 17.7% 209.050 approximately $4.1 Sub Total 85,280,850 36.809.340 43 2% 33,8x4.560 million or 6.5 percent Debt Service 920,150 767,670 83.4% 786.700 due to numerous Transfers 3,371,980 1,549,260 45 9% 1,111,740 vacancies throughout Total $ 89,572,980 $ 39.126,270 43 7% $ 35,743.000 operational departments, with the
majority occurring in the Police Department. Contracts & Services is under budget by 14.6 percent or about $1.5 million primarily due to services scheduled to occur later in the fiscal year, including work on the General Plan Update project. The timing of the second quarter payment of $215,135 toward the Animal Services contract is also contributing to the underrun. Both Materials & Supplies and Maintenance & Operations are slightly under budget by $17,200 and $5,200, respectively. Capital is under budget by 32.3 percent or $203,600 because planned purchases for equipment for the Fire Department are anticipated to occur in the second half of the fiscal year. The debt service expenditure includes $634,210 for the final annual payment from the Fire Department to the Solid Waste Collection Fund for the payoff of the CaIPERS Side Fund, and $133.460. the first payment of the semi-annual lease financing payments for the CAD/RMS system.
Quarterly Financial Report - Second Quarter Ending December 31, 2022
ENTERPRISE FUNDS
The Statement of Revenues and
Expenses for the second quarter
ending December 31, 2022, for the
three enterprise funds, are shown
on the chart to the right.
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
$ 25,360,590 $
247,530
1,239, 800
14,573,710 $
100,960
5,144.910
19,819.580
288,050
45,030
5.986, 880
6.319.960
26,847.920
8.845, 730
866,930
11.065, 660
749,180
14,403.970
648,810
2,648,230
1,867,040
21.527, 500
15.052.780 4,515,270
Revenues/Expenses $ 5.320.420 $ 4.766.800 $ 1,804,690
Water/Wastewater Fund. Revenues exceeded expenditures by $5.3 million. Revenues increased 3.1 percent or $804,800 compared to the prior year due to higher revenues generated through increases in the City Council -approved water rates and user fees. Expenses are $3.7 million less than last year primarily due to lower debt service payment of $749.180 for the 2021A Refunding Bonds compared to the prior year's payment of $3.8 million for the 1997 Certificate of Participation (97 COPs) and 2012A Refunding Bonds. The 97 COPs and 2012A Refunding Bonds were refinanced in November 2021 with the issuance of 2021A Refunding Bonds. Through the second quarter, Water and Wastewater operational expenses are under budget by 5.7 percent as a result of personnel savings from vacant positions and the timing of payments of ongoing maintenance and contractual services agreements.
Solid Waste Fund. The Solid Waste Fund reports refuse collection and disposal activities. Through the second quarter, Solid Waste revenues exceeded expenditures by approximately $4.8 million as a result of operational costs being under budget by approximately $2 6 million or 7.6 percent, coupled with relatively low capital expenditures made during the first six months of the fiscal year. Compared to the prior year. revenues increased by $5.8 million and expenditures decreased by $3.4 million.
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 second quarter is approximately $288.000, which is about $71,000 less than fares earned through the second quarter of the prior year. This variance is attributed to a fewer number of bus passes purchased by local school districts this year as districts restored school bus service. In addition, in the prior year, there were one-time purchases of bus passes from Allan Hancock College (AHC) and other grant programs that allowed free AHC student bus rides.
Transit capital expenditures include $1.6 million for the purchase of two electric replacement buses, $114.900 for bus stop improvements, and $94,300 towards transit fleet electrification infrastructure. The farebox ratio through December 31, 2022. is 10.9 percent based on fares received and operating expenses recorded to date.
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA MARIA, CALIFORNIA, APPROVING SECOND-QUARTER AMENDMENTS TO THE 2022-23 BUDGET FOR
OPERATIONAL CHANGES
WHEREAS, certain personnel and operational issues are brought forward for the City Council's consideration in conjunction with the quarterly financial report; and WHEREAS, it is recommended to amend the 2022-23 budget for subsequent appropriations, actions, and costs as determined to be in the public's best interest.
NOW, THEREFORE, IT IS HEREBY RESOLVED by the City Council of the City of Santa Maria, California, as follows:
1. Increase appropriations by $4,900,000 in the Santa Maria Regional Transit (SMRT) Fund and authorize the purchase of five (5) Electric Expansion Buses in the Transit Fund in fiscal year 2022-23 and authorize a corresponding reduction in the 2023-24 Mid -cycle Budget update; and
2. Authorize Public Works Fleet division staff to initiate the procurement process and secure a price for a new fire ladder truck, by ordering and placing a down payment on the vehicle utilizing a portion of the $1 million appropriation in Measure U for a used fire ladder truck; and
3. The Chief Deputy City Clerk is hereby authorized to make minor changes herein to address clerical errors, so long as substantial conformance of the intent of this document is maintained. In doing so, the Chief Deputy City Clerk shall consult with the City Manager and City Attorney concerning any changes deemed necessary.
PASSED AND ADOPTED at a regular meeting of the City Council of the City of Santa Maria held this 21st day of February 2023.
Mayor
ATTEST:
Chief Deputy City Clerk
APPROVED AS TO FORM
City Attorney
APPROVED AS TO CONTENT.
0. Lti Director
r 0
Dep 0.0P-1s/1A
Director l7
City Manager