City of Santa Maria
Quarterly Financial Report
Third Quarter Ending March 31, 2023
Attachment A
May 16, 2023
OVERVIEW
The economy is slowing and recession concerns remain, as the strong labor market is cooling in the face of higher interest rates on loans. First quarter gross domestic product decelerated to a weak
1.1 percent as the housing market was hammered and businesses reduced inventorie s, following the 2.6 percent rate from October through December, and 3.2 percent clip from July through September.
The Federal Reserve has raised its key rates 10 times in 14 months, aimed at defeating high inflation. Inflation has slowed to 4.9 percent, well below the 9.1 percent rate of June 2022, which was close to a 40-year high.
The Fed is concerned that companies will seek to offset their higher labor costs by further raising prices and perpetuating high inflation.
The Labor Department says worker s' pay and benefits rose 1.2 percent in the first three months of this year, faster than the 1.1 percent rise in last year's final quarter. Paychecks grew 5.1 percent in the first quarter compared with a year ago, before adjusting for inflation. The Fed re gards wage increases above roughly 3.5 percent as too high for it to reach its 2 percent inflation target.
The surge in borrowing costs is expected to send the economy into a recession sometime this year. The housing market, which is especially vulnerable to higher loan rates, has been battered. Many banks have tightened their lending standards since three of the four largest U.S. bank failures in history occurred since March, making it even harder to borrow to buy a house or a car or to expand a business.
Nationally, the unemployment rate is at 3. 4 percent, the same as January’s half -century low of 3.4 percent. On an annual basis, 2021 and 2022 were the two best years for job creation on record – following historic job losses triggered by the pandemic. However, on a monthly basis, job openings fell in March to the lowest level in nearly two years.
Consumer spending – which accounts for about 70 percent of U.S. economic activity, remained resilient in the first three months of this year. A key question is whether, and by how much, consumer spending will weaken.
California’s tax revenues are falling short of expectations, partly because of the State’s highly progressive income tax that relies heavily on high-income taxpayers. Last year, the State budget had close to a $100 billion surplus – more than the budgets of most states. Now, the State faces a projected deficit of $22.5 billion, perhaps higher. The State has a projected $22.4 billion reserve fund, but the Governor has said he may choose to prioritize budget cuts instead of tapping reserves until tax collections are tallied.
California’s jobless rate was 4.4 percent in March (859,000 jobless), same as in February 2022. Santa Barbara County’s jobless rate was 4.5 percent in March (10,200 jobless), ab ove the year-ago estimate of 4.0. Santa Maria’s unemployment rate was 8.5 percent (4,400 jobless), slightly higher than the 7.8 percent a year ago.
The Santa Maria housing market remains strong, according to the Santa Maria Association of Realtors.
The sale to list price ratio was 99 percent as of April 23 rd, meaning sellers typically get the asking price.
The median selling price was $600,000 through April 23rd, compared to $625,000 a year earlier. Inventory remains constrained with fewer properties for sale now than a year ago, and homes are on average staying on the market for 37 days compared to 21 days a year ago.
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
Quarterly Financial Report - Third Quarter Ending March 31, 2023 Page 2 of 5
GENERAL FUND
General Fund Balance . The chart below shows,
with 75 percent of the year complete, revenues are
at 67.7 percent of projections while expenditures are
at 65 percent of appropriations.
The beginning fund balance is an estimate because
the City’s annual audit is not finalized. Revenues are
less than budget primarily because the majority of
property tax and property tax in -lieu amounts are
received semi-annually with the second installment
coming in the fourth quarter. 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 third quarter ending March 31,
2023, versus the third quarter ending March 31,
2022.
The significant drop in r evenues is primarily
because of a one -time, $10 million revenue loss
allocation allowable under the America n Rescue
Plan Act (ARPA) received in 2021-22.
Measure U Fund: The following chart shows that
revenues received through March are at 80.1
percent of budget , or $20.6 million. E xpenditures
are 58.6 percent of budget or $ 5.5 million under
budget.
Most of the budget underrun, $ 5.5 million, is in the
Fire Department and is primarily due to $4.6 million
of budgeted capital projects and equipment
purchases of which only $ 460,000 has been
expended through the third 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 that has been ordered . The
Police Department is under budget by $ 1.1 million
due to vacant positions and capital purchases,
including tasers and the body camera system yet to
be acquired. Community Development is under
budget by $285,000 because of Code Enforcement
vacancies. The Library is under budget by $211,500
because plans to resume Sunday operations have
been delayed until July 2023. Recreation & Parks
programs are under budget by $203,600, as a result
of vacancies in the Park Rangers division. The
budget in the City Manager’s Office is for the costs
associated with maintaining the City’s mass
notification system database. The Finance budget is
for the annual independent audit of Measure U
financial activity. Through March, 89 percent of
Measure U expenditures have been spent on Public
Safety, 6 percent on Youth Services, and 5 percent
on Quality of Life.
General Fund Budget 3rd Quarter Percent
Balance, Start of Year 10,071,920$ 10,071,920$
Revenues* 86,759,760 58,744,620 67.7%
Expenditures* 89,801,530 58,409,170 65.0%
Balance 7,030,150$ 10,407,370$
* Includes Transfers
General Fund 2022-23 2021-22 Over (Under)
Revenues:
Taxes 43,916,810$ 41,249,440$ 2,667,370$
Licenses & Permits 3,110,620 3,501,480 (390,860) Use of money 970,910 1,186,220 (215,310)
Inter-governmental 1,359,700 11,259,690 (9,899,990) Charges for services 4,381,140 5,189,880 (808,740) Other revenue 179,310 243,980 (64,670) Operating revenues 53,918,490 62,630,690 (8,712,200) Transfers-in 4,826,130 2,963,930 1,862,200
Total revenues 58,744,620$ 65,594,620$ (6,850,000)$
Expenditures:
Public Safety 32,744,150$ 30,237,400$ 2,506,750$
Recreation & Parks 7,875,570 6,966,280 909,290 General Government 9,069,520 8,307,740 761,780 Community Dev. 3,693,200 2,709,100 984,100
Public Works 2,702,830 2,322,130 380,700
Operating Expenses 56,085,270 50,542,650 5,542,620 Transfers-out 2,323,900 1,667,610 656,290
Total expenditures 58,409,170$ 52,210,260$ 6,198,910$ Year to Date Comparison to Prior Year
Measure U Fund Budget
Actual
3rd Quarter Percent
Beginning Fund Balance 17,407,947$ 17,407,947$
Revenue
Measure U Revenue 25,787,354$ 20,648,090$ 80.1%
Expenditures
Community Development 916,724 402,270 43.9% City Manager's Office 22,500 19,760 87.8% Finance 2,600 0.0% Library 1,065,960 588,020 55.2%
Recreation & Parks 3,358,817 2,315,500 68.9% Fire 15,363,935 7,896,500 51.4%
Police 12,614,692 8,330,720 66.0%
Total Expenditures 33,345,228 19,552,770 58.6%
Revenue over (under)
Expenditures (7,557,874)$ 1,095,320$
Ending Fund Balance 9,850,073$ 18,503,267$
Quarterly Financial Report - Third Quarter Ending March 31, 2023 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 74 percent of total
General Fund revenues. Three of
the four key revenues are showing
increases with Sales Tax revenue
having the largest dollar and
percentage 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 third quarter are approximately 8.1 percent or about $1.8 million higher compared to last fiscal year. Except for county and state pools, a ll industry groups are contributing to the year -over-year increase with restaurants and hotels showing the highest percentage growth and autos and transportation showing the largest dollar increase. Allocations from the county and state pools dipped slightly compared t o the previous 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 is received from Santa Barbara County in December , January, April, and May of each year. Property taxes received to date are $ 850,200 or 6.9 percent greater than last fiscal year.
Hotel/Bed Tax. Through March, receipts are approximately $ 61,400 or 2.3 percent more than last fiscal year and ahead of estimates by about $419,800 or 13.3 percent. The increase in revenues is partially due to inflation prompting hoteliers to raise room rates, coupled with steady occupancy rates with the return of community events attracting visitors to the area . The Transient Occupancy Tax (TOT) is estimated to generate only about five percent of General Fund revenues in 2022-23. Licenses, Permits, & Fees. Permit revenue is at 100.9 percent of the budget or a little over $3 .1 million but is about 11.2 percent less than in the third quarter of the previous year. Construction permit activity is busy and steady. During the third quarter, the City issued 111 permits for accessory dwelling units (ADUs), a decline from 152 issued for the same quarter last year. The City also issued permits for a new Taco Bell at 560 South Blosser Road (by the neighborhood Wal-Mart), a new medical office building at 501 East Chapel Street, and an expansion of an existing self-storage facility at 1265 West Betteravia Road.
Expenditures. For the third quarter, ended March 31, 2023, expenditures are 65 percent of budget. The below chart summarizes variances by department:
Key variances include:
Police. Under budget by
nearly $3 million or about 8.2
percent, mainly due to vacant
positions which have resulted in
salary (and benefits) savings of $2.9
million through March.
Recreation and Parks.
Under budget $1.1 million or 9.3
percent, due to vacant recreation
limited service and seasonal
positions many of which are expected to be hired in the fourth quarter and will continue to work General Fund Budget
22-23
YTD Actual
Percent
Expended
21-22
YTD Actual
Police 36,060,710$ 24,085,420$ 66.8% 20,893,570$
Fire 12,719,220 8,658,730 68.1% 9,343,830
Recreation & Parks 11,987,630 7,875,570 65.7% 6,966,280 Finance 4,425,710 2,726,450 61.6% 2,310,870 Community Dev. 6,570,820 3,693,200 56.2% 2,709,100 Public Works 4,345,200 2,702,830 62.2% 2,322,130 City Manager's Office 8,800,400 5,320,780 60.5% 5,114,100 City Attorney's Office 1,323,640 887,220 67.0% 757,720 Mayor & Council 196,220 135,070 68.8% 125,050 Sub-Total 86,429,550 56,085,270 64.9% 50,542,650 Transfers 3,371,980 2,323,900 68.9% 1,667,610 Total 89,801,530$ 58,409,170$ 65.0% 52,210,260$
General Fund Budget
Actual
Receipts
3rd Quarter
Percent
Received
Sales Tax 30,694,440$ 24,403,100$ 79.5% 22,565,380$ Property Tax 24,419,910 13,107,790 53.7% 12,257,560 Hotel/Bed Tax 3,152,580 2,784,210 88.3% 2,722,840 Licenses, Permits, & Fees 3,081,550 3,110,620 100.9% 3,501,480 Total Key Revenues 61,348,480 43,405,720 70.8% 41,047,260 All Other Revenues 25,411,280 15,338,900 60.4% 24,547,360 Total Revenues 86,759,760$ 58,744,620$ 67.7% 65,594,620$ Receipts -
Prior Year
3rd Quarter
Quarterly Financial Report - Third Quarter Ending March 31, 2023 Page 4 of 5 throughout the summer months. In addition, the Santa Maria Outdoor Recreation Experience (SMORE) program, with grant funding of $500,000, began in March and is contributing to the underrun. Community Development. Under budget 18.8 percent or approximately $1 .2 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 third-quarter invoice for contractual services with Santa Barbara County for 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 $ 556,000 or 12.8 percent and is attributable to vacancies in the Engineering and Facilities divisions.
City Manager’s Office. Under budget 14.5 percent or approximately $1.3 million, due to vacant positions mostly in the Information Technology division in the first half of the fiscal year . Four of the five vacant positions were filled during the third quarter. Contractual service agreements planned for the fourth quarter are contributing to the underrun.
Finance. Under budget 13.4 percent or $593,000, due to vacant positions, primarily in the first part of the year, in the Accounting and Budget functional areas . Recruitments during the past two quarters have been successful, dropping the number of vacancies from seven to two. Other General Fund Departments. The remaining General Fund departments are under budget by less than eight 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 8 percent, and the Fire Department has the largest dollar budget savings at approximately $881,000.
The chart to the left
summarizes General Fund
costs by type and shows
that with the exception of
Materials and Supplies,
each type of operating cost
is within the budget. Staffing
is under budget by
approximately $ 6.7 million
or 10.8 percent due to
numerous vacancies
throughout operational
departments, with the majority occurring in the Police Department and during the first six months of the fiscal year. In recent months the labor market has eased and the City has been much more successful in hiring full-time personnel. Contracts & Services is under budget by 18.2 percent or about $2 million due to services yet to occur, including work on the General Plan Update project and the grant fund ed, Recreation and Parks SMORE program. Both of these are multi-year agreements and will continue in the next fiscal year. The timing of the third quarter payment of $215,135 toward the Animal Services contract is also contributing to the underrun. Materials and Supplies are over budget by 4.2 percent or $155,700 and is caused by increases in electricity, gas, and water costs (rates) , making it more expensive to operate and maintain City buildings and parks. Capital is under budget by 52 percent or $ 361,300 because planned purchases for equipment for the Fire Depa rtment have not yet occurred. 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 CalPERS Side Fund, and $266,910, total semi-annual lease financing payments for the CAD/RMS system.
ENTERPRISE FUNDS
The Statement of Revenues and Expenses for the third quarter ending March 31, 2023, for the three enterprise funds, are shown on the chart below.
Budget
22-23
YTD Actual
Percent
Expended
21-22
YTD Actual
Staffing 62,479,250$ 40,104,030$ 64.2% 36,720,600$
Contracts & Services 10,937,600 6,216,010 56.8% 4,072,230 Materials & Supplies 3,675,170 2,912,110 79.2% 2,465,020 Maintenance & Operations 7,723,340 5,792,800 75.0% 6,022,040 Capital Outlay 694,040 159,200 22.9% 342,610 Sub-Total 85,509,400 55,184,150 64.5% 49,622,500 Debt Service 920,150 901,120 97.9% 920,150 Transfers 3,371,980 2,323,900 68.9% 1,667,610 Total 89,801,530$ 58,409,170$ 65.0% 52,210,260$
Quarterly Financial Report - Third Quarter Ending March 31, 2023 Page 5 of 5 Water/Wastewater Fund.
Revenues exceeded
expenditures by $ 6.6 million,
which is about $ 2.8 million
more than last year. Revenues
increased 1.5 percent or
$600,260 compared to the
prior year due to higher
revenues generated through
increases in the City Council -
approved water rates and user
fees. Expenses are $ 2.2
million less than last year
primarily due to lower debt
service payment of $ 1.5 for
the 2021A Refunding Bonds
compared to the prior year's payment of $ 4.3 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. Th rough the third quarter, Water and Wastewater operational expenses are under budget by 11.3 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 third quarter, Solid Waste revenues exceeded expenditures by approximately $5.3 million as a result of operational costs being under budget by approximately $ 3.8 million or 11.4 percent, combined with relatively low capital expenditures made through March. However, approximately $ 7.1 million is encumbered for several capital projects, including $ 3.7 million towards development of the Inte grated Waste Management Facility at Los Flores and $2.4 million for the landfill collection gas system expansion project. Compared to the prior year, revenues increased by $6.4 million, and expenditures decreased by $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 third quarter is approximately $424,370, which is about $61,000 less than fares earned through the third 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. 7 million for the purchase of two electric replacement buses, $116,800 for bus stop improvements, and $94,300 towards transit fleet electrification infrastructure. The farebox ratio through March 31, 2023, is 8.1 percent based on fares received and operating expenses recorded to date.
Water/
Wastewater Solid Waste
Public
Transit
37,470,290$ 22,354,200$ 424,370$
Interest Income 672,970 274,080 125,210
Other Revenue 1,750,990 5,316,500 6,745,436
39,894,250 27,944,780 7,295,016
12,674,280 21,538,860 5,225,500
1,886,270 1,067,760 1,944,330
17,215,900
1,498,350
33,274,800 22,606,620 7,169,830
6,619,450$ 5,338,160$ 125,186$
State Water Payments
Total Expenses
Revenues/Expenses
Total Revenues
Revenues
Charges for Service
Expenses
Operating
Debt Service
Capital Expenditures