ATTACHMENT A 1
City of Santa Maria
Quarterly Financial Report
Second Quarter Ending December 31, 2023
MAYOR
Alice Patino
__
MAYOR PRO-TEM
Gloria Soto
__
COUNCIL
Carlos Escobedo
Maribel Aguilera-
Hernandez
Mike Cordero
__
INTERIM CITY MANAGER
Alex Posada
REPORT PREPARED BY
Xenia Bradford
Interim Director of Finance
206 East Cook Street
Santa Maria, CA 93454
(805) 925-0951 Ext. 2215
www.cityofsantamaria.org
TABLE OF CONTENTS
ECONOMIC INDICATORS ........ 1
GENERAL FUND ..................... 3
MEASURE U FUND ................. 6
ENTERPRISE FUNDS ................. 7
WATER/WASTEWATER FUND
S OLID WASTE FUNDS
P UBLIC TRANSIT FUNDS
FY 2024-26 BIENNIAL BUDGET
DEVELOPMENT ...................... 8
FUND BALANCE .................... 9
GENERAL FUND
M EASURE U FUND
ECONOMIC INDICATORS
Nationally, economic growth has yet to stall, and in many ways is doing better than expected by economists who were wrong about a recession in 2023. Yet, the outlook remains uncertain.
The economy tracked to a better -than-expected 2.5 percent rate growth for all of last calendar year. It grew at a seasonally adjusted annual rate of 3.3 percent in the October-December period, down from the 4.9 percent growth of the third quarter.
To start 2024, the country added 353,000 jobs in January. The unemployment rate remained at 3.7 percent in January – the 24th straight month below 4 percent. California’s unemployment rate of 5.1 percent is second highest in the nation, behind only Nevada’s 5.4 pe rcent.
California continues to have the highest poverty rate in the nation, due to very high living costs and large low-income underclass.
Many hope that inflation continues its moderate trajectory. The Federal Reserve’s anticipated path to rate cuts is not preordained. continued on p. 2
Santa Maria Monument Sign
2 Quarterly Financial Report: Second Quarter Ending December 31, 2023
ECONOMIC INDICATORS (CONTINUED)
For all of 2023, inflation grew at 3.4 percent. Inflation is cooling but absent a significant eco nomic downturn is likely to remain above the Federal Reserve’s 2.0 percent target. Inflation rose 3.1 percent in January compared with the year before. Housing costs continue to be the lion’s share of inflation.
Compared to a year ago, rent costs were up 6.1 percent and the cost of car insurance is up 20 percent.
Concerns range from slower consumer spending and slower revenue growth for businesses, record credit card debt, climbing rent and house prices, California’s budget deficit, and significant geopolitical tensions. Ongoing layoffs and slowdowns in the tech industry could continue to weigh on the State’s bottom line. Consumers are unhappy with affordability issues such as rising home and auto insurance premiums, as well as housing costs.
Low- and middle-income households have depleted their pandemic reserves and rung up record credit card debt while pushing delinquencies to a 13 -year high as they struggle wit h high inflation and borrowing costs.
California-based fast-food workers for chains with 60 or more locations around the nation will earn at least $20 an hour beginning in April, $4 higher than the overall State minimum wage of $16 that took effect January 1st. In June, health care workers will earn a minimum of $18, $21 or $23 an hour, depending on what type of facility employs them and where they work.
A bleaker State budget outlook is taking shape in Sacramento as various tax payments came in significantly weaker than expected and economic headwinds slow revenues. The State’s $100 billion budget surplus from last year turned into a projected $38 billion deficit this year.
California faces possible impacts to key homelessness, housing affordability, and tr ansportation programs statewide. Deficits or delays in the Federal and State budgets are detrimental not just to local governments, but the underserved residents their programs serve. For now, the Governor’s proposed budget avoids raids on City coffers.
Big cities including Los Angeles and Sacramento are facing large budget deficits and talking about job cuts or hiring freezes. The Cal State System is anticipating more university-wide budget cuts as it faces expected cuts in State aid. Already , many campuses have started consolidating programs, freezing hiring, eliminating positions, deferring maintenance projects, and restricting purchases.
Nationwide, home sales retreated in 2023, continuing a trend that began in mid -2022 when mortgage interest rates began their rapid ascent. Rates hit their 20 -year high in October 2023 peaking around 8 percent, crushing affordability for homebuyers. By December, 30 -year rates dipped below 7 percent. Despite the decline in sales, prices continued to rise nationally.
There are not a lot of properties on the market, partly because homeowners fortunate enough to lock in low rates do not want to move and pay a higher rate. Housing is getting pricier, too.
Nationally, home prices rose 5.14 percent in November 2023 compared to a year earlier, according to the S&P CoreLogic Case-Shiller Home Price Index. Over the past four years, prices have risen by nearly 50 percent nationally.
California
Unemployment
Rate
(Jan 2024)
California 's
unemployment rate of
5.1 percent is the
second highest in the
nation.
KEY STATISTICS
Median Home
Sales Price
(Dec 2023)
The median home
sales price in
December 2023 in
Santa Maria was
$585,500, or 9.4
percent more than one
year ago.
Inflation
(2023)
For all of 2023, inflation
grew at 3.4 percent.
Inflation is cooling but
absent a significant
economic downturn is
likely to remain above
the 2.0 percent target.
3 Quarterly Financial Report: Second Quarter Ending December 31, 2023
GENERAL FUND
Current Budget
The City adopted the 2023-24 Budget with the intent of having to use approximately $2.02 million in one-time Local Economic Augmentation Fund (LEAF) to help balance the 2023-24 Budget. At the end of FY 2022-23 there were several projects, contracts, and transactions that were not yet completed. The remaining appropriations for those have been carried forward into FY 2023-
24. A discussion of the changes in each category follows in the “Revenue Variances” and “Expenditure” sections of this report.
Major Revenues
Through the second quarter , revenue receipts are at 41.6 percent of projections. Receipts from the four major General Fund revenue sources, as shown in the top chart on the right, account for approximately 75 percent of total General Fund revenues.
Revenues are less than the second quarter projection primarily because property tax in lieu amounts are not received until late January and May each year; however, sales tax receipts are reflecting consumers’ concern about the economy.
Expenditures
Through the second quarter, expenditures are at 43.2 percent of total budget. The lower chart on the right presents General Fund expenditures by type and shows that each type of operating cost is trending within budget. Staffing is under budget by 4.5 percent, or $2.9 million, due to vacancies mostly experienced in the Police Department. Recruitment of lateral and entry positions will continue to be the Department’s focus to fill 31 vacancies. Contracts & Services is under budget by 12.3 percent, or $1.4 million due to timing of the General Plan Update project. Capital is under budget by 14.6 percent, or $98,100, due to the timing of some planned capital purchases for the Fire Department.
Year-Over-Year Comparison
The chart below compa res revenue receipts, expenditures, and transfers for the second quarter ending December 31 , 2023, versus the second quarter ending December 31, 2022.
36.3%
59.6%
42.9%
32.4%
51.5%
All Other
Revenues
Licenses,
Permits, & Fees
Hotel/Bed Tax
Property Tax
Sales Tax
REVENUES
Actual Budget
47.3%
50.0%
35.4%
49.3%
50.1%
37.7%
45.5%
Transfers
Debt Service
Capital Outlay
Maintenance &
Operations
Materials &
Supplies
Contracts &
Services
Staffing
EXPENDITURES
Actual Budget
$34.578
$3.445
$40.371
$1.816
$35.615
$3.218
$37.577
$1.549
$-
$10.0
$20.0
$30.0
$40.0
$50.0
Operating
revenues
Operating
revenues
Transfers-in Transfers-in Operating
Expenses
Operating
Expenses
Transfers-
out
Transfers-
out
Millions
GENERAL FUND REVENUES AND EXPENDITURES BY TYPE
2023-24 2022-23
Operating Revenues Transfers-In Operating Expense Transfers-Out 4 Quarterly Financial Report: Second Quarter Ending December 31, 2023
GENERAL FUND (CONTINUED)
Revenue Variances
Property Tax is the only key revenues experiencing an increase over last year. Here are the highlights of what is driving the variances in these individual revenue sources received through the second quarter.
Key variances include:
• Property Tax: The bulk of these payments are received through Santa Barbara County in December, January, April, and May of each year. Property Tax received is 8.5 percent, or $655,100, more than last fiscal year.
• Sales Tax : R eceipts are 3.8
percent, or $ 655,400, less than
last year. With concerns about
the economy still looming,
consumers reduced spending in
the categories of general
consumer goods in discount
stores, home furnishings, and electronics , as
well as autos-transportation with new and used car sales falling even as pricing and financing remained near historic highs. Consumers are waiting to see what the Fed will do with interest rates resulting in waning building -construction as home sales slowed and home improvement projects were placed on hold.
• Ho tel/Bed Tax : Through December, Transient Occupancy Tax (TOT) receipts are 10.9 percent, or $224,400, less than last fiscal year and behind estimates by 7.1 percent, or $303,400. The year-over-year decline is reflective of broader travel options open ing up post-pandemic; however, l ocal marketing cadence is anticipated to pick up in the next couple months. • Licenses, Permits, & Fees: Permit revenue of $1.9 million exceeds projections by 9.6 percent, or $297,800, but is 18.0 percent, or $407,000, less than last year . Last year’s revenue included issuance of a permit for 184 housing units in Centennial Square, an apartment complex on the southwest corner of Miller and Plaza Drive. This year , 566 permits have been issued with 8 9 issued for accessory dwelling units (ADUs). This is a slight decline from last year ’s 569 permits issued with 104 iss ued for ADUs ; however, permit activity exceeded projections due to a consistent level of requests to construct ADUs in Santa Maria.
$-
$1.0
$2.0
$3.0
$4.0
July Aug Sept Oct Nov Dec
SALES TAX RECEIPTS BY MONTH
23-24 Actual 22-23 Actual
51.5%
32.4%
42.9% 59.6%
36.3%
56.1%
31.4%
65.3% 73.2%
38.2%
$-
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
Millions
GENERAL FUND REVENUES
Budget 2023-24 Actual 2022-23 Actual
Sales Tax Property Tax Hotel/Bed Tax All Other RevenuesLicenses, Permits, & Fees
General consumer goods experienced downturn in discount stores, home furnishings, and electronics as consumers stayed concerned about the economy. - HdL, the City’s sales tax consultant
5 Quarterly Financial Report: Second Quarter Ending December 31, 2023
GENERAL FUND (CONTINUED)
Expenditures
For the second quarter, ending December 31, 2023, expenditures are 43.2 percent of total budget. The chart below presents the percentage of expenditures by department:
Key variances include:
• Community Development : Under budget by 12.8 percent, or $866,500, due to the timing of expenditures for contractual services. The contract for the General Plan Update extended into the current fiscal year.
• Fire: U nder budget by 7.6 percent, or $875,800, due to vacancies and fewer mutual aid responses resulting in lower overtime costs, as well as timing of some capital purchases. • Public Works: U nder budget by 5.8 percent, or $281,300, due to vacancies as well as timing of contract service agreements and operating and maintenance expenses. • Recreation & Parks: Under budget by 5.2 percent, or $687,200, due to vacancies in Administration and Recreation, and timing of contractual services.
• Police: Under budget by 4.3 percent, or $1.6 million, due to vacant positions which have resulted in salary (and benefits) savings of $1. 5 million through December as recruitment of lateral and entry positions continues to be a focus for the department. For reference, salary savings through September were $1.6 million. There are currently 20 Police Officer vacancies; however, eight trainees are poised to complete the academy.
• City Manager’s Office : Over budget by 0.6 percent, or $56,900. The salaries and benefits category is over by 9.5%, or $265,300; however, that overage is largely offset by savings in the contracts and services category.
• Other General Fund Departments: The remaining General Fund departments are under budget by between 1.5 to 3.7 percent.
45.7%
44.8% 42.4% 50.6% 37.2% 44.2% 46.3% 47.3% 48.5% 47.1%
$-
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
Millions
GENERAL FUND YEAR-TO-DATE ACTUAL
EXPENDITURES BY DEPARTMENT
Budget Actual
As of November 2023, the City has processed permits for the building and completion of 1,007 Accessory Dwelling Units (ADUs), dating back six years. Another 507 ADUs have permits issued and/or are under construction, and another 368 ADUs are in plan review. In total, 1,882 ADUs are either built, under construction, or in review. One ADU permit warrants approximately 25 building inspections, from beginning of construction to end.
6 Quarterly Financial Report: Second Quarter Ending December 31, 2023
MEASURE U FUND
The following table shows that revenues received through December are at 51.2 percent of budget, or $13.8 million. Expenditures are 37.9 percent of budget, or $4.9 million under budget.
MEASURE U FUND
(in millions)
FY 2023-24
Budget
2Q 2024
Percent
Revenue $ 26,886 $ 13,756 51.2%
Expenses
Community Development $ 963 419 43.5%
City Manager’s Office 189 96 50.9%
Finance 3 - -
Library 1,232 564 45.8%
Recreation & Parks 3,692 1,463 39.6%
Fire 21,449 6,753 31.5%
Police 13,090 6,085 46.5%
Total Expenses $ 40,618 $ 15,380 37.9%
Most of the budget underrun, $4.0 million, is in the Fire Department and is primarily due to the timing of $9.4 million of capital projects, including 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 about $459,000 due to capital purchases, including tasers and the body camera system that will be paid for using other available funds. Recreation & Parks is under budget by $384,000 due to vacancies in various stages of recruitment and the timing of capital purchases. Community Development is under budget by $63,000 due to Code Enforcement position vacancies. The Library is under budget by $52,000 due to timing of capital projects.
The budget in the City Manager’s Office is for the costs associated with maintaining the City’s mass notification system databas e and the Public, Education, and
Government (PEG) Production Manager position, which
was restored to full-time through adoption of the 2023-24 budget. The Finance budget is for the annual
independent audit of Measure U financial activity.
Through December, Measure U expended 89 percent on
Public Safety, 6 percent on Youth Services, and 5 percent on Quality of Life.
The City began the 2024-26 Financial Plan Development. A Department Directors’ forum was held to discuss Citywide operational priorities. A Budget Development kickoff was held in December and the City Departments will be engaged through May, working closely with the Finance Department and the City Manager’s Office. City Council Goals Setting Workshop was held on February 19. A preliminary Financial Plan will be prepared based on the City Council goals. $13.7
$0.9
$0.8
MEASURE
U BY
CATEGORY
Public Safety Actual Youth Services Actual
Quality of Life Actual Balance Available
7 Quarterly Financial Report: Second Quarter Ending December 31, 2023
ENTERPRISE FUNDS
The Statement of Revenues and Expenses through the second quarter ending December 31, 2023, for the three enterprise funds, are shown on the table below.
ENTERPRISE FUNDS
(in millions)
Water /
Wastewater
Solid
Waste
Public
Transit
Revenues
Charges for Service $ 26,949 $ 16,419 $ 292
Interest Income 732 280 103
Other Revenue 1,555 31 8,257
Total Revenues $ 29,236 $ 16,730 8,652
Expenses
Operating $ 8,337 $ 14,692 $ 2,414
Capital 1,671 1,918 6,135
State Water Payment 11,750 - -
Debt Service 749 - -
Total Expenses $ 22,507 $ 16,610 $ 8,549
Revenues/Expenses $ 6,729 $ 120 $ 103
Water/Wastewater Funds
Revenues exceeded expenditures by $6.7
million, which is $1.4 million more than last year.
Revenues increased 8.9 percent, or $2.4 million,
compared to the prior year due to higher
revenues generated through sales of metered
water. Expenses are $1.0 million more than last
year primarily due to an increase in payments
to the Central Coast Water Authority. Through
the s econd quarter, Water and Wastewater
operational expenses are under budget by
11.0 percent because of personnel savings
from vacant positions and timing of payment
of ongoing maintenance and contractual
services agreements.
Public Works showed off its new Damera electric buses at the Transit Center on November 13, 2023. These buses will be used for Microtransit, which will be introduced in the near future.
8 Quarterly Financial Report: Second Quarter Ending December 31, 2023
ENTERPRISE FUNDS (CONTINUED)
Solid Waste Funds
The Solid Waste Fund reports refuse collection and disposal activities. Through the second quarter, Solid Waste revenues exceeded expenditures by $120,400 because operational costs are under budget by 8.2 percent, or $2.9 million. Budget of $10.8 million was carried forward to 2023-24 to complete several capital projects, including $6.1 million towards development of the Integrated Waste Management Facility at Los Flores and $2.3 million for the landfill collection gas system expansion project.
Public 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
$292,300, which is about $ 5,700 more than fares earned through the second quarter of the prior year. This difference is attributed to an increase in ridership. The farebox ratio through September 30, 2023, is 12.1 percent based on fares received and operating expenses recorded to date.
FY 2024-26 BIENNIAL BUDGET DEVELOPMENT
The City is currently developing the FY 2024-26 biennial budget. Public engagement will be encouraged at the City Council’s meetings in May and June, during which budget presentations and discussion will be conducted and feedback received. The final budget will be presented with a public hearing at the City Council meeting.
Get the latest information on public meetings related to the development of the FY 2024-26 biennial budget by visiting the City’s website at:
https://www.cityofsantamaria.org/services/departments/city -clerk- records/agendas-reports-meeting-videos.
JUNE:
Final
budget
adopted
MAY:
Proposed
budget
presented
to City
Council
APRIL:
Preliminary
budget
updated
MAR-APR:
Budget
Team
decides on
new
initiatives
FEB-MAR:
Budget
Team
reviews
and adjusts
requests
DEC-FEB:
Depts.
prepare
operating
and capital
requests
OCT-NOV:
Baseline
budget
developed
for depts.
9 Quarterly Financial Report: Second Quarter Ending December 31, 2023
FUND BALANCE
General Fund
The table below shows, with 50 percent of the year complete, revenues are at 41.6 percent of projections while expenditures are at 45.1 percent of appropriations. The beginning fund balance is an estimate because the City’s annual audit is not finalized.
GENERAL FUND
(in millions) Budget 2nd Quarter Percent
Beg. Fund Bal. $ 10,072 $ 10,072
Revenues* 91,309 38,023 41.6%
Expenditures* 93,560 42,187 45.1%
Rev/Exp $ (2,251) $ (4,164)
Avail. Bal. $ 7,821 $ 5,908
*Includes Transfers
Measure U Fund
The table below shows, with 50 percent of the year complete, revenues are at 51.2 percent of projections while expenditures are at 37.9 percent of appropriations. The beginning fund balance is an estimate because the City’s annual audit is not finalized.
MEASURE U FUND
(in millions) Budget 2nd Quarter Percent
Beg. Fund Bal. $ 17,060 $ 17,060
Revenues* 26,886 13,756 51.2%
Expenditures* 40,618 15,380 37.9%
Rev/Exp $ (13,732) $ (1,624)
Avail. Bal. $ 3,328 $ 15,436