COUNCIL AGENDA REPORT
TO: Mayor and City Council
FROM: Xenia Bradford, Interim Finance Director
DATE: February 18, 2025
SUBJECT: Receive and File the Financial Report for the Second Quarter ending December 31, 2024, and Adoption of a Resolution Approving Second Quarter Amendments
Description:
The City Council will consider receiving the 2024 -25 Second Quarter Financial Report and approving proposed budget amendments.
Environmental Notice: The activity is not a “Project” as defined under Sec tion 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
RECOMMENDATION:
1. Receive and file the Financial Report for the Second Quarter ending December 31, 2024; and
2. Adopt a Resolution approving Second Quarter Amendments to the 2024 -25 Budget for personnel and operational changes.
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 Quarterly Financial Report for the Second Quarter Ending December 31, 2024 (Attachment B) provides an overview of the current economic outlook at the State and National levels; General Fund revenues, expenditures, projected fund balances; Measure U activity ; and activity in the three Enterprise Funds. Th ough this information is not audited and does not contain all the usual year-end adjustments, accruals, or disclosures, the information does pr ovide a general picture of the City’s activity and the developing financial trends.
While the 2024-25 adopted budget sets forth the budget and approved programs for the fiscal year, from time to time the need to adjust the budget may occur. Through quarterly reports, City departments submit budget requests to Finance and the City Manager for 2 review. The budget amendments shown in Attachment C are recommended by the City Manager for approval. Reasons for the requested budget amendments are provided for each item within the attachment.
In addition to the review of the current fiscal year activity, staff have prepared an updated General Fund Forecast (including Measure U) as well as an update to action taken by the City Manager and Department Directors to reduce the structural budget deficit.
During the Fiscal Year 2024 -26 Biennial Financial Plan development, a struc tural gap was identified in the General Fund (including Measure U). On September 17, 2024, staff provided the City Council with an update on Citywide efforts to begin to close the budget gap in alignment with the City Council goal of long-term financial sustainability.
Staff identified $6.5 million dollars in operating reductions that were placed into effect by the City Manager. The savings are projected to be realized by the end of the Fiscal Year (FY) 2024-25, narrowing the budget imbalance. While $3.7 million, out of the $6.5 million total, is earmarked as one-time savings by holding vacant positions, staff will continue to hold positions vacant into the second year of the financial plan. The City Manager has implemented a hiring freeze for all non-safety positions funded by the General Fund and Measure U.
Furthermore, to alleviate the structural budget deficit, staff recommend s drawing some funds set aside as reserve for pensions. Per the City Council policy established in 2018, the City has designated a total of $13.2 million in reserves for unfunded liability pension payments. The City’s pension payments are projected to escalate through approximately FY 2030-31. Payments toward the unfunded liability for pe nsions are contributing to the projected ongoing budget deficit. Staff recommend commencing utilizing the reserves to balance the budget. The proposed amendment would draw on $3,188,076 from the unfunded pensions reserve account instead of the Local Economic Augmentation fund.
While staff are taking proactive measures to close the structural budget gap, costs continue to outpace revenue growth in the General Fund (including Measure U). The City of Santa Maria General Fund receives funds primarily from sales tax, followed by property taxes. While the economy continues to expand at a steady rate, the rising costs of labor and inflation have far outpaced the growth in revenue. The long -term fiscal forecast for the General Fund (including Measure U) has been updated to reflect the op erating redactions based on the City Manager implemented policies. The redactions are reflected in the graph starting with the current Fiscal Year 2024-25. The redactions are not sufficient to fully close the budget gap. If the revenue and expenditure trends continue on this path, the City will continue to draw on reserves. The shaded blue area represents the anticipated draw on fund balances over the years.
3 Revenue Options
To address long -term fiscal sustainability, staff recommend s continuing to r eview new revenue options and full-cost recovery from development. Staff recommend consideration of an additional sales tax increase by another half cent and options to form Citywide Community Facilities District. Staff also recommend engaging in strategies for additional economic development activity to grow the City’s economic base.
A general half cent sales tax increase could be considered for November 2026 General Election, which would require majority vote of the voters.
Community Facilities Distri ct formation can fund infrastructure and/or services and can be used on pay -as-you-go basis or to support bond financing. Community Facilities District where there are more than 12 voters, requires two -thirds approval of registered voters in the district.
Staff recommends conducting voter approval sentiment survey during the next fiscal year to determine revenue option strategies.
Fiscal Impact
The proposed budget amendments will result in the following increases and decreases in the financial position by fund.
1. Increase appropriations in the General Fund from Unfunded Liability Pension Reserves by $3,188,076 and decrease appropriation from the Local Economic Augmentation Fund by $3,188,076.
4 2. Reallocate two of the Recreation & Parks Department’s full -time Maintenance Worker I positions from the General Fund to the Landscape District Funds in the amount of $200,000.
3. Increase appropriations in the Water Fund for implementation of SpryPoint backflow module software in the amount of $30,200.
4. Increase Growth Mitigation fund appropriations by $150,000 to pay for the Growth Mitigation fund program update.
5. Increase Growth Mitigation fund appropriations by $125,000 to reflect appropriate funding for the purchase of Lot 20 of Tract No. 6008 previously approved by the Council on December 17, 2024.
6. Increase in appropriations of $1,035,000 in the Growth Mitigat ion Fund and $960,000 in the Developer / Grant Street Projects for drainage improvement projects.
7. Increase appropriations in the Grants Street Projects fund by $2,469,226 for REAP 2.0 grant to pay for Sewer Project.
8. Increase Transit appropriations by $76 4,993 to purchase an additional five buses.
9. Increase Transit operating budget by $100,785 to support Micro Transit services that began operating in September of 2024.
Impact to the Community
The interim financial statement provides the community with an understanding of the financial activity of the City’s primary funds.
ATTACHMENTS
A. Resolution
B. Quarterly Financial Report Second Quarter Ending December 31, 2024 C. Proposed Budget Amendments