CITY OF SEBASTOPOL CITY COUNCIL
AGENDA ITEM REPORT FOR MEETING OF: May 6, 2025
=========================================================================================== To: Honorable Mayor and City Councilmembers
From: Ana Kwong – Administrative Services Director
Mark Rincon-Ibarra – Director of Public Works/City Engineer Subject: FY24-25 Quarter 3 Financial Update for Enterprise Funds =========================================================================================== RECOMMENDATION:
Staff recommends the Sebastopol City Council receive year-to-date financial information for the enterprise funds.
EXECUTIVE SUMMARY:
Based on the best available information as of March 31, 2025, the city's water fund has billed 74% of budgeted revenue for the full fiscal year. Expenses are at 68% of full fiscal year. Wastewater has billed 76% of budgeted revenue of full year. Expenses are 67% of full year. These results are in line with what we would expect.
BACKGROUND:
The attachments summarize the financial results for the Water and Wastewater enterprise funds as of this writing.
The Enterprise funds have faced significant underfunding until the rate increases took effect on July 1, 2024. These funds cover all activities necessary to maintain these services, including operations, maintenance, billing and collections, administration, financing, and related debt service. The primary sources of revenue are charges to customers for water consumption, wastewater collection, and fees associated with providing new water and wastewater services. For revenues, the "Year to Date Actual" columns reflect billing of usage through March.
On the expenditure side, both water and sewer are trending at around 68% mark for the third quarter, which is below the 75% if all the expenses are linear. For expenses the “ Year to Date Actual” columns reflects expenses through March.
ANALYSIS:
Past revenue from rates have been insufficient to cover operating costs, necessary significant capital investments, and maintain a sufficient level of reserves. The budget surplus reflected in this report is part of the strategy to rebuild both Enterprise Fundsfrom under investment in the past. As discussed in the rate study, over the next three years, we will need additional revenue of over $9 million, with an approximate breakdown to cover operating deficits ($7.7M), fund essential capital projects ($0.7M), and build reserves to a sufficient level ($0.8M).
Furthermore, the Wastewater Fund needs to reimburse the General Fund for the money that was borrowed, which was in excess of one million dollars.
The rate increase goal was to bring fiscal health back to the Enterprise Funds, and to reestablish a prudent fiscal management of our utilities. These increases were the minimum required to balance the operating budget, to begin addressing the backlog of infrastructure renewal and replacement costs, and to replenish reserves.
The operation budget is tracking below target for this time of year. This is attributed to staff changes within the Public Works Department which have slowed operating expenditure. As the new staff determines the Department needs, the budget will be reporting closer to anticipated expenditure levels.
Agenda Item Number 8 Agenda Item Number 8
City Council Meeting Packet of May 6, 2025
Water:
The quarterly report for the water fund covers the billing period from July 2024 to March 2025. As requested by the City Council during the last second quarterly update, staff has separated out the water tower billing for transparency purposes. This separation allows for a clearer understanding of the collection associated with the water tower.
As discussed in the last quarterly update, water usage tends to be higher in the first and second quarters due to the summer months, which typically see increased water consumption. This trend is driven by activities such as irrigation, outdoor recreation, and higher household water usage during warmer weather. As we transition into the winter months, we expect water usage declining due to cooler temperatures and reduced outdoor activities.
However, staff anticipated that water revenue will eventually align with the projected figures as the year progresses.
Operating expenditures, which include salaries and wages, benefits, contracted services, debt service payments, cost allocation plan, and transfers out, are tracking at 68%, which is below target for this time of year. This indicates that the fund is managing its expenses effectively and expected to be on course to meet its financial obligations.
Wastewater:
The quarterly report for the wastewater fund covers the billing period from July 2024 to March 2025. This fund's revenue is at 76%, while expenditures are at 67%, which is below the 75% mark mainly due to timing of the Subregional contractwith Santa Rosa for use of their water treatment plant. The Subregional invoicing and payment for the second quarter is for only 8 months and not 9 months and at the end of the fiscal year, the full contractual cost will be expended.
The recent rate increases, effective from July 1, 2024, are expected to stabilize revenue streams and ensure that the sewer fund becomes financially healthy. These rate adjustments were implemented to address the historical underfunding of both water and wastewater enterprise funds, and they play a crucial role in maintaining the sustainability of these services.
PUBLIC COMMENT:
As of the writing of this staff report, the City has not received any public comment on this item. However, if staff receives public comment from interested parties following the publication and distribution of this staff report,such comments will be provided to the City Council as supplemental materials before or at the meeting.
COMMUNITY OUTREACH:
This item has been noticed in accordance with the Ralph M. Brown Act and was available for public viewing and review at least 72 hours prior to the scheduled meeting date.
FISCAL IMPACT:
There is no fiscal impact in receiving this informational financial update.
RESTATED RECOMMENDATION:
That the City Council receive year-to-date financial information.
OPTIONS:
There are no options to consider.
Agenda Item Number 8 Agenda Item Number 8
City Council Meeting Packet of May 6, 2025
ATTACHMENTS:
Quarterly Financial Reports
Power Point Presentation
APPROVALS:
Department Head Approval: Approval Date: __4/5/25____
CEQA Determination (Planning): Approval Date: ___N/A_______ The proposed action is / is not exempt from the requirements of the California Environmental Quality Act (CEQA) Administrative Services/Financial Approval: Approval Date: ___4/5/25___ Costs authorized in City Approved Budget: ☐ Yes ☐ No N/A Account Code (f applicable) ___________________________ City Attorney Approval: Approval Date: ____N/A_______
City Manager Approval: Approval Date: ___4/10/25_____
Agenda Item Number 8 Agenda Item Number 8
City Council Meeting Packet of May 6, 2025
Description
2023-24
Actual
2024-25
Adopted
Budget
2024-25
Adjusted
Budget
Preliminary
Year-end
Projection
Y-T-D
Actual
3/31/25
Footnotes
% of
Adjusted
Budget
OPERATING REVENUE
Usage Charges - Residential 1,343,048 3,189,700 1,690,541 1,690,500 1,311,446 1 77.6% Usage Charges - Commerical 895,366 -0 1,446,659 1,446,700 1,060,010 1 73.3% Usage Charges - Water Tower -0 -0 52,500 52,000 33,964 1 64.7% Interest Income 82,780 75,000 75,000 75,000 46,642 62.2% Construction Hydrant 500 2,160 2,160 -0 -0 0.0%
Backflow Inspections -0 650 650 -0 -0 0.0%
New Service Fee 8,700 36,600 36,600 10,000 7,800 21.3%
Water Meter Sales 190 8,600 8,600 -0 -0 0.0%
Penalties 21,591 15,000 15,000 20,000 18,329 122.2%
Other Charges 279 2,145 2,145 -0 -0 0.0%
Insurance Claims 515 -0 -0 -0 -0 0.0%
Miscellaneous Income 155,392 43,000 43,000 44,000 874 2.0% TOTAL REVENUE 2,508,362 3,372,855 3,372,855 3,338,200 2,479,066 73.5%
OPERATING EXPENDITURE
Salaries & Wages 319,666 357,977 374,777 354,870 268,227 71.6% Benefits 158,712 223,277 223,966 200,870 158,366 70.7%
Contracted Services 338,990 255,820 255,820 261,320 101,997 39.9% Services & Supplies 161,691 225,550 225,550 228,050 140,966 62.5% Conference & Training Expense 2,865 5,000 5,000 5,000 4,197 83.9% Utilities 203,566 254,600 254,600 312,000 192,459 75.6% Allocated Insurance 90,730 79,530 79,530 79,530 59,646 75.0% Capital Outlay - 27,750 27,750 27,750 - 0.0%
Debt Service Payments 380,175 318,656 318,656 318,656 277,508 87.1% Cost Allocation Plan 1,261,494 852,863 852,863 852,863 639,647 75.0% Transfers Out 940,341 120,000 120,000 21,530 25,322 21.1% TOTAL EXPENDITURES 3,858,230 2,721,023 2,738,512 2,662,439 1,868,335 68.2% Net Surplus/(Deficit) (1,349,868) 651,832 634,343 675,761 610,730
WATER OPERATING FUND
FY24-25 QUARTER 3 REPORTING
1. The year-to-date amount reflects data billing from July-March billing, as the City operates on a bi-monthly billing cycle. Consequently, the billing for April & May will occur in June.
Agenda Item Number 8 Agenda Item Number 8
City Council Meeting Packet of May 6, 2025
Description
2023-24
Actual
2024-25
Adopted
Budget
2024-25
Adjusted
Budget
Preliminary
Year-end
Projection
Y-T-D
Actual
3/31/25
Footnotes
% of
Adjusted
Budget
OPERATING REVENUE
Service Charge - Residential 2,813,939 4,647,523 2,277,323 2,277,286 1,782,533 1 78.3% Service Charge - Commercial -0 -0 2,370,200 2,370,237 1,729,189 1 73.0% Interest Income 20,194 -0 -0 20,000 11,880 0.0%
Penalties 15,153 2,500 2,500 20,000 16,587 663.5%
Insurance Claims -0 8,729 8,729 -0 -0 0.0%
Miscellaneous Income 32,552 1,000 1,000 -0 -0 0.0%
Transfers In -0 -0 -0 -0 -0 0.0%
TOTAL REVENUE 2,881,838 4,659,752 4,659,752 4,687,523 3,540,189 76.0%
OPERATING EXPENDITURE
Salaries & Wages 282,963 306,893 322,383 293,650 227,210 70.5% Benefits 139,103 194,998 195,644 175,140 136,151 69.6%
Contracted Services 84,665 105,550 105,550 123,925 18,658 17.7% Subregional Cost 1,952,842 2,118,435 2,118,435 2,118,435 1,412,291 66.7% Services & Supplies 60,825 118,200 118,200 106,700 27,737 23.5% Conference & Training Expense 8,458 8,000 8,000 8,000 2,458 30.7% Utilities 63,567 81,352 81,352 59,400 50,500 62.1%
Allocated Insurance 68,625 55,735 55,735 55,735 41,802 75.0% Debt Service Payments 181,237 178,656 178,656 178,656 150,645 84.3% Cost Allocation Plan 1,041,462 908,934 908,934 908,934 681,701 75.0% Transfers Out 800,532 32,000 32,000 32,606 32,402 101.3% TOTAL EXPENDITURES 4,684,278 4,108,753 4,124,889 4,061,181 2,781,554 67.4% Net Surplus/(Deficit) (1,802,440) 550,999 534,863 626,342 758,635
WASTEWATER OPERATING FUND
FY24-25 QUARTER 3 REPORTING
1. The year-to-date amount reflects data billing from July-March billing, as the City operates on a bi-monthly billing cycle. Consequently, the billing for April & May will occur in June.
Agenda Item Number 8 Agenda Item Number 8
City Council Meeting Packet of May 6, 2025
FY 2024-25
3RD QUARTER FINANCIAL
UPDATE
ENTERPRISE FUND
May 6, 2025
Agenda Item Number 8
Agenda Item Number 8
City Council Meeting Packet of May 6, 2025
FY 2024/25 Q3 Water Fund
The city's water fund has billed 74% of budgeted revenue. Operating expenditures are currently at 68%, which is below the expected target for this time of year due to the nonlinear nature of expenses.
Agenda Item Number 8 Agenda Item Number 8
City Council Meeting Packet of May 6, 2025
FY 2024/25 Q3 Wastewater Fund
The city’s sewer fund has billed 76% of budgeted revenue. Operating expenditures are at 67%, which is below target for this time of year.
Agenda Item Number 8 Agenda Item Number 8
City Council Meeting Packet of May 6, 2025
Reminder - Future Billing Realignment
Agenda Item Number 8
Agenda Item Number 8
City Council Meeting Packet of May 6, 2025
COUNCIL
QUESTIONS/DISCUSSIONS
Agenda Item Number 8
Agenda Item Number 8
City Council Meeting Packet of May 6, 2025