CITY OF SIGNAL HILL
STAFF REPORT
2175 Cherry Avenue • Signal
Hill, California 90755-3799
2/22/2022
AGENDA ITEM
TO:
HONORABLE MAYOR
AND MEMBERS OF THE CITY COUNCIL
FROM:
SHARON DEL ROSARIO
ADMINISTRATIVE SERVICES OFFICER/FINANCE DIRECTOR
JONATHAN OROZCO
ACCOUNTING MANAGER
SUBJECT:
FISCAL YEAR 2021-22 MID-YEAR BUDGET REVIEW
Summary:
The City Council will conduct a mid-year budget review regarding the City’s financial positions based on the first six months of the fiscal year as of December 31, 2021, and will consider proposed budget adjustments.
Recommendation:
Adopt a resolution, entitled:
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA,
AUTHORIZING MID-YEAR BUDGET APPROPRIATIONS AND AMENDING THE FISCAL YEAR 2021-22 ANNUAL OPERATING AND CAPITAL BUDGET
Fiscal Impact:
The fiscal impact from the budgeted projections in this report will ultimately be determined by the actual results at the close of the fiscal year ending June 30, 2022, and the months following when the audited financial statements are issued.
Implementation of the proposed budget adjustments will result in the changes below:
· Additional appropriations and transfers resulting in a net increase to the General Fund by $302,375.
· Additional appropriations resulting in a decrease in the Water Enterprise Fund by $700,000. · Additional appropriations resulting in a decrease in the Vehicle and Equipment Fund by CITY OF SIGNAL HILL Page 1 of 9 Printed on 2/17/2022 powered by Legistar™
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· Additional appropriations resulting in a decrease in the Vehicle and Equipment Fund by $52,000.
· Funding source adjustments to the Capital Projects Fund by $44,956.
Strategic Plan Objectives:
Goal No. 1: Ensure long-term fiscal stability.
Goal No. 4: Maintain and improve the public infrastructure.
Goal No. 5: Ensure an enhanced quality of life for the residents.
Background:
The City’s Fiscal Year (FY) 2020-22 Biennial Operating Budget includes the FY 2020-21 Adopted Operating Budget (Year 1) and the FY 2021-22 Adopted Operating Budget (Year 2). The Year 1 budget was developed to respond to unforeseen or uncontrollable COVID-19 economic impacts. The Year 2 budget built upon Year 1, updating projections based upon actual revenue and expenditure trends. The Year 2 budget consists of a $45.2 million operating and capital improvement expenditure budget for all City funds, including a General Fund Operating Budget with projected revenues of $27.9 million (including transfers in) and expenditures plus capital outlay of $27.9 million (including transfers out).
This report provides the status of the Year 2 budget based on year-to-date actual revenues and expenditures for the first half of the fiscal year through December 31, 2021, and projections for the remaining half of the year. This review is not meant to be inclusive of all finance and accounting transactions and excludes encumbrances (funds that have been reserved for a specific project or budgeting purpose). This review provides the Council an opportunity to modify economic assumptions and recommend adjustments to the operating and capital budgets.
The mid-year report also builds upon the Year 1 Annual Comprehensive Financial Report (ACFR), presented at the City Council meeting of January 11, 2022. The Year 1 budget closed with General Fund revenues exceeding expenditures resulting in a surplus of $5,774,588 (including net transfers).
As part of the ACFR presentation, Council approved allocating the surplus funds towards General Fund reserves, carryover appropriations, and new appropriations as follows:
· Reserve Funds $5,483,275
· Carryover Appropriations $34,813
· New Appropriations $256,500
Analysis:
General Fund
The General Fund is the general operating fund of the City. This fund accounts for all general tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund. It is important to note that the receipt of various revenues (such as property tax) does not occur on a pro-rated, monthly basis; therefore, percentages of revenues collected year-to-date do not reflect the same percentage of the fiscal year expenditures that have elapsed. Expenditures of this fund include the general operating expenses and capital improvement costs which are not paid CITY OF SIGNAL HILL Page 2 of 9 Printed on 2/17/2022
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fund include the general operating expenses and capital improvement costs which are not paid through other funds.
City Revenues
As reflected in the budget, Year 2 revenues continue to show gradual growth and recovery, at a modest pace. Staff has closely monitored sales tax revenues including revenues from Measure R (SHR), which combined total approximately 72% of the General Fund budgeted revenue to-date.
Signal Hill’s revenue portfolio continues to be pandemic-resilient in the short-term.
TABLE 1.
GENERAL FUND REVENUES
Fiscal Year 2021-22
As of December 31, 2021
GENERAL FUND REVENUES
Current
Budget
YTD
Actuals
YTD %
Received
Property Taxes 2,163,484 299,401 14%
Sales Taxes 20,581,740 10,287,054 50%
Oil Production Taxes 341,572 85,647 25%
Other Tax Revenue (TOT, etc) 1,153,585 278,308 24%
Licenses & Permits 550,307 433,228 79%
Intergovernmental - Federal, State, County 43,250 1,867 4% Charges for Service 961,150 509,981 53%
Fines & Penalties 180,000 51,813 29%
Revenue from Use of Money & Property 1,113,130 457,044 41% Miscellaneous Revenues 222,545 241,532 109%
Tranfers In* 1,089,630 537,896 49%
Total 28,400,393 13,183,771 46%
* Operational transfers are booked at year-end Total % Used excluding Transfers 48% Sales Taxes
The Bradley-Burns Local Sales and Use Tax continues to be the City’s largest source of General Fund revenue. The City receives 1% of the 9.5% sales tax applied to goods sold in the City (point of sale). FY 2021-22 is the first full fiscal year that Measure SHR, the three-quarter cent per dollar general transactions and use (sales) tax, will be collected.
The City’s sales tax is budgeted at $20.6 million (net), representing approximately three-quarters of the General Fund budgeted revenue. Based on current trends, the top producing business sectors are:
· Business and Industry
· Autos & Transportation
· General Consumer Goods
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The Building and Construction business sector has slowed compared to the previous year and is predicted to remain stable in the near term. The Fuel and Service Stations and Restaurants and Hotels business sectors are showing improvement compared to the prior year with expected positive year-over-year returns. The Food and Drugs business sector continues to be negatively impacted by the pandemic.
The City continues to benefit from the increase in online shopping state-wide through the countywide pools; however, the City’s allocation is anticipated to move back towards pre-pandemic levels.
Property Taxes
Property taxes account for the next largest revenue source (8%) of the General Fund. The City receives $0.0678 for every dollar in property tax that is collected on property in Signal Hill. Receipt of property taxes does not follow the calendar year, and therefore percentages of property taxes collected year-to-date do not reflect the same percentage of the fiscal year that has elapsed.
Other Taxes
Other Tax Revenue is primarily comprised of Franchise Taxes, Transient Occupancy Taxes (TOT), and Real Property Transfer Tax. Franchise taxes make up the majority of this category, with the largest franchisors being Southern California Edison, EDCO, and Charter Communications. TOT is self-reported and paid by each lodging facility. Real Property Transfer Tax is the smallest segment in this category and varies year to year based on property sales. Overall, this category is trending on target.
Use of Money and Property includes rent revenue and returns on the City’s investments. Rent revenue is projected to come in lower than anticipated due to ongoing pandemic impacts. Although returns on investments continue to be low due to interest rates in the fixed income market, the City is taking advantage of current market opportunities as interest rates are trending higher.
Oil production taxes collected to-date are lower than anticipated. However, the fiscal impact on the City is minimal as this revenue category accounts for less than 2% of City revenues.
City Expenditures
At the mid-year, the General Fund operating expenditures across all City departments are at 41% of budgeted expenditures (Table 2).
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The City Council has established a goal to ensure long-term fiscal stability, relying on the efficient and effective use of City resources. Department Directors continue exercising fiscal discipline while managing their annual budgets.
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Water Enterprise Fund
The Water Enterprise Fund is used to account for operations that are financed and operated in a manner similar to a private business enterprise - where the intent of the City Council is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges.
The sale of water for Year 2 was estimated at $5.6 million, and sales to-date are $2.5 million, 44.5% of budgeted sales. This projection includes the annual rate adjustments adopted by the City in January 2020 following a Proposition 218 hearing.
At the mid-year, operating expenditures are at 40.5% of budgeted expenditures, which includes higher water costs due to the temporary shutdown of Well 9 and the reconstruction of Well 10 (Table 3).
TABLE 3.
WATER FUND EXPENDITURES
Fiscal Year 2021-22
As of December 31, 2021
WATER FUND
Current
Budget
YTD
Actuals
YTD % Used
Salaries and Benefits 1,639,316 657,719 40.12%
Maintenance and Operations* 3,211,649 1,305,819 40.66%
Total Water Fund 4,850,965 1,963,538 40.48%
* excludes capital, depreciation and debt service
Proposed Mid-Year Budget Adjustments
As part of the mid-year review, the Council has the opportunity to consider budget adjustments that consist of new appropriations, reallocation of currently budgeted funds, and adjustments to funding sources for capital projects.
As stated previously, the Year 2 mid-year review builds upon the Year 1 ACFR, which closed with a surplus of $5,774,588 (including net transfers). Council allocated the surplus funds towards General Fund reserves, carryover appropriations, and new appropriations as follows:
· Reserve Funds $5,483,275
· Carryover Appropriations $34,813
· New Appropriations $256,500
The Year 2 mid-year review highlights that General Fund overall revenues align with budget projections. Should the Council approve all proposed budget adjustments, the overall impact to the respective funds are as follows:
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· Additional appropriations and transfers resulting in a net increase to the General Fund by $302,375.
· Additional appropriations resulting in a decrease in the Water Enterprise Fund by $700,000. · Additional appropriations resulting in a decrease in the Vehicle and Equipment Fund by $52,000.
· Funding source adjustments to the Capital Projects Fund by $44,956.
The fiscal impact from the budgeted projections in this report will ultimately be determined by the actual results at the close of the fiscal year ending June 30, 2022, and the months following when the audited financial statements are issued.
Staff has prepared the proposed adjustments in a manner consistent with the City’s conservative budgeting practices to deliver municipal services to maintain the high quality of life residents and businesses expect and deserve. Table 4 below identifies each proposed adjustment and details the fund and division impact.
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The next major financial update will take place at the May 26, 2022 Budget Workshop, followed by a presentation of the FY 2022-24 Biennial Budget at the City Council meeting of June 28, 2022.
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Approved:
_________________________
Hannah Shin-Heydorn
Attachment
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