CITY OF SIGNAL HILL
STAFF REPORT
2175 Cherry Avenue • Signal
Hill, California 90755-3799
2/28/2023
AGENDA ITEM
TO:
HONORABLE MAYOR
AND MEMBERS OF THE CITY COUNCIL
FROM:
JONATHAN OROZCO
ACCOUNTING MANAGER
SHARON DEL ROSARIO
ADMINISTRATIVE SERVICES OFFICER/FINANCE DIRECTOR
SUBJECT:
FISCAL YEAR 2022-23 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, 2022, and 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 2022-23 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, 2023, 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 corresponding revenues resulting in a net increase to the General Fund balance by $28,269.
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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) 2022-24 Biennial Operating Budget includes the FY 2022-23 Adopted Operating Budget (Year 1) and the FY 2023-24 Approved Operating Budget (Year 2). The Year 1 budget focuses on the continued delivery of quality core municipal services and proactively addressing safety and maintenance needs while maintaining the City’s long tradition of fiscal prudence and conservative budgeting practices. The Year 1 adopted budget consists of a $47.5 million operating and capital improvement expenditure budget for all City funds, including a General Fund Operating Budget with projected revenues of $32.6 million (including transfers in) and expenditures plus capital outlay of $32.6 million (including transfers out).
This report provides the status of the Year 1 budget based on year-to-date actual revenues and expenditures for the first half of the fiscal year through December 31, 2022, 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 City Council an opportunity to consider economic assumptions and recommend adjustments to the operating and capital budgets based on revenues and expenditures.
The mid-year report also builds upon FY 2021-22 Annual Comprehensive Financial Report (ACFR), presented at the City Council meeting on January 24, 2023. The FY 2021-22 budget closed with General Fund revenues exceeding expenditures resulting in a surplus of $8,556,833 (including net transfers). As part of the ACFR presentation, the City Council approved allocating the surplus funds towards General Fund reserves, carryover appropriations, and new appropriations as follows:
· Reserve Funds $5,519,011
· Carryover Appropriations $9,865
· New Appropriations $1,127,957
· Water Fund Loan $1,900,000
The City Council also approved the following Library reserve allocations of $1,105,000 and consisted of the following:
· Reserve Fund Allocations $1,050,000
· New Appropriations $55,000
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 CITY OF SIGNAL HILL Page 2 of 7 Printed on 2/23/2023
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revenues and other receipts that are not allocated by law or contractual agreement to some other fund. Staff notes that the receipt of various revenues (such as property tax) does not occur on a prorated, 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 through other funds.
City Revenues
As reflected in the budget, Year 1 revenues continue to show year-over-year growth across most funding sources. Staff closely monitors all revenue sources, paying particular attention to sales tax revenues, including revenues from Measure R (SHR), which combined total approximately 72% of the General Fund budgeted revenue. Signal Hill’s current sales tax revenue portfolio continues to remain elastic and at mid-year is currently in line with projections. Based on prior year total sales tax revenue, key indicators are projecting revenues may exceed the original budget. Staff will continue to monitor this data and provide updated Year 1 projections during the budget workshop.
TABLE 1.
GENERAL FUND REVENUES
Fiscal Year 2022-23
As of December 31, 2022
GENERAL FUND REVENUES Current
Budget
YTD
Actuals
YTD %
Received
Property Taxes 2,260,575 307,731 14%
Sales Taxes 22,102,745 9,748,556 44%
Oil Production Taxes 314,813 154,549 49%
Other Tax Revenue (TOT, etc) 1,292,945 304,542 24%
Licenses & Permits 777,698 238,684 31%
Intergovernmental - Federal, State, County 61,892 28,828 47% Charges for Service 1,187,726 528,844 45%
Fines & Penalties 220,000 49,637 23%
Revenue from Use of Money & Property 1,060,829 474,865 45% Miscellaneous Revenues 304,711 115,314 38%
Tranfers In* 979,980 - 0%
Total 30,563,914 11,951,550 39%
* Operational transfers are booked at year-end Total % Used excluding Transfers 40% 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), in addition to Measure SHR’s voter approved 0.75% add-on sales tax.
The City’s sales tax is budgeted at $22.1 million (net), representing approximately three-quarters of the General Fund budgeted revenue. Based on current trends, the top-producing business sectors CITY OF SIGNAL HILL Page 3 of 7 Printed on 2/23/2023
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are:
· Business and Industry
· Autos & Transportation
· State and County Pools
The City’s most prominent business sectors have slightly changed over the previous year’s sales but are expected to remain steady, with consideration that the Auto & Transportation sector may be affected by the rise in interest rates. The following two business sectors, General Consumer Goods and Building and Construction, experienced growth with approximately eight percent over the previous year mainly due to the increase in gas prices and increased home renovation continued.
The Fuel and Service Stations sector decreased slightly from a year earlier, whereas Restaurants and Hotels and Food and Drugs sectors experienced modest growth.
Overall sales tax revenue will be highly dependent on consumer price increases and interest rate hikes possibly changing consumer spending habits.
Property Taxes
Property taxes account for the next largest revenue source (7%) of the General Fund. The City receives $0.0678 for every dollar in property tax 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 comprise 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 yearly based on property sales. Overall, revenue from other tax sources 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 slightly lower than anticipated due to a renegotiated contract with a freeway sign advertiser. 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 continue to trend higher with little change in the near future.
Oil production taxes collected to date are higher than anticipated, mainly due to the nearly 40 percent Producers Price Index (PPI) adjustment. The PPI adjustment takes place once a year on July 1st.
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 37% of CITY OF SIGNAL HILL Page 4 of 7 Printed on 2/23/2023
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budgeted expenditures (Table 2).
TABLE 2.
GENERAL FUND EXPENDITURES
Fiscal Year 2022-23
As of December 31, 2022
The City Council 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. The Maintenance & Operations and Capital Outlay balances reflected in Table 2 are experiencing seasonality and timing differences between when products and services are rendered and when they are recorded to the City’s financial system, but all departments are anticipated to conclude the fiscal year in line with the current budget.
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Water Enterprise Fund
The Water Enterprise Fund is used to account for operations 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 1 was estimated at $6.2 million, and sales to date are $2.6 million, 42.5% of budgeted sales. This projection includes the annual rate adjustments adopted by the City in January 2020 following a Proposition 218 hearing and is annually adjusted in January of each year.
At the mid-year, operating expenditures are at 33.8% of budgeted expenditures, which is primarily due to delayed project costs and timing differences in utility and water purchase costs.
TABLE 3.
WATER FUND EXPENDITURES
Fiscal Year 2022-23
As of December 31, 2022
WATER FUND Current
Budget
YTD
Actuals
YTD % Used
Salaries and Benefits 1,582,502 660,389 41.73%
Maintenance and Operations* 3,297,723 987,660 29.95%
Total Water Fund 4,880,226 1,648,049 33.77%
* excludes capital, depreciation and debt service
Proposed Mid-Year Budget Adjustments
As part of the mid-year review, the City 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 1 mid-year review builds upon the FY 2021-22 ACFR, which closed with a surplus of $8,556,833 (including net transfers). The City Council allocated the surplus funds towards General Fund reserves, carryover appropriations, and new appropriations as follows:
· Reserve Funds $5,519,011
· Carryover Appropriations $9,865
· New Appropriations $1,127,957
· Water Fund Loan $1,900,000
The Year 1 mid-year review highlights that the General Fund’s overall revenues align with budget projections. Should the City Council approve the proposed budget adjustments, the overall impact on the General Fund is as follows:
· Additional appropriations and corresponding revenues resulting in a net increase to the CITY OF SIGNAL HILL Page 6 of 7 Printed on 2/23/2023
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General Fund balance by $28,269.
As reflected below, this budget adjustment reflects additional development activity and is offset by fees charged directly to applicants. 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, 2023, and the months following when the audited financial statements are issued.
Staff 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.
TABLE 4.
List of Proposed Mid-Year Budget Adjustments
Fiscal Year 2022-23
The next major financial update will take place at the May 25, 2023 Budget Workshop, followed by a budget adoption presentation for Year 2 of the FY 2022-24 Biennial Budget at the City Council meeting on June 27, 2023.
Approved:
_________________________
Carlo Tomaino
Attachment:
A. Mid-Year City Budget Resolution
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