P.O. Box 711 (City Hall, 400 Grand Avenue) South San Francisco, CAP.O. Box 711 (City Hall, 400 Grand Avenue) South San Francisco, CACity of South San FranciscoLegislation TextCity of South San FranciscoLegislation Text P.O. Box 711
(City Hall, 400 Grand Avenue)
South San Francisco, CA
P.O. Box 711
(City Hall, 400 Grand Avenue)
South San Francisco, CA
City of South San Francisco
Legislation Text
City of South San Francisco
Legislation Text
File#: 24-203 Agenda Date: 02/28/2024
Version: 1 Item #:
Report presenting Fiscal Year (FY) 2023-24 Mid-Year Financial Report as of December 31, 2023, and proposed budget amendments for FY 2023-24 City Operating and Capital Improvement Program (CIP) Budgets (Karen Chang, Director of Finance)
RECOMMENDATION
Staff requests that the City Council of the City of South San Francisco (“City”) approve a resolution acknowledging the mid-year financial update for FY 2023-24 and approving the proposed budget amendments for FY 2023-24 as reviewed by Budget Standing Committee.
BACKGROUND/DISCUSSION
The information contained herein was presented to the Budget Standing Committee (“Committee”) of the City Council on February 8, 2024. We have incorporated the changes recommended by the Committee in this report.
The City Council approved the FY 2023-24 General, Enterprise and Internal Service Fund budgets on June 28, 2023. The approved budgets feature the annual expenditure and resource allocation plan that guides the implementation of City Council budget policies and priorities. The budget provides funding direction for the broad range of services that meet the needs of the community in accordance with City Council policy.
This financial review provides the mid-year budget update to the City Council for the current fiscal year. Analysis of the revenues collected and all expenditures through December 31, 2023 measures operational adherence to the budgetary allocation plan.
The adjusted budget incorporates current estimates for revenue and expenditure appropriations for all funds as of December 31, 2023. The Mid-Year Financial Report as of December 31, 2023, provides comparisons to the prior year and focuses on variances from the revenue and expenditure plans and allocations contemplated in the budget.
Current Fiscal Year (FY 2023-24) Update
General Fund Revenues – 2nd Quarter
General Fund Expenditures – 2nd Quarter
Additional General Fund Revenue Amendment Request
Additional General Fund Appropriations Request
Additional Non-General Fund Appropriations Request
Additional Capital Improvement Plan Request (CIP)
American Rescue Plan Act (ARPA) Summary
Reserves Overview & Considerations
CURRENT FISCAL YEAR (FY2023-24) UPDATE
The General Fund finances the operations of the City and pays for basic municipal services. The adjusted FY 2023-24 General Fund budget projects revenues totaling $143.1 million, which included $5 million of one-time resources from the City’s American Rescue Plan Act (ARPA) fund, and expenditures totaling $153.9 million, including purchase order encumbrances from FY 2023-24, approved carryover amounts, $3 million salary attritions, and several City Council approved appropriation amendments prior to December 2023.
The following sections show the revenue and expenditure results as of December 31, 2023.
General Fund Revenues – 2nd Quarter
The following table shows actual revenues as of December 31, 2023, with a comparative view of where the City’s revenues were at the same time last year (December 31, 2022):
Table 1: FY 2022-23 vs. FY 2023-24 Revenues as of December 31 FY 2022-23
FY 2023-24
Adjusted Budget
Actual as of
12.31.22 % of
Budget
Adjusted Budget
Actual as of
12.31.23 % of
Budget
REVENUES
Taxes
Property Tax
$45,804,769
$25,497,501
55.7%
$47,980,000
$26,171,076
54.5%
Sales Tax
22,391,018
7,904,924
35.3%
23,351,500
7,901,633
33.8%
Transient Occupancy Tax
14,160,752
7,355,525
51.9%
14,910,000
5,641,871
37.8%
Other Tax
5,693,252
2,731,923
48.0%
6,950,000
1,672,719
24.1%
Franchise Fees
4,600,000
1,202,178
26.1%
4,600,000
1,274,907
27.7%
License and Permits
19,425,400
11,827,560
60.9%
16,962,894
6,853,938
40.4%
Fines & Forfeitures
710,824
397,865
56.0%
700,000
160,232
22.9%
Intergovernmental
4,337,199
882,432
20.3%
4,442,571
2,275,945
51.2%
Charges for Services
Planning
250,792
181,919
72.5%
510,000
241,305
47.3%
Fire
2,626,314
1,610,740
61.3%
2,728,000
1,516,191
55.6%
Park s & Recreation
2,846,248
1,696,122
59.6%
3,745,254
1,421,925
38.0%
Police
979,649
521,250
53.2%
1,246,670
538,855
43.2%
City Admin & Other
1,562,094
830,300
53.2%
1,989,347
1,011,078
50.8%
Use of Money & Property
5,453,469
3,496,844
64.1%
3,940,000
1,458,731
37.0%
Other Revenues
278,903
157,519
56.5%
337,826
91,563
27.1%
Transfers In
6,151,400
2,472,702
40.2%
8,704,289
813,414
9.3%
TOTAL REVENUES
$137,272,083
$68,767,306
50.1%
$143,098,351
$59,045,385
41.3%
As shown in the above table, projected revenue for FY 2023-24 is $143.1 million – approximately $6.0 million more than the FY2022-23 adjusted budget. Actual revenue collections for the two quarters ending December 31, 2023 is $10.0 million lower when compared with the prior year.
The following highlights the recommended adjustments to the FY2023-24 revenue budget.
Property Tax. Bay Area home values experienced a double-digit decline last year as interest rates hit their highest levels since 2000 and tech layoffs rippled through the region. However, property taxes are expected to remain stable due to the passage of Proposition 13 in 1978. Proposition 13 protects homeowners from massive increases as their home value appreciates by capping the increase in assessed value of properties at the lesser of the change in the California Consumer Price Index (CCPI) or 2% per year. Properties are reassessed at market value only when they are sold or renovated. Property tax comprises almost 40% of the General Fund’s total revenue. Property tax is allocated to the City in two large installments (December and April). Our records show property tax collections have reached 54.5% of our projection as of December 31, 2023. Due to the October 2023 levy letter from the County Controller’s office, the estimated Excess Educational Revenue Augmentation Fund (ERAF) revenue is $1.6 million higher than budgeted. On the other hand, the unsecured and supplemental property taxes are expected to fall short of the adopted budget. Therefore, staff recommends a $1.3 million increase in the projections.
Sales Tax. There is a two-month lag from when sales taxes are remitted by businesses to the California Department of Tax and Fee Administration (CDTFA) and when the CDTFA remits the City’s share of sales tax revenues. Similar to the 2nd quarter of FY 2022-23, the City received approximately one-third of the projected sales tax revenue for the entire fiscal year. Since adoption of the FY 2023-24 budget, the City’s sales tax consultant revised their projection to reflect a lower sales tax revenue due to reduced consumer demand, potential recession, a large sales tax-generating business leaving the City, lower gas prices and gas volumes from the increase sales in electric vehicles, and other adjustments/reallocation. Please see Attachment 7 for a copy of the Sales Tax Forecast from Avenu Insights & Analytics. Staff recommends a $1.4 million decrease to the sales tax category to be aligned with the City’s sales tax consultant’s revised projection.
Transient Occupancy Tax (TOT). Post-pandemic travel levels have been strong. As of December 31, 2023, the City recorded TOT revenues of $5.6 million. There is an additional $1.4 million that will be posted later this month. Staff expects business travel to pick up in 2024. However, based on current trends, staff recommends a $0.9 million decrease to the projection.
Other Taxes. Other taxes include real property transfer tax, business license, and commercial parking tax. Second quarter year-to-date collection of commercial parking tax and business license tax are in-line with prior year amounts. Business license taxes are due on January 31, 2024, so we expect some large businesses to pay their business license tax in the last week of January. Real property transfer tax is projected lower due to slowdown in the real estate market due to the high interest rate climate. Staff recommends a $0.3 million decrease in our projections.
Licenses & Permits. The Federal Reserve Bank raised interest rates by 5.25% over the past two years to tame inflation. The higher interest rates significantly slowed down economic growth in the housing and construction sectors. The Economic and Community Development Department (ECD) is expecting less projects to apply for permits in FY 2023-24, which will reduce the amount of permit fees paid to the City. Staff recommends a $4.5 million decrease in our projections.
Service Charges. This revenue stream includes fee charges by various departments for services provided to the public. Due to the increase in paramedic call volume and changes to the California Department of Health Care Services supplemental program, the Fire Department anticipates an increase of $1.2 million in paramedic service fees bringing the total to $3.7 million for FY 2023-24. Staff recommends a $1.4 million increase in the projections.
Intergovernmental. The City received $2.3 million in grants and program reimbursement from other governmental entities for the 2nd quarter year-to-date. Staff recommends a $1.2 million increase in the projections.
Use of Money and Property. With the higher interest rate environment, the City projects additional interest earnings from investments. In FY 2022-23, the City sold two properties (100 Longford & 201 Baden Ave) for a total of $1.8 million. The City does not expect any sale of property in FY 2023-24. Rental income is within budget expectations. Staff recommends a $0.5 million increase to the projections.
If approved by the Council, the above changes would result in decreasing the overall revenue budget for FY 2023-24 by $2.8 million from $143.1 million to $140.3 million.
General Fund Expenditures – 2nd Quarter
The California Public Employees’ Retirement System (CalPERS) offers a discount (3.40% for FY 2023-24) to its contracting agencies if City made a lump-sum prepayment of our annual Unfunded Accrued Liability (UAL) in July. This will allow our contributions to be invested early in the fiscal year to give it a better chance of maximizing potential investment returns. The City took advantage of this discount in FY 2023-24 and recorded the expenditure in July 2023. The following table shows the actual expenditures by Department that have been recorded and the pro-rata estimate for the CalPERS UAL allocated through December 31, 2023:
Table 2: FY 2022-23 vs. FY 2023-24 Expenditures as of December 31
ADDITIONAL GENERAL FUND REVENUE AMENDMENT REQUEST
The following are additional General Fund revenue amendment requests totaling $1,426,238 Economic and Community Development $150,000 Increase in Building Permit collected fee (Master Fee No. 6.57) Fire Department $1,275,000 Paramedic Service Fee Increase- $1,200,000
Fire Plan Check Fee $75,000
Transfer In from ARPA $ 1,238 Residual balance for revenue loss category
ADDITIONAL GENERAL FUND APPROPRIATIONS REQUEST
The following are additional General Fund expenditure appropriations requests totaling $1,049,600:
Economic and Community Development $75,000 Construction Coordination Consultant (2-year contract)- $75,000 Fire Department $689,600 Contracts for Fire Plan Reviews- $175,000
Department of Health Care Services program- $506,000
Ambulance billing fees- $8,600
Payroll (position change request):
Upgrade 1.0 FTE Administrative Assistant I to Management Analyst I with no fiscal impact in FY2023-24.
Parks and Recreation Department $285,000 One-Time Contractual landscape services (Oakmont Dr. & Olympic Dr.) $125,000 Ongoing Contractual landscape services (Oakmont Dr. & Olympic Dr.) $10,000 Police Department building window washing services $40,000 Purchase of Westborough Blvd privately owned parcels along eastbound shoulders $110,000 The ongoing impact of the mid-year requests beyond FY2023-24 has been estimated to be an additional $639,600 in supplies and professional services.
ADDITIONAL NON-GENERAL FUND APPROPRIATIONS REQUEST
The following are the additional non-General Fund expenditure appropriations requests totaling $2,514,908 from various sources.
American Rescue Plan Act Fund (201) $1,238 Transfer the residual balance for Revenue Loss category to General Fund West Park Maintenance District Fund (Fund 231) $370,700 Adjustment to full-time payroll salaries calculation- $159,800 Adjustment to part-time payroll salaries calculation- $11,100 Adjustment to benefit calculation- $199,800
Stonegate Ridger Maintenance Fund (Fund 232) $20,170 Adjustment to full-time payroll salaries calculation- $630 Adjustment to benefit calculation- $19,540
Willow Gardens Maintenance Fund (Fund 233) $4,350 Adjustment to full-time payroll salaries calculation- $1,450 Adjustment to benefit calculation- $2,900
West Park Maintenance District 1 & 2 Fund (Fund 234) $21,450 Adjustment to full-time payroll salaries calculation- $1,240 Adjustment to benefit calculation- $20,210
Developer Deposits Fund (Fund 270) $125,000 ECD- TDM Enforcement and Trip Cap Implementation- $50,000 ECD- Objective Architectural Standards Updates- $75,000 Sewer Enterprise Fund (Fund 710) $999,000 Adjustment to full-time payroll salaries calculation- $573,800 Adjustment to benefit calculation- $425,200
Parking District Fund (Fund 720) $ 69,000 Adjustment to full-time payroll salaries calculation- $40,000 Adjustment to benefit calculation- $29,000
Commercial Linkage Fee (Fund 823) $300,000 ECD-Preparing sites for housing suitability-$100,000
ECD-Property acquisition due diligence and negotiations- $200,000 Storm Water Fund (Fund 740) $449,000 Public Works- Storm line repairs identified in Storm Drain Master Plan- $150,000 Adjustment to full-time payroll salaries calculation- $172,000 Adjustment to benefit calculation- $127,000
Park Acquisition Fund (Fund 805) $100,000 Parks and Rec-Parkland acquisition due diligence- $100,000 PEG Equipment & Access Fund (Fund 786) $55,000 Upgrade City Manager conference room for Special City Council meetings- $30,000 Closed caption services for City Council meetings- $25,000
MID-YEAR CAPITAL IMPROVEMENT PLAN REQUEST (CIP)
The following are the additional CIP project appropriation requests with their corresponding funding sources, amounting to ($610,668):
SSF Shoreline Protection and Connectivity (New project sd2402) $30,000 Funding Source: East of 101 Traffic Impact Fee
Funding request is for the pre-design phase of this project to fund consultant for Caltrans grant application.
Storm Drain Master Plan (Existing project sd2301) $500,000 Funding Source: Infrastructure Reserve
These funds are needed for additional storm drain cleaning required for conditional assessment.
Parking District Lot Rehabilitation (Existing project pf2402) $100,000 Funding Source: Parking District Fund
Additional funds to rehabilitate parking lots based on engineering estimates. This is for rehabilitation (surface seal asphalt pavement treatment and new striping) of six (6) City Public Parking lots in the downtown area.
Adaptive Traffic Control System (Existing project tr1901) $100,000 Funding Source: Citywide Traffic Impact Fee
Additional funds requested for plan, design, and implementation of adaptive traffic control in West of 101.
Junipero Serra Class 4 Bike Lanes (New project tr2414) $50,000 Funding Source: Citywide Traffic Impact Fee
Additional funding is required for the TDA Grant match.
Colma/SSF: El Camino Real Bicycle and Pedestrian Improvement Project (PSR_PDS) and (PAED) (New project tr2415) $100,000 Funding Source: Citywide Traffic Impact Fee
Opportunity to follow through on part of the Bike/Ped Master Plan. Colma is leading the project and has secured a TA Grant. Caltrans asked to further previous project extends to Hickey Blvd & ECR for project effectiveness/continuity.
Caltrain Station Enhancement/Karyl Matsumoto Plaza
(Existing project st1603) $120,000
New Funding Source: Park Construction Fees
Benefits Agreement for 200 Airport. It includes ongoing maintenance of the new plaza and contributions to construction that included $120,000 payment for plaza improvements.
Sewer Master Plan (Existing Project ss1801) $100,000
Funding Source: East of 101 Sewer Impact Fees
These funds will be used for additional design costs to update sewer model and report.
Broadband Fiber Optic Expansion (Existing Project pf2210) $289,332 Funding Source: American Rescue Plan Act (ARPA)
These funds will be used for installation of fiber optic cables in new City-owned conduits from 550 North Canal to Skyline Blvd in the Westborough Area to provide the middle mile for the carriers to connect to the last mile in the Westborough area.
The following is a request for consolidating projects:
Citywide School Traffic Calming Improvement Project ($600,000) Original- existing project tr2405
Funding Source: Citywide Traffic Impact Fee
This project will be combined with existing project st2402. The funding source will still be Citywide Traffic Impact Fee. This will be an additional funding source to existing project st2402 (2024 Surface Seal Project). 2024 Surface Seal Project (Existing project st2402) $600,000 New/Additional Funding Source: Citywide Traffic Impact Fee Requesting Citywide Traffic Impact Fee as an additional funding source for this project. Combining tr2405 (Citywide School Traffic Calming Improvement project) to st2402. The funds will be utilized for the traffic calming improvements and tracked accordingly.
The following is a request to remove funding from existing project:
Transit Village Park (Existing project pk2101) ($2,000,000) Funding Sources: Park Land Acquisition Fee and Park Land Construction Alternative sites for a park are still being considered. Funding is not needed currently. Should a site be found, funding will be requested from the City Council separately.
AMERICAN RESCUE PLAN ACT (ARPA)
In June 2022, the City received the second half tranche of its $12.3 million American Rescue Plan Act financial award. The first half was received in June 2021. Table 3 below shows the progress of allocation of these funds to various projects and purposes:
Table 3: ARPA Funded Project Summary
The table above shows that, to date, $11.99 million of ARPA funds has been appropriated. The cells highlighted in yellow is the request for the mid-year review – 1) to allocate $1,238 to General Government services to fully utilize the $10 million under the Revenue Loss Category and 2) to add $289,332 ARPA funding to the Broadband Expansion project.
RESERVES OVERVIEW & CONSIDERATIONS
In FY 2022-23, General Fund revenues, excluding Measure W, were $146.5 million. In keeping with the City’s Reserve Policy of maintaining a minimum of 20 percent of operating revenues and following the Government Finance Officers Association’s (GFOA) best practice, the City’s General Fund reserves levels were increased by approximately $4.2 million, from $25.1 million to $29.3 million. This General Reserve amount does not change during the fiscal year. The Pension Stabilization Reserve was established by Council and does not change unless further action is taken. It remains invested and managed by the City’s third-party investment manager.
After meeting the reserves requirement noted above, Table 4 below shows a summary of the City’s official reserves as of June 30, 2023:
Table 4: City Reserves Summary as of 6-30-2023
General Reserves (20%)
$29,298,000
Pension Stabilization Reserves
5,596,000
Infrastructure Reserves
8,194,000
Total Reserve Levels
$43,088,000
Available Unassigned GF Fund Balance
20,344,000
Reserves & Surplus Fund Balance
$63,432,000
Table 5 below shows a breakdown of FY 2023-24 Infrastructure Reserve appropriations to date as well as inflows of revenues. It also includes additional mid-year requests, detailed in previous sections of this report:
Table 5: FY2023-24 Infrastructure Reserve Activities & Balance Item
Amount
FY2022-23 Balance
$20,229,000
Add: Developer Contributions
250,000
Total
$20,479,000
Less: YTD Appropriation
FY 2023-24 CIP project funding
$4,050,000
Downpayment Assistance Program
1,617,000
Previously funded CIP projects
10,186,000
Mini-Sweeper
250,000
Restroom at the Park
200,000
Total appropriation
$16,303,000
Mid-year Requests
$500,000
Net IR activities after Mid-year
$16,803,000
Available Reserve Balance after Mid-Year
$3,676,000
Table 6 below shows the impact of the General Fund budget for FY 2023-24, the effect of year-to-date budget amendments already approved by Council, the mid-year appropriations requests and revenue updates detailed in this report. The recommended revenue and expenditure budget updates are projected to result in a deficit of approximately $2.1 million.
Table 6: Projected General Fund Revenue and Expenditure Summary Reserve for Encumbrances rollover
$8,661,000
Reserve for Capital Projects
$3,776,000
Adopted Budget Surplus
$9,000
- FY 2023-24 Net Budget Adjustments
(10,771,000)
+ Mid-Year Revenue Adjustments
(2,749,000)
- Mid-Year Appropriation Requests
(1,050,000)
Total Adjustments
(14,561,000)
FY 2023-24 Projected Deficit
$(2,124,000)
Conclusion
The Federal Reserve bank continues to raise interest rates to tame inflation and slow-down economic spending. With the higher interest rate environment, the City is experiencing a decrease in General Fund revenues in the 1st half of FY 2023-24. Revenues from licensing and permits, sales tax, and transient occupancy tax are significantly lower than projected while other categories are coming in-line or slightly better than expected. As a result, staff consider it necessary to reduce the overall revenue budget for FY 2023-24 by $2.8 million from $143.1 million to $140.3 million by making the adjustments detailed in this report.
Economists are projecting the Federal Reserve Bank will start cutting rates as soon as May 2024. Staff remains cautiously optimistic and believe some revenue streams may level off somewhat from the current continued downward trajectory, particularly in TOT and sales tax. Finance has communicated to the other departments to close purchase orders for projects that have already been completed, review existing encumbrances, and use salary savings from vacancies to monitor department expenditures.
The City has healthy financial reserves, as well as an unassigned fund balance available in the General Fund which can be used to fund one-time projects and the short-term shortfall. Staff will continue to closely monitor the revenue and expenditure status in the coming months. Finance will further evaluate the business license tax revenue enhancement option as directed by the City Council during its retreat in January 2024 and cost cutting measures that can help to achieve long-term fiscal sustainability. Staff will incorporate the findings into the FY 2024-25 budget preparation.
Staff recommends that the City Council accept the FY 2023-24 Mid-year financial update and budget amendment requests.
City of South San Francisco Page 17 of 17