City Council Agenda Report
Meeting Date: February 20, 2024
From: Jessica Alcaraz, Financial Services Administrator Department: Finance
Submitted by: Angela Melgar, Finance Manager
Subject
Fiscal Year 2023-24 Mid-Year Financial Update
Recommendation
Adopt Resolution No. 2024-02 authorizing and approving mid-year budget appropriations and amending the Annual Operating and Capital Budget for Fiscal Year 2023-24.
Background
The Mid-Year Financial Update reflects continued efforts to provide timely and accurate financial information to assist the City Council with decision making and achievement of the City’s goals.
As of December 31, 2023, the mid-year point of the current fiscal year, one would expect to be at the 50% mark for revenues and expenditures. However, certain factors may influence the timing, rate, or recognition of such. At mid-year, actual overall expenses for General Fund and Vernon Public Utilities (VPU) were at 44% and revenues were at 46% of budgeted amounts. Staff evaluated the trajectory of actual versus budgeted results and are providing the recommendations to appropriate additional funds for unforeseen circumstances that have arisen since the normal course of budget setting during the prior fiscal year. Pursuant to City Charter Chapter 8.5, Council may amend or supplement the budget by the affirmative vote of a majority of the members of the Council.
General Fund
Viewing the General Fund as a whole, about 46% of the cumulative budgeted revenues were received as opposed to about 41% of cumulative budgeted expenditures. Due to the timing of disbursements, some revenue streams are not linear throughout the year. For example, property and parcel taxes were below the midpoint budgeted total, as the largest disbursements are received near the end of the fiscal year. Conversely, at the mid-year point, utility user tax received over 54% of the budgeted amount for FY 2023-24 due to the seasonality of electric usage.
Investment income has greatly exceeded budgeted expectations 106% due to the higher yield rates and new investments in place. At mid-year, intergovernmental revenues were 18% of budget; however, most of these revenues reimburse corresponding approved Public Works expenditures that are billed when incurred and approved so it is dependent on this timing. At the end of December 2023, salaries and benefits were 42% of budgeted amount and maintenance and operations expenses were at target level; however, the capital projects and equipment category was only at 10% of the budgeted amount due to deferred projects, long lead times for equipment purchases, and other postponed capital expenditures.
Enterprise Funds
As of December 31, 2023, Electric revenues were at 48%, Gas revenues were at 33%, and revenues in the Water Fund were at 45% of budgeted amounts. Fiber Optic revenues were at 31% of budgeted revenue due to the year-end timing of interfund billing. As of mid-year, Gas and Water Funds were at 30% and 39% of budgeted expenditures respectively, Electric Fund was at about 46% of budgeted expenditures. Alternatively, Fiber Optic Fund expenditures have already exceeded the budgeted amount. This is mainly due to increased capital outlay expenses while undergoing major infrastructure upgrades that will give the utility a competitive advantage and help retain and attract more customers.
Cash Position
At mid-year, approximately 62% of the City’s cash funds are unrestricted, with Electric utility reserves exceeding 180 days of operating expenses. As stated in the FY 2022-23 Annual Comprehensive Financial Report, the General Fund unassigned fund balance is $26 million as of the last audited period ending June 30, 2023.
Proposed Budget Adjustments
A year-end operating surplus occurs when there is an excess of revenues over expenditures in a particular year, generally a result of higher than budgeted revenues, and/or lower than budgeted expenditures. The City concluded FY 2022-23 with an operating surplus of approximately $14.1 million. Per the Council approved budget, $10 million was allocated to committed reserve fund balances as follows: Economic Uncertainties $5 million, Capital $2 million, Post-retirement $1.5 million, Technology Replacement $500,000 and Fleet Replacement $500,000, leaving a remainder of operating surplus of approximately $4.1 million.
Department staff has analyzed their line-item budgets and identified amendments needed for additional expenditures through the end of FY 2023-24 and a recommendation to allocate additional funds to committed reserve fund balances from the General Fund Unassigned Fund Balance. Due to the rising costs of materials, supply chain constraints, and expenditures not known or expected at the adoption of the FY 2023-24 Budget, adjustments are being presented to Council to appropriate and reallocate funds in the General and VPU Funds that are in line with strategic goals and objectives of the City.
Fiscal Impact
Approval of this action would require an appropriation of $2,507,895 in the General Fund, $2,006,500 in the Electric Fund, $39,500 in the Gas Fund and $860,000 in the Fiber Fund from their respective Fund Balances as detailed in Resolution 2024-02.
Attachments
1. Resolution No. 2024-02