AGENDA ITEM
TO: HONORABLE MAYOR
AND MEMBERS OF THE CITY COUNCIL
FROM: CARLO TOMAINO
CITY MANAGER
BY: SIAMLU COX
ACTING ADMINISTRATIVE SERVICES OFFICER/FINANCE DIRECTOR
DEBBIE PACHECO
ACCOUNTING MANAGER
DANIEL BASULTO
SENIOR ACCOUNTANT
DAVID CASTRO
MANAGEMENT ANALYST
SUBJECT:
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FISCAL YEAR 2024-25 MID-YEAR BUDGET REVIEW
summary
Summary:
The City Council will conduct a mid-year budget review regarding the City’s financial position based on the first six months of the fiscal year as of December 31, 2024, and consider adopting a resolution approving proposed budget adjustments. The proposed changes to the current fiscal year budget include proposed reclassifications of existing appropriations in the Vehicle and Equipment Fund, Capital Improvement Program Fund, Special Revenue funds, Water Fund and the General Fund.
Strategic Plan Goal(s):
Goal No. 1 Financial Stability: Ensure the City’s long-term financial stability and resilience.
Goal No. 2 Community Safety: Maintain Community Safety by supporting public safety services and increasing emergency preparedness.
Goal No. 3 Economic and Downtown Development: Improve the local economy, support local businesses, and create a vibrant downtown core.
Goal No. 4 Infrastructure: Maintain and improve the City’s physical infrastructure, water system, and recreational spaces.
Goal No. 5 High-Functioning Government: Strengthen internal communication, recruitment, retention, systems, and processes to increase the effectiveness and efficiency of city services.
recommendation
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 2024-25 ANNUAL OPERATING AND CAPITAL BUDGET.
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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, 2025, and the months following when the audited financial statements are issued. Implementation of the proposed budget adjustments would result in the changes below:
• Reclassification of carry-over appropriations and new appropriations in the Vehicle and Equipment Fund resulting in a decrease of $355,053.
• Reclassification of existing appropriations and new appropriations in the Water Enterprise Fund resulting in a decrease of $46,000
• New appropriation in the Capital Improvement Projects Fund resulting in a decrease of $100,000.
• New appropriation in the Prop A Fund resulting in a decrease of $101,381
• New appropriation in the Housing Authority Fund resulting in a decrease of $7,500
• New appropriations would decrease the General Fund balance by $316,410.
Background:
The City’s Fiscal Year (FY) 2024-26 Biennial Operating Budget includes the FY 2024-25 Adopted Operating Budget (Year 1) and the FY 2025-26 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 $61.5 million operating and capital improvement expenditure budget for all City funds, including a General Fund Operating Budget with projected revenues of $38.9 million (including transfers in) and expenditures plus capital outlay of $38.9 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, 2024. 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 with an opportunity to consider economic assumptions and recommend adjustments to the operating and capital budgets based on revenues and expenditures.
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 not allocated by law or contractual agreement to other funds. Receipts 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 from this fund include the general operating expenses and capital improvement costs.
City Revenues
Staff closely monitors all revenue sources. Fiscal Year 2024-25 shows that the City's largest revenue source, Sales and Use Tax, is projected to reach $27 million by the end of the fiscal year. Use of Money & Property, the second-largest budgeted revenue source, is expected to generate $2.64 million, primarily attributed to the City’s diversified portfolio earning significant returns. Property Tax, historically the City's second-largest revenue source, follows closely behind with a budget of $2.60 million. Staff will continue to monitor this data and provide updated Year 1 projections during the budget workshop. The table below summarizes revenues for the current fiscal year as of December 31, 2024.
Sales Taxes
Signal Hill’s current sales tax revenue portfolio remains elastic. The City receives 1% of the 9.5% Bradley-Burns Local Sales and Use Tax applied to goods sold in the City (point of sale), in addition to Measure SHR, the voter approved 0.75% add-on sales tax. The City’s sales tax is budgeted at $27.1 million (net), representing approximately 71% of the General Fund budgeted revenue.
The City’s major sales tax industry groups include Autos and Transportation, Business and Industry, State and County Pool Allocations and General Consumer Goods. The City’s Autos and Transportation industry sector remain strong, and accounts for about 37% of the quarterly sales tax received this fiscal year. State and County Pool Allocations is produced from pooled online purchases are shipped to customers from out-of-state, private party vehicle sales, long term leases of equipment, and personal property, and registered nomadic vendors transactions which are then allocated back to jurisdiction as a pro rata of the taxable shares. Currently, pool allocations account for about 16% of Sales and Use Tax received. Business and Industry and General Consumer Goods both experienced a 2% loss over the prior year. Building and Construction continues to see a downward turn in home-improvements sales with conditions predicted to persist through the middle of 2025, and although interest rates have fallen in the short-term consumers continue to suspend larger purchases. As a result, the Building and Construction sector is not predicted to see growth until FY 2025-26. Overall sales tax revenue is still predicted to stay relatively flat through FY2024-25. If the Federal Reserve gradually relaxes monetary policies in the upcoming year, there is expectation of an average of possibly 2% annual growth in the outer years.
Use of Money and Property
Use of Money and Property includes rent revenue and returns on the City’s investments and represent about seven (7%) percent of the General Fund. The Federal Reserve's federal funds rate target range continues to hold at 4.25% to 4.50%, which influence short-term interest rates for other financial instruments but can put downward pressure on long-term yields. The City is maximizing the opportunity by strategically diversifying its investment portfolio across the Local Agency Investment Fund, California Cooperative Liquid Assets Securities System, California Asset Management Program, government securities, municipal bonds, money market accounts, and certificates of deposit. Staff provides monthly investment updates to the City Council for review.
Property Taxes
Property taxes account for the next largest revenue source, representing seven percent (7%) of the General Fund. Property Tax is predominately made up of the taxes received from assessed property values and the property tax received in lieu of Vehicle license fees (VLF). As a reminder the City is considered a no-to-low property tax city, receiving only 0.0678%, or 6 cents per dollar, of the City’s total taxable assessed property value. Additionally, a portion of the City's assessed taxable property belongs to the redevelopment agency, further limiting property tax revenue. The City’s 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 for 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.
The City of Signal Hill historically relied on oil production revenue; however, Oil Production Revenue currently constitutes only approximately 1% of the City's total revenue. Oil Production Tax revenue, a component of "Other Taxes," continues to decline primarily attributed to a decrease in the Producer Price Index whose adjustment is evaluated once a year on July 1st.
City Expenditures
At mid-year, the General Fund operating expenditures across all City departments are at 34% of budgeted expenditures (Table 2). 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 these are recorded to the City’s financial system, but all departments are anticipated to conclude the fiscal year in line with the current budget.
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 $6.4 million, and sales to date are $3.3 million, 51.3% of budgeted sales. At mid-year, operating expenditures are at 32.19% of budgeted expenditures, which is primarily due to the delayed Gundry Roof Reservoir project, and vacancies within the Water Department. More details on the Water Fund will be provided through the upcoming Water Rate Subcommittee Workshop which is scheduled as a separate discussion item on tonight’s City Council agenda.
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.
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 respective funds are as follows:
• Reclassification of carry-over appropriations and new appropriations in the Vehicle and Equipment Fund resulting in a decrease of $355,053.
Reclassification of existing appropriations and new appropriations in the Water Enterprise Fund resulting in a decrease of $46,000
New appropriation in the Capital Improvement Projects Fund resulting in a decrease of $100,000.
• New appropriation in the Prop A Fund resulting in a decrease of $101,381
• New appropriation in the Housing Authority Fund resulting in a decrease of $7,500
• New appropriations would decrease the General Fund balance by $316,410.
Staff prepared the proposed adjustments in a manner consistent with the City’s conservative budgeting practices to deliver municipal services and maintain the high quality of life residents and businesses expect and deserve.
Included for your consideration as Decision-Package Items:
• Increase in budget for the advanced planning of the Taste of Signal Hill event.
• Increase in budget for the cleaning and upkeep of the police firing range.
• Reclassification of a part-time Code Officer to a full-time position.
• Reclassification of a full-time Administrative Assistant to a full-time Management Assistant.
• Reclassification of two (2) full-time Senior Recreation Specialists to two (2) full-time Recreation Coordinators.
Table 4 below identifies fund and division impact.
TABLE 4.
List of Proposed Mid-Year Budget Adjustments
Fiscal Year 2024-25
TABLE 4.
Continued
TABLE 4.
Continued
The next major financial update will take place at the upcoming Budget Workshop on May 25, 2025, followed by a budget adoption presentation for Year 2 of the FY 2024-2026 Biennial Budget at a City Council meeting in June.
Reviewed for Fiscal Impact:
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Siamlu Cox
Attachments:
A. Mid-Year City Budget Resolution
B. Exhibit A Mid-Year Budget Adjustments