AGENDA ITEM
TO: HONORABLE MAYOR
AND MEMBERS OF THE CITY COUNCIL
FROM: CARLO TOMAINO
CITY MANAGER
BY: SHARON DEL ROSARIO
ADMINISTRATIVE SERVICES OFFICER/FINANCE DIRECTOR
FRAN SPEER
ACCOUNTING MANAGER
DANIEL BASULTO
ACCOUNTANT
DAVID CASTRO
MANAGEMENT ANALYST
SUBJECT:
title
FISCAL YEAR 2023-24 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, 2023, 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 and the Water Fund as well as new appropriations in the Lighting and Landscaping District 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. 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 2023-24 ANNUAL OPERATING AND CAPITAL BUDGET
body
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, 2024, 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 existing appropriations in the Vehicle and Equipment Fund resulting in an increase of $131,068.
• Reclassification of existing appropriations in the Water Enterprise Fund resulting in no net change
• New appropriations in the Lighting and Landscaping District Fund by $30,858.
• New appropriations that would decrease the General Fund balance by $24,515.
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 2 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 2 Adopted Budget consists of a $54.9 million operating and capital improvement expenditure budget for all City funds, including a General Fund Operating Budget with projected revenues of $35.2 million (including transfers in) and expenditures plus capital outlay of $35.2 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, 2023, 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 with 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 the FY 2022-23 Annual Comprehensive Financial Report (ACFR), presented at the City Council meeting on December 12, 2023. The FY 2022-23 Budget closed with General Fund revenues exceeding expenditures resulting in a surplus of $7,996,701 (including net transfers). On January 23, 2024, the City Council approved allocating the surplus funds towards General Fund reserves, carryover appropriations, and new appropriations as follows:
• Reserve Civic Center Master Plan Phase 1 - Amphitheater: $4,400,000
• Reserve Fund Allocations: $2,883,489
• Carryover Appropriations: $ 201,753
• New Appropriations: $ 511,459
The City Council also approved the following Workforce Innovation Reserve Allocations of $445,700 and consisted of the following:
• $180,700: Public Works (2) Maintenance Workers
• $145,000: Administration (1) Senior Management Analyst - HR
• $120,000: Finance (1) Deputy Director
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. Staff notes 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 through other funds.
City Revenues
As reflected in the budget, Year 2 revenues continue to show year-over-year growth across most funding sources. Staff closely monitors all revenue sources, paying particular attention to sales tax revenue, including revenue from Measure R (SHR), which combined total approximately 75% 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 that revenues may exceed the original budget, however since sales tax revenues lag two months behind, it is still early to determine the outcome. Staff will continue to monitor this data and provide updated Year 2 projections during the budget workshop. For the City Council’s information, staff has summarized revenues for the current fiscal year on the following table as of December 31, 2023
TABLE 1.
GENERAL FUND REVENUES
Fiscal Year 2023-24
As of December 31, 2023
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 $25.1 million (net), representing approximately three-quarters of the General Fund budgeted revenue. Based on current trends, the top-producing business sectors are:
• Autos & Transportation
• Business and Industry
• State and County Pools
Based on the first quarter’s sales tax data, the City’s most prominent business sectors have changed slightly over previous year sales but are expected to remain steady, with consideration that the Auto & Transportation sector may be affected by the changing prices of used vehicles. However, if the Federal Reserve gradually relaxes monetary policies in the upcoming year, there is expectancy of a resurgence in the Auto & Transportation sector as well as new auto dealerships. The following two business sectors, General Consumer Goods and Building and Construction, experienced a slight decline due to tighter family budgets and elevated interest rates. The Fuel and Service Stations sector decreased slightly from a year earlier due to lower fuel prices, whereas Restaurants and Hotels and Food and Drugs sectors experienced slight growth, however these two business sectors contribute 3% of total sales tax revenue.
Overall sales tax revenue will be highly dependent on consumer price increases and interest rates, possibly changing consumer spending habits.
Property Taxes
Property taxes account for the next largest revenue source, representing seven percent (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 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.
Use of Money and Property includes rent revenue and returns on the City’s investments. Returns on investments are coming in stronger than last year due to the increase in interest rates, 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 relatively flat and the annual Producers Price Index (PPI) change was around $0.05 less than the prior year. 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 mid-year, the General Fund operating expenditures across all City departments are at 38% 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.
TABLE 2.
GENERAL FUND EXPENDITURES
Fiscal Year 2023-24
As of December 31, 2023
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 2 was estimated at $6.6 million, and sales to date are $2.8 million, 42.6% 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 mid-year, operating expenditures are at 33.95% of budgeted expenditures, which is primarily due to multiple vacancies within the department.
TABLE 3.
WATER FUND EXPENDITURES
Fiscal Year 2023-24
As of December 31, 2023
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 2 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 to the respective funds are as follows:
• Reclassification of existing appropriations in the Vehicle and Equipment Fund resulting in an increase of $131,068.
• Reclassification of appropriations in the Water Enterprise Fund resulting in no net change
• New appropriations in the Lighting and Landscaping District Fund by $30,858.
• New appropriations that would decrease the General Fund balance by $24,515.
As reflected below, this budget adjustment reflects additional repairs and maintenance to the City’s water services, additions to our fleet, adding valuable personnel, and rolling over the prior year budget. 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. 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 2023-24
The next major financial update will take place at the upcoming Budget Workshop in May, followed by a budget adoption presentation for FY 2024-2026 Biennial Budget at a City Council meeting in June.
Reviewed for Fiscal Impact:
_________________________
Sharon del Rosario
Attachments:
A. Mid-Year City Budget Resolution
B. Exhibit A Mid-Year Budget Adjustments