Title
Recommendation to Accept the First and Second Quarter Revenue and Expenditure Report for Fiscal Year 2023-24. [City Council and SACIC] (Finance 10024051)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
For all City funds, this report details the City of Alameda’s (City) first and second quarter revenues and expenditures for Fiscal Year (FY) 2023-24 compared to the same period in FY 2022-23.
BACKGROUND
The City Charter Article XVII Sec. 17-10 requires presentation to the Mayor and City Council of a quarterly report on the revenues and expenditures. The First and Second Quarter (Q2) Revenue & Expenditure Report for all City funds has been completed based upon actual revenues and expenditures. The Q2 report, attached as Exhibit 1 and available online (<https://stories.opengov.com/alamedaca/published/1bmQfg7w0>), includes financial information for all City funds as follows:
• General Fund revenues by category through December 31, 2023;
• General Fund expenditures by department and category through December 31, 2023;
• Revenues and expenditures for all funds through December 31, 2023.
DISCUSSION
This quarterly report provides the City Council with updates on the financial status of the City’s funds by comparing budget projections for revenues and expenditures to actual revenues and expenditures through the second quarter of FY 2023-24. Budget amendments previously approved by City Council have been included in this report. The grouping of the funds matches the City’s Annual Comprehensive Financial Report (ACFR). As of December 31, 2023, General Fund revenues totaled $59.0 million, and expenditures totaled $56.1 million.
General Fund
The General Fund is the main operating fund for the City. The General Fund accounts for sources and uses of resources that are discretionary to the City Council in the provision of activities, programs, and services deemed necessary and desirable by the community. It accounts for all general revenues of the City not specifically levied or collected for other City funds, and the related expenditures. The major revenue sources for this fund are property tax, sales tax, transfer tax, utility user tax, business license tax, transient occupancy tax, franchise fees, and unrestricted revenues from other government agencies, fines and forfeitures, and interest income. Expenditures are made for public safety (including police and fire), community development, recreation and parks, public works, and other general government services.
General Fund revenues as of December 31, 2023, were $59.0 million as compared to the $52.4 million in revenues collected through the same quarter last fiscal year. This represents a 12.6% increase in revenue collection, largely due to an 8.2% increase in Property Taxes and the timing of receipt of Sales Tax revenues remitted to the City in the comparison FYs. As of December 31, 2023, General Fund revenue received was 45.1% of the $131.4 million Revised Revenue Budget for FY 2023-24.
FY 2023-24 General Fund expenditures as of December 31, 2023, were $56.1 million as compared to the $53.2 million in expenditures in the same quarter last fiscal year, which represents a 5.5% increase. The increase is attributable largely to salary increases that went into effect in July 2023 and increased costs for liability insurance. Actual expenditures are 35% of the $160.8 million Revised Expenditure Budget for FY 2023-24.
Excluding interfund transfers, General Fund expenditures totaled $54.5 million through December 31, 2023, compared to $50.5 million in the same quarter in the previous fiscal year. Excluding transfers, actual expenditures are 42.2% of the Revised Expenditure Budget of $129.1 million.
Major General Fund Revenue Categories
Property Tax
Property tax is the largest single source of revenue for the General Fund and represents 45% of all budgeted General Fund revenues. The property tax is ad valorem, which means that the tax paid on property is proportional to the property’s assessed value. Under the terms of Proposition 13 passed in 1978: 1) the annual tax owed is a maximum of 1% of a property’s assessed value and 2) the assessed value can only increase a maximum of 2% each year unless ownership changes, in which prevailing market value assessment is used as the basis for taxation. In general, property taxes have been relatively unaffected by the pandemic and continue to be a stable source of General Fund revenues.
Starting in FY 2011-12, the City began receiving a portion of the Residual Property Tax Trust Fund (RPTTF) revenues as a result of the dissolution of the Successor Agency to the Community Improvement Commission. The RPTTF is the portion of the property tax increment, less wind-down funding obligations, that would have gone to redevelopment agencies if they had not been dissolved.
Aggregate property tax revenues increased by 8.2%, or $2.1 million, to $27.4 million as of December 31, 2023, as compared to $25.3 million as of December 31, 2022.
Sales Tax/Transaction and Use Tax
The City’s sales, transactions and use taxes are approximately 17% of the City’s budgeted General Fund revenues. The $7.5 million received through Q2 in FY 2023-24 represents a 26.9% increase over the comparison period of the previous year. This increase is solely due to a timing issue of when the receipts were remitted to the City and recognized in the City’s financial system. Sales taxes are received two to three months in arrears, and October 2022 sales taxes were received after December 31, 2022 (FY 2022-23), whereas October 2023 (FY 2023-24) sales taxes were received before December 31, 2023. Had October 2022 sales taxes been received before December 31, 2022, the City would have received 0.6% less in this fiscal year.
Property Transfer Tax
The City imposes a transfer tax of $12 per $1,000 of property valuation on all real property sales that occur within city limits. This revenue source is difficult to predict as it fluctuates significantly due to the sale of large commercial properties. As of December 31, 2023, the City received $5.5 million on a budget projection of $10.8 million. This represents a 9% decrease as compared to the same quarter in the last fiscal year.
Utility Users Tax
The City imposes a Utility Users Tax (UUT) of 7.5% on all residential and commercial utility bills for properties within the city. Decreases in telecommunication utilities such as phone/wireless and cable TV have been offset by increases in electricity rates. As a result, aggregate UUT increased year-over-year from $3.0 to $3.1 million, or 1.3%, through the second quarter of FY 2023-24.
Transient Occupancy Tax
Effective January 2023, voters approved a ballot measure increasing the Transient Occupancy Tax (TOT) from 10% to 14%. The TOT is 14% of the hotel rate and is paid by individuals who stay thirty days or less in a hotel located within the City. As TOT is assessed against the cost of a hotel stay, this revenue stream grows with local tourism demands.
As of December 31, 2023, the City has received $1.5 million in TOT revenue, or 46% higher than the same quarter in the previous year, largely due to the 40% increase in the tax rate that went into effect in 2023.
Business License Tax
The Business License Tax is charged annually to all businesses operating within the city. The renewal of business licenses occurs during the first quarter of the fiscal year. Some businesses pay a flat rate tax and some are assessed based upon gross receipts earned, paying a minimum tax based upon graduated rate bands. Business License Tax revenues increased by 11% from $2.6 million through the second quarter of FY 2022-23 to $2.9 million through the second quarter of FY 2023-24.
Franchise Fees
The City has franchise agreements with several utility companies. These companies pay the City a franchise fee based on a percentage of their revenue earned within the City limits. These fees serve as compensation for, among other things, wear and tear on City streets. Franchise fees change when the customer base expands, additional services are used, environmental conditions affect the use of the utility, and rates change. In Q2 of FY 2023-24 revenues increased by 4.6% from $1.4 million in Q2 of FY 2022-23 to $1.5 million.
General Fund Expenditures by Spending Category
Employee Salaries and Benefits
The largest spending category in the General Fund is employee salaries and benefits. Of the $160.8 million General Fund budget in FY 2023-24, employee salaries and benefits represent $87.0 million, or 54%. In Q2 of FY 2023-24 actual salaries and benefits totaled $40.0 million, or 46% of the budget.
Services, Supplies, Utilities, and Other Operating Expenditures
The operating expenditures category covers contracts for services, materials and supplies for day-to-day operations, utilities, professional development, equipment leases, and fees and charges. Although operating expenditures increased from Q2 FY 2022-23 to Q2 FY 2023-24 by 10%, from $5.0 million to $5.5 million, the Q2 year-to-date actual operating expenditures of $5.5 million are only at 26% of the budget.
General Fund Expenditures by Department
Excluding Non-Department expenditures, as of December 31, General Fund departmental expenditures increased by 9% from $49.7 million in Q2 FY 2022-23 to $54.2 million in Q2 FY 2023-24. General Fund expenditures increased substantially year-over-year in the City Manager, Base Reuse & Economic Development, and the Planning, Building & Transportation departments due to the following program re-organizations:
• The re-organized Housing and Human Services Division transferred from the Base Reuse & Economic Development Department to the City Manager’s Office in FY 2023-24.
• Economic development activity previously covered by Fleet Industrial Service Center income transitioned to the General Fund in FY 2023-24.
• The Climate Action and Resiliency program transferred from the City Manager’s Office to the Planning, Building & Transportation department in FY 2023-24.
Special Revenue Funds
Special Revenue Funds are funded by grants, special taxes, fees or other specific funding sources and must be used for specific purposes. Such funding sources are restricted in nature, either by law or by City policy, which requires revenues and expenditures to be recorded differently from the City’s primary operating fund, the General Fund.
Actual revenues for Special Revenue Funds as of December 31, 2023, were $48.5 million, and actual expenditures were $19.8 million.
The Alameda Point/Base Reuse Fund had the most substantial actual revenues and expenses during the period. As of December 31, 2023, the Alameda Point/Base Reuse fund has received revenues of $8.6 million. Expenditures of $4.7 million were used for the development and implementation of community plans for revitalization and redevelopment of the base into a mixed-use, transit-oriented development.
Capital Projects Funds
Capital Projects Funds, which includes individual funds such as the Capital Improvement Projects (CIP), Construction Impact Fees, and Development Impact Fees, had actual expenditures of $10.1 million and revenue of $3.9 million at December 31, 2023. These funds derive their revenues from a combination of fees from new development, grants, Gas Tax, and regional transportation-related sales tax.
Debt Service Funds
The Debt Service Funds group accounts for the long-term debt obligations of the City. As of December 31, 2023, the debt service funds received $16.5 million in revenue and spent $3.1 million. Approximately $15 million of the revenue received is associated with the proceeds of the Aquatic Center revenue bonds issued in December 2023. Funds are transferred from a variety of sources to meet debt service obligations as they come due. The funding source is dependent upon the purpose of the debt.
Enterprise Fund
The Enterprise Fund group consists of the City’s Sewer Services Fund, which accounts for all transactions related to the operation of the municipal sewer system. As of December 31, 2023, the Sewer Services Fund received $6.8 million in revenue and had expenditures of $5.0 million.
Internal Service Funds
The Internal Service Funds group includes those funds created for the accumulation of reserves for insurance claims, vehicles, technology and equipment replacement, facility maintenance, liabilities, and retiree medical and dental costs. Revenue for these funds is derived from charges to other funds, primarily the General Fund. As of December 31, 2023, the Internal Service Funds received $16.5 million in revenue and had expenditures of $14.9 million.
Fiduciary and Agency Funds
The Fiduciary Funds group includes the Successor Agency, bond funds for several bond issues that are not obligations of the City, and a trust fund established for Other Post-Employment Benefits (OPEB). As of December 31, 2023, the Fiduciary Funds received $1.5 million in revenue and had expenditures of $4.7 million.
The Successor Agency to the Community Improvement Commission is an entity separate from the City and accounted for in a separate trust fund that is used to account for tax increment monies received and payments of items approved by the Oversight Board in the Required Obligation Payment Schedule (ROPS). The bonded indebtedness of the Successor Agency is paid from Redevelopment Property Transfer Tax Fund (RPTTF) revenue. As of December 31, 2023, the Agency Fund received $1.8 million in revenue and had expenditures of $0.6 million.
ALTERNATIVES
• Accept and file the report as there is no further action being requested.
• Do not accept the report.
FINANCIAL IMPACT
The FY 2023-24 first and second quarter report includes information detailing the variances between budgets and actuals for revenues and expenditures through December 31, 2023. Spending is projected to stay within previously approved budget appropriations through year-end.
There is no financial impact from accepting the first and second quarter financial report.
MUNICIPAL CODE/POLICY DOCUMENT CROSS-REFERENCE
This action is in conformance with the Alameda Municipal Code and all policy documents.
ENVIRONMENTAL REVIEW
This activity is not a project and is exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15378 (b) (4) of the CEQA Guidelines because it involves governmental fiscal activities (acceptance of the second quarter financial report), which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
CLIMATE IMPACTS
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Accept the first and second quarter financial report for the period ending December 31, 2023.
Respectfully submitted,
Margaret L. O’Brien, Finance Director
By,
Jennifer Tell, Budget Manager
Exhibit:
1. FY 2023-24 Second Quarter Revenue & Expenditure Report