Title
Recommendation to Accept the Unaudited First and Second Quarter Revenue and Expenditure Report for Fiscal Year 2022-23. [City Council and SACIC] (Finance 10024051)
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
This report details the City of Alameda’s (City) unaudited First and Second Quarter Financial Results for Fiscal Year (FY) 2022-23 for all City Funds, and life-to-date budget and actual expenditures for active capital and maintenance projects.
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 on all City funds has been completed based upon unaudited actual revenues and expenditures. The Q1 and Q2 report, attached as Exhibit 1, includes financial information for all City funds as follows:
• Unaudited General Fund revenues by category through December 31, 2022;
• Unaudited General Fund expenditures by department and category through December 31, 2022;
• Unaudited expenditures for the City’s capital and maintenance projects through December 31, 2022; and
• Unaudited revenues and expenditures for all funds through December 31, 2022.
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 unaudited actual revenues and expenditures through the second quarter of FY 2022-23. Budget amendments previously approved by the 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, 2022, unaudited General Fund revenues totaled $52.0 million, and expenditures totaled $53.2 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.
Unaudited General Fund revenues as of December 31, 2022, were $52.0 million as compared to the $53.8 million in revenues collected in the same quarter last fiscal year. This represents a 3.3% decrease in revenue collection, largely due to decreased receipts in Property Transfer Tax and Sales Tax, as discussed further below. As of December 31, 2022, unaudited General Fund revenue received was 42.6% of the $122.0 million Revised Revenue Budget for FY 2022-23.
Unaudited FY 2022-23 General Fund expenditures as of December 31, 2022, were $53.2 million as compared to the $49.2 million in expenditures in the same quarter last fiscal year, which represents an 8.1% increase. The increase is attributable largely to supply chain issues, and salary increases that went into effect in July 2022. Actual expenditures are 42% of the $126.5 million Revised Expenditure Budget for FY 2022-23. (Table 1)
Table 1 - FY 2022-23 Unaudited Actuals as of December 31, 2022 (in millions)
|
Category |
FY 2022-23 Revised General Fund Budget |
FY 2022-23 Q2 Unaudited Actuals |
$ Over/(Under) Budget |
% Over/(Under) Budget |
|
Revenues |
$ 122.00 |
$ 51.98 |
$ (70.02) |
(57.4%) |
|
Expenditures |
$ 126.50 |
$ 53.23 |
$ (73.27) |
(57.9%) |
|
Revenues less Expenditures |
$ (4.50) |
$ (1.25) |
|
|
Major General Fund Revenue Categories
Property Tax
Property tax is the largest single source of revenue for the General Fund and represents 43% 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 Redevelopment Agency. 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 9%, or $2.03 million, as of December 31, 2022, compared to the same quarter last fiscal year. On a fiscal year budget projection of $53.26 million, the City received $25.32 million in Property Tax revenues through Q2 of FY 2022-23.
Table 2 - Historical Property Tax Revenues as of December 31, 2022 (in millions)
|
Category |
Q2 FY 2018-19 |
Q2 FY 2019-20 |
Q2 FY 2020-21 |
Q2 FY 2021-22 |
Q2 FY 2022-23 |
|
Property Tax |
$ 21.09 |
$ 22.53 |
$ 23.87 |
$ 23.29 |
$ 25.32 |
Sales Tax/Transaction and Use Tax
The City’s sales, transactions and use taxes are approximately 17% of the City’s General Fund revenues, representing approximately $5.88 million of the total in Q2 for FY 2022-23. This represents an 18% decrease as compared to the same quarter in the previous fiscal year. The year-over-year decrease is largely attributable to the fact that taxes are received two to three months in arrears, and October 2022 sales taxes were received after December 31, 2022, whereas October 2021 sales taxes were received before December 31, 2021. Had October 2022 sales taxes been received before December 31, 2022, the year-over-year change would be +1.8%.
The sales tax rate in the City is 10.75% meaning that a $1 taxable purchase results in sales tax of 10.75 cents. The City receives 1% of the total sale as a distribution to its General Fund, meaning the City receives 1 cent for every $1 purchase. A significant portion of the City’s sales tax is received from the County sales tax pool, and thus, can be subject to significant fluctuations related to general economic conditions and consumer behavior.
In November 2018, Alameda voters approved a half-cent (0.5%) local Transactions and Use Tax (TUT), which became effective on April 1, 2019 (Measure F). This tax is collected by the California Department of Tax and Fee Administration (CDTFA) and is fully allocated to the City. On a fiscal year budget projection of $8.8 million, the City received $2.59 million in TUT through Q2 of FY 2022-23.
In addition, the City also receives a portion of a one-half (0.5%) cent sales tax approved by California voters in November 1993 (Proposition 172), which is designated for public safety. This sales tax is shared between the cities and the county. The Proposition 172 Sales Tax also likely to outperform expectations in FY 2022-23, with $384,621 received through Q2 on a budget projection of $689,900.
As shown in Tables 3 and 4 below, the most significant year-over-year growth for both sales tax and TUT was in the Fuel & Service Stations industry. Although fuel consumption increased modestly due to the recovery from the COVID-19 pandemic, this growth is primarily attributable to record high fuel prices. As fuel prices stabilize, this growth should not be expected to continue. Restaurants & Hotels also experienced strong growth, partly due to the COVID-19 economic recovery, and partly due to the effects of inflation on prices.
Table 3 - Sales Tax by Industry
|
Sales Tax |
Thru Q1 FY 2021-22 |
Thru Q1 FY 2022-23 |
YTD % change |
|
Autos & Transportation |
$ 134,901 |
$ 115,515 |
-14.37% |
|
Building & Construction |
$ 97,326 |
$ 85,859 |
-11.78% |
|
Business & Industry |
$ 745,692 |
$ 656,528 |
-11.96% |
|
Food & Drugs |
$ 222,936 |
$ 222,978 |
0.02% |
|
Fuel & Service Stations |
$ 239,072 |
$ 321,867 |
34.63% |
|
General Consumer Goods |
$ 478,757 |
$ 466,904 |
-2.48% |
|
Restaurants & Hotels |
$ 574,846 |
$ 637,625 |
10.92% |
|
Transfers & Unidentified |
$ 17,856 |
$ 14,927 |
-16.40% |
|
County Pool |
$ 597,182 |
$ 560,083 |
-6.21% |
Table 4 - Transaction & Use Tax by Industry
|
Transaction & Use Tax (Meas F) |
Thru Q1 FY 2021-22 |
Thru Q1 FY 2022-23 |
YTD % change |
|
Autos & Transportation |
$ 385,437 |
$ 372,744 |
-3.29% |
|
Building & Construction |
$ 229,838 |
$ 185,879 |
-19.13% |
|
Business & Industry |
$ 684,039 |
$ 796,665 |
16.46% |
|
Food & Drugs |
$ 127,258 |
$ 128,980 |
1.35% |
|
Fuel & Service Stations |
$ 119,872 |
$ 155,908 |
30.06% |
|
General Consumer Goods |
$ 571,574 |
$ 586,249 |
2.57% |
|
Restaurants & Hotels |
$ 326,329 |
$ 331,643 |
1.63% |
|
Transfers & Unidentified |
$ 50,564 |
$ 54,091 |
6.98% |
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. In recent years, property transfer tax receipts have far exceeded projections. This revenue source is difficult to predict as it can fluctuate significantly due to the sale of large commercial properties. As of December 31, 2022, the City received $5.99 million on a budget projection of $13 million. FY 2021-22 year-end actuals for transfer tax totaled approximately $21 million, so the budget projection of $13 million, which is 38% lower than the prior year actual, is consistent with the 35% decrease as compared to same quarter in the last fiscal year.
Table 5 - Property Transfer Growth Rate
|
|
FY 2021-22 Thru Q2 |
FY 2022-23 Thru Q2 |
|
|
Actuals |
Actuals |
Year-over-Year Change |
|
Sale Price |
Gross Sales |
Volume |
Gross Sales |
Volume |
Gross Sales |
Volume |
|
$300,000 or below |
$ 4,501,500 |
27 |
$ 2,232,500 |
11 |
-50.41% |
-59% |
|
$300,001 to $2 million |
$ 613,553,009 |
520 |
$ 499,813,545 |
421 |
-18.54% |
-19% |
|
$2 million to $5 million |
$ 73,426,500 |
28 |
$ 59,748,000 |
24 |
-18.63% |
-14% |
|
$5 million to $10 million |
$ 14,900,000 |
2 |
$ 11,617,500 |
2 |
-22.03% |
0% |
|
$10 million to $50 million |
$ 65,100,000 |
3 |
$ 11,808,500 |
1 |
-81.86% |
-67% |
|
$50 million to $100 million |
$ 139,973,500 |
2 |
$ - |
0 |
-100.00% |
-100% |
|
Over $100 million |
$ - |
0 |
$ - |
0 |
|
|
|
Total |
$ 911,454,509 |
582 |
$ 585,220,045 |
459 |
-35.79% |
-21.13% |
Table 6 - Property Transfer Tax Change FYs 2017-2023 through Q2
|
Fiscal Year |
2017-18 |
2018-19 |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
|
Receipts |
$ 4,768,493 |
$ 6,377,257 |
$ 4,676,567 |
$ 6,918,004 |
$9,177,100 |
$5,997,904 |
|
Y-o-Y Growth |
|
33.74% |
-26.67% |
47.93% |
32.66% |
-34.64% |
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. This revenue sources have been trending down in recent years largely due to decreasing use of cable TV subscriptions. This revenue source increased during the pandemic likely due to the shift to work-from-home and remote schooling and residents using more utilities (gas, electricity, etc.) as a result, with a decrease in FY 2021-22 as workers returned to job sites and students returned to school. This revenue source has seen an upward swing in FY 2022-23 due to higher natural gas prices, increased wireless & internet subscription costs, and increased electricity costs.
Table 7 - Utility Users Tax Change FYs 2017-2023 through Q2
|
Fiscal Year |
2017-18 |
2018-19 |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
|
Receipts |
$ 3,159,655 |
$ 3,237,347 |
$ 2,994,454 |
$ 3,183,961 |
$ 2,675,738 |
$ 3,022,635 |
|
Y-o-Y Growth |
|
2.46% |
-7.50% |
6.33% |
-15.96% |
12.96% |
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. This revenue source dropped substantially with the onset of the COVID-19 pandemic in March 2020 and recovered beyond pre-pandemic levels to $2.56 million in FY 2021-22.
As of December 31, 2022, the City has received $1.03 million in TOT revenue, which initially reflected a 4% decline, however after researching cash receipts it was noted that receipts of $156,912 belonging to December, were not recognized in the financial system until January 3. Thus, on a fiscal year budget projection of $2.4 million, adjusted TOT receipts for the Q2 are $1.18 million or a 10.27% increase when compared to last year.
Although the long-term forecast for the tourism industry indicates expected growth and returns to pre-pandemic levels of travel, periodic outbreaks of COVID can impact travel behavior.
Table 8 - Transient Occupancy Tax Change FYs 2017-2023 through Q2
|
Fiscal Year |
2017-18 |
2018-19 |
2019-20 |
2020-21 |
2021-22 |
2022-23 Adjusted |
|
Receipts |
$ 932,213 |
$ 1,020,303 |
$ 1,022,693 |
$ 708,402 |
$ 1,074,152 |
$ 1,184,443 |
|
Y-o-Y Growth |
|
9.45% |
0.23% |
-30.73% |
51.63% |
10.27% |
Business License Tax
The Business License tax (BLT) 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. In accordance with Ordinance No. 2500 adopted by the City Council in 1990, the minimum tax is adjusted each fiscal year by the percentage change in the Consumer Price Index. Due to the structure of the City’s BLT, these revenues typically grow modestly.
In FY 2022-23 there were 5,607 business that remitted BLT based upon gross receipts and 32 that remitted BLT based upon gross payroll. Businesses assessed taxes based upon gross receipts/administrative headquarters paid:
• $111 if total annual gross receipts/gross payroll was less than $88,000
• $164 if total annual gross receipts/gross payroll was $88,000 to $174,499
• $209 if total annual gross receipts/gross payroll was $175,500 to $522,499
• Business with gross receipts/gross payroll over $522,499 paid $209 plus 40 cents per $1,000 in excess of $522,499
For residential rental properties, the City assesses a flat tax of $20 per residential unit. In FY 2022-23 the City received BLT totaling $254,095 from 1,703 registered rental accounts. In comparison, revenue derived from the rental of commercial real property was $104,120 based upon a tax assessment of $20 per square foot.
BLT revenues dropped substantially, by 12.4%, in FY 2020-21 due to the COVID-19 pandemic and started to recover in FY 2021-22, increasing by 5.7% to $2.35 million. In FY 2022-23 revenues increased by 10.5% to $2.6 million.
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 can change when the customer base expands, when additional services are used, when environmental conditions affect the use of the utility, and when rates change. In Q2 of FY 2022-23 revenues decreased by 12% to $1.13 million compared to Q2 of FY 2021-22 due to re-negotiation of the solid waste franchise and decreased cable TV subscriptions.
General Fund Expenditures by Major Spending Category
Employee Salaries and Benefits
The largest spending category in the General Fund is employee salaries and benefits. Of the $126.5 million General Fund budget in FY 2022-23, employee salaries and benefits represent $83.9 million, or 66%. In Q2 of FY 2022-23 actual salaries and benefits totaled $38.3 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 2021-22 to Q2 FY 2022-23 by 21%, from $4.1 million to $4.9 million, the Q2 year-to-date actual operating expenditures of $4.9 million are at 28% of the budget. The rate of spending, which is trending below budget, is likely attributable to improvement of supply chain issues that delayed delivery of materials since the onset of the pandemic.
General Fund Expenditures by Department
Excluding Non-Department expenditures, General Fund departmental expenditures as of December 31 increased by 9% from $45.6 million in Q2 FY 2021-22 to $49.8 million in Q2 FY 2022-23. The largest increases in actual expenditures were in the Fire and Recreation & Parks Departments, which increased actual expenditures by $2.2 million and $1 million, respectively. In the Fire Department, the increase can be attributed to an increase in regular pay due to grant-funded Fire positions transitioning to the General Fund. In the Recreation & Parks Department, the increase is due to the continued restoration of Recreation programs in FY 2022-23 after programming was significantly curtailed during the COVID-19 pandemic.
General Fund Residual Fund Balance
The General Fund Residual Fund Balance is the amount that has not been restricted, committed, or assigned for a specific purpose, such as long-term obligations, capital projects, or economic uncertainty policies. Per the City’s audited financial statements, the total Unassigned Fund Balance, which does not account for economic uncertainty policies, for the General Fund was $64.26 million at the beginning of FY 2022-23. Of this amount, $24.04 million is dedicated to the reserve policy. Therefore, the City had a residual unassigned fund balance in excess of policy of $40.22 million at July 1, 2022.
Current year unaudited revenues and expenditures are shown in the below table:
Table 9 - Mid-Year Forecasted General Fund Residual Fund Balance at June 30, 2023:
|
Beginning Unassigned Fund Balance |
$64.26 |
|
Less FY 2021-22 Reserve Policy |
($24.04) |
|
July 1, 2022 Residual Unassigned Fund Balance |
$40.22 |
|
FY 2022-23 Mid-Year Forecasted Revenues |
$132.13 |
|
FY 2022-23 Mid-Year Forecasted Expenditures |
($131.06) |
|
Add FY 2021-22 Reserve Policy |
$24.04 |
|
Less FY 2022-23 Forecasted Reserve Policy |
($28.73) |
|
Forecasted Ending Residual Fund Balance |
$36.60 |
Over the last five years, the General Fund Residual Fund Balance has fluctuated between a low of $4.6 million at the end of FY 2017-18 to a high of $40.2 million at the end of FY 2021-22.
Table 10 - General Fund Residual Fund Balance Change FYs 2017-2023:
|
Fiscal Year |
2017-18 |
2018-19 |
2019-20 |
2020-21 |
2021-22 |
Forecasted 2022-23 |
|
Residual Fund Balance |
$4,644,428 |
$5,274,425 |
$18,552,899 |
$39,398,538 |
$40,218,941 |
$36,593,861 |
|
Y-o-Y Change |
|
13.6% |
251.8% |
112.4% |
2.1% |
-9.0% |
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, 2022, were $30.1 million, and actual expenditures were $23.2 million.
The Alameda Point/Base Reuse Fund had the most substantial actual revenues and expenses during the period. As of December 31, 2022, the Alameda Point/Base Reuse fund has received revenues of $8.1 million. Expenditures of $4.5 million were expended on 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 Improvement Projects Funds, which includes individual funds such as the Capital Improvement Projects (CIP), Construction Impact Fees, and Development Impact Fees, had actual expenditures of $17.1 million and revenue of $8.3 million at December 31, 2022. 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
Debt Service Funds group accounts for the long-term debt obligations of the City. As of December 31, 2022, the debt service funds received $1.1 million in revenue and spent $1.6 million. 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, 2022, the Sewer Services Fund received $6.3 million in revenue and had expenditures of $4.1 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, compensated absences, liabilities, and retiree medical and dental costs. Revenue for these funds is derived from charges to other funds, primarily the General Fund.
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).
The Successor Agency 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.
ALTERNATIVES
• Accept and file the report as there is no further action being requested.
• Do not accept the report.
FINANCIAL IMPACT
The FY 2022-23 first and second quarter report includes information detailing the variances between budgets and actuals for revenues, expenditures, and capital and maintenance projects through December 31, 2022.
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 action does not constitute a “project” as defined in California Environmental Quality Act (CEQA) Guidelines Section 15378 and therefore no further CEQA analysis is required.
CLIMATE IMPACTS
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Accept the unaudited first and second quarter Revenue and Expenditure Report for fiscal year 2022-23.
Respectfully submitted,
Margaret O’Brien, Finance Director
By,
Philip Chang, Budget Analyst
Exhibit:
1. Revenue & Expenditure Report