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Recommendation to Accept the Fourth Quarter Financial Report for the Period Ending June 30, 2016. [City Council and SACIC] (Finance 2410)
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To: Honorable Mayor and Members of the City Council
From: Jill Keimach, City Manager
Re: Recommendation to Accept the Fourth Quarter Financial Report for the Period Ending June 30, 2016
BACKGROUND
The fourth quarter’s financial report on all City funds has been completed, based upon actual audited revenues and expenditures through June 30, 2016. Quarterly report includes financial information for all City funds. The Quarterly Financial Report attached as Exhibit 1 includes the following:
• General Fund actual revenues by major category through June 30, 2016;
• General Fund actual expenditures by major department through June 30, 2016;
• Actual expenditures for the City’s capital and maintenance projects through June 30, 2016; and
• All Funds revenues, expenditures and changes in fund balance as of June 30, 2016.
DISCUSSION
This quarterly report provides the City Council with an update on the financial status of the City’s funds by comparing budget projections for revenues and expenditures to actual receipts and expenses. Budget amendments previously approved by the City Council have been included in this report. In addition, the grouping of the funds was updated to match the Comprehensive Annual Financial Report (CAFR).
General Fund
General Fund actual revenues as of June 30, 2016, were $88 million, or 102% of the Fiscal Year (FY) 2015-16 budget. Actual expenditures were $84 million, or 95% of the FY 2015-16 budget. General Fund revenues exceeded the budget projections by almost $2 million, and 5% higher compared to FY 2014-15 actual revenues.
General Fund major revenue categories are summarized on page 1 of the Exhibit 1. The City derives a significant portion of its General Fund revenues from economically sensitive sources such as Property Taxes, Sales Taxes (both the Bradley-Burns and Public Safety portions), Utility Users’ Taxes and Transfer Tax. When one or more of these key revenue sources deviates from projections, funding for future programs and services may be affected.
Revenues from Property Taxes have increased due to increased valuation assessments. Revenues from Sales Taxes, the second largest revenue source for the City’s General Fund, has increased compared to FY 2014-15 by 14%. The growth in Sales Tax revenues is due to the expanding economy and the continued growth in a number of businesses in the City.
Revenues from Franchise Taxes are 20% higher compared to the estimated revenues. Franchise Tax revenues are collected as a percent of the revenue earned within the City limits, including Alameda Municipal Power (AMP). Franchise fees change when the customer base expands, when additional services are used, when weather impacts the use of the utilities, and when rates change.
Transfer Taxes are higher over the prior year by $1.2 million due to home sales in an appreciating home value market as well as new development.
Typically, the renewal cycle for Business License tax occurs during the first months of the fiscal year; therefore most of the revenue anticipated for the year has been collected prior to the fourth quarter. The Business License Tax was lower compared to the estimated revenues by 5%. Transient Occupancy Taxes increased by 13% compared to the prior fiscal year and 15% higher than estimated, with a robust economy and low gas prices, business and personal travel remains strong.
The FY 2015-16 budget for the General Fund expenditures is $89 million as summarized on Page 2 of Exhibit 1. As of June 30, 2016, actual expenditures were $84 million, or 95% of the annual budget. In addition to Departmental expenditures, these numbers include General Fund transfers to compensated absences liabilities, the Police/Fire closed pension funds, post-employment benefits, facilities maintenance, and Library and Recreation funds. June 30, 2016, or the fourth quarter operating costs shows $4.5 million or 6% under budget. This is a result of departments being vigilant in reducing costs magnified by personnel vacancies mainly in Police, and general government Departments.
Special Revenue Funds
The Special Revenue Funds Group includes funds accounting for the City’s community development activities, streets funds, library operations, various assessment districts, and a recreation fund. The FY 2015-16 actual revenues at June 30, 2016, for all the funds in this fund group totaled over $46 million (95% of budget); actual expenses totaled $42 million (72% of budget). The Fund with the single largest actual revenues and expenditures during the period was the Base Reuse Fund. The fund received about $13 million in revenues from leases and had $13 million in expenditures mostly for professional services.
These Special Revenue funds are driven by grants or other specific funding sources and are used for specific purposes, such as transportation, public safety, and library-related programs. Such funding sources require revenues and expenditures to be tracked differently from the City’s main operating fund, the General Fund. There is sufficient funding for the completion of current projects or programs but the addition of any new programs or projects are dependent on the availability of future funding sources.
Capital Project Funds
The Capital Projects Funds group, which includes such individual funds as the Capital Improvement Projects Fund, construction funds, assessment districts, development impact fee funds and the Urban Runoff Fund, had an aggregate actual revenue of $22.8 million and expenditures of over $25 million at June 30, 2016. The fund incurred largest expenditures in the following projects:
• Cyclic Sewer
• Street Resurfacing
• Sidewalk Repair
• Sewer Pump Station Upgrades
• Signal, Striping, Systems
Many funds derive their revenues from the collection of impact fees from new development, which generate revenues and expenditures in different patterns from the City’s other operating funds. Out of more than 100 projects, 9 projects have experienced cost overruns. The typical reasons for these overruns include underestimating costs in initial project proposals and field changes that are required to complete a project but were unanticipated at the time the contract was awarded. To mitigate the risk of cost overruns in the future, the Finance Department is working with other Departments to ensure processes are in place to prevent the overspending, including ensuring adequate contingencies are in place prior to commencement of the project. There was sufficient fund balance to absorb the budget overrun.
Debt Service Funds
The Debt Service Funds group accounts for the long-term debt of the City, including Base Reuse. As of June 30, 2016, the available fund balances of all debt service funds was $1.4 million. Additional funds are transferred in 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 Funds group, consisting of the City’s Sewer Fund, requires proprietary fund balance reporting that includes cash, reserves, fixed assets, and related long-term debt of the fund. The total net position at June 30, 2016, for the Sewer Fund, was almost $73 million. Sufficient reserves are maintained to ensure completion of current projects and programs.
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 administrative (cost recovery) charges to other funds, primarily the General Fund. The fund balance of the Internal Service Funds group was over $16 million as of June 30, 2016.
The fund balance reflects the long-term liabilities for workers’ compensation claims (approximately $7.3 million at 6/30/2016), risk management claims (approximately $3 million at 6/30/2016) but not the unfunded portion of Other Post-Employment Benefits (OPEB), which was valued at $113 million as of January 1, 2015.
Trust and Agency Funds
The Trust and Agency Funds group includes bond funds for several bond issues that are not obligations of the City and a trust fund established for the Other Post-Employment Benefits (OPEB). The available balance for these funds group was over $11 million as of June 30, 2016.
Successor Agency
The Successor Agency is an entity separate from the City and accounted for in separate trust funds that are used to account for tax increment monies received and payments of items approved by the Oversight Board in the Required Obligation Payment Schedule (ROPS). Governmental accounting standards require that the full amount of debt outstanding be recorded as part of these funds. The deficit balance as of June 30, 2016, was $49 million, which reflects bonded debt outstanding of approximately $103 million, to be paid from future Redevelopment Property Transfer Tax Fund (RPTTF) revenue.
FINANCIAL IMPACT
The FY 2015-16 fourth quarter report includes information detailing the variances between budgets and actual for revenues, expenditures, capital and maintenance projects, as well as changes in fund balances through June 30, 2016. The Exhibit was created to present a representation of the City’s actual results and of available reserves for each fund through the end of the fourth quarter.
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 fourth 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.
RECOMMENDATION
Accept the Fourth Quarter Financial Report for the period ending June 30, 2016.
Respectfully submitted,
Elena Adair, Finance Director
Exhibit:
1. Fourth Quarter Financial Report