Title
Recommendation to Accept the First Quarter Financial Report for the Period Ending September 30, 2016. [City Council and SACIC] (Finance 2410)
Body
To: Honorable Mayor and Members of the City Council
From: Jill Keimach, City Manager
Re: Recommendation to Accept the First Quarter Financial Report for the Period Ending September 30, 2016
BACKGROUND
The first quarter’s financial report on all City funds has been completed, based upon actual revenues and expenditures through September 30, 2016. This quarterly report attached as the Exhibit 1 includes financial information for all City funds as follows:
• General Fund actual revenues by major category through September 30, 2016;
• General Fund actual expenditures by major department through September 30, 2016;
• Actual expenditures for the City’s capital and maintenance projects through September 30, 2016;
• All Funds revenues, expenditures and changes in fund balance as of September 30, 2016.
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 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
The Fiscal Year (FY) 2016-17 annual budget for the General Fund projected revenues is $83.9 million. The General Fund actual revenues as of September 30, 2016, were $10.4 million, or 12% of the FY 2016-17 budget. The FY 2016-17 appropriations for the General Fund are $85.2 million. Actual expenditures were $17.9 million, or 21% of the FY 2016-17 budget. General Fund revenues were 7% lower and expenditures were 4% higher compared to the same quarter in FY 2015-16.
The General Fund major revenue categories are summarized on page 1 of the Exhibit. 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.
The first major apportionment distribution of Property tax revenues for FY 2016-17 did not occur until December 2016. It is expected that this revenue category will be on target.
Sales Taxes, the second largest revenue source for the City’s General Fund, is remitted to the city from the State on an on-going basis. There is a delay in receiving this revenue, thus a lower percentage to date is represented in the schedule of revenues. Based on discussions with the City’s sales tax advisor, the local sales activities remain strong and we expect to meet the budgeted sales tax revenue target.
The revenues from Franchise Tax are 61% lower compared to the same quarter of last year due to the reclassification of Alameda Municipal Power (AMP) payment as a transfer out. Franchise Tax revenues are collected as a percent of the revenue earned within the City limits.
Transfer Taxes are lower over the same quarter as prior year by $160,000 or 8% due to the slowing down of home sales in an appreciating home value market.
Business license revenue was over $2.1 million, or 109% of the FY 2016-17 budget, at September 30, 2016. This was an 18% increase over the same time period during FY 2015-16. 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.
Year-to-date revenues from the Transient Occupancy Taxes (TOT) decreased by 14% compared to the same quarter last fiscal year. As of September 30, 2016, the City has collected $338,000 in the TOT, which is close to 18% of the FY 2016-17 Budget.
The FY 2016-17 budget for the General Fund expenditures is $85.2 million as summarized on Page 2 or Exhibit 1. As of September 30, 2016, actual expenditure was $17.9 million, or 21% of the annual budget. These expenditures include General Fund transfers to compensated absences liabilities, the Police/Fire pensions, post-employment benefits, facilities maintenance, and Library and Recreation funds. General Fund departmental expenditures range from 16% to 24% of its annual budget for the first quarter of the fiscal year.
Special Revenue Funds
The FY 2016-17 actual revenues at September 30, 2016, were $8.4 million or 18% of the annual budget and actual expenditures were $7.5 million or 14% of the annual budget. The fund with the single largest actual revenues and expenditures during the period was the Base Reuse and HOME Funds. For the first quarter of FY 2016-17, these funds received a combined total revenues of $4.7 million from leases and grants, and total expenditures of $3.6 million mostly expended on professional services.
These Special Revenue Funds are driven by grants or other specific funding sources and are used for specific purposes, such as transportation, building permit counter activity, library-related programs, etc. Such funding sources are restricted in nature which requires 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, which comprise of individual funds such as, the Capital Improvement Projects (CIP), Construction Impact Fee, Streets and Transportation, Development Impact Fee, Maintenance Assessment Districts, and the Urban Runoff, had an aggregate actual revenue of $296,000 for this quarter and expenditures of $4.8 million at September 30, 2016. The largest expenditures for the first quarter consisted of the following projects:
• Pavement Management
• Estuary Park Athletic Field Design
• Jean Sweeney Open Space Park
• LED Lights Replacements
• Tidal Canal
• Urban Forest Management
These funds derive their revenues from a combination of fees from new development, Gas Tax, and Measure B/BB, most of which generate revenues and expenditures in different patterns from the City’s other operating funds. There are some projects that 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 overruns.
Debt Service Funds
The Debt Service Funds group accounts for the long-term debt of the City, including Base Reuse. As of September 30, 2016, the fund balances of all debt service funds were $506,000. Sufficient 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 Fund, and requires proprietary fund balance reporting that includes cash, reserves, fixed assets, and related long-term debt. The net position at September 30, 2016, for the Sewer Fund, was $71.6 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 at September 30, 2016.
The fund balance reflects the long-term liabilities for workers’ compensation claims, risk management claims but not the unfunded portion of Other Post-Employment Benefits (OPEB), which was valued at $113 million as of January 1, 2015.
Fiduciary Funds
The Fiduciary 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 cumulative fund balance for these funds group was over $10 million at September 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 September 30, 2016, was approximately $50 million, which reflects bonded debt to be paid from future Redevelopment Property Transfer Tax Fund (RPTTF) revenue.
FINANCIAL IMPACT
The FY 2016-17 first 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 September 30, 2016. Exhibit 1 was created to present the City’s actual results and fund balances for each fund through the end of the first quarter of the fiscal year.
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 first quarter Financial Report for the period ending September 30, 2016.
Respectfully submitted,
Elena Adair, Finance Director
Exhibit:
1. First Quarter Financial Report