Title
Recommendation to Accept the Third Quarter Financial Report for the Period Ending March 31, 2017. [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 Third Quarter Financial Report for the Period Ending March 31, 2017
BACKGROUND
The third quarter’s financial report on all City funds has been completed, based upon actual revenues and expenditures through March 31, 2017. 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 March 31, 2017;
• General Fund actual expenditures by major department through March 31, 2017;
• Actual expenditures for the City’s capital and maintenance projects through March 31, 2017; and
• All Funds revenues, expenditures and changes in fund balance as of March 31, 2017.
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. The grouping of the funds matches the City’s Comprehensive Annual Financial Report (CAFR).
General Fund
The Fiscal Year (FY) 2016-17 annual budget, which includes mid-year adjustments, for the General Fund projected revenues is $88.6 million. The General Fund actual revenues as of March 31, 2017, were $54.8 million, or 62% of the FY 2016-17 budget. The FY 2016-17 appropriations, which include mid-year adjustments, for the General Fund, are $87.9 million. Actual expenditures were $59.2 million, or 67% of the FY 2016-17 budget. General Fund revenues and expenditures were 2% and 6%, respectively, 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 majority of the City’s property taxes are received between December and April. The Property Taxes received through March 31, 2017, were comparable to the same quarter last year. It is expected that this revenue category will be on target.
Sales Taxes, the second largest revenue source for the City’s General Fund, are remitted to the City from the State on an on-going basis. Sales Tax revenues are 30% higher compared to the same quarter last year mainly because the “triple flip” sales tax shift (25%) was still in effect in a prior year. Excluding the “triple flip” effect, overall sales tax revenue was 7% higher in comparison to the same quarter last year. Based on the discussions with the City’s sales tax consultant, the local sales activities remain strong.
The revenues from Franchise Taxes are 14% lower compared to the same quarter of last year due to the timing of recording receipt of the Alameda Municipal Power (AMP) transfer payment.
Transfer Taxes are lower over the same quarter as prior year by 16%. Approximately half of this decrease is due to the timing of the February 2017 Transfer Tax receipt and the other half is a result of a slowdown in home sales in an appreciating home value market.
Business License revenue was $2.2 million, or 103% of the FY 2016-17 budget as of March 31, 2017. This was a 20% 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 3% compared to the same quarter last fiscal year. As of March 31, 2017, the City has collected $1.4 million in the TOT, which is close to 70% of the FY 2016-17 Budget.
The FY 2016-17 budget for the General Fund expenditures, including mid-year adjustments, is $87.9 million as summarized on Page 2 or Exhibit 1. As of March 31, 2017, actual expenditure was $59.2 million, or 67% 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 53% to 79% of its annual budget for the third quarter of the fiscal year.
Special Revenue Funds
The FY 2016-17 actual revenues as of March 31, 2017, were $32.1 million or 66% of the annual budget and actual expenditures were $33.1 million or 57% of the annual budget. The fund with the single largest actual revenues and expenditures during the period was the Base Reuse and Community Development Funds. For the third quarter of FY 2016-17, these funds received a combined total revenues of $14.8 million from leases and fees and total expenditures of $13.4 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 $15.3 million for this quarter and expenditures of $18.4 million at March 31, 2017. The largest expenditures for the second quarter consisted of the following projects:
• Pavement Management
• Estuary Park Athletic Field Design
• Urban Forest Management
• Sidewalk Repair
• Beltline Development Phase Design
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 the 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 March 31, 2017, the fund balances of all debt service funds were $2 million. 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 as of March 31, 2017, for the Sewer Fund, was $70.8 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 $17.4 million as of March 31, 2017.
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 $11.4 million as of March 31, 2017.
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 March 31, 2017, was approximately $52 million, which reflects bonded debt to be paid from future Redevelopment Property Transfer Tax Fund (RPTTF) revenue.
FINANCIAL IMPACT
The FY 2016-17 third 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 March 31, 2017. Exhibit 1 was created to present the City’s actual results and fund balances for each fund through the end of the third 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 third 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 third quarter Financial Report for the period ending March 31, 2017.
Respectfully submitted,
Elena Adair, Finance Director
Exhibit:
1. Third Quarter Financial Report