Title
Recommendation to Accept the Third Quarter Financial Report for the Period Ending March 31, 2018. [City Council and SACIC] (Finance 2410)
Body
To: Honorable Mayor and Members of the City Council
From: David L. Rudat, Interim City Manager
EXECUTIVE SUMMARY
Accept the second quarter financial report for the period ending March 31, 2018. This report provides budget to actual comparison for the General Fund, fiscal year-to-date revenue and expenditures/expenses for all City funds, and life-to-date budget and actual expenditures for the active capital and maintenance projects.
BACKGROUND
The City Charter Article XVII Sec. 17-10 requires a presentation of a quarterly report to the Mayor and the City Council. The third quarter’s financial report on all City funds has been completed, based upon actual revenues and expenditures through March 31, 2018. This quarterly report attached as Exhibit 1 includes financial information for all City funds as follows:
• General Fund actual revenues by major category through March 31, 2018;
• General Fund actual expenditures by major department through March 31, 2018;
• Actual expenditures for the City’s capital and maintenance projects through March 31, 2018; and
• All Funds revenues, expenditures and changes in fund balance as of March 31, 2018.
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) 2017-18 annual budget for the General Fund projected revenues is $92 million. The General Fund actual revenues as of March 31, 2018, were $61 million, or 66% of the FY 2017-18 budget. The FY 2017-18 appropriations for the General Fund are $105 million. Actual expenditures were $78 million, or 74% of the FY 2017-18 budget. General Fund revenues were 11% higher compared to the same quarter in FY 2016-17.
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 (1% Bradley-Burns), 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 collected through March 31, 2018, which are the current year secured and unsecured taxes, were 5% higher compared to the same quarter last year. The City is continually realizing a stable property tax related revenue growth.
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. Sales Tax revenues are 5% higher compared to the same quarter last year. Alameda’s sales tax revenue is substantially generated from business industry sources and 30% is generated by its top 5 producers.
The revenues from Franchise Fees are 35% lower compared to the same quarter of last year due to the reclassification of Alameda Municipal Power (AMP) Franchise Fee as transfer in the current fiscal year. New classification is in accordance with the classification in the City Charter. Excluding this reclassification, Franchise Fees are 7% lower over the same quarter of prior year due to timing of the receipts.
Transfer Taxes, charged at the point of property resale, continues to generate exceptional revenues and are 98% higher over the same quarter of prior year due to increase in the transfer of the title of real property from one person (or entity) to another within the jurisdiction based on the property’s sale price. Four million of this increase was generated from three parcel sales: the Summer House, Vue Alameda, and Panomar Apartment Complexes.
Business License revenue was $2 million, or 100% of the FY 2017-18 budget as of March 31, 2018. The renewal of business licenses occurs during the first quarter of the fiscal year; therefore, most of the revenue anticipated for the year has been collected. There were no changes in this revenue over the same period during FY 2016-17.
Year-to-date revenues from the Transient Occupancy Taxes (TOT) decreased by 2% compared to the same quarter last fiscal year. As of March 31, 2018, the City has collected $1.4 in TOT, which is 65% of the FY 2017-18 Budget.
The FY 2017-18 budget for the General Fund expenditures is $105 million as summarized on Page 2 or Exhibit 1. Operating expenses in total, by category, and by the department are all tracking at approximately 74% of the annual budget through March 31, 2018. The significant variances in transfers are due to the funding of the Other Post-Employment Benefits, CalPERS unfunded liability pre-payment, and Pension trust as well as various Capital Projects. With CalPERS pre-payment of its unfunded liability, the City will realize over $1 million of savings based on the current discount rate assumed by CalPERS.
Special Revenue Funds
The FY 2017-18 actual revenues at March 31, 2018, were $35 million or 71% of the annual budget and actual expenditures were $29 million or 44% of the annual budget. The fund with the most substantial actual revenues and expenses during the period was the Base Reuse Fund. For the third quarter of FY 2017-18, this fund received revenues of over $13 million from leases and developer contributions and expenditures of $11 million expended on the development and implementation of community plans for revitalization and redevelopment of the base into a mixed-use, transit-oriented development.
The 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 primary 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 $24 million for this quarter and expenditures of $19 million at March 31, 2018. The largest expenditures for the third quarter consisted of the following projects:
• Pavement Management
• Estuary Park Field Design
• Cross Alameda Trail
• Jean Sweeney Park
These funds derive their revenues from a combination of fees from new development, Gas Tax and Regional Measure B/BB, most of which generate revenues and expenditures in different patterns from the City’s other operating funds. Some 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, the Finance Department continues to work with the Departments to ensure processes are in place to prevent the overspending, including ensuring project balances are kept up to date, and adequate contingencies are in place before 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, 2018, the fund balances of all debt service funds were $1.3 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 at March 31, 2018, for the Sewer Fund, was $76 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 $26 million at March 31, 2018.
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 $105.5 million as of June 30, 2016.
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 $16 million at March 31, 2018.
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, 2018, was approximately $46 million, which reflects bonded indebtedness to be paid from future Redevelopment Property Transfer Tax Fund (RPTTF) revenue.
FINANCIAL IMPACT
The FY 2017-18 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, 2018. 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, 2018.
Respectfully submitted,
Elena Adair, Finance Director
Exhibit:
1. Third Quarter Financial Report