Title
Recommendation to Accept the First Quarter Financial Report for the Period Ending September 30, 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 first quarter financial report for the period ending September 30, 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 first quarter’s financial report on all City funds has been completed, based upon actual revenues and expenditures through September 30, 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 September 30, 2018;
• General Fund actual expenditures by major department through September 30, 2018;
• Actual expenditures for the City’s capital and maintenance projects through September 30, 2018; and
• All Funds revenues, expenditures and changes in fund balance as of September 30, 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) 2018-19 annual budget for the General Fund projected revenues is $91 million. The General Fund actual revenues as of September 30, 2018, were $11 million, or 12% of the FY 2018-19 budget. The FY 2018-19 appropriations for the General Fund are $91 million. Actual expenditures as of September 30, 2018, were $20 million, or 22% of the FY 2018-19 Budget. General Fund revenues were 7% higher compared to the same quarter in FY 2017-18.
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 September 30, 2018, which are the current year unsecured taxes, were 4% 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 23% lower compared to the same quarter last year due to the timing of receipts as a result of new system implementation by the California Department of Tax and Fee Administration. This revenue source is highly concentrated within a few major operators. Over 30% of the City’s sales tax is generated by its top 5 producers.
The revenues from Franchise Fees are 13% higher compared to the same quarter of last year due to timing of the receipts.
Transfer Taxes, charged at the point of property resale, continues to generate exceptional revenues and are 63% 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. The significant increase in revenues is due to the sale of South Shore Beach & Tennis Club.
Business License revenue was $2 million, or 93% of the FY 2018-19 budget as of September 30, 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 slight 2% decrease in this revenue compared to the same period last fiscal year.
Year-to-date revenues from the Transient Occupancy Taxes (TOT) increased slightly by 22% compared to the same quarter last fiscal year. As of September 30, 2018, the City has collected $416,000 in TOT, which is 20% of the FY 2018-19 Budget.
The FY 2018-19 budget for the General Fund expenditures is $91 million as summarized on Page 2 or Exhibit 1. Operating expenditures in total, by category, and by the department are all tracking at approximately 22% of the annual budget through September 30, 2018. The significant variances in transfers compared to prior fiscal year are due to the funding of the Other Post-Employment Benefits, pay down of CalPERS unfunded liability, funding of IRC Section 115 Pension/OPEB Trust as well as various Capital Projects. With prepaying CalPERS unfunded liability, the City is realizing over $1 million in savings in the current year based on the CalPERS discount rate in place.
Special Revenue Funds
The FY 2018-19 actual revenues at September 30, 2018, were $17 million or 34% of the annual budget and actual expenditures were $8 million or 14% of the annual budget. The fund with the most substantial actual revenues and expenditures during the period was the Base Reuse Fund. For the first quarter of FY 2018-19, this fund received revenues of over $11 million from leases and developer contributions and had expenditures of close to $3 million spent 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 $1.6 million for this quarter and expenditures of $5.2 million at September 30, 2018. The largest expenditures for the first quarter consisted of the following projects:
• Clement Avenue and Tilden Way Project
• Jean Sweeney Park
• Seaplane Lagoon Ferry Terminal
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 in prior years. 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 going forward, 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 September 30, 2018, the fund balances of all debt service funds were $1.1 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 September 30, 2018, for the Sewer Fund, was $81 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 $29 million at September 30, 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 $102.9 million as of June 30, 2018 actuarial report.
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 $17 million at September 30, 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 September 30, 2018, was approximately $48 million, which reflects bonded indebtedness to be paid from future Redevelopment Property Transfer Tax Fund (RPTTF) revenue.
FINANCIAL IMPACT
The FY 2018-19 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, 2018. 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 first 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, 2018.
Respectfully submitted,
Elena Adair, Finance Director
Exhibit:
1. First Quarter Financial Report