Title
Recommendation to Accept the Third Quarter Financial Report for the Period Ending March 31, 2019. [City Council and SACIC] (Finance 2410)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
Accept the third quarter financial report for the period ending March 31, 2019. This report provides budget to actual comparison for the General Fund, fiscal year-to-date revenue and expenditures/expenses for all City of Alameda (City) funds, and life-to-date budget and actual expenditures for 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, 2019. 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, 2019;
• General Fund actual expenditures by major department through March 31, 2019;
• Actual expenditures for the City’s capital and maintenance projects through March 31, 2019; and
• All Funds revenues, expenditures and changes in fund balance as of March 31, 2019.
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 of $96 million. The General Fund’s actual revenues as of March 31, 2019, were $57 million, or 60% of the FY 2018-19 budget. The FY 2018-19 appropriations for the General Fund went up to $106 million as of the end of the third quarter. Actual expenditures as of March 31, 2019, were $68 million, or 65% of the FY 2018-19 budget. General Fund revenues were 6% lower compared to the same quarter in FY 2017-18. The decrease was a result of recording cost allocation to non-General Fund programs as a direct reduction of expenditures rather than a revenue in the General Fund. Excluding this accounting change, revenue collections were the same compared to the same quarter of the prior fiscal year. The largest dollar increases were in property and motor vehicle in lieu taxes and sales taxes.
The General Fund major revenue categories are summarized on page 1 of Exhibit 1. The City derives a significant portion of its General Fund revenues from market-sensitive sources such as property taxes, sales taxes (1% Bradley-Burns), utility users’ taxes, franchise fees and the 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, 2019, which are the current year secured and unsecured taxes, were 6% higher compared to the same quarter last year. The City is continually realizing a stable property tax-related revenue growth, as well as growth in construction of new housing units.
Sales taxes, one of the largest revenue sources for the City’s General Fund, is remitted to the City from the State on an on-going basis. Sales tax revenues were 8% higher compared to the same quarter last year. This revenue source is highly concentrated within a few major operators. Over 30% of the City’s sales tax is generated by its top five producers.
The revenues from utility user taxes and departmental revenues were each 2% lower compared to the same quarter of last year whereas franchise fees were 2% higher.
Transfer taxes, charged at the point of property resale, continued to generate exceptional revenues, yet were 16% lower over the same quarter of the prior year due to decreases 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. $1.1 million of the decrease was attributed to sales of properties with transfer tax values of over $0.5 million.
Business license revenue was $2 million, or 99% of the FY 2018-19 budget as of March 31, 2019. 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 was a slight 1% decrease in this revenue compared to the same period last fiscal year.
Year-to-date revenues from the transient occupancy tax (TOT) increased by 11% compared to the same quarter of last fiscal year. As of March 31, 2019, the City collected $1.5 million in TOT, which was 73% of the FY 2018-19 budget.
The FY 2018-19 budget for the General Fund expenditures is $105 million, as summarized on page 2 of Exhibit 1. Through March 31, 2019, operating expenditures in total are tracking at approximately 65% of the annual budget with administrative departments being on average at 43%, safety at 72%, and public works and recreation and parks at 74%.
Special Revenue Funds
The FY 2018-19 actual revenues at March 31, 2019, were $52 million or 95% of the annual budget and actual expenditures were $26 million or 43% 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 2018-19, this fund received revenues of over $27 million, mainly from sale of City-owned properties and lease revenues. Expenditures of $8 million were 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 activities, library-related programs, etc. Such funding sources are restricted in nature and require 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 storm drain, had an aggregate actual revenue of $12 million for this quarter and expenditures of $19 million at March 31, 2019. The largest expenditures for the third quarter consisted of the following projects:
• Clement Avenue and Tilden Way Complete Street (Project #91820);
• Jean Sweeney Open Space Park (Project #91309); and
• Pavement Management (Projects #91610 and #91810).
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 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 City departments to ensure processes are in place to prevent overspending, including ensuring project balances are kept up to date and that adequate contingencies are in place before the commencement of a project. There was sufficient fund balance available to absorb the budget overruns during this period of time.
Debt Service Funds
The Debt Service Funds group accounts for the long-term debt of the City, including Base Reuse. As of March 31, 2019, the fund balances of all debt service funds were $2.2 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 fund balance at March 31, 2019, for the Sewer Fund, was $80 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 $33 million at March 31, 2019.
The fund balance reflects the long-term liabilities for workers’ compensation claims and risk management claims, but not the net unfunded portion of Other Post-Employment Benefits (OPEB), which was valued at $102.9 million as of the 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 $18 million at March 31, 2019.
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 Recognized 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, 2019, was approximately $46 million, which reflects bonded indebtedness to be paid from future Redevelopment Property Transfer Tax Fund (RPTTF) revenue.
ALTERNATIVES
• Accept the report.
• Do not accept the report.
FINANCIAL IMPACT
The FY 2018-19 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, 2019. 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.
CLIMATE IMPACTS
There are no climate impacts from the acceptance of this report.
RECOMMENDATION
Accept the third quarter Financial Report for the period ending March 31, 2019.
CITY MANAGER RECOMMENDATION
The City Manager recommends acceptance of the third quarter Financial Report.
Respectfully submitted,
Elena Adair, Finance Director
Exhibit:
1. Third Quarter Financial Report
cc: Eric Levitt, City Manager
Gerry Beaudin, Assistant City Manager
Kevin R. Kearney, City Auditor