Title
A. QUARTERLY FINANCIAL REPORT FOR THE QUARTER ENDING MARCH 31, 2017
B. RESOLUTION NO. 2017-069 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA MAKING VARIOUS AMENDMENTS TO THE FISCAL YEAR 2016/17 BUDGET TO ADJUST FOR VARIANCES AND APPROPRIATING FUNDS THEREFOR (4/5 VOTE REQUIRED)
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RECOMMENDED ACTION
Recommended Action
Council accept the report and adopt the resolution.
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SUMMARY
The Finance Department prepares quarterly financial reports for the General Fund that reflect budget to actual comparisons, projected revenues and expenditures, and highlight major variances that may require additional action or changes. The quarterly financial reports are in compliance with Section 504 (f) of the City Charter, which requires that quarterly financial reports be filed by the Director of Finance through the City Manager.
In preparing the quarterly financial projections, staff has identified various budget changes that are needed to better reflect actual revenues and expenditures or address changes in budgetary needs. For government entities, a budget creates a legal framework for spending during the fiscal year. After the budget is approved there are circumstances, which arise that could require adjustments to the approved budget. Council Policy 220-02 “Financial Reporting and Transfer Authority” was established in January of 1996 and allows for budget transfers to be completed. This report discusses budget adjustments that staff recommends in the General Fund as well as various other funds.
ENVIRONMENTAL REVIEW
The Development Services Director has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that filing of the quarterly financial status report is not a “Project” as defined under Section 15378 of the State CEQA Guidelines because it will not result in a physical change to the environment; therefore, pursuant to Section 15060(c) (3) of the State CEQA Guidelines the actions proposed are not subject to CEQA.
Environmental Notice
Environmental Notice
The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c) (3) no environmental review is required.
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BOARD/COMMISSION RECOMMENDATION
Not applicable
DISCUSSION
The Finance Department prepares quarterly financial reports for the General Fund that reflect budget to actual comparisons, projected revenues and expenditures, and highlight major variances that may require additional action or changes. The quarterly financial reports are in compliance with Section 504 (f) of the City Charter, which requires that quarterly financial reports be filed by the Director of Finance through the City Manager.
Attachment A - Quarterly Financial Report provides the financial outlook for the General Fund for the current fiscal year and includes summary information for revenues and expenditures.
The following table summarizes the projections for the third quarter of fiscal year 2016/17 for the City’s General Fund. The amended budget column includes all Council approved changes to the fiscal year 2016/17 adopted budget that have taken place through the end of the third quarter ending March 31, 2017. The projected column lists the fiscal year 2016/17 projections for revenues and expenditures as of June 30, 2017. The following table reflects the available General Fund reserves as of July 1, 2016 (beginning fund balance) as well as the projected General Fund reserves for June 30, 2017 (projected ending fund balance).
Notes:
1. The FY2016/17 City Council Adopted budget was balanced and did not project an increase in fund balance for the General Fund. The minor deficit that is reflected in the Amended Budget column is a result of mid-year Council approved budget amendments.
2. The Amended Budget and projections reflected in this table do not include prior year appropriations for capital improvement projects and other encumbrances totaling $5.7 million that were carried forward into the fiscal year 2016/17 budget. These expenditure impacts are already reflected in the estimated fund balance as of July 1, 2016 and are therefore not included in the above table.
The City’s financial outlook improved as of the end of the third quarter review. The improvement in the outlook indicates that the City is projected to complete the current fiscal year within budget. This improvement can be attributed to focused management of the Police department’s overtime budget where significant strides were made in reducing the projected deficit that was estimated in the second quarter. The City’s financial outlook also improved due to projected retirement cost savings. These savings will be realized as a result of the City choosing the pre-payment option on the PERS amount owed to CalPERS for normal retirement costs and unfunded liability for fiscal year 2016/17. Similarly, as reported in the second quarter, the City’s financial performance continued to be mixed through the third quarter. The projections for both City expenditures and revenues yielded offsetting increases and decreases that resulted in a balanced projection for the end of current fiscal year.
Although the current fiscal year-end projection is balanced, there are additional considerations that may impact how the General Fund will end the current fiscal year. These items include the following:
• The Public Liability Expense Fund is anticipated to exceed the approved budget. Projected costs are trending higher due to increased litigation and settlement expenses and the reserve funds have been exhausted. In order to avoid ending the fiscal year with a deficit in this fund, it is likely that an additional transfer from the General Fund will be needed.
• Unanticipated expenditures that may present themselves in the 4th quarter.
• Rising levels of Workers Compensation claims.
• Setting funds aside into a pension reserve stabilization fund which could assist in addressing anticipated pension cost increases over the next few years and will be considered as a part of the long term financial planning process.
General Fund Revenues
The projections for the City’s major revenue categories including Property Taxes, Sales Tax, and Utility Users Taxes continued to diverge as projected revenues in these categories stabilized in the third quarter and were relatively unchanged. Projected Franchise Fee revenues however have been updated to reflect a $0.6 million deficit in comparison to the amended budget. Lower franchise fees are projected in comparison to the second quarter by approximately $0.7 million due to the following:
• Cable - In the second quarter report, staff had projected a 25% decrease in cable franchise fees from AT&T, one of two cable utility providers in the City. Although this decline was taken into consideration in the projections, staff was recently made aware of a one-time adjustment of over $400,000 as a result of a remittance error from Cox cable, the second of the City’s cable providers.
• Trash Franchise Fees - Through the second quarter, trash franchise fees increased 3% over the same timeframe from the previous year. In contrast, payments received through the third quarter decreased approximately 1% in comparison to the same time period in fiscal year 2015-16. This caused a downward fluctuation in trash franchise fees of about $150,000.
• Gas and Electricity - Another major change from the second quarter was a decrease in energy franchise fee revenue. The third quarter projection includes a revised projection for energy related revenues which decreased 6.7% from the previous fiscal year. This equates to a downward projection adjustment of approximately $174,000 for electricity and gas related franchise fees from the second quarter projection.
The other major revenue variances to report as of the end of the third quarter are as follows:
• Transfers In - The projection for the Transfers In revenue category was reduced by $1.1 million from the current amended budget in the third quarter as a result of a loan repayment from the Public Facilities Development Impact Fund that will not be realized in the current fiscal year. Staff is requesting a budget adjustment as part of this report to reduce the budget Transfer-In as a result of unanticipated personnel savings due to the pre-payment of CalPERS retirement costs.
• Use of Money and Property - The Use of Money and Property revenue category is projected to be lower by $0.2 million as result of lower rental and lease revenue for City Facilities.
The projected revenue shortfalls in the amended budget are estimated to be offset by projected increases in the following revenue categories:
• Charges for Services - Charges for Services revenues are projected to exceed the current budget by $0.7 million due to increased: Police Reimbursements, Fire Construction Fees, Passport Fees, and Developer Fees.
• Other Revenue - The Other Revenue category is projected to exceed the budget by $0.5 million as a result of increased reimbursement revenues.
Overall, General Fund revenues are projected to be lower by $0.8 million when compared to the fiscal year 2016-17 amended budget. The net impact of this projected shortfall is expected to be mitigated by expenditure savings resulting in no adverse impact to the General Fund.
General Fund Expenditures
The increasing expenditure trend that resulted in the reported expenditure deficit in the second quarter subsided as City expenditures leveled off in the third quarter. Overall, a $1.3 million savings in General Fund expenditures is projected as of the end of the third quarter when compared to the fiscal year 2016-17 amended budget. Despite the projected savings in the General Fund, some departments are projecting deficits in overall expenditures or within expenditure categories for the current fiscal year. These deficits are described as follows:
Personnel Services - The personnel services category was projected to exceed the General Fund budget by $0.9 million as reported in the second quarter. The third quarter projection indicates that personnel services costs will be $0.6 million under the current budget level. The improvement in the projection over the previous quarter is largely due to the recognition of retirement costs (PERS) savings that the City will generate as a result of prepayment of the PERS costs. A discussion of the PERS savings is included later in this report.
Although the personnel services category is overall projected to be within budget, there are some departments that are projected to exceed their personnel services budgets for various reasons. These are as follows:
• Police - The Police department is projected to exceed its personnel services budget by $0.4 million due to overtime costs. This is in contrast to the $1.6 million projected deficit in personnel services estimated in the second quarter. The Police Department has made a concentrated effort to mitigate their projected Personnel Services deficit. The improvement in the projection is due to the following actions:
1. Implementation of operational efficiencies, including protocol changes to investigation/lab call-outs and acting positions.
2. Closer monitoring of overtime usage and determination of whether overtime was necessary.
3. Emphasis of transparency by Police Command staff by increasing awareness of the overtime deficit and providing updates of staff efforts to achieve cost savings.
• Fire - The Fire department is projected to exceed its personnel services budget by $0.6 million primarily due to overtime costs. This projection also reflects the current fiscal year $116,000 impact of the labor negotiation agreement that was reached with the International Association of Firefighters (IAFF) Local 2180 union. The projected deficit is estimated to be offset with capital cost savings and over-realized revenues generated by fire construction fees.
• Library - The Library department is projected to exceed its personnel services budget by $0.1 million due to higher than anticipated hourly wages expenses. The increased hourly wage expenses are necessary to sustain current operational levels at Library branches. The net impact of this projected deficit is expected to be offset by over-realized passport fee revenues.
Supplies and Services - The supplies and services category is projected to exceed the General Fund budget by a net $0.5 million. The projected major overages by department for this category are as follows:
• Public Works - The Public Works department is projected to exceed its supplies and services budget by $0.4 million. This is due to unanticipated expenses related to numerous repairs to City facilities and infrastructure. The department will be transferring a portion of its supplies and services expenditures to other eligible cost centers and appropriating unanticipated revenue realized from insurance reimbursements in an effort to mitigate this deficit.
• Police - The Police department is projected to exceed its supplies and services budget by $0.2 million. The third quarter projection represents a $0.1 million improvement from the second quarter estimate. As previously reported, the cause for the deficit is due to ammunition, uniforms, training, and contractual costs. The Police department will continue its cost containment efforts to further mitigate this deficit through the end of the fiscal year.
• Fire - The Fire Department is projecting a $0.1 million deficit in its supplies and services budget primarily due to equipment rental charges and fleet maintenance expenses. The equipment rental expenses are due to rental charges for trailers used to house personnel at fire station 9 pending the completion of water damage repair. The fleet maintenance expenses are based on the projected charges to maintain/repair the Fire Department’s fleet in the current fiscal year. The department will explore offsetting this deficit by reviewing and closing supplies and services expenditure encumbrances and appropriating over-realized revenues.
• Non-Departmental - A $0.2 million deficit in the supplies and services category of the Non-Departmental budget is projected due to the Winter 2017 Storm event expenses that are captured in this projection. This deficit is projected to be largely offset by revenues that will be received upon completion of the damage claims process by the City.
Staff will continue to monitor General Fund expenses and look for potential cost saving measures in order to remain within budget.
Development Services Fund Overview
During the fiscal year 2016/17 budget development process, staff worked towards realigning resources and staffing to the change in workload activities within the Development Services Department. Based on trends through the third quarter, staff is projecting to end the current fiscal year balanced. Staff vacancies will generate expenditure savings, and cause a shortfall in revenues for staff reimbursements. Staff anticipates that this will result in a no net impact to the fund at year-end. Staff continues to monitor the Development Services Fund for any changes.
Budget Amendments (3rd Quarter)
Staff is recommending budget adjustments in the General Fund and Other funds as summarized in the following tables:
General Fund Adjustments (3rd Quarter)
|
General Fund Department |
Description |
Expense |
Revenue |
Net Cost |
|
Non-Departmental |
Increase in the transfer to the Liability Fund for projected increased litigation and settlement costs |
$303,430 |
$0 |
$303,430 |
|
|
$60,000 Transfer from Supplies and Services (from currently budgeted CVEATC insurance costs) to Transfers-Out for Utility Costs at CVEATC |
$0 |
$0 |
$0 |
|
|
Transfer In from AD97-2 for reimbursement to the General Fund for previous project expenditures incurred |
$0 |
$24,870 |
-$24,870 |
|
Development Services General Fund |
A $3,221 Transfer from Personnel Services to the Transfers-Out category for SANDG reimbursement. |
$0 |
$0 |
$0 |
|
Police |
Personnel Services appropriation for reimbursed overtime from special events |
$250,000 |
$250,000 |
$0 |
|
Public Works |
Appropriation to Supplies and Services category offset by insurance reimbursement revenue for damages at Fire Station 9 |
$65,000 |
$65,000 |
$0 |
|
|
A $100,000 transfer from salary savings to offset supplies services overages |
$0 |
$0 |
|
|
Library |
Appropriation to Supplies and Services of California Humanities Grant |
$5,000 |
$5,000 |
$0 |
|
|
Appropriation to Supplies and Services of various donations and reimbursement |
$3,861 |
$3,861 |
$0 |
|
TOTAL GENERAL FUND |
$627,291 |
$348,731 |
$278,560 |
Other Fund Adjustments (3rd Quarter)
|
Fund |
Description |
Expense |
Revenue |
Net Cost |
|
TUT Common Fund |
$229,167 transfer from CIP Project Expenditures and Non-CIP Project Expenditures categories to Supplies and Services to offset Public Works Department project costs |
$0 |
$0 |
$0 |
|
Transportation Sales Tax Fund |
Transfer from Development Services (General Fund) to reimburse for SANDAG project costs |
$0 |
$3,231 |
($3,231) |
|
|
Appropriation of 2016-17 SANDAG Grant Funds and Offsetting Revenues to CIP Expenditures |
$91,493 |
$91,493 |
$0 |
|
States Grant Fund |
Appropriation of Literacy Program Grant to Personnel Services |
$7,973 |
$7,973 |
$0 |
|
|
Appropriation of State Library Tech Act Grant to Supplies and Services |
$13,476 |
$13,476 |
$0 |
|
States Grant Fund |
Transfer of Housing Related Park Project Appropriations and Revenues to interest bearing account for proper grant administration |
($775,925) |
($775,925) |
$0 |
|
States Grant -Parkway Fund |
Transfer of Housing Related Park Project Appropriations and Revenues to interest bearing account for proper grant administration |
$775,925 |
$775,925 |
$0 |
|
Federal Grants Fund |
Appropriation of Refund to Supplies and Services |
$800 |
$800 |
$0 |
|
Public Liability Fund |
Appropriation of Transfer from General Fund for projected increased litigation costs |
$527,430 |
$527,430 |
$0 |
|
Open Space District 3 |
Appropriation to Supplies and Services for Brush Clearing Services |
$10,000 |
$0 |
$10,000 |
|
CV Elite Athlete Training Center |
Appropriations for unanticipated one-time expenditures related to the acquisition of the CV Elite Athlete Training Center (CVEATC). These costs are offset by a Transfer in from the General Fund ($60,000). Appropriations are also being requested for utilities cost that the City is disbursing, however is being reimbursed for contractually ($170,000). |
$230,000 |
$230,000 |
$0 |
|
Long-term Advances DSF-City |
Adjustment for the Public Facilities Development Impact Fee Fund loan repayment of the to the General Fund |
($1,134,162) |
($1,134,162) |
$0 |
|
AD79-2 (Assessment District) |
Appropriation to reimburse General Fund offset by transfer from Fund 474 2010 COP Refinance |
$24,870 |
$24,870 |
$0 |
|
PFDIF - Civic Center Expansion |
Adjustment for the Public Facilities Development Impact Fee Fund loan repayment of the to the General Fund |
($1,134,162) |
$0 |
($1,134,162) |
|
2010 COP Refinance |
A Transfer-Out to AD79-2 to reimburse the General Fund for project expenditures previously incurred. |
$24,870 |
$0 |
$24,870 |
|
RDA 2008 TARBS Project Fund - Successor Agency |
Appropriation from the available balance of this fund for expenditures related to CIP project number STM241 (Third Avenue Streetscape Phase 2 |
$47,596 |
$0 |
$47,596 |
|
TOTAL OTHER FUNDS |
($1,289,816) |
($234,889) |
($1,054,927) |
In addition, staff is recommending the following budget adjustments in order to align various funds due to debt refinancing/refunding activities that have taken place in the current fiscal year. These adjustments are described as follows:
Tax Allocation Refunding Bonds, Series 2016 (2016 TARBs) (Fund 666), 2006 Senior Tax Allocation Refunding Bonds, Series A (Fund 663), 2006 Subordinate Tax Allocation Refunding Bonds, Series B (Fund664) and 2008 Tax Allocation Refunding Bonds (665) - In July of 2016, the 2006 Senior Tax Allocation Refunding Bonds, Series A (Fund 663), the 2006 Subordinate Tax Allocation Refunding Bonds, Series B (Fund 664), and the 2008 Tax Allocation Refunding Bonds (Fund 665) were refinanced by the 2016 TARBs. As a result of the refinancing, staff is requesting an appropriation of $1,518,250 to the Other Expense category and $5,000 to the Supplies & Services category of fund 666. The appropriation is necessary to account for the Cost of Issuance, Underwriter’s discount, Interest Expense & Contracted Services on the bonds. These appropriations requested for fund 666 will be offset by a reduction in appropriation to funds 663, 664 and 665 in the Other Expense category as well as the Supplies & Services category.
The transfers out related to the debt service in Funds 318 will be reduced as a result of the refunding savings. In addition, the transfers in this fund will now be budgeted in Fund 666 from Fund 663, 664, and 665.
2016 Refunding Certificates of Participation (2016 COP) (Fund 477) & 2006 Certificates of Participation (2006 COP) (Fund 473) - In July of 2016, the 2006 Certificates of Participation (Fund 473) were refinanced by the 2016 COP. As a result of the refinancing, staff is requesting an appropriation of $310,710 to the Other Expense category and $5,100 to the Supplies & Services Category of fund 477. The appropriation is necessary to account for the Cost of Issuance, Underwriters discount, Interest Expense and Contracted Services on the bonds.
In addition, staff is requesting an appropriation of $8,755,100 to the Other Expense category of fund 473. The appropriation is necessary to account for Principal Expense and debt defeasance. These costs will be fully offset by bond proceeds, which results in a no net impact to fund 473.
The transfers out related to the debt service in Funds 100 and 572 will be reduced as a result of the refunding savings. In addition, the transfers out budgets in these funds will be redirected to Fund 477 from Fund 473.
2016 Lease Revenue Refunding Bonds (2016 LRRB) (Fund 478) & 2010 Certificates of Participation (2010 COP) (Fund 474) - In July of 2016, the 2010 Certificates of Participation (Fund 474) were refinanced by the 2016 LRRB. As a result of the refinancing, staff is requesting an appropriation of $2,456,740 to the Other Expense category and $5,000 to the Supplies & Services category of Fund 478. The appropriation is necessary to account for the Cost of Issuance, Underwriters discount, Principal and Interest payments and Contracted Services on the bonds.
In addition, staff is requesting an appropriation of $26,200,100 to the Other Expense category of fund 474. The appropriation is necessary to account for Principal Expense and debt defeasance. These costs will be fully offset by bond proceeds, resulting in no net impact to fund 474.
The transfers out related to the debt service in Funds 100, 572 and 574 will be reduced accordingly as a result of the refunding savings. In addition, the transfers out budgets in these funds will be redirected to Fund 478 from Fund 474.
The requested adjustments as described above are summarized in the following table:
Summary of Refinancing/Refunding Budget Adjustments by Fund
Retirement Cost (PERS) Savings Adjustments
In the current year, the City chose the pre-payment option with respect to the PERS amount owed to CalPERS for normal retirement costs and unfunded liability for fiscal year 2016/17. As a result of this decision, the City is projected to realize a one-time PERS cost savings estimated at $1.3 million in the General Fund. Earlier this year, the estimated savings were encumbered to ensure their availability. Staff is recommending that the estimated savings amount be reduced from the Personnel Services category of the General Fund departments. This expenditure reduction will be partially offset with a reduction to the Transfers In category of Non-Departmental for the budgeted $1.1 million repayment of the Public Facilities Development Impact Fund loan to the General Fund. Staff anticipates the use of this repayment to the General Fund in fiscal year 2018-19, or in future fiscal years, to mitigate estimated budget deficits. Overall, the unanticipated PERS savings results in a net positive impact to the General Fund of $164,422. The recommended adjustments are summarized on the following table:
DECISION-MAKER CONFLICT
Staff has reviewed the property holdings of the City Council of the City of Chula Vista members and has found no property holdings within 500 feet of the boundaries of the property which is the subject of this action. Consequently, this item does not present a disqualifying real property-related financial conflict of interest under California Code of Regulations Title 2, section 18702.2(a)(11), for purposes of the Political Reform Act (Cal. Gov’t Code §87100,et seq.).
Staff is not independently aware, and has not been informed by any City of Chula Vista City Council member, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
LINK TO STRATEGIC GOALS
The City’s Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community. This action supports the Operational Excellence goal by communicating the City’s projected financial position for the current fiscal year in an open and transparent manner. This transparency supports City Initiative 1.3.1. - “Foster public trust through an open and ethical government.”
CURRENT YEAR FISCAL IMPACT
There is no fiscal impact resulting from accepting the Quarterly Financial Report.
General Fund - Approval of the resolution amending the fiscal year 2016/17 budget will result in a negative net budgetary impact to the General Fund of $96,480 due to: the increase in the transfer to the Public Liability Fund, PERS pre-payment savings and savings from the refinancing/refunding activities, and other adjustments. The other requested changes for General Fund departments have no net impact to the General Fund as the changes are revenue offset or reflect offsetting transfers between expenditure categories.
Other Funds - The recommended changes in the Other Funds not related to the refinancing/refunding activities undertaken by the City, result in a total reduction of $1.3 million in appropriations to these funds and a reduction of $0.2 in revenues. The total net impact of these changes is a positive $1.1 million to the Other Funds.
The recommended changes in the Other Funds related to the refinancing/refunding activities undertaken by the City result in recommended expense adjustments totaling $115.2 million offset by $124.4 million in revenues for an overall positive net budgetary impact of $9.2 million.
ONGOING FISCAL IMPACT
Staff will continue to monitor and analyze revenue and expenditure trends and incorporate changes as necessary into future financial reports and/or budgets.
ATTACHMENTS
1. FY2017 Third Quarter Financial Report
Staff Contact: Tessa Nguyen, Finance Department
David Bilby, Finance Department