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QUARTERLY FINANCIAL REPORT FOR THE QUARTER ENDING MARCH 31, 2014 AND CONSIDERATION OF AMENDMENTS TO THE FISCAL YEAR 2013/2014 BUDGET
A. RESOLUTION NO. 2014-078 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA MAKING VARIOUS AMENDMENTS TO THE FISCAL YEAR 2013/2014 BUDGET TO ADJUST FOR VARIANCES AND APPROPRIATING FUNDS THEREFOR (4/5 VOTE REQUIRED)
B. RESOLUTION NO. 2014-005 OF THE SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY OF CHULA VISTA AMENDING THE REDEVELOPMENT OBLIGATION RETIREMENT FUND BY TRANSFERRING $45,660 FROM THE PERSONNEL SERVICES CATEGORY TO THE OTHER EXPENSES CATEGORY (4/5 VOTE REQUIRED)
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RECOMMENDED ACTION
Recommended Action
Council/Agency accept the report. Council adopt resolution A and Agency adopt resolution B.
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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 is recommending in the current year General Fund as well as various other funds.
ENVIRONMENTAL REVIEW
The Development Services Director has reviewed the proposed activity, appropriating funds per settlement terms, for compliance with the California Environmental Quality Act (CEQA) and has determined that this activity 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.
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.
General Fund Summary
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 based on expenditures and revenues through the third quarter of fiscal year 2013/14 for the City's General Fund. The amended budget column includes all Council approved changes to the fiscal year 2013/14 adopted budget through March 31, 2014 (the end of the third quarter). The projected column lists the estimated revenues and expenditures for June 30, 2014, the end of fiscal year 2013/14. The table also reflects the projected impact to the City's reserves.
Notes:
1. The Amended Budget and projections reflected in this table do not include prior year appropriations for capital improvement projects and other encumbrances that were carried forward into the fiscal year 2013/14 budget. These expenditure impacts are already reflected in the estimated fund balance as of July 1, 2013 and are therefore not included in the above table.
2. The Percentage of Operating Budget percent reserve listed under the Amended Budget is based on the Council Adopted Budget of $127.8 million.
As noted above, the General Fund is projected to end the current fiscal year with a surplus of $2.2 million; this is largely due to better than anticipated revenues. General Fund revenues are projected to exceed budget by approximately $2.2 million. This increase is mainly due to the recognition of Telephone Users' Tax (TUT) revenues. With the settlement of the class action lawsuit class challenging the City's collection of TUT from wireless customers, the City will now recognize these revenues going forward. These revenues are also included in the City Manager's Proposed Budget for fiscal year 2014-15. Staff recommends placing the current year TUT revenues in reserves to mitigate potential shortfalls from possible reductions in TUT. General Fund expenditures are tracking close to budget - it is anticipated that the General Fund will end the fiscal year with approximately $200,000 in expenditure savings, which equates to 0.2% of the operating budget. Significant expenditure savings are projected in the Personnel Services category; however, staff is recommending the transfer of these savings to address equipment needs in Public Safety and other funding needs. The requests for appropriations for these changes are included in the agenda statement that accompanies this report.
General Fund Revenues
Overall, revenues are expected to exceed budgeted levels by a net $2.2 million. This increase is primarily due to the recognition of TUT revenues. Variances in projected revenue categories include the following changes:
· A $3.3 million increase in Utility Users Tax - this category includes TUT revenues. As mentioned previously, as a result of the settlement of the class action lawsuit the City will now recognize TUT revenues related to wireless customers.
· A decrease of $0.8 million in Revenue from Other Agencies that will not be realized in the Police Department as result of decreased participation in reimbursed task force activities and grant revenue shortfalls due to vacancies. The projected short-fall in Revenue from Other Agencies was discussed in the Second Quarter Financial Report.
· A $0.7 million decrease in sales taxes due to lower than projected taxable sales activity within the City.
· A net increase of $0.5 million in Property Tax revenue. The property tax projection is unchanged from the second quarter.
· A $0.3 million decrease in the Transfers In revenues category due to lower than anticipated reimbursement from various city funds.
Other revenue categories including Charges for Services, Licenses and Permits and Fines Forfeitures and Penalties revenues are projected to fall below budget as identified in the Second Quarter Financial Report. The balance of the City's revenue categories including Motor Vehicle License, Transient Occupancy Taxes and Other Revenues and Other Local Taxes are projected to slightly exceed the budget. However, the projections for these revenues have also been decreased in the third quarter.
General Fund Expenditures
Based on the third quarter review, it is projected that the City's operating budget will be almost fully expended by the end of the current fiscal year. An estimated $0.2 million savings in the General Fund is projected as of the end of third quarter. This projection represents the cumulative net impact of the estimated savings and additional expenditures across all of the City's expenditure categories. The estimated savings are comprised of the following variances:
Based on expenditure trends through the end of the third quarter, General Fund expenditures are projected to be under budget by an estimated $0.2 million. This estimated expenditure savings consists of the following:
· Personnel Services - A projected $1.6 million savings in Personnel Services due to vacant positions. The majority of these savings are in the Police Department ($1.5 million). The balance of the estimated savings consists of a projected combined $0.8 million dollar savings across various departments that are offset by $0.7 million in budgeted salary savings in Non-Departmental and a net $0.1 million projected deficit in the Fire Department due to constant minimum overtime expenses.
· Transfers Out - A projected deficit of $1.0 million in the Transfers Out category due to increased transfers out from the General Fund to various funds. The increased transfers include:
o A $0.6 million transfer to the Technology Replacement Fund for the purchase of Police radio equipment that is necessary in order to keep pace with scheduled upgrades to the County regional communications system and to ensure inter-operability.
o A $0.2 million transfer to the Residential Construction Tax Fund to fund required debt service obligations. RCT revenues are tracking lower than anticipated due to a slow-down in development activity.
o A $0.1 million transfer to the Development Services Fund for City subsidized energy efficiency related permitting services.
· Supplies and Services - A transfer from the Personnel Services expenditure category to the Supplies and Services expense category of the Police department of $0.3 million is included in the projection. This expenditure is needed to address IT related needs in the Police Department.
· Capital - A $0.1 million in the Police Department Capital expenditure appropriation that is funded by a transfer from the Personnel Services expenditure category is also assumed in the projection. This transfer is needed for the purchase of body cameras in the Police Department.
The requests for these appropriations are presented this report. The projections for the other major expenditure categories do not vary significantly from the budget.
Development Services Fund
The Development Services Department Enterprise fund consists of Land Development, Development Planning, the DSF Front Counter and the Building Department. The Development Services Fund ended its first two fiscal years with revenues that fell short of expenditures. Every year since, revenues have exceeded expenditures. This is due in large part to increased building permits. Currently, revenues are not tracking where they had been for the past three years; and staff is projecting a deficit of approximately $500,000 in the Development Services Fund. However, Development Services is processing more entitlements then at any time in the Department's history and processing more plan checks then the last three years.
Currently there are approximately 1,600 residential units in plan check that can potentially pull their building permits before the end of the fiscal year so that the fund will have adequate revenues to cover expenditures. However, as the City does not control the timing of permits, staff has based the projections on current trends. It is important to note that the nature of the work in the enterprise fund is beginning to change from one of processing planning documents to one of processing building and improvement plans. This change in activity may require modification to the existing composition of staff in Development Services Fund in order to remain responsive to the work being received.
The table below compares the budgeted revenue and expenditures to the projected revenues and expenditures for June 30, 2014. As noted above, expenditures are currently on trend to exceed revenues. Staff will continue to monitor this projected shortfall and will make adjustments in an effort to mitigate any adverse impact to the Development Services Fund's reserves.
BUDGET AMENDMENTS
General Fund Amendments
Staff is recommending budget amendments in the following departments - Animal Care Facility, Public Works, Police, Non-Departmental, Recreation, City Attorney, and Fire departments. These amendments are as follows:
Animal Care Facility (CVACF) - The Animal Care Facility is requesting an appropriation of $12,000 to the supplies and services category for the purchase of medical supplies. The medical supplies will be used to expand vaccination services for the increased animal population at the Animal Care Facility. This appropriation will be funded from unanticipated donation revenues that have been received by the department.
Public Works - The Public Works Department is requesting the following budget changes:
· A $100,000 appropriation to the Non-CIP Project Expenditure category is recommended for the Public Works Department to address citywide facility maintenance and repair issues. This appropriation will be offset from projected savings within the Public Works' Personnel Services and Utility expenditure categories. Personnel Services has unanticipated salary savings due to vacancies.
· An appropriation of $17,560 to the Supplies & Services category of the Construction Inspection Budget to pay for the repair and replacement of the bollards that were damaged due to an accident that took place on Third Avenue. The requested Supplies and Services appropriations will be offset by unanticipated revenue received from the responsible insurance company that have been realized in the Human Resources Department.
· The Public Works Department has also received a $1,000 donation from the San Diego Chapter of the American Public Works Association and is requesting to appropriate these funds to the Personnel Services expenditure category to fund a pilot internship program within the department.
Police - The Police Department is requesting a $1,125,000 transfer from the Personnel Services expenditure category to various expenditure categories within the Police Department and to the Technology Replacement Fund. The transfer is funded by projected Police Department personnel services savings. The proposed distribution of this transfer is as follows:
· $600,000 will be transferred to the Technology Replacement Fund for the future purchase of Police radio equipment. The purchase of this equipment will allow the Police Department to begin the transition to the to the County's updated regional radio system, ensuring the Police Department's continued regional interoperability.
· $100,000 will be transferred to the Capital expenditure category of the Police Department budget for the purchase of body worn camera equipment. Body worn cameras have been shown to significantly reduce the number of complaints against officers, reduce the number of use-of-force incidents and provide the public with the peace of mind that the Police Department is committed to ensuring high quality policing services. The Department will be purchasing approximately 100 body cameras for deployment in the Patrol division and contracting with Evidence.Com to provide cloud storage for all of the officer video.
· $425,000 will be transferred to the Supplies and Services expenditure category of the Police Department budget. $300,000 of this amount will be used to purchase contracted technical support services for the body worn camera equipment. The balance of the transferred funds will be used to address the following operational needs:
o Increased costs in uniforms and leather gear to equip sworn employees due to recent officer hires and recruits placed in police academies, coupled with numerous assignment rotations due to Patrol staffing shortages.
o The one-time training costs for new canines to replace two recently retired canines from service in the K9 unit.
o Police Facility repairs that have included repairs to roll-up gates, proximity card repairs, and ADA (American Disability Act) compliance facility modifications.
o Travel costs for International Association of Chiefs of Police (IACP), California Police Chiefs Association (CPCA) and Benchmark Cities Conference.
Non-Departmental - The following budget changes are recommended in the Non-Departmental budget:
· An appropriation of $0.3 million in the Transfers-Out expenditure category to address the following:
o A $200,000 increase in the transfer to the Residential Construction Tax Fund (RCT) to address revenue short-falls in the RCT fund due to decreased construction activity. These additional funds will help ensure the RCT fund can meet its debt service obligations.
o A $133,471 increase in the transfer to the Development Services Fund for higher than anticipated subsidized permitting activities related to the issuance of permits for of energy efficiency projects.
o An $11,696 increase in the transfer to the Local Law Enforcement Block Grant (LLEBG) Fund augmenting the City's grant match needed to meet personnel expenses in the LLEBG fund.
· An appropriation of $28,774 to the Services and Supplies expense category. The City contracts for sales tax audits that monitor the collection of sales tax from City businesses. Fees are paid to the firms contingent upon them finding businesses that have not reported or have under reported their sales tax obligation to the City. These fees are paid based on a percentage of the finding. The City currently contracts with Hinderlighter de Lamas (HdL) and MuniServices in the past. The two firms have submitted invoices for contingent fees that are higher than projected for the budget. This request is for an appropriation to pay MuniServices ($21,174) and HdL ($7,600). This appropriation request of $28,774 is offset by the additional sales tax collected as a result of the two firm's audits.
· An appropriation of $26,362 is requested to the Other Expenses category. The former Redevelopment Agency entered into a Reciprocal Grant of Easements and Declaration of Establishing Restrictions and Covenants agreement on 8-01-1988 (Resolution 936). The declaration created reciprocal rights and obligations between the City and certain parcels that were affected by the construction of the City-owned parking structure on Third Ave and F Streets. The agreement created easements for access to and from the parking structure, as well as a common area easement. In exchange for these easements the former Redevelopment Agency and now the Successor Agency (Agency) agreed to rebate possessory interest taxes payable to the County of San Diego for four parcels adjacent to the parking structure. The Agency has submitted this agreement to the State Department of Finance (DOF) as an enforceable obligation of the Agency. The DOF rejected the agreement as an enforceable obligation of the Agency based on language contained in the agreement. That language said in part that "the Agency or upon its deactivation, the City shall reimburse
or their successors in the amount of said payment". The General Fund is now obligated to reimburse the parcel owners possessory interest taxes in the amount of $26,362. This request for an appropriation of $26,362 will result in a net fiscal impact to the General Fund.
· An appropriation of $3,344,130 in Utility Users Tax revenue category. As previously discussed, the City has reached a settlement in the class action lawsuit related to wireless Telephone Users' Tax. In a previous action, the City Council recognized and appropriated $8.0 million in TUT revenues realized in prior fiscal years. The appropriation of $3.3 million will recognize TUT revenues collected in the current fiscal year.
Recreation - A transfer of $12,524 from Supplies and Services category and associated State Grant revenues of the same amount from the Recreation budget to the State Grant Fund is requested. The State Grant revenues were received by the Recreation Department to support the Mobile Recreation Program. However, these funds should have been recognized in the States Grant Fund. The requested transfer will ensure the accurate reflection of the State Grant funds within the City's financial system.
The Recreation Department is also requesting a transfer of $20,000 from the Personnel Services Category to the Other Expenses Category to address a projected overage in credit card processing fees. These changes result in no net fiscal impact.
City Attorney - The City Attorney is requesting $20,824 transfer from the Personnel Services expenditure category to the Supplies and Services category to offset a projected overage for contracted attorney services. These changes result in no net fiscal impact.
Fire - The Fire Department is requesting the following appropriations that are offset by unanticipated revenues:
· A $21,738 appropriation to the Personnel Services expenditure category to offset reimbursed training overtime costs in the Fire Department training division. An additional $19,722 appropriation to the Training Division's Supplies and Services budget is also requested for training travel expenses. These appropriations are offset by unanticipated revenues from the California Fire Fighter Joint Apprenticeship Committee fund.
· An $18,406 appropriation to the Supplies and Services budget for the purchase of ten I-pad Airs and related accessories. Currently, the Fire Department's Prevention Division uses Panasonic Toughbooks to perform data entry while in the field - such as signing off building permits in Permits Plus while at the construction site. These Toughbooks are almost ten years old and as a result, staff is encountering several issues ranging from inadequate memory to outdated software/hardware. The purchase of this equipment will allow the Fire Prevention Division to implement the Information Technology Services Department recommendation to replace and upgrade to current technology that is in place. This appropriation is offset by unanticipated development related revenues.
· A $4,391 appropriation to the Capital expenditure category of the Fire Suppression Division for the installation of washer and dryer equipment at Fire Station 8. This appropriation is offset by unanticipated revenues earned.
Amendments to Other Funds
Staff is recommending budget amendments to the following other funds:
Technology Replacement Fund - A $600,000 transfer from the General Fund for the future purchase of Police radio equipment. The purchase of this equipment will allow the Police Department to begin the transition to the to the County's updated regional radio system, ensuring the Police Department's continued regional interoperability. Staff will return at a later date to appropriate and award a contract for the purchase of this equipment.
Residential Construction Tax Fund - A $200,000 increase in the transfer from the General Fund is needed to offset the projected revenue short-fall in the RCT fund due to decreased construction activity. These additional funds will help ensure the fund can meet its debt service obligations.
Development Services Fund - A $133,471 increase in the transfer from the General Fund for higher than anticipated subsidized permitting activities related to the issuance of permits for of energy efficiency projects.
State Grants Fund - A $12,524 transfer of expenses and revenues from the General Fund to accurately reflect State Grant funds received for the Mobile Recreation Program. This transfer will ensure the accurate reflection of these funds within the City's financial system.
Successor Agency - Staff is requesting a transfer in the amount of $45,660 from the Personnel Services budget to the Other Expenses budget of the Successor Agency. In February 2014, staff transferred out of the Successor Agency creating a budget savings in Personnel Services. The appropriation in Other Expenses will be used to reimburse City staff for work performed related to the Successor Agency.
2002 Certificates of Participation - Police Facility Project (Fund 450) - An appropriation is requested in the amount of $4,000,000 to the Transfers-Out category of Fund 450 Certificates of Participation - Police Facility Fund and make corresponding revenue changes related to the transfer-in for Fund 475 2014 Certificates of Participation - Police Facility Fund. The request is necessary to facilitate the closure of Fund 450 which accounted for activity related to the 2002 COPs. The new 2014 COPs will be accounted for in Fund 475. The City refinanced the 2002 COPs in March 2014 replacing them with the 2014 COPs.
2014 Certificates of Participation - Police Facility Fund (Fund 475) - An appropriation of $650,000 is requested to the Other Expenses category of Fund 475. The appropriation is necessary to account for the Cost of Issuance of the 2014 Certificates of Participation and the bond underwriter's discount on the bonds.
DECISION-MAKER CONFLICT
Resolution A
Staff has reviewed the City Council member property holdings and has determined that Council member Salas has property holdings within 500 feet of the boundaries of the Third Avenue bollards repair/replacement site. Although this could create a conflict for the Councilmember, the decision contemplated by this action with respect to the Third Avenue bollard repair/replacement solely concerns the repair, replacement or restoration of existing amenities/fixtures and, as such, the financial effect of the decision on real property is presumed not to be material, pursuant to California Code of Regulations Title 2, sections 18704.2(b)(2) and 18705.2.
With respect to the remaining decisions contemplated by this action, each decision either: (i) does not involve real property within 500 feet of any City Council member properties; or (ii) is not site-specific and, consequently, the 500-foot rule found in California Code of Regulations section 18704.2(a)(1), is not applicable. Staff is not independently aware, and has not been informed by any City Council member of any other fact that may constitute a basis for a decision maker conflict of interest in this matter. Consequently, these decisions do not present conflicts under the Political Reform Act (Cal. Gov't Code § 87100, et seq.).
Resolution B
Staff has reviewed the decision contemplated by this action and has determined that it is not site specific and consequently, the 500-foot rule found in California Code of Regulations section 18704.2(a)(1), is not applicable to this decision. Staff is not independently aware, and has not been informed by any Successor Agency to the Redevelopment Agency of the City of Chula Vista 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. Approval of the resolution amending the fiscal year 2013/14 budget will result in the following appropriations. The resulting fiscal impacts to various funds are also listed in the following table:
Summary of Budget Appropriations and Amendments by Department and/or Fund
Approval of the resolution results in no net fiscal impact to the following funds - Successor Agency to the Redevelopment Agency Fund and the State Grants Fund.
Projected impacts to the remaining funds are as follows:
· The changes in the General Fund will result in a positive impact of approximately $2,972,601, this change largely reflects the recognition of TUT revenues.
· The transfer to the Local Law Enforcement Block Grant Fund will result in a positive impact of approximately $11,696.
· The transfer to the Technology Replacement Fund will result in a positive impact of approximately $600,000.
· The transfer to the Development Services Fund will result in a positive impact of approximately $133,471.
· The appropriation of $4,000,000 for the Transfer-Out in the 2002 Certificates of Participation - Police Facility Project Fund will be made from the available balance of this fund and is needed to facilitate the close out of this Fund.
· The appropriations to the 2014 Certificates of Participation - Police Facility Fund result in a positive net fiscal impact of $3,350,000.
· The transfer to the Residential Construction Tax Fund will result in a positive impact of approximately $200,000.
ONGOING FISCAL IMPACT
There are no ongoing fiscal impacts resulting from the budget amendments described above.
ATTACHMENT:
Third Quarter Financial Report