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A. QUARTERLY FINANCIAL REPORT FOR THE QUARTER ENDING MARCH 31, 2016
B. RESOLUTION NO. 2016-096 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA MAKING VARIOUS AMENDMENTS TO THE FISCAL YEAR 2015/16 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 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 chart summarizes the projections for June 30, 2016 based on the revenue and expenditure trends through the third quarter of fiscal year 2015/16 for the City’s General Fund. The amended budget column includes all Council approved changes to the fiscal year 2015/16 adopted budget that have taken place through the end of the third quarter ending March 31, 2015. The projected column lists the fiscal year 2015/16 projections for revenues and expenditures as of June 30, 2016. The following table reflects the audited General Fund reserves as of July 1, 2015 (beginning fund balance) as well as the projected General Fund reserves for June 30, 2016 (projected ending fund balance).
Notes:
1. The City Council Adopted budget was balanced and did not project an increase in fund balance for the General Fund. The budgeted surplus reflected in the Amended Budget column is a result of mid-year Council approved budget amendments that have resulted in a minor surplus of revenues over expenditures.
2. The Amended Budget and projections reflected in this table do not include prior year appropriations for capital improvement projects and other encumbrances totaling $5.3 million that were carried forward into the fiscal year 2015/16 budget. These expenditure impacts are already reflected in the estimated fund balance as of July 1, 2015 and are therefore not included in the above table.
3. Pending net appropriations reflect savings that will be realized by the General Fund as a result of the successful refinancing of various Certificates of Participation (COPS)
General Fund Summary
The City’s financial outlook appears stable through the end of the third quarter. Revenues are projected to increase modestly from the amended budget level based on updated assumptions for fiscal year 2016 actuals and trends in the third quarter. Major factors affecting expenditures include: an FLSA overtime retro payment; and several expenditures with revenue offsets The General Fund is projected to end the fiscal year at approximately the same fund balance as last year at $16.3 million.
The City’s discretionary revenues are in large part projected to exceed their budgeted levels. Departmental program revenues, however, are anticipated to fall short of their targets. Particularly Police jail reimbursements and grant revenue, as well as Fire permit and reimbursement revenue are not projected to meet the budgeted level. Overall, General Fund revenues are projected at $0.7 million above the current amended budget. While there are projected shortfalls in the following revenue categories: Charges for Services ($0.9 million), Revenue from Other Agencies ($0.2 million), Licenses and Permits ($0.05 million), and Fines, Forfeitures, and Penalties ($0.05 million); these shortfalls were fully offset with improvements in the Other Local Taxes category of $0.9 million, and Property Taxes of $0.2 million. The projected fluctuations for these revenues are based on a review of previous fiscal year actuals, an analysis of actuals through March 31, 2016, and revised assumptions since the second quarter projections.
Departmental expenditures are tracking within budgeted levels as the majority of the departments are projected to realize savings as of the end of the fiscal year. Personnel Services are currently projected to end the fiscal year at a savings of $0.7 million below the amended budget. Departmental expenditures for supplies and services are projected to increase by $0.4 million over the amended budget. Utility expenditures are projected to end the year at a savings of $0.3 million below the amended budget. As stated in the first quarter report, salary savings levels are not projected to be achieved based on the current trend. This is primarily due lower than anticipated employee attrition rates. Salary savings are currently budgeted at $1.6 million in the General Fund reflecting staff’s first quarter recommendation to recognize the savings in the voluntary work furlough program and health insurance savings costs and apply these savings to reduce the budgeted salary savings in the Non-Departmental budget. Staff will continue to monitor salary savings levels and look for other potential cost saving measures in order to remain within budget.
As mentioned in the 2nd quarter report the City will receive additional sales tax revenue as a result of the ending of the Triple Flip allocation. These revenues will help address expenditures for major projects that were not included in the fiscal year 2015-16 adopted budget, but will likely require funding in the current fiscal year. The majority of the triple flip allocation has been appropriated for various projects detailed in this report.
Development Services Fund Overview
The Development Services Department Enterprise fund consists of Land Development, Development Planning, the DSF Front Counter and the Building Division. As of July 1, 2015 The Development Services Fund had accumulated a deficit of $16.5 million. This is in contrast to what was previously reported in the fiscal year 2015 third quarter report, which projected the fund at a deficit of $0.2 million. The variance is due to the implementation of Governmental Accounting Standards Board (GASB) Statement Nos. 68 and 71 requiring the accrual of net pension liabilities and the inclusion of compensated absences, which were formerly reported differently. If these are excluded from the calculation, as detailed in the table below, the projected reserves of the Development Services Fund was $52,074, as of July 1, 2015.
Comparing the budgeted revenue and expenditures to the projected revenues and expenditures for June 30, 2016, expenditures are currently on trend to exceed revenues. Although expenditures are projected to be under the current amended budgeted level, revenues are tracking at a much lower rate than anticipated. Based on trends through the third quarter, staff is conservatively projecting to end the current fiscal year with a projected deficit of $0.5 million, which would put the Development Services Fund in an overall deficit (excluding the deficit caused by GASB 68 and 71 and compensated absences). Projections for the fiscal year 2015-16 second quarter estimated a deficit of $0.7 million. The improvement since the second quarter is due to a better outlook on revenues based on current year trends.
Although there have been improvements in the current year, the fund is still projected to end the year in a deficit. Staff has been working on proposals to eliminate the deficit and mitigate any future impacts to the Development Services Fund.
Development Services Fund Summary
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 (deposit account based) to one of processing building and improvement plans (flat fee based). This change in activity may require modification to the existing composition of staff in Development Services Fund in order to remain responsive to the type and quantity of work being processed. This change in workload will require staffing and resource realignment, which have been taken into consideration during the development of the fiscal year 2016-17 proposed budget.
General Fund - Budget Amendments
Staff is recommending budget amendments in the City Council, Non-Departmental, Public Works and Library departments. These changes result in no net fiscal impact to the General Fund.
Administration - Staff is requesting a transfer of $30,000 from the Personnel Services category to the Supplies and Services category of the Administration Department. This transfer is needed to address higher than anticipated travel and conference expenditures related to the Smart Cities initiative, the Olympic Training Center transfer and the Bayfront project that have resulted in Supplies and Services to be exceeded. This transfer will be funded from Personnel Services savings resulting in no net fiscal impact.
Non-Departmental - The following budget amendments are recommended for the Non-Departmental budget:
The Non-Departmental budget is projected to go over budget within the Supplies and Services category by approximately $85,000, largely due to unanticipated attorney services for the Bayfront project. Staff is requesting an appropriation of $85,000 to the Supplies and Services category of Non-Departmental budget. The appropriation will be offset by $55,000 savings within the Utilities category and $30,000 in one-time sales tax revenues resulting from the end of the triple flip. There is no net fiscal impact to the General Fund as a result of this action.
An appropriation of $334,579 is also requested to the Supplies and Services category of the Non-Departmental budget. This request is for the financing of a capital lease for the acquisition of one (1) HME Ahrens - FOX 34D Type III Brush Engine. This appropriation will be offset by revenues of an equal amount derived from the secured lease financing of the Brush Engine.
Staff is also recommending the closure of the Bayfront Fire Station Non CIP Project. This project was established several years ago to conduct a feasibility study on the use of 610 Bay Boulevard as a potential site of the Bayfront fire station. The study was conducted and the remaining project funds of $8,100 are no longer needed for this project. Staff recommends closing this project and transferring these funds to the Supplies and Services expense category of the Non Departmental budget to address a projected budget overage due to unanticipated costs. This transfer results in a no net fiscal impact to the General Fund.
The City has successfully refinanced various Certificates of Participation (COPS) and staff is recommending a net reduction of $57,842 in Transfers Out to 2004 Certificates of Participation - Civic Center Phase I and the Western Chula Vista Infrastructure (Fund 472) and 2006 Certificates of Participation - Civic Center Phase II and Nature Center (Fund 473) in order to reflect the refinance savings in the Non-Departmental Budget. An appropriation of $573 in revenue associated with the COP refinancing is also requested.
Public Works - The following budget amendments are recommended for the Public Works Department:
• An appropriation of $216,366 to the Supplies and Services Category of the Park Maintenance Budget and an additional appropriation of $17,125 to Capital Category of the Open Space Administration Budget for irrigation controllers and conversions related to drought turf conversions. These appropriations will be offset from rebate revenue received from SoCal Water Smart for the drought turf conversions.
• An appropriation of $22,000 to the Supplies and Services Category of the Construction & Repair Budget for an insurance deductible for the restoration of Fire Station 3 and for the replacement of the coil units for the HVAC system at Civic Center Building A. This appropriation will be offset by a transfer from projected savings in the Utilities budget.
• An appropriation of $100,000 to the Supplies and Services Category of the Construction & Repair Budget for consulting services in regard to construction defects at the John Lippitt Public Works Center and constructions defects of a segmental retaining wall at Veteran’s Park. This appropriation will be fully offset by in one-time sales tax revenues resulting from the end of the triple flip.
Information Technology Services - The Information Technology Services Department is requesting the transfer of $60,000 the Capital expense category to Supplies and Services for the payment of the Dell Computer Lease. This transfer is necessary because it has been determined that these funds are more appropriately categorized under the Supplies and Services category as computers are not classified as capital items due to the useful life limitations.
Animal Care Facility - Staff is requesting an appropriation of $20,000 to the Animal Care Facility Department’s Utilities category. This is due to an increase in gas and electric charges that is resulting in the Animal Care Facility exceeding their budget within their Utilities category. This appropriation will be offset by unanticipated revenues and therefore have no impact to the General Fund.
Police - The Police Department is requesting a transfer of $141,280 from the Personnel Services expense category to Supplies and Services. This transfer is required to address a projected deficit in the Supplies and Services expense category attributed to higher than expected costs for contracted services, wireless and data access, uniforms, supplies, training, other agency permits and fees and other ongoing costs. This transfer will be funded from salary savings costs generated by vacant positions.
Fire - The following budget amendments are recommended for the Fire Department:
• The Fire Department has received $158,249 from the City of San Diego and State of California Office of Emergency Services (CalOES) for mutual aid, training, Task Force 8 (TF-8) members’ deployments and statewide strike team deployments. The Fire Department is requesting to appropriate $129,171 to Personnel Services to offset overtime costs and $29,268 to the Supplies and Services Category to offset travel and related supply costs.
• The Fire Department is requesting to appropriate $30,000 of unanticipated Fire Construction Fee revenue to the Supplies & Services Category. This funding will be used to cover unanticipated expenses for uniform and personal protective equipment gear, equipment repair and maintenance, other supplies associated with fire station operations.
• The Fire Department is also requesting the transfer of $200,000 from the Non-CIP Project Expenditure Category to the Capital Expenditure category. These funds were approved to purchase equipment to outfit two (2) new fire engines and one (1) brush rig purchased during the fiscal year. The transfer will ensure that these expenditures are capitalized and are correctly reflected in the City’s Financial Reporting systems.
• An appropriation in the amount of $436,000 to the Personnel Services category of the Fire Department budget is requested in order to compensate International Association of Firefighter (IAFF) members for inaccuracies in the calculation of Fair Labor Standards Act (FLSA) “regular rate of pay” and in the amount of FLSA “overtime premium” paid to IAFF for the FLSA Overtime payout amount. These inaccuracies were revealed through the course of an audit of City payroll keeping processes conducted by the City. This appropriation will be offset by one-time sales tax revenues resulting from the end of the triple flip.
Library - The Library has received several donations totaling $3,313. The sources these donations include: the Rotary Club ($685), Catherine Danklefs and Ruth Hart (in memory of Suzanne Jung) ($550) and the Executive Board of the Friends of the Chula Vista Library in the amount of $2,078. Staff is requesting that these donations be appropriated to the Supplies and Services budget of the Library Department for book purchases.
Other Funds
Eastlake Maintenance District Zone - An appropriation of $20,544 to the Supplies and Services Category of Eastlake Maintenance District Zone A budget is requested for reimbursement of drought turf conversion expenditures. The appropriation will be offset with rebate revenue received from SoCal Water Smart for the drought turf conversions.
Federal Grants Fund - The City has received approval from the County of San Diego to transfer $25,800 of FY2015 Emergency Management Performance Grant (EMPG) funding from the Personnel Services category to Supplies and Services. This amount is available from Personnel Services savings resulting from the vacancy of the Full-Time Emergency Services Coordinator position that is funded through the EMPG. Approval of this transfer will allow for the purchase of firefighting personal protective equipment. Staff is requesting approval of this transfer.
States Grants Fund - The Library has received the second installment of the California Library Literacy Services (CLLS) grant in the amount of $10,859. This funding will help offset staffing costs for the Library’s literacy programs. Staff is requesting the CLLS grant ($10,859) be appropriated to the Personnel Services expenditure category of the States Grant Fund.
TUT Common Fund - Staff recommends that $355,262 be transferred from the Supplies and Services category to the Capital category, in order to purchase 12 patrol vehicles from the TUT Common Fund. These funds became available in the current fiscal year Supplies and Services budget when the previously scheduled expenditure of these funds was re-scheduled for fiscal year 2016-17. Approval of this transfer results in no net fiscal impact to the TUT Common Fund.
Workers Compensation Fund - Staff is requesting an appropriation of $400,000 to the Other Expenses category of the Workers Compensation Fund. These funds are needed due to a settlement that was not included in the fiscal year 2015-16 budget and higher than anticipated claim expenses. The appropriation will be made from the available balance of the Workers Compensation Fund. The fiscal impact of this appropriation will be determined by the actual expenditures in this fund at year end.
Bicycle Facilities Fund - The City has received $100,000 in grant funding from the San Diego Association of Governments SANDAG for the Walk + Bike Chula Vista Education, Encouragement and Awareness Campaign. Program partners are the Recreation Department, Circulate San Diego, and the San Diego County Bicycle Coalition The Walk+Bike Chula Vista Education Encouragement Awareness Campaign creates a unique partnership between the City of Chula Vista, Circulate San Diego, and the San Diego County Bicycle Coalition (SDCBC) to help build a positive multimedia campaign, coordinate and promote new walking and biking infrastructure projects to increase awareness on bicycle and pedestrian access, educate businesses and residents, and promote alternative transportation choices and improved safety in Chula Vista. The one-year campaign will include two message tracks: one message targeting the Third Avenue Village to encourage more walk and bike trips to the Village among Chula Vista residents and residents from nearby neighborhoods, and a second broader message to build awareness and encourage walking and biking trips within greater Chula Vista. Staff is recommending that $35,000 of the grant amount be appropriated to the Supplies and Services expenditure category of the Bicycle Facilities Fund. The remaining balance of the will be included in the fiscal year 2016-17 budget.
General Fund (Fund 100) / 2004 Certificates of Participation - Civic Center Phase I and Western Chula Vista Infrastructure (Fund 472) / 2006 Certificates of Participation - Civic Center Phase II and Nature Center (Fund 473) / 2015 Refunding Certificates of Participation - Civic Center Project (Fund 476) / PFDIF - Civic Center Expansion (Fund 572) / Residential Construction & Conversion (Fund 717) - The City refinanced the 2004 and a portion of the 2006 COPs in September 2015 replacing both with the 2015 COPs. Multiple appropriations are requested to facilitate the closure of Fund 472 and a partial wind down of Fund 473, which accounted for activity related to the 2004 and the 2006 COPs, respectively. The new 2015 COPs will be accounted for in Fund 476. The transfers out related to the debt service in Funds 100, 572, and 717, will be reduced as result of the refunding savings. In addition, the transfers out budgets in these funds will be redirected to Fund 476 from Funds 472 and 473. Per the table below, Staff is requesting the following appropriations and budget amendments to various funds, which reflects the impact by fund, net of intra-category changes:
RDA Successor Agency (Fund 318) / 2006A TABs (Fund 663) / 2008 TABs (Fund 665) - An appropriation of $15,458 is requested to the Transfers Out category of the RDA Successor Agency Fund. This appropriation will be made from the available fund balance. This request is for curing two Debt Service Reserve Fund (DSRF) deficits that were discovered by Staff, as a result of the RDA/Successor Agency Trustee’s bond document interpretation and calculation errors. The specific DSRF deficits are: a) 2006A Tax Allocation Bonds: $8,671; and b) 2008 Tax Allocation Bonds: $6,787. With these additional appropriations, the reserve funds for both bond issues will be fully funded. This results in a positive fund balance impact for the 2006A Tax Allocation Bonds Fund ($8,671) and the 2008 Tax Allocation Bond Fund ($6,787).
RDA Successor Agency (Fund 318) / Long-Term Advances DSF-RDA SA (Fund 692) - The Long-Term Advances DSF-RDA SA Fund accounts for Successor Agency interfund loans. The proposed budget change allows for better tracking and consistency within the Transfers in & Transfers out budget categories. The proposed changes would only shift existing appropriations from one line item to another in the same category in both funds. This shift will provide budgetary congruence and results in no net fiscal impact on either fund.
Otay Ranch Village 1, 2, 5, & 6 Pedestrian Bridge Development Impact Fee (DIF) - Staff is recommending the appropriation of $6,000 to the Other Expenses category of the Otay Ranch Village 1, 2, 5, & 6 Pedestrian Bridge Development DIF Fund. This appropriation is needed in order to reimburse for staff time expended in the current fiscal year updating this DIF program. The appropriation will be made from the available balance of this fund.
Trunk Sewer Capital Reserve (Fund 413) / Sewer Facility Replacement (Fund 428) / Long-term Advances DSF-City (Fund 451)/ Transportation DIF (Fund 591) / Park Land Acquisition and Development Fund (Fund 715) - The City established the Long-term Advances DSF-City (Fund 451) in order to account for City inter-fund loan repayments. The Finance Department staff has reviewed existing inter-fund loan repayments and is updating the budget to more clearly account for inter-fund loan repayments. Staff is requesting the following appropriations to various funds:
DECISION-MAKER CONFLICT
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 Title 2, section 18702.2(a)(11), is not applicable to this decision for purposes of determining a disqualifying real property-related financial conflict of interest under 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 2015/16 budget will result in the following appropriations to the General Fund.
Net Impact - The recommended changes in the General Fund will result in a positive impact of $58,415 due to the COP refinancing savings in the Non-Departmental Budget. All of the other requested changes are neutral as they are either revenue offset or reflect offsetting transfers between expenditure categories resulting in no net fiscal impact.
Net Impact - The recommended changes in the Other Funds result in a total of $80.3 million in appropriations to these funds that are offset by $79.9 million in revenues. The net impact of these changes is $0.4 million that will be absorbed by the available fund balances of these funds.
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. Third Quarter Financial Report
Staff Contact: David Bilby, Finance Department