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AGENDA BILL Agenda Item No. 7(C) Date: March 17, 2015 To: El Cerrito City Council From: Lisa Malek-Zadeh, Finance Director/City Treasurer Subject: Mid-Year Budget Update ACTION REQUESTED 1. Receive an update on year-end results for Fiscal Year (FY) 2013–14 that ended on June 30, 2014. 2. Receive an update on city revenues and expenditures for the first 7 months of the fiscal year through January 2015. 3. Adopt a Resolution authorizing adjustments to the FY 2014-15 budget related to already approved changes which occurred since the adoption of the FY 2014-2015 budget. BACKGROUND/ANALYSIS Fiscal Year 2013-14 Year-End Results Consistent with prior years, the City’s external auditors Maze and Associates began their review of the City’s financials for FY 2013-14 in October. Completion of the audit and financial review will result in the FY 2013-14 Comprehensive Annual Financial Report (CAFR) and the Memorandum of Internal Controls and the Management Discussion & Analysis (MOIC). Both the CAFR and MOIC will be presented to Council in the spring. At this time, staff does not anticipate any new findings, but some concerns raised by the auditors in prior years continue to be an issue, particularly with the increased vacancies in what was already a relatively lean staff. While some of the findings have been addressed, others continue to be the focus of staff’s efforts to improve many of our processes through the increased use of technology and improved procedures. We will be discussing this more as part of the FY 2015-16 budget discussions. Table 1, which appears on the next page of this report, summarizes the FY 2013-14 General Fund Budget. The summary includes a comparison of the changes in expenditures, revenues and the ending fund balance from the adopted budget, approved amendments and the year-end actuals. ---PAGE BREAK--- Agenda Item No. 7(C) Page 2 Table 1 - Fiscal Year 2013-14 Year-End Results General Fund Summary During the presentation of the proposed budget and based on trends at the time, the General Fund was projected to end better than the FY 2013-14 amended budget by about $193,000. This would have increased the ending fund balance from the original estimate of approximately 4% to After all revenues and expenditures have been accounted for, expenditures exceeded revenues by $75,000 Although there were savings in personnel expenditures, costs for professional services exceeded the projected budget. This is primarily due to the need to supplement staff vacancies with professional services which in some cases exceed the cost of a City staff person. Additionally, a transfer of $479,000 to complete the solar panel capital project was not fully expended by year end. These remaining funds have now been fully spent, but due to the timing of the expenses will be reflected in the FY 2014-15 budget. As discussed in previous budget updates, revenues haven’t increased as quickly as they had in the past, but based on FY 2013-14 and the first few months of the current fiscal year, things seem to be steadying and the outlook looks promising. Excluding any one-time items, revenue has increased by approximately $2 million since FY 2011-12. This includes increases in some taxes, reimbursement for services provided to agencies, such as Kensington and the school district, as well as fees charged for recreation programs. With the exception of a few variable and smaller dollar amount revenues, every other revenue stream came in at budget or exceeded projections in FY 2013-14. The significant exception to this trend is the Utility Users Tax (UUT). For FY 2013-14, UUT revenue of $467,000 was not realized as expected. As we have discussed in the past, changes in the utility industry, particularly in telecommunications, has led to a reduction in this revenue General Fund Summary 2013-14 Adopted 2013-14 Amended 2013-14 Projected 2013-14 Actual Variance Amended to Acutal Beginning Restricted Fund Balance $0 $1,059,976 $1,059,976 $1,059,976 $0 Beginning Unassigned Fund Balance $2,909,552 $1,281,566 $1,281,566 $1,281,566 $0 Total Revenues $28,479,079 $28,809,734 $29,054,141 $28,799,596 ($10,138) Total Expenses $28,430,992 $28,836,255 $28,860,545 $28,875,081 ($38,826) Personnel $22,182,379 $22,369,846 $22,157,957 $22,256,364 $113,482 Non-Personnel $6,248,613 $6,466,409 $6,702,589 $6,618,717 ($152,308) Annual Balance/Shortfall $48,087 ($26,521) $193,596 ($75,484) Transfer Out Grant $0 $669,599 $598,957 $669,599 $0 Transfer Out - Solar CIP $22,600 $479,401 $456,801 $344,428 $134,973 Total Transfer out of Restricted Funds $22,600 $1,149,000 $1,055,758 $1,014,027 $134,973 Ending Fund Balance/Deficit $2,935,039 $1,166,021 $1,479,380 $1,252,030 Unassigned Ending Fund Balance/Deficit $2,935,039 $1,166,021 $1,479,380 $1,252,030 $86,009 Ending Unassigned Reserve Percent 10.3% 4.0% 5.1% 4.3% ---PAGE BREAK--- Agenda Item No. 7(C) Page 3 area which has not rebounded as hoped. Based on the last few years, it appears that the UUT will once again not generate the revenues as anticipated; therefore, staff is reducing the revenue assumptions for the UUT in the current and future budget years until such time the trend changes. Staff review of the issue did not reveal any single cause but an overall change in services subject to the UUT as technologies change. The ending FY 2013-14 General Fund balance was $1,252,0500, excluding 1-time transfers, the balance equates to 4.3% of expenditures. It is important to note, that the overall budget performance for this fiscal year exceeded the adopted/amended budget but did not meet end of year projections. Going forward, we will be taking a more conservative approach to the projection of certain revenues. Fiscal Year 2014-15 Budget Update General Fund Overview Table 2 provides an updated summary of the General Fund, including updated year end projections for the FY 2014-15 based on actual revenues and expenditures thru January 2015. Table 2 also contains a column for the FY 2014-15 Amended budget that encompasses the recommended amendments, discussed in more detail in the Appropriations Limits section of this report. The Amended budget reflects changes in revenue assumptions and necessary changes in expenditure authority since the budget was adopted in June. The adopted budget assumed an ending fund balance of 5.4%. This assumed a starting fund balance that was approximately $200,000 higher than where the prior year ended. Even with the approved amendments, the projected budget is expected to maintain the ending balance of 5.3% due to projected increases in various revenue streams. Table 2 - Fiscal Year 2014-15 General Fund Summary General Fund Summary 2013-14 Actual 2014-15 Adopted 2014-15 Amended 2014-15 Projected 2015-16 Adopted Beginning Restricted Fund Balance $1,059,976 Beginning Unassigned Fund Balance $1,281,566 $1,479,380 $1,270,466 $1,270,466 $1,568,773 Total Revenues $28,799,596 $29,341,458 $29,591,988 $29,748,005 $30,304,024 Total Expenses $28,875,081 $29,252,065 $29,502,374 $29,384,875 $30,396,251 Personnel $22,256,364 $22,619,142 $22,843,451 $22,667,423 $23,552,663 Non-Personnel $6,618,717 $6,632,923 $6,658,923 $6,717,453 $6,843,588 Annual Balance/Shortfall ($75,484) $89,393 $89,614 $363,130 ($92,227) Transfer Out Grant $669,599 $0 $0 $0 $0 Transfer Out - Solar CIP $344,428 $0 $74,838 $74,838 $0 Total Transfer out of Restricted Funds $1,014,027 $0 $74,838 $74,838 $0 Ending Fund Balance/Deficit $1,252,030 $1,568,773 $1,285,242 $1,558,758 $1,476,546 Unassigned Ending Fund Balance/Deficit $1,252,030 $1,568,773 $1,285,242 $1,558,758 $1,476,546 Ending Unassigned Reserve Percent 4.3% 5.4% 4.4% 5.3% 4.9% ---PAGE BREAK--- Agenda Item No. 7(C) Page 4 General Fund Revenues Table 3 provides an overview of projected revenues. Projected General Fund revenues are anticipated to increase by approximately $406,000 above the amount included in the adopted budget. Table 3. Fiscal Year 2014-15 General Fund Revenues Tax Revenues + $92,000 Positive changes in Property Taxes (+$200,000) based on actual receipts and the projected increase in Sales taxes ($367,000) related to the recent approval of Measure R would generate an additional $567,000 over what was originally budgeted. However, the anticipated reduction in the UUT of $477,000 brings the overall increase in Taxes to just $92,000. The City projects approximately 3 months of revenue in FY 2014-15 for the additional Measure R sales tax, but has not included a like increase in expenses as some of these new funds will be used to offset the reduction in UUT revenue. Intergovernmental Revenues +$314,000 The primary change in intergovernmental revenues is due to the reimbursement costs for Fire Department staff that are requested to provide mutual aid assistance throughout the state. Because there is no way to predict how much assistance will be needed throughout the year, the City assumes a small baseline amount in the budget. Based on the actual assistance provided and the costs reimbursed by the Office of Emergency Services (OES), the budget is amended to reflect this change in additional expenditures and revenue received to cover staff and a small portion of overhead costs. General Fund Revenues 2013-14 Actual 2014-15 Adopted 2014-15 Amended 2014-15 Projected 2015-16 Adopted Property Taxes $6,190,958 $6,577,256 $6,702,996 $6,783,638 $6,778,620 Sales Taxes $5,107,513 $4,605,000 $4,972,250 $4,972,250 $4,893,960 Franchise Taxes $1,228,307 $1,393,175 $1,393,175 $1,393,175 $1,434,970 Business License Taxes $855,923 $861,995 $861,995 $858,642 $881,405 Utility Users Taxes $3,137,017 $3,677,100 $3,190,100 $3,199,757 $3,750,642 Other Taxes (TOT, Construction, Other) $130,556 $134,124 $134,124 $134,124 $141,000 Total Taxes $16,650,274 $17,248,650 $17,254,640 $17,341,586 $17,880,597 Licenses & Permits $539,567 $531,000 $531,000 $531,000 $593,000 Fines & Forfeitures $375,554 $325,000 $325,000 $325,000 $325,000 Use of Money & Property $289,660 $344,900 $344,900 $344,975 $353,840 Intergovernmental Revenues $5,036,793 $5,183,962 $5,428,502 $5,487,477 $5,266,191 Charges for services $4,956,927 $4,585,442 $4,585,442 $4,585,547 $4,774,935 Other Revenues $146,442 $221,647 $221,647 $231,564 $220,267 Other Financing Sources $0 $0 $0 $0 $0 Interfund Transfers In $804,379 $900,857 $900,857 $900,857 $890,194 Total Other Revenues $12,149,323 $12,092,808 $12,337,348 $12,406,419 $12,423,427 Total Revenues $28,799,596 $29,341,458 $29,591,988 $29,748,005 $30,304,024 ---PAGE BREAK--- Agenda Item No. 7(C) Page 5 General Fund Expenditures Total General Fund expenditures are projected to be under budget by about $117,000 for the current fiscal year. Projections are based on personnel and non-personnel costs incurred through the end of January in conjunction with information from prior year’s expenditure trends. These are summarized in Table 4. Table 4. Fiscal Year 2014-15 General Fund Expenditures Personnel +$176,000 The City adopted a personnel budget of approximately $22.6 million that included salary savings of close to $1.5 million. As in prior years, the Fire department is often dispatched to emergency response throughout the state for Mutual Aid. Staff is proposing an increase of $224,000 to reflect costs that are fully reimbursed by OES. With this change, the amended personnel budget is closer to $22.8 million, but due to ongoing vacancies and some savings related to new labor agreements entered into early in the fiscal year, personnel costs are likely to be under budget by about $176,000. Non-Personnel-$58,000 Non-personnel expenditures continue to track with original estimates with the exception of professional services. The City continues to experience a high level of vacancies, close to 10% Citywide, and this has increased the reliance on professional services in order to continue to provide services. In addition to the vacancies, there are several one-time projects and an increased need for legal services for numerous activities have increased expenses above those in prior years. Savings in personnel offset these overages, but the reliance on professional services is not the most cost effective method to provide services for the long term and will be reevaluated for next fiscal year. General Fund Expenditures 2013-14 Actual 2014-15 Adopted 2014-15 Amended 2014-15 Projected 2015-16 Adopted Personnel $22,256,364 $22,619,142 $22,843,451 $22,667,423 $23,552,663 Personnel $22,256,364 $22,619,142 $22,843,451 $22,667,423 $23,552,663 Non-Personnel Professional & Technical Services $3,127,586 $2,995,725 $2,995,725 $3,169,275 $3,071,295 Purchased Property/Other Services $1,561,814 $1,669,201 $1,695,201 $1,587,870 $1,742,303 Supplies $889,340 $1,024,332 $1,024,332 $1,024,332 $1,082,232 Financing Costs $1,039,976 $943,665 $943,665 $935,976 $947,758 Total Non-Personnel (Before 1-Time) $6,618,717 $6,632,923 $6,658,923 $6,717,453 $6,843,588 1-Time Transfers Out-Grants $669,599 $0 $0 $0 $0 Transfers Out-Solar CIP $344,428 $0 $74,838 $74,838 $0 Total Transfer out of Restricted Funds $1,014,027 $0 $74,838 $74,838 $0 Total Non-Personnel $7,632,744 $6,632,923 $6,733,761 $6,792,291 $6,843,588 Total Expenditures $29,889,108 $29,252,065 $29,577,212 $29,459,713 $30,396,251 ---PAGE BREAK--- Agenda Item No. 7(C) Page 6 Special Revenue Funds Special revenue funds which support about $12 million of the City’s total adopted $41 million budget are tracking in line with earlier projections. Year end actuals for FY 2013-14 and the first 7 month of FY 2104-15 are tracking as expected. As discussed during budget development, the Landscape and Lighting Assessment District and NPDES funds are projecting deficits in FY 2015-16. One-time measures were implemented to bring the funds into balance in the FY 2014-15, but the City will need to address the long term structural deficits projected for next year and forward, FISCAL YEAR 2015-16 NEXT STEPS For the first time in several years, the City Council adopted a two-year budget for FY 2014-15 and FY 2015-16. The second year of the budget, FY 2015-16, was adopted based on the information known and available at that time. Several items affecting the City’s budget have changed since the budget was adopted including the passage of Measure R and new labor agreements with the City’s unions. Staff will not conduct a full blown budget development process for FY 2015-16, but will need to revisit several of the assumptions included in the original budget. Staff anticipates scheduling additional budget discussions in the new few months to discuss priorities and goals revisit assumptions and revise projections for next fiscal year. APPROPRIATIONS LIMITS Each year as part of the budget process, the City Council adopts a resolution that establishes spending limits by fund for the fiscal year. On June 17, 2014, the City Council adopted Resolution 2014-26 authorizing $41,702,257 in total appropriations for fiscal year 2014-15. Changes to the spending limits occur throughout the year to account for unintended opportunities, unforeseen changes or if the City’s financial position changes and additional spending authority is required to meet the needs of the City. These adjustments are typically the result of previously unanticipated events such as the acceptance of new grants, a reauthorization of prior year’s unspent funds, accounting changes related to the City’s financial reporting, receipt of new revenue and/or a response to emergencies or mutual aid. ---PAGE BREAK--- Agenda Item No. 7(C) Page 7 Table 5. Fiscal Year 2014-15 Changes to Appropriations Authority For FY 2014-15, staff is proposing amendments, which require a change in spending authority totaling $4,497,896 across all funds as summarized in Table 5. Encumbered Carryover of $3,926,005 encompasses unspent funds from last fiscal year that need to be carried forward to complete work in the current fiscal year. Adjustments totaling $571,891are new appropriations that Council has either approved through separate Council actions or as part of this report. These are summarized below. Appropriation of $280,147 in the General Fund for OES reimbursed expenditures and remaining funds for solar panel capital project Appropriation of $50,000 in the Measure J Return to Source Fund for the acceptance of one-time disbursement from the WCCTAC Board to be allocated based on the jurisdiction’s share of WCCTAC Appropriation of $30,000 in the Measure J Storm Drain Fund for infrastructure maintenance support Appropriation of $27,000 in the Vehicle Abatement fund to purchase Mobile Data Computers and related equipment for the Police Department. FY 2014-15 Adopted Appropriations Encumbered Carryover Adjustments Total Proposed Amendments FY 2014-15 Amended Appropriations General Fund $29,252,065 $0 $280,147 $280,147 $29,532,212 Gas Tax Fund $540,792 $5,115 $0 $5,115 $545,907 Nat'l Pollut Dis Elim Sys $390,934 $0 $0 $0 $390,934 Land & Light Assess Distr $901,542 $0 $0 $0 $901,542 Measure J-Return to Source $407,178 $0 $50,000 $50,000 $457,178 Measure J Storm Drain $556,710 $40,184 $30,000 $70,184 $626,894 Measure A Parcel Tax $686,436 $0 $0 $0 $686,436 Asset Seizure $0 $0 $0 $0 $0 Vehicle Abatement Fund $11,000 $0 $27,000 $27,000 $38,000 Park In Lieu $0 $0 $12,000 $12,000 $12,000 Public Art Fund $0 $0 $5,000 $5,000 $5,000 Street Improvement & Maint $1,929,454 $112,286 $31,224 $143,510 $2,072,964 Measure J-Paratransit Fund $127,316 $1,056 $0 $1,056 $128,372 Grants $173,498 $77,985 $0 $77,985 $251,483 C.O.P.S. Grant Fund $100,000 $0 $105,000 $105,000 $205,000 Municipal Services Corp $191,200 $0 $0 $0 $191,200 City Housing Trust Fund $0 $2,860,000 $0 $2,860,000 $2,860,000 City LMI Housing Fund $111,538 $0 $0 $0 $111,538 Capital Improvement Fund $2,188,601 $829,379 $16,520 $845,899 $3,034,500 Integrated Waste Mgmt $2,377,934 $0 $15,000 $15,000 $2,392,934 Vehicle/Equip Replacement $128,533 $0 $0 $0 $128,533 Pension Trust Sect 401-A $113,976 $0 $0 $0 $113,976 Successor Agency to RDA $0 $0 $0 $0 $0 Finance Authority Debt Sv $369,574 $0 $0 $0 $369,574 City Hall Bond D/S $597,768 $0 $0 $0 $597,768 Street Imp Bond D/S $737,408 $0 $0 $0 $737,408 $41,893,457 $3,926,005 $571,891 $4,497,896 $46,391,353 ---PAGE BREAK--- Agenda Item No. 7(C) • Authorized appropriation of $12,000 in the Park in Lieu Fund for the athletic field improvements as an amendment to the FY 2014-15 Budget. • Appropriation of $5,000 in the Public Art Fund for events at 4th of July • Appropriate unspent project funds of $31,224 in the Measure A Street Improvement to construct 2014 patch paving and miscellaneous repairs • Authorization to appropriate $105,000 in the C.O.P.S. grant funds to purchase Mobile Data Computers and related equipment for the Police Department • Appropriate unspent project funds of $16,520 in the Capital Improvement Fund to construct 2014 patch paving and miscellaneous repairs • Appropriation of $15,000 in the Integrated Waste Management fund for solid waste consulting service Scott Hanin City Manager Page 8 ---PAGE BREAK--- Agenda Item No. 7(C) Attachment 1 RESOLUTION 2015-XX RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EL CERRITO AMENDING THE SPENDING AUTHORITY BY FUND FOR THE CITY OF EL CERRITO FOR FISCAL YEAR 2014-15 WHEREAS, on June 17, 2014 the City Council of the City of El Cerrito, by Resolution No. 2014-26, adopted the Fiscal Year 2014-15 Budget with spending limits across funds; and WHEREAS, changes to the spending limits throughout the year may be necessary to account for unintended opportunities, unforeseen changes or if the City’s financial position changes and additional spending authority is required to meet the needs of the City; and WHEREAS, proposed changes to spending authority from tax proceeds are within the City’s Fiscal Year 2014-15 Gann Appropriations Limit, as defined b y California State Constitution Article XIIIB. NOW THEREFORE, BE IT RESOLVED by the City Council of the City of El Cerrito that it hereby amends the spending authority by fund for Fiscal Year 2014-15 as follows: 101 General Fund $29,532,212 201 Gas Tax Fund $545,907 202 Nat'l Pollut Dis Elim Sys $390,934 203 Land & Light Assess Distr $901,542 204 Measure J-Return to Source $457,178 205 Measure J Storm Drain $626,894 206 Measure A Parcel Tax $686,436 208 Asset Seizure $0 209 Vehicle Abatement Fund $38,000 210 Park In Lieu $12,000 211 Street Improvement & Maint $2,072,964 213 Public Art Fund $5,000 214 Measure J-Paratransit Fund $128,372 221 Grants $251,483 222 C.O.P.S. Grant Fund $205,000 230 Municipal Services Corp $191,200 231 City Housing Trust Fund $2,860,000 232 City LMI Housing Fund $111,538 301 Capital Improvement Fund $3,034,500 501 Integrated Waste Mgmt $2,392,934 601 Vehicle/Equip Replacement $128,533 701 Pension Trust Sect 401-A $113,976 834 Finance Authority Debt Sv $369,574 835 City Hall Bond D/S $597,768 836 Street Imp Bond D/S $737,408 Total $46,391,353 ---PAGE BREAK--- Agenda Item No. 7(C) Attachment 1 I CERTIFY that at a regular meeting on March 17, 2015, the City Council passed this resolution by the following vote: AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSTAIN: COUNCILMEMBERS: ABSENT: COUNCILMEMBERS: IN WITNESS of this action, I sign this document and affix the corporate seal of the City of El Cerrito on March XX, 2015. APPROVED: Cheryl Morse, City Clerk Mark Friedman, Mayor