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HomeMy WebLinkAboutStaff Report 462-08TO: ATTENTION: FROM: DATE: REPORT TYPE: SUBJECT: HONORABLE CITY COUNCIL FINANCE COMMITTEE CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DECEMBER 16, 2008 CMR: 462:08 DISCUSSION REPORT First Quarter Fiscal Year 2009 Financial Results The purpose of this report is to provide the Council with information on the financial condition of the City's General Fund (GF) as of the first quarter of Fiscal Year 2009. DISCUSSION The U.S. has and continues to deal with its worst financial crisis since the Great Depression. The economy is faced with a tight credit market, growing unemployment, weak banks, and a severe housing downturn. Palo Alto's unemployment rate is 3.5 percent while the nation and the State's are 6.7 percent and 8.2 percent, respectively. Evidence is beginning to emerge in Fiscal Year 2009 that consumer and business confidence is eroding and that economically sensitive revenue sources such as sales, documentary transfer, and transient occupancy taxes are at risk. Sales taxes in the City of Palo Alto and surrounding cities have weakened in recent quarters; hotel days are moving downward slowly; and assessed property values are growing at a slower rate based on data from the County Assessor's Office. Given these trends, Fiscal Year 2009 will present revenue challenges requiring adjustments at midyear. Revenue Highlights for First Quarter Fiscal Year 2009 Attachment A (attached) shows first quarter year-to-date actual revenues as a percentage of the adjusted budget. City revenues fluctuate so that a quarterly comparison will not accurately reflect year-end totals. In fact, due to seasonal, State and county payment, and other timing variations, revenues reflected in the City's General Ledger may not represent a full quarter of CMR: 462:08 Page 1 of 5 activity. It is only when the City "closes its books" at year-end that performance compared to budget can be realistically assessed. Nevertheless, staff has attempted to describe variances that are at least 5 percentage points below the 25 percent level and to comment on whether the budget goals will be met in these categories. Sales Tax receipts for the first quarter of fiscal year 2009 are at 15 percent of budget. A significant portion of this is a consequence of the timing of the State's ."triple flip" biannual payments which are made in January and June. Even after adjusting for the timing difference, receipts are expected to be below budget for the year. At this time, staff anticipates a midyear, negative budget adjustment between $1.2 to $1.5 million. The 2007 fourth and 2008 first quarter results, unadjusted for one-time events, showed 1.7 percent and 3.5 percent declines, respectively. The 2008 second quarter results showed a 5.3 percent or $0.26 million increase over the first quarter of Fiscal Year 2008. Staff believes these positive results, which are a result of County pool receipts, are one-time in nature and are unlikely to continue. Department store and auto dealership sales were noticeably weak, while apparel stores, restaurants, and service stations turned in stronger performances. Property Tax payments from the County essentially begin in October and are fully paid for the first half of the fiscal year in January. As a consequence, receipts during the first quarter are not indicative of future results. Staff projects that property tax receipts will exceed the adopted budget and positive adjustments of around $1.3 to $1.6 million at midyear will occur. Historically, movements in property tax tend to lag sales and TOT performance so any weakness in these receipts will not appear until fiscal year 2010. Transient Occupancy Tax (TOT) on taxes on hotel stays revenues for the first quarter of the year are exceeding prior year levels, primarily due to the TOT rate increasing from 10 percent to 12 percent in January 2008. Evidence is mounting, however, that occupied days are declining. In the first quarter of fiscal year 2008, occupied days dropped, compared to prior year by 10,305. Jurisdictions in the San Jose — South Bay area are experiencing similar declines in occupancy rates. The attached report shows that 26 percent of budgeted TOT revenues have been collected in the first quarter. This result shows that we are on target as of the first quarter. However, based on the downward trend in days, staff expects a negative adjustment at midyear estimated at $0.5 million, will be required. Other Taxes and Fines are well below the first quarter 25 percent guideline. The documentary transfer tax represents 62 percent of this source and it is nearly 34 percent below budget in the first quarter as a result of a slowing housing market. The transfer tax, paid upon the sale or transfer of a residential or commercial property, peaked in fiscal year 2007 and declined by 7.8 percent in fiscal year 2008. Declining property sales and the tightening credit markets have contributed to declines in this typically robust resource. The transfer tax can be a volatile revenue category since it is sensitive to transaction volume, the mix of residential and commercial transactions, and the size of individual transactions. As with other economically sensitive revenues, a downward mid -year revision of around $1.0 million will be needed. CMR: 462:08 Page 2 of 5 Permits and Licenses are 17 percent of budget. A decrease in new construction building permits and internal street cut fees contributed to the decline. Residential permits are down approximately 20 percent and commercial has decreased by 15 percent. The combination is an approximate decrease in revenue of $790,000 compared to 2007-08. Also, hazardous materials permits are not billed until the third quarter and internal street cut fees are not billed until year- end. Expense Highlights for First Quarter Fiscal Year 2009 In many areas, expenditures are cyclical in nature and a department's commitments could include items for the entire fiscal year. Given the nature of cyclical expenditures and possible commitments for the entire fiscal year, department budgets, as a whole, are within their expected target range. Excess of Overtime Expenditures to Adjusted Budget General Fund Overtime Analysis: Attachment B shows total overtime expenditures reaching 45 percent of adjusted budget. Although most of the General Fund departments are below their overtime budgets, the Fire, Police, Community Services, Planning and Public Works Departments exceed their budgets for the following reasons: • The Fire Department is at 59 percent of adopted budget for overtime. The main factors contributing to overtime usage are sick leave and coverage due to vacations ($274,000), staffing of Fire Station 118 ($142,000) and Med 1 ($98,000) and the extraordinary length of deployments for Out -of -County Strike Teams whose time for unscheduled days off are compensated with overtime ($67,000). A large majority of this outlay will be reimbursed and reflected in the midyear report. • The Police Department is at 38 percent of the adopted budget for overtime. The main factors contributing to overtime usage are staffing shortages due to disability leave, vacancies in patrol and the 9-1-1 dispatch center, and academy and field training programs ($125,000). Also, overtime was incurred in the investigation of a major homicide ($75,000); the response and investigation of street robberies ($18,000); and traffic control services at Stanford Football games and other events ($30,000). The traffic control services are partially offset by the university and other sponsors. Overtime usage will be partially offset with salary savings. • The Community Services Department is at 27 percent of the adopted budget for overtime. Overtime usage was mainly in three program areas. Overtime in the Children's Theatre program was mainly due to summer show productions and short staffing. Open Space and Parks Administration incurred overtime to ensure adequate Ranger coverage within open space as the operation requires coverage 365 days per year. Overtime is needed for holidays and for emergencies such as fires and medical calls when staff is held beyond the end of a shift. Recreation/Aquatics incurred overtime for staffing at special events, summer camp overnight trips and operating a city pool seven days a week during summer. CMR: 462:08 Page 3 of 5 • The Planning Department is at 45 percent of the adopted budget for overtime primarily due to two factors. One was the required overtime for completion of the Baylands Master Plan to meet City Council direction for plan completion by fall 2008. Secondly, overtime for the Commute Coordinator to develop the Fiscal Year 2009 work program and work with school groups prior to school opening in September. The Commute Coordinator position was previously a Management position but was converted to a Union position in Fiscal Year 2008, resulting in the need to pay overtime. The position is half-time. However, the work demands fluctuate with increased workload at certain periods of the year. • The Public Works Department is at 31 percent of the adopted budget for overtime. The main factors contributing to overtime use were normal standby time, emergency call - outs, and weekend tree cutting. Staff will continue to monitor overtime expenditures in the context of overall expenditures and make appropriate adjustments as necessary at midyear. With, the Police and Fire Departments removed from the overtime analysis, General Fund overtime expenditures are at 28 percent of the adjusted budget as of the first quarter. ENVIRONMENTAL REVIEW This is not a project for the purposes of the California Environmental Quality Act. PREPARED BY: ALLEN LEE Senior Accountant, Administrative Svcs. TARUN NARAYAN Senior Financial Analyst, Administrative Svcs. CMR: 462:08 Page 4 of 5 DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: ATTACHMENTS LALO PEREZ Director, Administrative Services TAMES KEENE City Manager Attachment A: Fiscal Year 2009, First Quarter Financial Report, General Fund Attachment B: Fiscal Year 2009, First Quarter General Fund Overtime CMR: 462:08 Page 5 of 5 Attachment A CITY OF PALO ALTO 2009 Q1 FINANCIAL REPORT GENERAL FUND (In thousands of dollars) Categories BUDGET Adopted Budget Adjusted Budget • Revenues & Other Sources Sales Tax 22,402 22,402 Property Tax 23,510 23,510 Transient Occupancy Tax 8,424 8,424 Utility Users Tax 10,783 10,783 Other Taxes and Fines 8,816 8,816 Charges for Services 20,849 20,849 Permits & Licenses 5,767 5,767 Return on Investment 2,348 2,348 Rental Income 13,426 13,426 From Other Agencies 86 86 Charges To Other Funds 10,952 10,952 Other Revenues 1,531 1,531 Total Revenues 128,894 128,894 Operating Transfers -In 17,677 17,677 Encumbrances and Reappropriation - 4,460 Total Sources of Funds 146,571 151,031 Expenditures & Other Uses City Attorney 2,778 3,722 City Auditor 931 1,062 City Clerk 1,260 1,347 City Council 315 376 City Manager 2,231 2,646 Administrative Services 7,153 7,640 Community Services 21,600 22,388 Fire 24,260 24,712 Human Resources 2,822 3,088 Library 6,570 6,855 Planning and Community Environment 10,419 11,037 Police 29,831 30,333 Public Works 13,859 14,307 Non -Departmental 7,980 6,970 Total Expenditures 132,009 136,480 Operating Transfers -Out 13,300 16,737 Total Uses of Funds 145,309 153,217 Net Surplus (Deficit) 1,262 f2,186) Beginning Reserves 25,176 26,102 Projected Ending Reserves 26,438 23,916, * Excludes encumbrances, reappropriation and infrastructure reserve ACTUALS Pre Encumbr (three months ended 9-30-08) % of.. Adjusted. Encumbr Actual Budget - - 3,356 15% - - 112 0% - - 2,172 26% - - 3,197 30% - - 1,690 19% - - 4,937 24% - - 955 17% - - 566 24% - - 3,592 27% - - 29 34% - - 2,680 24% - - 604 39% - - 23,890 19% - - 4,395 25% - - 28,285. 19% 5 803 835 44% - 114 207 30% 47 41 279 27% - 29 94 33% 185 126 706 38% 36 331 2,199 34% 54 3,168 6,973 46% 62 352 7,033 30% 108 101 846 34% 323 134 1,822 33% 389 1,197 3,022 42% 18 686 8,041 29% 78 1,056 3,615 33% 230 - 1,784 29% 1,535 1 8,138 1 37,458 1 35% - - 4,174 25% 1,535 8,138 41,630 33% 1 Attachment B CITY OF PALO ALTO 2009 Q1 FINANCIAL REPORT GENERAL FUND OVERTIME (in thousands of dollars) 1 ACTUALS (three monhs ended 9-30-08) City Attorney City Auditor City Clerk City Council City Manager Administrative Services Community Services Library Fire Human Resources Planning and Community Environment Police Public Works 7 7 3 3 45 45 185 185 58 58 1018 1018 4 4 66 66 1000 1000 112 112 0% 0% 0% 0% 0% 6 13% 50 27% 13 22% 604 59% 0% 45% 30 380 35 38% 31% Total Overtime 2,498 2,498 - - 1,118 45%