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ATTACHMENT C City of Palo Alto
City Manager's Report
HONORABLE CITY COUNCIL
FINANCE COMMITTEE
CITY MANAGER
OCTOBER 5,2010
DEPARTMENT: ADMINISTRATIVE
SERVICES
CMR: 369:10
SUBJECT: Fiscal Year 2010 Financial Update as of June 30, 2010
RECOMMENDATION
Staff recommends the Finance Committee review and provide input on the General Fund
Enterprise, and Other Funds financial update for Fiscal Year (FY) 20 JO.
DISCUSSION
In past years, staff would provide Council with prior year-end fmancial infonnation in
December, following the fiscal year-end. Staff is now reporting financial information earlier, to
provide an opportunity to discuss the City's fiscal condition before the official elosing of the
prior fiscal year. Staff will still be bringing the year-end post-closing review to the Finanee
Committee.
General Fund
As of June 30, 2010, the General Fund unaudited finaneial position.is a draw of $1.9 million
from reserves. The General Fund Budget Stabilization Reserve (BSR) was budgeted to have a
draw of $.9 million (CMR 276:10) with the actual draw of $1.9 million. The variance of $1
million is primarily due to the accounting recognition of $.65 million for the Storm Drain
repayment of a General Fund loan. The loan repayment is an operating transfer for budget
purposes but accounting rules require the transaction to be a receipt to offsct a loan. The
transaction flows through the' balance sheet and is a decrcase to the Loans Reserve and an
increase to BSR for $.65 million. For comparison purposes, the net impact of the two
transactions is a draw of $1.25 million, which is within the budgeted draw of $.9 million, which
represent.8 percent and .5 percent of Adjusted Budgct Total Use of Funds, respectively,
The General Fund has other reserves besides the BSR for such activities such as encumbrances,
reappropriations, investment gains/losses, and notes and loans, etc. As a result of closing or
adjusting balances for yearly activities, all rescrves will end up the year transfening $2.6 million
into the BSR resulting in an ending BSR balance of $27.3 million or 17 percent of budgeted
CMR:369:JO Page J of 3
expenditures and operating transfers for FY 20 II. This percentage is within the Council
approved guidelines of 15 to 20 percent of budgeted expenditures.
The FY 2010 BSR includes rent revenue for the Los Altos Treatment Plant Site due to the
General Fund from Electric and Gas Fund of $180,000 for the three previous fiscal years, and
this amount, along with $60,000 for FY 20 II rent total $240,000, which will be a loan to the
Refuse Fund in FY 20 II as discussed in CMR 313: I O.
General Liability lind Workers Compensation Fund
Finally, expenses for General Liability and Workers' Compensation can fluctuate from year to
year and are usually not determined until after the end of the fiscal year. The August 2010
Actuarial Study for June 30, 2010 Incurred But Not Reported (IBNR) liabilities resulted in
General Liability of $5.8 million which is $632,000 less than expected. According to the study,
Workers' Compensation liability is $15.3 million; $474,000 greater than expected. The impact to
the General Fund is a refund of $286,000 from the General Liability Fund, and a charge of
$335,000 from the Workers' Compensation Fund.
General Benefits and Insunmce Internal Service Funds
As directed by Finance Committee in Dec. 2009, ASD staff will report the General Benefits,
Workers' Compensation, and General Liability Internal Service Funds as separate funds in the
FY 2010 CAFR. Prior years' CAFR reported these Internal Service Funds as a combined Fund.
The FY 2012 Budget will also split these funds so they are reported separately. .
Enterprise Funds
In general, the majority of the Enterprise Funds are in good fiscal condition. The following
information provides an update to funds that l1ei?d attention or explanation.
Refuse Fund
The Refuse Fund is expected to end the fiscal year with a net draw on reserves of $2.7 million.
The Rate Stabilization Reserve (RSR) balance is negative $4.9, an increase from the prior year
negative balance of $2.1 million. The increase in negative balance is being covered by cash and
other assets and it is primarily due to a decrease in disposal fee income of $1.1 million, and
increased refuse collection costs. The Cash Balance as of June 30, 2010 is $8.0 million, which
satisfies the State requirement of $6.7 million for post-closure liabilities. As stated in CMR
356:10, September 20,2010, changes need to be made to the rate structure to bring the Refuse
Fund to a positive reserve position and maintain a positive cash position.
Wastewater Fund
The Wastewater Treatment Fund is expected to end the fiscal year with a net loss of $1.2 million.
The Fund will end the year with an RSR balance of negative $12.1 million, compared to a
negative $15.6 million for the prior year. The negative RSR balance is a result of required
accounting reserves of $14.6 million for the $20.3 million Disinfection Facility Improvement
Program. As the project progresses, the City will be reimbursed with grant and pmtner revenue
and the RSR will move toward a positive position.
CMR:369:10 Page 2 00
Waterfund
The Water Fund is expected to end the year with a net income of $7.0 million and a negative
RSR of $14.2 million a negative change of $19.6 million from prior year. The negative RSR
balance is a result of a required accounting reserve of $23.4 million for the $32.1 million
Emergency Water Supply project, which was funded by a bond issuance. As the project
progresses, the City will apply the bond proceeds and the RSR is expected to return to a positive
position. As of June 30, 2010, the balance of bond proceeds with the fiscal agent is $30.4
million.
RESOURCE IMPACT
The audited financial reports will provide the final fiscal infonnation for the Council to approve.
The figures stated in this report may change due to accounting requirements to accrue revenues
and expenditures. The final numbers will be detailed in future audited reports presented to the
Finance Committee in December 2010.
ENVIRONMENTAL REVIEW
'This is not a project for the purposes of the California Environmental Quality Act.
PREPARED BY: ~~~~ TRUD IKENBERRY·
Accounting Manager, Administrative Services
DEPARTMENT HEAD APPROVAL: b G2 a;p "".
.. ( LALO PEREZ
Director of Administrative Services
CITY MANAGER APPROVAL:
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