HomeMy WebLinkAboutStaff Report 1666City of Palo Alto (ID # 1666)
Finance Committee Staff Report
Report Type:Meeting Date: 7/5/2011
July 05, 2011 Page 1 of 7
(ID # 1666)
Council Priority: City F inances
Summary T itle: Third Quarter F iscal Year 2011 F inancial Update
Title: Review of Third Quarter F iscal Year 2011 F inancial Update
From:City Manager
Lead Department: Administrative Services
RECOMMENDATION
Staff requests the Finance Committee to review and discuss the Third Quarter financial results.
DISCUSSION
As of March 31, 2011 General Fund operating revenues and expenditures are at 70 and 74
percent of the adjusted budget respectively (Attachment A). Timing issues related to the
collection of tax revenues and recognition of contract encumbrances result in expenditures
exceeding revenues at this point, which is typical. We anticipate this temporary situation to be
resolved with fiscal year end reporting.
Fiscal Year 2011 Financial Results To Date
At its June 28, 2010 Council meeting, the Council adopted a budget that closed a $7.3 million
budget gap. On March 15, 2011 (CMR: 1442), Council approved midyear adjustments to the FY
2011 Budget.As indicated at midyear, General Fund revenues continue to show improvement
in FY 2011. More detail on each key revenue source follows.
Revenue Performance in FY 2011
The following graph compares FY 2010 and FY 2011 General Fund major revenues as of March
31. The graph also includes the adjusted budget for FY 2011 and the percent of adjusted budget
recognized as of March 31.
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Graph 1
General Fund Major Revenues
as of March 31
(in thousands)
$11,933 $15,470
$4,135
$8,431
$14,110
$13,862
$15,885
$4,929 $7,762
$14,331$17,991
$25,981
$6,858
$11,295
$19,695
$19,507
$25,323
$7,400
$10,824
$20,924
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
Q3 FY 2010 $11,933 $15,470 $4,135 $8,431 $14,110
Q3 FY 2011 $13,862 $15,885 $4,929 $7,762 $14,331
FY 2010 $17,991 $25,981 $6,858 $11,295 $19,695
FY 2011 A dj.Budget $19,507 $25,323 $7,400 $10,824 $20,924
% of Budget 71%63%67%72%68%
Sales Tax Prop erty Tax TOT UUT Chgs f or SV C
Sales Tax
Sales Tax receipts for the third quarter of FY 2011 are at 71 percent of budget. The modest
variance is primarily caused by the timing of the “Triple Flip” quarter cent tax payment which is
made in January and May. Because one quarter of our sales tax cash earnings are delayed into
2 semi-annual payments, receipts in the third quarter are below budget.
Based on solid cash receipts in the fourth quarter of FY 2011, it is expected the City will exceed
its adjusted budget target of $19.5 million at year end by as much as $0.7 million to $1.1
million. Calendar Year (CY) fourth quarter receipts were strong in department store, electronic
outlet, and miscellaneous retail sales, but weak in new auto and electronic equipment sales.
Slumping auto sales in Palo Alto are of concern and contrast with rising auto sales trends in the
region and throughout California. Also, of concern are recent forecasts of new economic
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weakness which include unfavorable news on housing, consumer confidence, and retail sales.
Property Taxes
Property Tax receipts are paid by the County beginning in the months of November and March
with half yearly reconciliations performed in January and July. Revenues, therefore, are uneven
during the year. This explains the 63 percent level achieved through the 3rd quarter. After
making a negative adjustment at midyear due to the high number of appeals for reassessments
by commercial properties, staff expects that the adjusted budget revenues of $25.3 million will
be achieved at year end. Growth projections for Fiscal Years 2011 and 2012 are in line with
those of The Palo Alto Unified School District. Based on current data, the FY 2012 Proposed
Budget target of $26.1 million is realizable.
Transient Occupancy Tax (TOT)
The 67 percent level of transient occupancy taxes is based on the timing of revenues. In fact,
receipts have been trending upward quite nicely. Since October 2010, monthly revenues have
exceeded the prior year months by nearly 20 percent. Occupancy rates and per diems are
running solidly above prior year levels as indicated below:
Average occupancy rates for 3rd FY Quarter plus April FY 2010 FY 2011
January 53.4%63.4%
February 61.6 71.7
March 68.1 76.0
April 68.6 74.9
Average Daily rates for 3rd FY Quarter plus April
January $136.16 $142.80
February 142.81 151.91
March 140.33 155.27
April 139.42 150.73
Based on this data, year end TOT revenues will well exceed the adjusted budget revenues of
$7.4 million.
Utility Users Tax
These revenues consist of a 5 percent tax on water, electric, gas and telephone usage.
Telephone taxes are appreciably below those of the prior year and are contributing to the
variance from budget. It is believed that the decline in land lines as well as changes in the
billing practices of the providers is causing the drop in revenue. Federal law prohibits cities
from imposing UUT on internet service. In the past, carriers have bundled service plans making
it difficult to segregate taxable and non-taxable services. The popularity of data plans and the
introduction of 4G service has resulted in a billing plan shift which could result in lower UUT tax
on cell phone service. Staff adjusted the Adopted Budget by a negative $0.6 million and is
monitoring performance carefully. Since the Electric and Gas Funds will not increase rates in
July, staff expects revenues will remain flat from FY 2011 to FY 2012.
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Documentary Transfer Taxes
Documentary transfer taxes are trending upward in FY 2011. Both the volume and value of
transactions have spiked this fiscal year. There have been several major commercial
transactions leading to the jump in revenues. The budget, adjusted upward at midyear by $0.4
million to $4.0 million will likely be exceeded at year end by over half a million.
Motor Vehicle Tax, Penalties and Fines
Included in this revenue category are Motor Vehicle Tax, Parking Violations, misdemeanor code
violations, administrative citations, and library fines. The adjusted budget for Parking Violation
revenue is $1.3 million and, as of the end of the third quarter, the City has collected $0.946
million or 70 percent of adjusted budget. Although Parking Violation revenue is below target as
of the end of the third quarter, staff has reviewed actuals as of mid-May and the Police
Department is showing improved trends and has collected 90 percent of the adjusted budget.
These improved trends result from the department filling a staff vacancy and a reduction in
staff on modified duty.
Charges for Services
Charges for Services revenue is $14.3 million, or 68 percent of the adjusted budget, as of the
third quarter. Third quarter Stanford Fire and Communication Services in the amount of $2.0
million was billed and will be included in the fourth quarter figures and increase Charges for
Services revenue to $16.3 million, or 78 percent of the adjusted budget.
Return on Investment
At 65 percent of budget, interest earnings are, in fact, low and are unlikely to reach targeted
levels. This is due to the extraordinary length of time that the Federal Reserve has kept short-
term interest rates low. Staff had anticipated that rates would rise toward the latter half of this
fiscal year. This has not occurred and as higher yielding instruments mature, the City is forced
to buy low yield securities. This is the cause of the negative variance from budget in the 3rd
quarter of FY 2011 of $128 thousand or 12.8 percent.
From Other Agencies
Revenue from Other Agencies is exceeding budget mainly due to reimbursements of State
mandated costs of $31 thousand and $25 thousand from the University of California for DUI
mini-grants.
Expense Performance in FY 2011
In many areas, expenditures are cyclical in nature and a department’s spending commitments
could include items for the entire fiscal year. Given the nature of cyclical expenditures and
possible commitments for the entire fiscal year, with the exception of overtime, expenditures
are in line with their budgeted levels.
Overtime Expenditures Compared to Adjusted Budget
General Fund Overtime Analysis:
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The following table shows total overtime expenditures reaching 94 percent of the adjusted
budget in the General Fund. The table below shows that Fire, Police, and Public Works
Departments are the principal departments exceeding their budgeted overtime.
Table 1: FY 2010 General Fund Overtime as of March 31, 2011
ACTU ALS
Adopte d Adjusted Pr e % of
Ca tegories Budge t Budget Encumbr Encumbr Actua l Adj Budge t
City At torney - - - - - 0%
City Audi tor - - - - - 0%
City Cl erk 7 7 - - 2 27%
City Council - - - - - 0%
City Manager 3 3 - - 4 143%
Administrati ve Services 36 36 - - 23 63%
Communi ty Services 105 105 - - 74 71%
Library 58 58 - - 29 50%
Fire 1,018 1,628 - - 1,574 97%
Human Resources 4 4 - - 0 2%
Planning and Community Environment 67 67 - - 50 76%
Police 968 1,224 - - 1,134 93%
Public Works 113 113 - - 145 128%
Tota l Overtime 2,376 3,243 - - 3,034 94%
CITY OF PALO ALTO
FISCAL YEAR 2011 Q3 FINANCIAL REPORT
GENERAL FUND OVERTIM E
(in thousands of dolla rs)
(nine monhs ended 3-31-11 )
The Fire Department has used 97 percent of its adjusted annual overtime budget through the
end of March 2011. At midyear, the overtime budget for Fire was increased by $0.6 Million in
order to align Public Safety overtime cost with contractual salary increases. Actual overtime
figures for this quarter are a result of line personnel vacancies, Medic 1 staffing, and backfilling
for minimum staffing requirements vacation, sick, other leaves and special assignments. At the
end of March 2011,the Department had 1 employee on Workers’ Compensation leave and 1
employee on other disability leave. The Fire Department receives partial reimbursement for
overtime from Stanford. After hours inspection fees offset overtime costs whenever applicants
require a property to be examined after regular work hours or on weekends.
The Police Department has used 93 percent of its annual overtime budget through March 31st.
The main factors contributing to overtime usage this quarter were staffing shortages due to
disability leave, vacancies in patrol and the 9-1-1 dispatch center, and the investigation and
apprehension of suspects responsible for numerous robberies. The Department receives partial
reimbursement for overtime worked from Stanford and the Utilities Department for dispatch
services, and from neighboring cities for animal control and care services. Traffic control
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services at Stanford football games and other events are partially offset by reimbursements
from the University and other organizations.The Department also received reimbursement for
its participation in the Urban Shield Exercise and for dispatcher training from a State grant.
The Public Works department has used 128 percent of its annual overtime and is primarily in
the Facilities division. Two facilities mechanics positions were frozen due to budget initiatives
last fiscal year and were finally approved to be filled late this summer and ultimately they were
fully staffed at the beginning of January 2011. Ongoing and necessary maintenance continued
for City facilities during this time. Currently there are numerous projects that require work to
be done once the occupants of the facility have left thus requiring night and weekend work.
The overtime will be offset by salary savings from not only the two positions that were filled at
the end of the calendar year but also a half time Administrative Associate position that had
been vacant since mid July and was filled in January and the Facilities Manager position that has
been vacant since mid October and is currently slated to remain vacant through the end of the
fiscal year.
For historical and more detailed information on public safety overtime costs, see Attachment B.
Enterprise Funds
The majority of the Enterprise Funds are in good fiscal condition. The following provides an
update on funds that need explanation.
Gas Fund
As of March 31, 2011 the Gas Fund has net income and positive Rate Stabilization Reserve
(RSR). However, revenues for customer sales are projected to be $2.7 million less than adjusted
budget by yearend. The decrease is due to falling gas commodity market costs. The City’s large
commercial customers have the option of selecting either the market rate or fixed/laddered
rate. Since the market rate is significantly lower than the laddered rate, revenue has decreased.
The decrease in revenue will be offset by projected $3.8 million of savings in purchase costs.
Water Fund
The Water Fund has net income and a positive RSR as of March 31, 2011. Revenues for
customer sales are projected to be $2 million less than adjusted budget at yearend, due to
reduced water usage and conservation efforts.
Refuse Fund
As of March 31, 2011 the Refuse Fund revenues exceed expenses and result in a net income of
$1.2 million. The fund also has a positive cash balance of $8.5 million, which satisfies the State
requirement of $6 million for post closure costs.
Although revenues currently exceed expenditures, commercial retail revenue is still projected
to be lower than budget by $1.9 million. Staff continues to closely monitor the Refuse Fund.
Public Works staff discussed initial findings of Refuse Fund Cost of Service Study with the
Finance Committee on April 5, 2011, CMR # 1577. Public Works staff will return to Finance
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Committee in July, 2011 for further discussion.
Retiree Medical Trust Fund
The City is a participant in the California Employers’ Retirees Benefit Trust (CERBT). As of March
31, 2011 the balance of the trust fund is $41.8 million. Total contributions from inception of the
trust are $38.1 million, investment earnings are $3.8 million and administrative cost is $75
thousand.
RESOURCE IMPACT
Staff projects that the FY 2011 adjusted budget will end in a balanced budget. It is important to
note that overtime, workers compensation and general liability claims costs, which for various
reasons are at times beyond the city’s control, could result in the need to draw from the
General Fund Budget Stabilization Reserve. Staff will return to the Finance Committee to
present the FY 2011 Comprehensive Annual Financial Report in December, 2011.
ENVIRONMENTAL REVIEW
This is not a project under Section 21065 for the purposes of the California Environmental
Quality Act (CEQA).
Attachments:
·Attachment A: Fiscal Year 2011 Q3 Financial Report General Fund (XLS)
·Attachment B: Police and Fire Departments' Overtime Analysis for Fiscal Years 2006 through
2010 with Fiscal Year 2011 Data Through March 31, 2011 (XLS)
Prepared By:Trudy Eikenberry, Manager of Accounting
Department Head:Lalo Perez, Director
City Manager Approval: James Keene, City Manager
Attachment A
ACTUALS
Adopted Adjusted Pre % of
Categories
Budget Budget Encumbr Encumbr Actual Adjusted
Budget
Revenues & Other Sources
Sales Tax 18,218 19,507 - - 13,862 71%
Property Tax 25,907 25,323 - - 15,885 63%
Transient Occupancy Tax 7,021 7,400 - - 4,929 67%
Utility Users Tax 11,429 10,824 - - 7,762 72%
Documentary Transfer Tax 3,613 4,002 - - 2,529 63%
Motor Vehicle Tax, Penalties & Fines 2,330 2,137 - - 1,414 66%
Charges for Services 20,008 20,924 - - 14,331 68%
Permits & Licenses 4,593 5,102 - - 3,952 77%
Return on Investment 1,646 1,337 - - 874 65%
Rental Income 13,716 13,776 - - 10,696 78%
From Other Agencies 155 221 - - 196 89%
Charges To Other Funds 10,622 10,681 - - 8,091 76%
Other Revenues 1,490 1,584 - - 1,230 78%
Total Revenues 120,748 122,818 - - 85,750 70%
Operating Transfers-In 18,684 18,678 - - 13,976 75%
Encumbrances and Reappropriation - 3,963 - - - -
Total Sources of Funds 139,433 145,459 - - 99,726 69%
Expenditures & Other Uses
City Attorney 2,369 3,024 - 551 1,664 73%
City Auditor 982 1,089 2 98 724 76%
City Clerk 1,093 1,355 10 19 946 72%
City Council 142 175 - 27 108 78%
City Manager 2,178 2,451 - 87 1,677 72%
Administrative Services 6,293 6,643 50 127 4,380 69%
Community Services 20,032 20,486 25 1,613 14,272 78%
Fire 27,007 28,259 57 406 20,172 73%
Human Resources 2,817 2,919 10 85 1,937 70%
Library 6,609 6,910 11 227 4,615 70%
Planning and Community Environment 9,320 10,689 31 837 6,799 72%
Police 30,579 31,174 212 360 22,554 74%
Public W orks 13,084 13,999 29 931 9,365 74%
Non-Departmental 5,970 5,545 - - 5,287 95%
Total Expenditures 128,474 134,719 436 5,369 94,500 74%
Operating Transfers-Out 10,924 11,224 - - 8,500 76%
Total Uses of Funds 139,398 145,943 436 5,369 103,001 75%
Net Surplus (Deficit) 34 (484)
Adjust intra-fund reserve transfer -
Net To (From) Reserves 34 (484)
Beginning Reserves 27,396 27,396
Projected Ending Reserves 27,430 26,912
BUDGET (nine months ended 3-31-11)
CITY OF PALO ALTO
FISCAL YEAR 2011 Q3 FINANCIAL REPORT
GENERAL FUND
(in thousands of dollars)
6/20/2011
Attachment B
Police and Fire Departments'
Overtime Analysis for Fiscal Years 2006 through 2010
With Fiscal Year 2011 Data Through March 31, 2011
thru 3/31
2006 2007 2008 2009 2010 2011
POLICE DEPARTMENT
Overtime Expense
Original Budget $981,862 $1,015,620 $1,036,815 $999,900 $999,900 $967,900
Current Budget 1,009,705 1,074,399 1,071,005 1,016,900 1,071,662 1,224,349
Net Overtime Cost - see below 780,647 1,025,718 1,096,894 886,568 932,960 265,927
Remaining Budget $229,058 $48,681 ($25,889)$130,332 $138,702 $958,422
Overtime Net Cost
Actual Expense $1,405,155 $1,785,657 $2,009,542 $1,665,842 $1,466,226 $1,134,025
Less Reimbursements
Stanford Communications 30,937 39,342 65,079 42,160 58,070 45,462
Utilities Communications Reimbursement 17,402 22,130 36,607 23,715 33,242 28,414
Local Agencies (A)34,565 36,457 41,770 37,413 33,930 23,264
State Grants (B)65,835 63,344 4,672 10,998 22,306 70,816
Police Service Fees 49,185 43,218 67,390 53,812 42,085 75,244
Other 12,447 18,157 15,982 3,830 31,721
Total Reimbursements 197,924 216,938 233,675 184,080 193,463 274,922
Less Department Vacancies 426,584 543,001 678,973 595,194 339,803 593,176
Net Overtime Cost $780,647 $1,025,718 $1,096,894 $886,568 $932,960 $265,927
Department Vacancies (number of days)1,733 2,280 2,766 2,402 1,368 2,250
FIRE DEPARTMENT
Overtime Expense
Original Budget $959,389 $1,032,674 $892,674 $1,017,674 $1,017,674 $1,017,674
Current Budget 959,389 1,032,674 996,674 1,353,058 1,017,674 1,627,674
Net Overtime Cost - see below 637,310 737,768 863,442 651,148 1,334,452 515,872
Remaining Budget $322,079 $294,906 $133,232 $701,910 ($316,778)$1,111,802
Overtime Net Cost
Actual Expense $1,582,858 $1,860,757 $1,744,076 $1,591,261 $2,675,515 $1,574,145
Less Reimbursements
Stanford Fire Services (D)479,606 563,809 528,455 482,152 810,681 476,966
Cal-Fire/FEMA (Strike Teams)66,269 85,531 140,224 453,619 64,760
State Homeland Security
Grant Program (SHSGP) (C)72,254 40,897 10,164 4,342 10,647 3,745
Urban Area Security Initiative (UASI) 26,782 1,150
Fire Service Fees 52,070
Other 2,500
Total Reimbursements 644,911 690,237 679,993 940,113 886,088 535,281
Less Department Vacancies 300,637 432,752 200,641 454,975 522,992
Net Overtime Cost $637,310 $737,768 $863,442 $651,148 $1,334,452 $515,872
Department Vacancies (number of days)1,230 1,740 810 780 1,455 1,672
NOTES:
(A)Includes Animal Services contract with Los Altos, Mountain View and Los Altos Hills.
(B)State Office of Traffic Safety and ABC grants.
(C) Included in the SHSGP and UASI reimbursements is a small amount of per diem reimbursement.
Reimbursement from U.S. Department of Homeland Security for HazMat Continuing Challenge Training Conference (Sep 2009)
(D)Stanford reimburses 30.3% of Fire expenditures.
6/20/2011