HomeMy WebLinkAboutStaff Report 2935
City of Palo Alto (ID # 2935)
Finance Committee Staff Report
Report Type: Action ItemsMeeting Date: 7/3/2012
July 03, 2012 Page 1 of 10
(ID # 2935)
Summary Title: FY 2012 3rd Qtr Financial Report
Title: Review of FY2012 Third Quarter Financial Report
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
Staff requests the Finance Committee to review and discuss the Third Quarter
financial results.
OVERVIEW
This report summarizes the City’s overall financial position for the nine months
ended March 31, 2012. A detailed analysis of the City’s financial condition was
presented as part of the mid-year Budget Review, and the trends for third quarter
are on target with the mid-year adjustments. However, staff has completed an
initial projection of FY2012 year-end results and preliminary results show that
actual expenses will be lower than budget resulting in minimal or no draw on the
General Fund Budget Stabilization Reserve (BSR) to close out FY2012.
GENERAL FUND
With 75 percent of the year complete, General Fund revenues are at 70 percent
of Adjusted Budget. Actual expenditures, including encumbrances, are at 74
percent of Adjusted Budget. These levels are consistent with the norm for this
period of the year, where revenues typically lag expenses due to the timing of tax
revenues. A detailed line by line item report of the FY2012 revenues and
expenditures can be seen in Attachment A. On April 16, 2012 Council approved
mid-year adjustments to the FY2012 Adopted Budget, which are reflected in the
Adjusted Budget numbers.
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Revenues
Following is a three year trend graph which compares FY2012 Adjusted Budget to
FY2011 and FY2010 actuals for the major General Fund revenue categories. The
trend in all cases shows revenues moving upward, with the exception of property
tax which remains relatively flat and documentary transfer tax which shows a
slight decline from FY2011.
General Fund Revenues
FY2010 and 2011 Actuals Compared to FY2012 Adjusted Budget
(000's)
$0
$8,000
$16,000
$24,000
FY 2010 Actual $25,981 $19,695 $17,991 $6,858 $4,141 $3,707
FY 2011 Actual $25,688 $22,311 $20,746 $8,082 $5,074 $5,167
FY 2012 Budget $25,989 $22,576 $21,594 $8,674 $6,479 $4,769
Property Tax Charges for Svcs Sales Tax Tr Occ Tax Perm & Lic Doc Tsf Tax
Staff expects budgeted revenue levels to be achieved for all of the above
categories by the end of the fiscal year, as a significant portion of sales and
property tax collections occur in the fourth quarter.
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The following graph compares third quarter year-to-date actuals for FY2012, 2011
and 2010 for General Fund major tax revenue sources. The graph indicates an
increasing revenue trend, except for utility user tax which is flat. A more detailed
discussion of individual revenue categories will follow.
General Fund Tax Revenues
Q3 YTD
FY2010, 2011, 2012
(000's)
$0
$3,000
$6,000
$9,000
$12,000
$15,000
$18,000
Q3 YTD FY 2010 $15,470 $11,933 $8,431 $4,135 $2,445
Q3 YTD FY 2011 $15,885 $13,862 $7,762 $4,929 $2,529
Q3 YTD FY 2012 $16,913 $14,632 $7,830 $6,091 $2,818
Property Sales Utility User Transient Occ Doc Tsf
Property tax
Property tax is received from the County of Santa Clara during the second, third
and fourth quarters of the year, and we expect that the remaining 35 percent of
revenues will be received in the fourth quarter. The Adjusted Budget amount of
$25.9 million is a decrease of $0.1 million from the Adopted Budget, however
revenue for the year will still be slightly higher than FY2011. The decrease in
budgeted revenue was driven by an increase in the collection administrative fee
due to a new Tax Collection and Apportionment system implemented by the
County. The City estimates revenue based on the County’s forecast which
accounts for billings, assessment appeals resolution, and reassessments due to
ownership change and/or new construction. The full impact of a recent rise in
median price of homes sold in Palo Alto will be reflected in FY2013 revenues.
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Sales tax
Sales tax is received evenly throughout the year, with the exception of the Triple
Flip quarter cent tax payment which is received in January and April. The fourth
quarter receipts will bridge the remaining 32 percent of revenue required to
reach the Adjusted Budget amount of $21.6 million, and may even slightly exceed
that amount. On a quarter-to-quarter basis, the economic segments showing
particular strength were sales of apparel, furniture/appliances, drug stores,
recreation products, restaurants, service stations and electronic equipment.
Those showing decreases were food markets, liquor stores, vehicle sales, building
materials, and business services sales.
Utility user tax
The utility user tax is a 5 percent charge on water, electric, gas and telephone
usage. There are usage thresholds for electric, water and gas when the tax rate
falls to 3 and then 2 percent. The Adopted Budget was reduced by $0.18 million
to $10.7 million. The telephone portion of the tax has been declining since
FY2010 due to the decline in number of land lines, and providers unbundling their
services. The utility portion of the tax continues to move with rate and usage
changes.
Transient occupancy tax
As seen in the previous graphs, transient occupancy tax continues to show a
strong upward trend. The Adopted Budget was increased by $0.47 million, for an
annual budgeted amount of $8.7 million, which is a 7.3 percent increase over
prior year actuals. Statistical data shows the third quarter occupancy rate
increased by 9.1 percent over the same quarter last year, and the third quarter
average revenue per room increased 12.2 percent over the same quarter last
year.
Documentary transfer tax
This tax is generated from real estate sales activity and is dependent on sales
volume and value, as well as the mix of commercial and residential property sales.
FY2012 revenue is budgeted at $4.8 million, which is 7.7 percent below actuals for
the prior year. Prior year revenues included a small number of large dollar
transactions which drove a higher than normal revenue number. At this time,
staff expects year-end results to be on budget.
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Other
Other revenue trends worth noting through the third quarter include the permits
and licenses category, which is enjoying an upward trend due to increased
development activity. The FY2012 Adopted Budget was increased by $0.7 million
to $6.5 million, which is some 28 percent higher than the prior year actuals.
Expenditures
A detailed line by line report of revenues and expenditures is included as
Attachment A. Actual expenditures as of March 31 are $100.4 million. Including
encumbrances, expenditures are at 74% of Adjusted Budget. Overtime hours
worked by staff is tracking well above budget and is discussed in detail later in this
report.
On May 29, 2012 we presented Finance Committee with a projection for FY2012
which showed a net surplus for the year of $0.3 million and an ending BSR
balance of $30 million after giving effect to a $1.7 million contribution to the
CERBT Trust for funding of retiree medical. If this projection holds up it will
represent a change from the FY2012 midyear adjusted budget, which showed a
draw on the BSR of $2.3 million. The FY2012 year-end projection includes
increased revenues and savings in salary and benefits due to position vacancies.
Based on current levels of activity, that projection remains unchanged.
Overtime
Overtime hours worked is a factor in most City departments, especially so in the
public safety departments. Following is a graph which compares FY2012 Adjusted
Budget to the past three years of third quarter year-to-date overtime for Police
and Fire.
July 03, 2012 Page 6 of 10
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Police and Fire Overtime
Q3 YTD FY2010, 2011, 2012
Compared to FY 2012 Budget
(000's)
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Police Fire
Q3 YTD FY 2010 Q3 YTD FY 2011 Q3 YTD FY 2012 Budget FY 2012
At the end of the third quarter, Police overtime exceeds budget for the year by
$274,000, or 28%. This is up only slightly from the prior year. Overtime is driven
primarily by staffing shortages. Events contributing to overtime this quarter
include traffic control at numerous special events, and the investigation and
apprehension of suspects responsible for numerous burglaries. Overtime costs
are partially reimbursed by Stanford University and other organizations.
Fire overtime as of March 31 exceeds budget by $662,000, or 29%. Cur rently
there are 12 vacant positions, 2 persons on disability, and 1 employee working a
temporary assignment, for a total of 15 open positions. This situation will be
relieved by 7 new hires currently in the Fire Academy with an expected start date
of July 14, 2012. In addition, 2 vacant Deputy Chief positions were recently filled.
With the operational changes that will be implemented as a result of recent
negotiations with IAFF, it is expected there will be $1.8 million in overtime savings
effective for FY2013.
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The following chart demonstrates overtime trends for other departments by
comparing FY2012 budget to two prior years of third quarter data.
Other Department Overtime
Qtr 3 YTD FY2012 and 2011
Compared to FY 2012 Budget
(000's)
$-
$20
$40
$60
$80
$100
$120
$140
$160
Public Works Comm Svcs Planning ASD Library
Q3 YTD FY 2011 Q3 YTD FY 2012 Budget FY 2012
Public Works and ASD have exceeded their overtime budgets as of the end of
third quarter.
Public Works has used 117 percent of their annual overtime budget as of March
31, but the expense is down $13,000, or 9 percent from prior year. Overtime for
FY2012 is driven primarily by the Facilities, Streets, Trees and Custodial work
groups. Contributing factors include:
Facilities and tree projects that are inaccessible during normal business
hours;
Emergency tree removal;
Traffic control support for special events, summer projects such as Pardee
Park Eucalyptus tree removal and Greer Park plantings, both of which were
scheduled on weekends to encourage community participation;
Staff vacancies.
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ASD has used 110 percent of their annual overtime budget as of March 31, and
the expense is up from prior year same period by $14,500, or 64 percent. The
increased overtime is primarily due to staff vacancies in the Accounting and
Revenue Collection Divisions, and to extra staff hours for the year-end audit.
Community Services, Planning and Library departments are incurring overtime
expense at a reasonable rate when compared to budgeted amounts.
ENTERPRISE FUNDS
The majority of the Enterprise Funds are in good fiscal condition. All the funds
have net income except the Airport Fund and all funds have a positive Rate
Stabilization Reserve except the Refuse Fund and the Airport Fund. The following
provides an update on funds that need explanation.
Refuse Fund
Staff continues to closely monitor the activities of the Refuse Fund. As of March
31, 2012 the Refuse Fund had a net income of $.6 million and a negative Rate
Stabilization Reserve of $3.9 million due to the recognition in FY2009 of the $5.2
million landfill post closure liability as required by accounting rules. It is
anticipated that the Rate Stabilization Reserve will return to a positive balance in
future years under a rate structure that was determined from a cost of service
study presented to the Finance Committee in March 2012.
Airport Fund
As of March 31, 2012 the Airport Fund has a net loss $.1 million and a negative
Rate Stabilization Reserve of $.2 million. There is a loan from the General Fund to
the Airport Fund for operational expenses.
Wastewater Collection
The Wastewater Collection Fund may have a potential write-off of up to $2.6
million in FY2012. A project was requested to be set up as a capital item in 2004.
The project was for cleaning and videotaping of sanitary sewer mains and the
majority of the expense was incurred in 2006, 2007 and 2008. The project costs
have been carried as an Asset Under Construction for financial statement
purposes, however it was determined recently that these were operating costs,
and not capital. As a result, the accumulated costs will be written off in FY2012,
rather than being capitalized and amortized over a period of years. If this
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transaction had been accounted for as an operating expense the expenses would
have been recognized in the years the cash was spent rather than being
capitalized and depreciated. In effect, there is no bottom line difference at the
end of the life of the project - it is simply the timing of the recognition of the
expense. We are working with our external auditors to determine the extent of
the write-off and how this will be presented in the FY2012 financial statements.
Update on Two-Tier Pension
The City implemented a second tier pension formula in 2011 (2% at 60) in an
effort to bring down future pension expense. Gradually, as employees leave the
City and new employees are hired, the number of employees in the 2.7% at 55
plan decreases. Below is a table showing the count and dollar value of employees
in each plan along with employee group designation. The data below is current as
of May 30, 2012.
Labor Group PERS Plan
2% @60 2.7% @55
CAO PERSable Salary 249,645.60 330,345.60
Number of
Employees 2 2
CONF PERSable Salary 66,374.41 386,073.60
Number of
Employees 1 6
FCA PERSable Salary 100,923.20
Number of
Employees 1
IAFF PERSable Salary 56,165.76
Number of
Employees ** 6
MGMT PERSable Salary 1,113,127.59 13,398,839.85
Number of
Employees 21 135
SEIU PERSable Salary 2,742,394.47 31,001,639.91
Number of
Employees 62 477
UTLM PERSable Salary 195,358.03 4,669,153.94
Number of
Employees 2 43
Total PERSable Salary FY11/12 4,423,065.86 49,886,976.10
Total Count of FY11/12 94 664
** After training and once instated, these employees will move to 3% @ 55.
There are no new Public Safety employees in the 3% @ 55.
July 03, 2012 Page 10 of 10
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Attachments:
Attachment A: FY 2012 Third Quarter Financial Report (XLSX)
Prepared By: Laura Kuryk, Manager of Accounting
Department Head: Lalo Perez, Chief Financial Officer
City Manager Approval: ____________________________________
James Keene, City Manager
Attachment A
ACTUALS (as of 3/31/2012)
Categories
Adopted
Budget
Adjusted
Budget Pre-Encumbr Encumbr Actual
% of Adjusted
Budget
Revenues & Other Sources
Sales Tax 20,246 21,594 - - 14,632 68%
Property Tax 26,052 25,989 - - 16,913 65%
Transient Occupancy Tax 8,204 8,674 - - 6,091 70%
Utility Users Tax 10,859 10,677 - - 7,830 73%
Documentary Transfer Tax 4,269 4,769 - - 2,818 59%
Motor Vehicle Tax, Penalties & Fines 2,330 2,156 - - 1,506 70%
Charges for Services 21,841 22,576 - - 16,083 71%
Permits & Licenses 5,778 6,479 - - 4,841 75%
Return on Investment 1,318 974 - - 663 68%
Rental Income 13,914 13,914 - - 10,726 77%
From Other Agencies 155 174 - - 52 30%
Charges To Other Funds 10,505 10,505 - - 7,825 74%
Other Revenues 1,427 2,207 - - 1,976 90%
Total Revenues 126,898 130,688 - - 91,956 70%
Operating Transfers-In 19,606 19,651 - - 14,268 73%
Encumbrances and Reappropriation 3,887 - - -
From Infrastructure Reserve -
Total Sources of Funds 146,504 154,226 - - 106,224 69%
Expenditures & Other Uses
City Attorney 2,355 3,016 - 432 1,931 78%
City Auditor 1,006 1,110 - 53 706 68%
City Clerk 1,479 1,518 - 32 1,187 80%
City Council 319 423 41 1 209 59%
City Manager 2,512 2,681 124 29 1,824 74%
Administrative Services 6,514 7,057 9 171 4,831 71%
Community Services 20,711 21,578 183 1,600 14,875 77%
Fire 29,780 30,016 74 308 21,025 71%
Human Resources 2,919 3,050 - 98 1,915 66%
Library 6,944 7,815 400 205 5,026 72%
Planning and Community Environment 10,021 12,479 411 935 7,132 68%
Police 31,918 33,011 - 463 24,170 75%
Public Works 13,007 14,419 263 833 9,351 72%
Non-Departmental 5,038 7,305 - - 6,179 85%
Total Expenditures 134,523 145,478 1,505 5,160 100,361 74%
Operating Transfers-Out 11,837 12,497 - - 8,871 71%
Total Uses of Funds 146,360 157,975 1,505 5,160 109,232 73%
Net Surplus (Deficit) 144 (3,750)
Budget Amendments Approved by Council:
ATT - Add'l legal council 185
NON-DEPT - Loan to Refuse Fund 1,250
LIB - Foundation Donation -
PCE - Development Center 4
FY2012 Midyear Budget 2,311
POL - OES grant -
Total Augmentations Authorized by Council - 3,750
Net Surplus/(Deficit) After BAOs 144 -
BSR Balance 31,520 27,770
BSR % of Total Use of Funds 21.54%18.97%
Initial projection of FY2012 year-end results shows anticipated savings, and projects
minimal or no draw on reserves.
BUDGET
CITY OF PALO ALTO
FISCAL YEAR 2012 THIRD QUARTER FINANCIAL REPORT
GENERAL FUND
(in thousands of dollars)
6/26/2012