HomeMy WebLinkAboutStaff Report 3313
City of Palo Alto (ID # 3313)
Finance Committee Staff Report
Report Type: Action ItemsMeeting Date: 12/4/2012
City of Palo Alto Page 1
Summary Title: 1st Quarter FY 2013 Financial Results
Title: First Quarter Fiscal Year 2012 Financial Results
From: City Manager
Lead Department: Administrative Services
Background
The purpose of this report is to provide the Council with information on t he financial condition
of the City’s General Fund as of the end of the first (1st) Quarter of Fiscal Year (FY) 2013.
Discussion
The FY 2013 1st Quarter ended on September 30, and this report summarizes the actual
financial activity of the General Fund for the three months then ended and compares those
amounts to the same period in the prior year and to the FY 2013 Adjusted Budget.
Attachment A provides a breakdown of revenues by source and expenses by function, with
separate columns for Adopted Budget, Adjusted Budget which includes prior year
encumbrances and current year Budget Amendment Ordinances (BAOs), and actual expenses
for the three month period.
The City’s tax revenues have strengthened over the past two years and are expected to
continue their upward trend for the near future. This trend is consistent with those shown in
the upcoming Long Range Financial Forecast, which will be presented to the Finance Committee
on December 18. This trend is being driven by solid employment growth rates in the Bay Area,
particularly in higher salary jobs such as computer programmers and professional services,
rising home values, and a healthy business environment marked by a vibrant export market and
strong investment by venture capital firms. These trends, which underlie growing consumer
and business confidence, were stressed by economists at a recent Economic Forecast
Conference sponsored by the Bay Area Council Economic Institute (November 2012).
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Following is a more detailed discussion of the most significant revenue and expense items.
General Fund Revenue Highlights for 1st Quarter FY 2013
Following is a table which highlights the City’s major revenue sources for the 1 st Quarter,
compared to the 1st Quarter of the prior year in order to gauge how eac h line item is trending.
In addition, revenue for each quarter is expressed as a percentage of the annual budget for
each year.
FY 2013 FY 2012 % change FY 2013 %FY 2012 %
inc -dec
Property tax 24$ 148$ -84%27,306$ 0%26,052$ 1%
Charges for services 4,725 5,911 -20%23,682 20%21,841 27%
Sales tax 3,652 3,422 7%22,545 16%20,246 17%
Utility user tax 2,556 2,582 -1%10,731 24%10,859 24%
Transient occupancy tax 1,260 1,543 -18%9,591 13%8,204 19%
Documentary transfer tax 1,261 893 41%5,078 25%4,269 21%
Permits and licences 1,988 1,898 5%6,614 30%5,778 33%
All other revenue sources *7,083 7,353 -4%27,876 25%29,650 25%
Total Revenue 22,549$ 23,750$ -5%133,423$ 17%126,899$ 19%
* Excludes SUMC development agreement revenue $20.8 million.
1st Quarter Actuals Adopted Budget
City of Palo Alto
General Fund Revenue
FY 2013 1st Quarter
(000's)
Property tax revenue in the 1st Quarter of the fiscal year is typically only a nominal amount as
property tax receipts are paid by the County beginning in the month of November and then
again beginning in March. Thus, the table above shows a decrease compared to the same
period last year, however the trend overall is for FY 2013 to come in higher th an FY 2012. FY
2012 actual property tax revenue was $26.5 million and exceeded the FY 2012 Adopted Budget
by $0.5 million, or 1.9 percent. The FY 2013 budgeted amount is $27.3 million or 3.1 percent
higher than the prior year’s actual. Santa Clara County’s most recent property tax forecast for
FY 2013 is $27.8 million, which is $0.5 million higher than the Adopted Budget . Projected
property tax revenues for FY 2013 will likely be adjusted at mid-year.
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Charges for services revenue is down $1.2 million, or 20 percent, from the same quarter last
year. This decrease is due to a combination of the following items:
Stanford Fire/Communications billing for 1st Quarter FY 2013 for $1.8 million has not yet
been processed. Last year’s amount was $2.1 million and was processed in the 1st
Quarter.
Plan and zoning check fees for the 1st Quarter have increased by $1 million over prior
year’s 1st Quarter due to increased building activity. Significant activity includes fees
from VMware, Lytton Gateway, Park Plaza, Casa Olga Hotel and Hilton Garden Inn.
Once the Stanford billing is processed, all else being equal, the quarter -over-quarter change
would be a net increase in charges for services revenue of $0.6 million, or 10.3 percent. The
FY 2013 budget for plan and zoning check fees is $3.7 million and we have already realized $2.4
million, or 65 percent, in the 1st Quarter. The FY 2012 Adopted Budget amount was $2.4
million, the Adjusted Budget was $3.3 million, and the actuals came in at $4.4 million, so FY
2013 appears to be the continuation of an upward trend.
Sales tax revenue for the 1st Quarter totals $3.7 million – 6.7 percent higher than the same
period last year. Apparel stores, restaurants, food markets, new and used auto sales, service
stations, and electronic equipment are all showing strong sales. Segments showing weaker
trends include furniture and appliances, auto parts and repair, and business services. Revenue
to date as a percentage of Adopted Budget for the current and prior fiscal years, 16% and 17%
respectively, is not indicative of the expected annual receipts because the “Triple Flip” quarter -
cent tax payment is not received until January and May. Based on activity to date and local
economic trends, staff is forecasting receipts for FY 2013 at least $0.8 million higher than the
budgeted amount of $22.5 million. Staff’s forecast is in line with that of the City’s sales tax
consultant, Muni-Services.
Utility user tax revenue to date indicates the telephone tax portion of the tax will be belo w
estimates due to carriers’ unbundling of services which leaves a lower taxable portion of users’
telephone bills. The utility related portion of the tax is trending higher and may be adjusted
upward slightly at mid-year.
Transient occupancy tax (TOT) revenue has been trending upward for the past two years.
Compared to the prior year’s 1st Quarter, average occupancy and daily room rates moved from
81 percent and $157 per day to 85 percent and $174 per day, respectively. This translates to an
11.7 percent increase in revenue quarter over quarter!
The actuals do not reflect this 11.7 percent increase because the actual cash receipts have been
flowing in at a slower pace than last year. 1st Quarter receipts for FY 2012 were $2.5 million,
compared to only $2.3 million received in 1st Quarter FY 2013. Thus, even though the City has
earned more revenue so far in this fiscal year, it is not yet reflected in the records. This slower
cash flow pace may correct itself during the next quarter, but in any event the earned and
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actual revenues are always trued up at year-end. The outlook is for the current healthy level of
occupancy and daily room rates to continue, which may result in an upward adjustment at mid -
year of $0.8 million.
Documentary transfer tax revenue is an important but volatile revenue source that is based on
the number and value of commercial and residential property sales. In the last decade,
revenues have ranged from a peak of $5.8 million in FY 2007 to a low of $3.0 million in FY 2009,
with a 10 year average of $4.8 million. The strong commercial and residential market
performance in the 1st Quarter of FY 2013 resulted in a quarter-over-quarter gain of $0.4
million, or a 41 percent increase! Currently this revenue source is tracking right at 25% of the
FY 2013 budget. Given its volatility, the level of receipts will be monitored closely, and if the
current trend continues a mid-year upward adjustment may be necessary.
Permits and licenses revenue reflects an increase of 5 percent over the same quarter last year.
This continues a trend from prior year where actual revenue for FY 2012 came in at $6.5
million, or 13 percent higher than the Adopted Budget. As of the quarter -end, this revenue
source has reached 30% of the Adopted Budget for FY 2013.
General Fund Expense Highlights for 1st Quarter FY 2013
Following is a table which highlights the City’s expenses by function for the 1 st Quarter, and
compares the expenses to the 1st Quarter of the prior year in order to gauge how each item is
trending. In addition, the expense for each quarter is expressed as a percentage of the annual
budget for each year.
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City of Palo Alto
General Fund Expenses
FY 2013 1st Quarter
(000's)
FY 2013 FY 2012 %FY 2013 %FY 2012 %
inc -dec
Police 7,352$ 8,053$ -9%32,501$ 23%32,192$ 25%
Fire 6,509 7,342 -11%28,622 23%30,091 24%
Community services 5,404 5,547 -3%22,412 24%21,176 26%
Public works 3,234 3,149 3%14,545 22%13,737 23%
Planning and community env 2,270 2,285 -1%12,170 19%10,882 21%
Library 1,530 1,625 -6%7,634 20%7,157 23%
Administrative services 1,641 1,562 5%7,389 22%6,694 23%
All other departments 4,457 4,509 -1%18,236 24%16,481 27%
Total Expenses 32,397$ 34,072$ -5%143,509$ 23%138,410$ 25%
1st Quarter Actuals Adjusted Budget
Total General Fund expenses for the 1st Quarter of the fiscal year are 5 percent lower than for
the same quarter last year. Following is an analysis of the expenses for Police and Fire as their
departments are the primary factors in this decline.
Police expenses for the 1st Quarter total $7.3 million which is $0.7 million or 9 percent less than
the 1st Quarter last year. The primary drivers are salaries, overtime and benefit costs, as shown
in the following table:
Increase
FY 2013 FY 2012 (Decrease)%
inc -dec
Salaries 3,710$ 4,198$ (488)$ -12%
Overtime 332 380 (48)-13%
Benefits 2,199 2,259 (60)-3%
All other expenses 1,111 1,216 (105)-9%
Total Police Expenses 7,352$ 8,053$ (701)$ -9%
1st Quarter
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The decrease in salaries expense is a result of the following:
Negotiated pay reduction of 1.33% that took effect in May 2012;
Several large cash-outs were paid out in the 1st Quarter of FY 2012;
Staffing reductions of 2.5 FTEs that were moved to the Fire Department at the start of
FY 2013 to reflect the movement toward a merged Public Safety Department .
The reduced overtime is directly related to fewer hours used to staff the Communications
Division. Sworn overtime hours have remained constant between the two years.
The FY 2013 budget for Police salaries and benefits is $27.1 million, and at the end of the 1 st
Quarter actual costs are $6.2 million, or 22.9 percent of the annual budget for that line item.
Seven FTE sworn positions were frozen for FY 2013 as a budget reduction measure. The total
FY 2013 Adjusted Budget for Police is $32.5 million, and as of the end of the 1st Quarter actual
expenses, excluding encumbrances, total $7.4 million, or 23 percent of the annual budget.
Fire expenses for the 1st Quarter total $6.5 million, which is $0.8 million or 11 percent less than
the 1st Quarter last year. The primary drivers are salaries, overtime and benefit costs, as shown
in the following table:
Increase
FY 2013 FY 2012 (Decrease)%
inc -dec
Salaries 3,111$ 3,495$ (384)$ -11%
Overtime 571 1,060 (489)-46%
Benefits 1,856 1,938 (82)-4%
All other expenditures 971 849 122 14%
Total Fire Expenses 6,509$ 7,342$ (833)$ -11%
1st Quarter
Fire salaries have been reduced by $0.38 million or 11 percent from prior year due to a
combination of the following:
Pay decreases of 9 percent were implemented effective October 2011 and are expected
to net savings of approximately $0.27 million from prior year.
Temporary salaries and disability/workers compensation expenses both decreased
significantly in FY 2013, a savings of $0.14 million, offset by
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Staffing of filled positions increased quarter over quarter by 4.41 FTE’s, which includes
the 2.5 FTEs which were moved over from the Police Department. The net number of
budgeted positions was reduced by 3.98 FTEs from FY 2012 to FY 2013.
Overtime costs for the 1st Quarter of FY 2013 were reduced $0.48 million or 46 percent from
the same quarter last year. This decrease is due in large part to the closure of Station 7 at the
Stanford Linear Accelerator. The elimination of minimum staffing standards that will take
effect in January 2013 under the new Memorandum of Agreement will further reduce overtime
costs.
The FY 2013 budget for Fire salaries and benefits is $23.3 million, and at the end of the 1 st
Quarter actual costs are $5.5 million, or 23.6 percent of the annual budget for that line item.
The total FY 2013 Adjusted Budget for Fire is $28.6 million, and as of the end of the 1st Quarter
actual expenses, excluding encumbrances, total $6.5 million, or 23 percent of the annual
budget.
Expenses for all other departments, excluding encumbrances, are tracking at or below 25% of
their Adjusted Budget amounts as of the end of the 1st Quarter.
General Fund Budget Stabilization Reserve (BSR) Balance
The General Fund Adopted Budget reflects a deficit position of $0.39 million. As of September
30th, only one BAO in the amount of $0.19 million had been adopted. Following is a revised
projection of the BSR balance that includes those adjustments.
Description
Council Action
Date
Amount
(000’s)
% of
FY 2013
Budget
Beginning BSR Balance, July 1, 2012 $ 28,122 18.5%
Adopted Budget, Net Deficit (390)
BAO – Development Center 2nd floor
furnishings
9/10/12 (191)
Ending BSR Balance, September 30, 2012 $ 27,541 17.4%
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Enterprise Funds
Following is a summary of net income for each of the Enterprise Funds for the three month
period ended September 30, 2012, including a comparison of results from the same period last
year.
Increase
FY 2013 FY 2012 (Decrease)%
inc -dec
Water 5,034$ 2,328$ 2,706$ 116%
Electric 2,910 5,858 (2,948)-50%
Fiber Optic 482 415 67 16%
Gas 734 777 (43)-6%
Wastewater collection 672 1,042 (370)-36%
Wastewater treatment 811 504 307 61%
Refuse 1,741 190 1,551 816%
Storm drainage 698 791 (93)-12%
Airport (39)(61)22 -36%
Total Net Income 13,043$ 11,844$ 1,199$ 10%
1st Quarter
Enterprise Funds Net Income
Water Fund net income for the 1st Quarter has increased $2.7 million from prior year primarily
due to increased operating revenues resulting from two rate increases – one in October 2011
and one in July 2012.
Electric Fund net income decreased $2.9 million, or 50%, quarter over quarter due to increased
costs for purchase of utilities, mainly NCPA pooling costs and transmission costs. In 1st Quarter
of FY 2012, there was significant hydro generation, resulting in lower than normal purchase
costs. FY 2013 reflects a more normal level of hydro generation, and transmission costs will
continue to rise for the next several years.
Wastewater Collection Fund net income is down $370,000 from same quarter prior year due to
an increase in the cost allocations from Wastewater Treatment.
Wastewater Treatment Fund net income is up $307,000 from same quarter prior year due to
increased revenue for plant upgrade costs. Costs for electric utility usage have decreased by
$140,000.
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Refuse Fund net income increased $1.5 million from the same quarter prior year due to several
factors:
Other operating revenue decreased $491,000 due to the landfill no longer accepting
waste, offset by an increase of $274,000 in operating revenue as a result of rate
increases in October 2011 and July 2012.
Reduced operations and maintenance costs:
o Salaries and benefits decreased $237,000 due to the vacant Solid Waste
Manager position, as well as two full-time and three hourly positions that were
laid off in July 2011 as a result of the landfill closure.
o Contract service costs decreased $506,000 due to a timing difference in
recording of the June 2012 month-end true-up credit. This timing difference will
catch up in 2nd Quarter and negate the 1st Quarter effect.
Rent expense decreased $548,000 year-over-year due to the Landfill Rent Schedule
changing from $4.3 million annually to $2.1 million annually effective for FY 2013 (CMR
104:07 January 2007).
1st Quarter FY 2012 included a $400,000 loss on disposal of asset due to the landfill
closure.
Attachments:
Attachment A: FY2013 Q1 Financial Report General Fund (XLS)
Attachment A
ACTUALS
Adopted Adjusted Pre % of
Categories
Budget Budget Encumbr Encumbr Actual Adjusted
Budget
Revenues & Other Sources
Sales Tax 22,545 22,545 - - 3,652 16%
Property Tax 27,306 27,306 - - 24 0%
Transient Occupancy Tax 9,591 9,591 - - 1,260 13%
Utility Users Tax 10,731 10,731 - - 2,556 24%
Documentary Transfer Tax 5,078 5,078 - - 1,261 25%
Motor Vehicle Tax, Penalties & Fines 2,058 2,058 - - 531 26%
Charges for Services 23,682 23,682 - - 4,725 20%
Permits & Licenses 6,614 6,614 - - 1,988 30%
Return on Investment 959 959 - - 244 25%
Rental Income 12,640 12,640 - - 3,171 25%
From Other Agencies 157 157 - - 14 9%
Charges To Other Funds 10,874 10,874 - - 2,709 25%
Other Revenues 1,187 1,187 - - 414 35%
Total Revenues 133,423 133,423 - - 22,549 17%
Operating Transfers-In 18,995 18,995 - - 4,749 25%
Encumbrances and Reappropriation - 4,864 - - - -
Total Sources of Funds 152,418 157,282 - - 27,298 17%
Expenditures & Other Uses
City Attorney 2,436 2,790 10 354 535 32%
City Auditor 965 1,010 - 121 220 34%
City Clerk 1,558 1,583 - 25 263 18%
City Council 465 500 - 108 90 40%
City Manager 2,578 2,882 218 108 547 30%
Administrative Services 7,156 7,389 60 110 1,641 25%
Community Services 21,893 22,412 137 3,387 5,404 40%
Fire 27,582 28,622 721 433 6,509 27%
Human Resources 2,982 3,019 5 43 655 23%
Library 6,996 7,634 132 721 1,530 31%
Planning and Community Environment 11,111 12,170 121 949 2,270 27%
Police 32,332 32,501 43 276 7,352 24%
Public Works 13,947 14,545 56 778 3,234 28%
Non-Departmental 6,025 6,453 - - 2,147 33%
Total Expenditures 138,026 143,509 1,501 7,412 32,397 29%
Operating Transfers-Out 14,782 14,354 - - 3,511 24%
Total Uses of Funds 152,807 157,862 1,501 7,412 35,908 28%
Net Surplus (Deficit) (390) (581)
Adjust intra-fund reserve transfer -
Net To (From) Reserves (390) (581)
Beginning Reserves (Unaudited)28,122 28,122
Projected Ending Reserves 27,732 27,541
BUDGET (three months ended 9-30-12)
CITY OF PALO ALTO
FISCAL YEAR 2013 Q1 FINANCIAL REPORT
GENERAL FUND
(in thousands of dollars)
11/28/2012