HomeMy WebLinkAboutStaff Report 4291
City of Palo Alto (ID # 4291)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/3/2013
City of Palo Alto Page 1
Summary Title: 1st Quarter FY 2014 Financial Results
Title: First Quarter Fiscal Year 2014 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 and Enterprise Funds as of the end of the first (1st) quarter of fiscal
year (FY) 2014.
Discussion
The FY 2014 1st quarter ended on September 30, and this report summarizes the actual
financial activity of the General and Enterprise Funds for the three months then ended, and
compares those amounts to the same period in the prior year and to the FY 2014 Adopted
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.
Overall, the City’s General Fund revenues continue to increase consistent with the FY 2014
Adopted Budget. Tax revenues, in particular, continue a three year growth trend. All the major
tax revenues (property, sales, transient occupancy, and documentary transfer) are up over the
same first quarter period last year. Somewhat offsetting this growth is the decline in revenue
from golf fees due to construction on the golf course, and less permit and plan fee revenue as a
result of decreased development activity.
Following is a detailed discussion of the most significan t revenue and expense items.
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Revenue Highlights for 1st Quarter FY 2014
Following is a table which highlights the City’s major revenue sources for the 1 st Quarter, and
compares that revenue to the 1st Quarter of the prior year in order to gauge how each item is
trending. In addition, each quarter’s revenue received is expressed as a percentage of the
estimated revenue that was approved in the annual budget for each year.
FY 2014 FY 2013 % change FY 2014 %FY 2013 %
Property tax 43$ 24$ 79%29,613$ 0%27,306$ 0%
Charges for services 3,253 4,725 -31%24,379 13%23,682 20%
Sales tax 5,421 3,652 48%23,846 23%22,545 16%
Utility user tax 2,614 2,556 2%11,013 24%10,731 24%
Transient occupancy tax 1,977 1,260 57%11,545 17%9,591 13%
Documentary transfer tax 1,602 1,261 27%5,699 28%5,078 25%
Permits and licences 1,323 1,988 -33%8,346 16%6,614 30%
All other revenue sources 7,667 7,083 8%28,681 27%27,876 25%
Total Revenue 23,900$ 22,549$ 6%143,122$ 17%133,423$ 17%
1st Quarter Actuals Adopted Budget
City of Palo Alto
General Fund Revenue
FY 2014 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. FY 2013 actual property tax revenue was $28.7 million. The FY 2014
budgeted amount is $29.6 million, 3.1 percent higher than the prior year’s actual revenue.
Charges for services revenue is down $1.5 million, or 31 percent, from the same quarter last
year. This decrease is due to a combination of the following items:
Golf related fees have declined by $0.1 million from the prior year 1st quarter due to
course renovations. The FY 2014 budget for golf related revenue assumed a closure
date of April 1, 2014 and was developed based on 9 months of activity. While actual
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revenue for the 1st quarter of $0.5 million represents one-third of the nine month
budgeted amount of $1.5 million, it is far less than the level anticipated for that three
month period. A marketing campaign to increase revenues was presented for approval
in November.
Plan check fees for the 1st quarter have decreased by $1.2 million from prior year’s 1st
quarter due to reduced volume of building activity. Actual revenue for the 1 st quarter of
$1.1 million represents 18.2 percent of the full year budgeted amount of $6.3 million.
Sales tax revenue for the 1st quarter has increased $1.8 million, or 48 percent, from the same
period last year. 1st quarter receipts are at 23 percent of the full year budgeted amount of
$23.8 million. Although overall sales tax receipts are robust, the results by economic segment
are mixed, with most of the growth concentrated in the Miscellaneous/Other segment.
Remaining segments show a modest 3.1 percent growth from the same period prior year with
strength in county pools, food markets, restaurants, health and government, and decl ines in
furniture/appliance, electronic equipment and recreation products.
Transient occupancy tax of $1.9 million represents about two months of collections and is right
on track at 17 percent of the FY 2014 budgeted amount of $11.5 million. Daily rates increased
10 percent from prior year - $173 per day to $191 per day - while occupancy rates remained flat
at 85 percent. The lower revenue for the 1st quarter of FY 2013 was a result of the timing of
collections.
Documentary transfer tax receipts total $1.6 million, or 28 percent of the FY 2014 budgeted
amount.
Permits and licenses revenue is down due to a decrease in external street cut fees and new
construction permits.
Expense Highlights for 1st Quarter FY 2014
Following is a table which highlights the City’s expenses by function for the 1st quarter, and
compares the expenses to the 1st quarter of the prior year in order to gauge how each item is
trending. In addition, each quarter’s expense is expressed as a percentage of the annual
budget for each of the years.
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City of Palo Alto
General Fund Expenses
FY 2014 1st Quarter
(000's)
FY 2014 FY 2013 % change FY 2014 %FY 2013 %
inc (dec)
Police 7,703$ 7,352$ 5%32,821$ 23%32,501$ 23%
Fire 6,896 6,509 6%29,147 24%28,288 23%
Community services 5,767 5,404 7%23,639 24%22,412 24%
Public works 3,272 3,234 1%14,635 22%14,545 22%
Planning and community env 2,606 2,270 15%14,679 18%12,170 19%
Library 1,678 1,530 10%8,507 20%7,634 20%
Administrative services 1,629 1,641 (1%)7,414 22%7,389 22%
All other departments 4,955 4,457 11%21,268 23%18,136 25%
Total Expenses 34,506$ 32,397$ 7%152,110$ 23%143,075$ 23%
1st Quarter Actuals Adjusted Budget
Total expenses for the 1st quarter of the fiscal year are 7 percent higher than for the same
quarter last year, but are right in line at 23 percent of full-year budgeted amounts.
Planning and Community Environment is higher due to the timing of payments to 4 Leaf and
other contractors for services provided in the current fiscal year. Although the expense is
higher than 1st quarter last year, it is still well within budget at 18 percent of total budget for
the year. Due to the potential lag of 3 to 6 months from the time permit and development fees
are received to the time inspection costs are incurred, staff is doing an in -depth analysis to
determine any adjustment that may be needed to correctly align the cost of inspection services
with the receipt of fees.
Library expenses are increased over prior year due to higher expenditures for library materials
purchases. Although the expense is higher than 1st quarter last year, it is still well within budget
at 20 percent of total budget for the year.
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General Fund Budget Stabilization Reserve (BSR) Balance
The General Fund Adopted Budget reflects a surplus position of $0.8 million. Two subsequent
BAO’s have been adopted, and following is a snapshot of the BSR balance which includes those
adjustments:
Description Date Amount
% of FY 2014
Budget
Beginning BSR balance, July 1, 2013 $ 30,355 19.0%
Adopted Budget, Net Surplus 854
BAO – CSD Park Maintenance 6/17/13 (227)
BAO – Special Election Costs 8/8/13 (585)
Ending BSR Balance, September 30, 2013
$ 30,397 19.0%
Enterprise Funds
Following is a summary of change in net position for each of the Enterprise Funds for the three
months ended September 30, 2013, including a comparison of results from the same period last
year.
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Enterprise Funds Change in Net Position:
1st Qtr 1st Qtr Increase
FY 2014 FY 2013 (Decrease)% Change
Water 6,053 5,057 996 20%
Electric 4,319 2,876 1,443 50%
Fiber Optic 464 481 (17)-4%
Gas 615 541 74 14%
Wastewater collection 336 668 (332)-50%
Wastewater treatment 828 794 34 4%
Refuse 1,870 1,735 135 8%
Storm Drainage 793 694 99 14%
Airport 1 (39)40 -103%
Total Change in Net Position 15,279$ 12,807$ 2,472$ 19%
Water Fund change in net position for the 1 st Quarter has increased $1.0 million from prior
year. Operating revenues increased $0.6 million as a result of a 7 percent water rate increase
effective July 1, 2013. Water purchase costs have decreased by $0.3 million as a result of
BAWSCA debt refinancing that facilitated reduced wholesale purchase costs for all SFPUC
customers.
Electric Fund change in net position increased $1.4 million, or 50 percent, q uarter over quarter
due to the following:
Increased operating revenues of $3.0 million as a result of increased commercial
revenues due to increased consumption and more customers ($1.6 million), increased
connection charges ($0.7 million), and carbon neutral revenue ($0.7 million).
Increase of $1.7 million in purchase of utilities due to higher Electric Master Agreement
(EMA) purchases and transmission costs. FY 2014 reflects less hydroelectric power
being generated, resulting in more market purchases.
Wastewater Collection Fund change in net position decreased $0.3 million mainly due to
decreased revenue in capacity fees and service connection charges as a result of decreased
building activities.
Pension Update
The City implemented a second tier pension formula in 2011 (2% @ 60) as a measure to control
the cost of future pension expense. In addition, the California Public Employees’ Pension
Reform Act of 2013 (PEPRA) mandated a third tier pension formula of 2% @ 62 effective
January 1, 2013. Following is a table which shows the employee count in each of the
Miscellaneous plans as of October 28, 2013 compared to May 20, 2013:
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Employee Group
# of Employees Change
10/28/2013 5/20/2013 Inc (Dec)
Council Appointed
Officers
Tier 1 2 2
Tier 2 1 2
Tier 3 0 0
Sub-total 3 4 (1)
Fire Chiefs Association
(non-sworn)
Tier 1 1 1
Tier 2 0 0
Tier 3 0 0
Sub-total 1 1 0
Management and
Professional
Tier 1 127 137
Tier 2 38 34
Tier 3 7 1
Sub-total 172 172 0
Service Employees
International Union
Tier 1 430 442
Tier 2 79 84
Tier 3 21 8
Sub-total 530 534 (4)
Utilities Management Tier 1 40 40
Tier 2 1 1
Tier 3 0 0
Sub-total 41 41 0
Total
Tier 1 600 622 (22)
Tier 2 119 121 (2)
Tier 3 28 9 19
Grand Total 747 752
Tier 1 2.7% @ 55
Tier 2 2% @ 60
Tier 3 2% @ 62
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Estimated savings the City can expect to realize from implementation of the second and third
tiers will be quantified by our actuary later this year .
Pension cost savings from the implementation of Tier 2 will be included in the June 30, 2012
CalPERS valuation which, in turn, drives the City’s pension contribution rates for FY 2015. Since
Tier 3 has become effective after the current valuation, potential savings for Tier 3 w ill not be
included in the City’s pension contribution rates for FY 2015.
In June 2012 the Governmental Accounting Standards Board (GASB) approved a new standard,
GASB 68: Accounting and Financial Reporting for Pensions, which will take effect for FY 2015.
Following are some of the highlights of the new standard:
Current Practice Future Practice under GASB 68
Pension Liability Reported in CAFR Note
11 as “unfunded
liability”.
Reported in CAFR Financial
Statement (Statement of Net Position).
Changes in actuarial
assumptions and
experience gains/losses
Amortized over 20 years. Amortized over closed period equal to
average remaining service of plan
members, including retirees, ie much
shorter period than current practice.
Change in benefit terms Amortized over 20 years. Recognized in current year.
Investment gains/losses Amortized over 30 year
rolling period.
Amortized over closed 5 year period.
Note disclosure None for changes in
pension liability.
Tracks year-to year changes in net
pension liability for the last 10 years.
Under the outgoing standards, the actuarially calculated annual required contribution (ARC)
was used to identify funding requirements for the plan. It was the amount needed to
accumulate sufficient resources to pay pension benef its on a timely basis, and was the
equivalent of the current year’s pension expense, ie. pension expense was funding driven.
Under the new standards, pension expense for the current year will be driven by the change in
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net pension liability between reporting dates. An actuarially calculated ARC can still be used as
part of setting the general policy objectives for funding the Plan, however the new standard
does not require it.
Another change included in the new standard is use of the discount rate. E mployers can
continue to use a long-term discount rate only if the Plan’s current assets plus future
contributions are projected to cover all future benefit payments. This expectation should be
met if the ARC is fully funded and the unfunded liability is paid off over a reasonable period of
time. However, if there is a point in time where the Plan’s net position is not sufficient to
provide for benefits (crossover point), the discount rate used after that point must be a
municipal bond rate. Having to use that bond rate from the crossover point forward will drive a
higher pension liability overall since the bond rate will be lower than the long -term rate of
return.
In general, it is expected that GASB 68 could result in an overall higher pension liability and a
more volatile pension expense in future reporting years. Staff will provide additional
information on GASB 68 and its impact as we approach the first reporting year in 2015.
Timeline, Resource Impact, Policy Implications, Environmental Review (If Applicable)
ALSO STATEMENT THAT STAFF ANTICIPATES REVENUE INCREASES IN SALES, DOCUMENTARY
AND…..AT THE MIDYEAR BUDGET ADJUSTMENT.
Attachments:
Attachment A: FY2014 Q1 GF Budget to Actual (XLS)
Attachment A
ACTUALS
Adopted Adjusted Pre % of
Categories
Budget Budget Encumbr Encumbr Actual Adjusted
Budget
Revenues & Other Sources
Sales Tax 23,846 23,846 - - 5,421 23%
Property Tax 29,613 29,613 - - 43 0%
Transient Occupancy Tax 11,545 11,545 - - 1,977 17%
Utility Users Tax 11,013 11,013 - - 2,614 24%
Documentary Transfer Tax 5,699 5,699 - - 1,602 28%
Motor Vehicle Tax, Penalties & Fines 2,107 2,107 - - 508 24%
Charges for Services 24,379 24,379 - - 3,253 13%
Permits & Licenses 8,346 8,346 - - 1,323 16%
Return on Investment 769 769 - - 282 37%
Rental Income 12,891 12,891 - - 3,303 26%
From Other Agencies 252 330 - - 108 33%
Charges To Other Funds 10,574 10,574 - - 2,633 25%
Other Revenues 2,010 2,010 - - 833 41%
Total Revenues 143,044 143,122 - - 23,900 17%
Operating Transfers-In 17,529 17,529 - - 4,369 25%
Encumbrances and Reappropriation - 5,571 - - - -
Total Sources of Funds 160,573 166,222 - - 28,269 17%
Expenditures & Other Uses
City Attorney 2,453 2,956 50 456 616 38%
City Auditor 1,088 1,099 5 123 259 35%
City Clerk 1,258 1,271 - 31 276 24%
City Council 497 631 - 91 127 35%
City Manager 2,499 2,858 33 341 626 35%
Administrative Services 7,280 7,414 61 136 1,629 25%
Community Services 22,700 23,639 1,265 2,613 5,767 41%
Fire 28,388 29,147 125 623 6,896 26%
People Strategy and Operations 3,265 3,453 53 100 692 24%
Library 7,793 8,507 205 769 1,678 31%
Planning and Community Environment 13,608 14,679 144 927 2,606 25%
Police 32,573 32,821 96 464 7,703 25%
Public W orks 13,751 14,635 28 1,122 3,272 30%
Non-Departmental 8,496 9,000 - - 2,359 26%
Total Expenditures 145,649 152,110 2,065 7,796 34,506 29%
Operating Transfers-Out 843 843 - - 210 25%
Transfer to Capital Fund 13,226 13,226 - - 3,307 25%
Total Uses of Funds 159,718 166,179 2,065 7,796 38,023 29%
Net Surplus (Deficit) 855 43
Adjust intra-fund reserve transfer -
Net To (From) Reserves 855 43
Beginning Reserves (Unaudited)30,355 30,355
Projected Ending Reserves 31,210 30,398
BUDGET (three months ended 9-30-13)
CITY OF PALO ALTO
FISCAL YEAR 2014 Q1 FINANCIAL REPORT
GENERAL FUND
(in thousands of dollars)
11/26/2013