HomeMy WebLinkAboutStaff Report 4927
City of Palo Alto (ID # 4927)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 8/5/2014
City of Palo Alto Page 1
Summary Title: FY 2014 3rd Qtr Financial Report
Title: FY 2014 Third Quarter Financial Report
From: City Manager
Lead Department: Administrative Services
Motion
Staff recommends that Finance Committee consider a motion to review and approve the 3rd
Quarter financial report.
Background
The purpose of this report is to provide information on the financial status of the General Fund
and Enterprise Funds through the first nine months of fiscal year (FY) 2014.
As reported during the mid-year budget review in March, the City’s major tax revenue streams
are exceeding expectations. In particular, sales tax, transient occupancy tax and documentary
transfer tax revenues are continuing to trend upward. As a result, the mid -year budget changes
included a $6.4 million upward adjustment in revenues, an increase of 4.0 percent over the
Adopted Budget. Expenses were also adjusted upward and, after subtracting Budget
Amendments authorized by Council, the net projected surplus for the year stands at $4.2
million. Attachment A contains a line by line report of major revenues and expenditures, as well
as a comparison of FY 2014 Adopted and the Adjusted Budget through March 31, 2014.
Levels of revenue activity in the 3rd and 4th Quarters of the fiscal year continue to support the
trends seen in the first half of FY 2014, with revenue levels having exceeded the projections in
the FY 2014 Adjusted Budget. As discussed during the Finance Committee and City Council
review of the FY 2015 Proposed Budget, staff projects that th e FY 2014 budget surplus will be
approximately $6 million due to higher than anticipated revenues and expenditure savings.
Based on City Council direction, and provided the $6 million surplus is realized, in support of the
approved Infrastructure Plan as part of closing the FY 2014 budget, $4 million of this budget
surplus will be transferred to the Infrastructure Reserve . The approximately $2 million in
remaining surplus will be carried into FY 2015 to cover one-time expenditures for the upcoming
fiscal year.
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Discussion
GENERAL FUND
Revenue Highlights for FY 2014 3rd Quarter Year To Date (YTD)
Following is a table which highlights the City’s major revenue sources for the 3rd Quarter YTD,
compared to the same period of the prior year. In addition, revenue for the period is expressed
as a percentage of the Adjusted Budget.
FY 2014 FY 2013 % change FY 2014 %FY 2013 %
Inc(Dec)
Property tax 19,042$ 18,320$ 4%30,251$ 63%27,912$ 66%
Sales tax 20,425 16,554 23%27,352 75%23,364 71%
Charges for services 15,334 16,221 (5%)22,445 68%25,646 63%
Utility user tax 8,048 7,760 4%11,386 71%10,825 72%
Transient occupancy tax 7,553 6,775 11%12,318 61%10,439 65%
Documentary transfer tax 5,610 4,916 14%7,395 76%6,800 72%
Permits and licences 4,961 5,548 (11%)7,942 62%7,998 69%
All other revenue sources 21,646 21,574 0%30,027 72%27,965 77%
Total General Fund Revenues 102,619$ 97,668$ 5%149,116$ 69%140,949$ 69%
3rd Quarter YTD Actuals
City of Palo Alto
General Fund Revenues
FY 2014 3rd Quarter YTD
(000's)
Adjusted Budget Final Budget
In total, revenue is up 5 percent, or $5.0 million, from prior year as of the end of the 3 rd Quarter
YTD, driven primarily by sales tax and transient occupancy tax increases. In total, receipts are at
69 percent of Adjusted Budget, which is typical for the end of the 3 rd Quarter due to property
tax receipts which spike in the last quarter of the fiscal year.
Following is a graph which demonstrates the three year trend for major sources of General
Fund tax revenue, and compares FY 2012 and FY 2013 actuals with FY 2014 Adjusted Budget.
While the overall trajectory for tax revenue sources continues to be an upward trend, the year -
over-year increase is at a slower pace for all categories except transient occupancy tax, which
demonstrates an accelerated rate of growth. The graph is followed by a more detailed
discussion of each major revenue category.
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Property Tax Sales Tax Tr Occ Tax Doc Tsf Tax
FY 2012 Actual $26,494 $22,132 $9,664 $4,821
FY 2013 Actual 28,742 25,606 10,794 6,810
FY 2014 Adjusted
Budget 30,250 27,352 12,318 7,395
$0
$10,000
$20,000
$30,000
General Fund Revenues
FY 2012 and 2013 Actuals Compared to FY 2014 Adjusted Budget
(000's)
Property tax revenue at the close of 3rd Quarter YTD was $19.0 million, or 63 percent of the
Adjusted Budget. Property tax is received from the County of Santa Clara during the 2 nd, 3rd and
4th quarters of the year, and we expect the remaining 37 percent of budgeted revenue will be
received in the 4th Quarter. The FY 2014 budgeted amount is $30.3 million, 5.2 percent higher
than the prior year’s actual revenue of $28.7 million.
Sales tax revenue for the 3rd Quarter YTD has increased $3.9 million, or 23 percent, from the
same period last year for a total of $20.4 million. The Adjusted Budget incorporated an
increase of $3.5 million due to higher than expected receipts from a single vendor in the first
two quarters of the current fiscal year. Through the first three quarters of the fisc al year,
receipts are right at 75 percent of Adjusted Budget, and we expect to receive the remaining 25
percent in the 4th Quarter.
Transient occupancy tax revenue reached $7.6 million through the end of the 3 rd Quarter. This
represents 61 percent of the Adjusted Budget amount, and we expect to receive the remaining
39 percent during the 4th Quarter. Daily rates increased 14 percent from prior year - $177 per
day to $202 per day - while occupancy rates remained flat at 78 percent. The total number of
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rooms available increased by 86, or 5 percent, in March, 2014 with the opening of the Epiphany
Hotel.
Documentary transfer tax revenue totals $5.6 million, or 76 percent of the FY 2014 Adjusted
Budget amount. If the current trend is maintained, receipts m ay exceed budget by the end of
the current fiscal year.
Charges for services revenue through the first three quarters of FY 2014 is down $0.9 million,
or 5 percent, from the same period last year. This decrease is due to the following items, all of
which were adjusted for in the Mid-Year budget:
Golf related fees have declined by $0.4 million from the same period prior year due to
course closure for renovations.
Plan check fees for the 3rd Quarter YTD have decreased by $0.4 million from same
period prior year due to reduced volume of activity.
Spay and neuter fees at Animal Services have decreased by $0.1 million from the same
period prior year due to decreased services available to the public.
Permits and licenses revenue for 3rd Quarter YTD is down $0.6 million from the same period
prior year due to a decrease in new construction permits.
Expense Highlights for FY 2014 3rd Quarter YTD
Following is a table which highlights the City’s expenses by function for the 3rd Quarter YTD,
and compares expenses to the same period prior year. In addition, the expense for the period
is expressed as a percentage of the annual budget for each of the years.
City of Palo Alto Page 5
City of Palo Alto
General Fund Expenses
FY 2014 3rd Quarter YTD
(000's)
FY 2014 FY 2013 % change FY 2014 %FY 2013 %
Inc (Dec)
Public safety 45,548$ 42,782$ 6%62,418$ 73%61,498$ 70%
Community services 16,172 15,158 7%24,042 67%22,518 67%
Public works 9,906 9,394 5%14,564 68%14,753 64%
Planning and community env 8,972 7,388 21%15,141 59%13,382 55%
Library 5,384 4,798 12%8,622 62%7,683 62%
Administrative services 5,276 5,059 (4%)7,512 70%7,525 67%
All other departments 14,499 13,302 9%20,932 69%20,749 64%
Total General Fund Expenses 105,757$ 97,881$ 8%153,231$ 69%148,108$ 66%
3rd Quarter YTD Actuals Adjusted Budget Final Budget
Actual expenses through the first three quarters of the fiscal year total $105.7 mi llion, an 8
percent increase over prior year. The expenses are right in line with the Adjusted Budget at 69
percent of full-year budgeted amounts.
Planning and Community Environment expenses are higher than prior year by $1.6 million. This
difference is temporary and is due to the timing of a correction to contractor payment expense
which was made in the 4th Quarter of the prior year.
Library expenses are up over prior year due to increased book purchases, which were
budgeted.
Public Safety comprises the largest portion of General Fund expenditures. Following is the
detail for Public Safety salaries and overtime expenses through the 3rd Quarter of the current
fiscal year:
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Public Safety
Salaries and Overtime Expense
FY 2014 3rd Quarter YTD
(000's)
FY 2014 FY 2013 % change FY 2014 %FY 2013 %
Inc (Dec)
Police - Salaries 11,146$ 10,673$ 4%15,825$ 70%14,631$ 73%
Police - Overtime 1,358 1,173 16%1,500 91%970 121%
Fire - Salaries 8,920 9,057 (2%)12,813 70%12,932 70%
Fire - Overtime 1,768 1,367 29%1,475 120%1,624 84%
3rd Quarter YTD Actuals Adjusted Budget Final Budget
Police overtime has increased $0.2 million, or 4 percent, over the same period last year. The
increase occurred in the 1st Quarter of the fiscal year, and has remained flat since then. The
increase is attributable to the following factors:
One-time special events, such as an event in Mountain View, and 400 hours of overtime
at Cubberley Community Center ($35,000);
Significant number of new officers hired, and reinstatement of the traffic team,
necessitated more overtime than usual to train new motor and entry-level officers;
Backfill for 4 injuries, compared to 1 in the prior year;
Backfill for an Academy Training Officer due to the significant number of recruits
currently in the Police Academy.
Events or incidents that might not normally have a significant impact during other times of the
year had a disproportionately negative impact on overtime when they occurred together and
were coupled with the summer vacation season, which is normally the Department’s heaviest
vacation period. The Department receives partial reimbursement for overtime from Stanfo rd
and the Utilities Department for dispatch services, and from neighboring cities for animal
control and care services. Traffic control services at Stanford football games and other special
events are partially offset by reimbursements from the University and other organizations.
Fire overtime has increased $0.4 million, or 29 percent, over the same period last year. The
increase is attributable to the following factors:
Front-line vacancies during the first two quarters of the fiscal year;
Eight Workers Comp absences, compared to five in the same period last year;
Mutual aid fire response to the Rim Fire in the Yosemite area, for which the City has
been reimbursed $50,000 from the State of California;
Support of succession planning and career development in anticipation of key
leadership changes and at least twenty anticipated retirements;
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Participation in a nationally recognized command and control system which required
training for Captains and Acting Captains.
Overall, the Department is under budget in regular salaries and benefits, due primarily to the
aforementioned vacancies.
General Fund Budget Stabilization Reserve (BSR) Balance
The FY 2014 General Fund Adopted Budget reflects a surplus position of $0.9 million. As
detailed in Attachment A, after giving effect to Budget Amendments and adjustments during
the mid-year process, the projected surplus for the year is $4.2 million. This will result in an
ending BSR balance of $34.6 million, or 21.2 percent of Total Uses of Funds. Staff anticipates
the City could end the year with a $6.0 million surplus due to continuing upward revenue
trends through the 3rd and 4th Quarters as well as expenditure savings.
ENTERPRISE FUNDS
Following is a summary of change in net position for each of the Enterprise Fu nds for the nine
months ended March 31, 2014, including a comparison of results from the same period last
year.
Enterprise Funds Operating Revenue
Mid-Year
3rd Quarter YTD Actuals % Change Budget
FY 2014 FY 2013 Inc(Dec)FY 2014 %
Water 30,686$ 27,637$ 11%38,785$ 79%
Electric 92,248 88,943 4%127,615 72%
Fiber Optic 2,799 3,424 (18%)3,828 73%
Gas 27,804 27,161 2%38,202 73%
Wastewater collection 11,533 11,819 (2%)15,627 74%
Wastewater treatment 16,317 16,206 1%22,400 73%
Refuse 22,538 22,790 (1%)29,449 77%
Storm Drainage 4,550 4,442 2%5,897 77%
Airport 0 0 N/A 325 0%
Operating Revenue YTD 208,475$ 202,422$ 3%282,128$ 74%
Water Fund 3rd Quarter YTD revenue has increased $3.0 million, or 11 percent, from same
period prior year due to increased operating revenues as a result of a 7 percent water rate
increase effective July 1, 2013, as well as dramatically dry weather conditions which are driving
increased usage.
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Electric Fund YTD revenue increased $3.3 million, or 4 percent, due to increased operating
revenues of $1.8 million, increased service connection charges of $1.0 million, and $0.4 million
more in Carbon Cap and Trade revenue.
Fiber Optics Fund 3rd Quarter YTD revenue decreased $0.6 million from prior year due to prior
year revenue of $0.6 million Stanford connection fee and $0.2 million bad debt recovery, offset
by a 2.2 percent CPI rate increase for commercial dark fiber customers effective July 1, 2013.
Enterprise Funds Operating Expenses
Mid-Year
3rd Quarter YTD Actuals % Change Budget
FY 2014 FY 2013 Inc(Dec)FY 2014 %
Water 18,639$ 18,294$ 2%26,297$ 71%
Electric 69,862 61,829 13%106,994 65%
Fiber Optic 977 843 16%1,521 64%
Gas 16,690 16,044 4%24,537 68%
Wastewater collection 9,217 8,974 3%13,561 68%
Wastewater treatment 12,864 12,280 5%18,352 70%
Refuse 18,829 18,953 (1%)27,782 68%
Storm Drainage 1,577 1,619 (3%)2,371 67%
Airport 304 139 119%440 69%
Operating Expenses YTD 148,959$ 138,975$ 7%221,855$ 67%
Electric Fund operating expenses through the 3rd Quarter total $69.9 million, or 13 percent
higher than the same period last year due to increased commodity purchases as a result of less
hydroelectric power being generated.
Fiber Optics Fund expenses are 16 percent higher than the same per iod last year due to higher
operations and administrative expenses.
Airport Fund expenses have increased due to salary and benefit expenses for the Airport
Manager. The position was filled as of the 4th Quarter of FY 2013. Airport expenses are being
funded by a loan from the General Fund.
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
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Miscellaneous plans as of June 3, 2014 compared to May 20, 2013 . Staff will include
comparable data for the Safety plans in the FY 2015 1st Quarter financial report.
Employee Group
# of Employees Change
06/03/2014 5/20/2013 Inc (Dec)
Council Appointed
Officers
Tier 1 2 2
Tier 2 2 2
Tier 3 0 0
Sub-total 4 4 0
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 1 115 137
Tier 2 38 34
Tier 3 20 1
Sub-total 173 172 1
Service Employees
International Union
Tier 1 404 442
Tier 2 79 84
Tier 3 52 8
Sub-total 535 534 1
Utilities Management Tier 1 ** 42 40
Tier 2 0 1
Tier 3 1 0
Sub-total 43 41 2
Total
Tier 1 564 622 (58)
Tier 2 119 121 (2)
Tier 3 73 9 64
Grand Total 756 752 4
Tier 1 2.7% @ 55
Tier 2 2% @ 60
Tier 3 2% @ 62
** Tier 1 increased due to promotions from SEIU to Utilities Management.
Attachments:
Attachment A: FY2014 3rd Qtr Financial Report General Fund (XLSX)
Attachment A
ACTUALS
Adopted Adjusted Pre % of
Categories
Budget Budget Encumbr Encumbr Actual Adjusted
Budget
Revenues & Other Sources
Sales Tax 23,846 27,352 - - 20,425 75%
Property Tax 29,613 30,251 - - 19,042 63%
Transient Occupancy Tax 11,545 12,318 - - 7,553 61%
Utility Users Tax 11,013 11,386 - - 8,048 71%
Documentary Transfer Tax 5,699 7,395 - - 5,610 76%
Motor Vehicle Tax, Penalties & Fines 2,107 2,107 - - 1,581 75%
Charges for Services 24,379 22,445 - - 15,334 68%
Permits & Licenses 8,346 7,942 - - 4,961 62%
Return on Investment 769 769 - - 693 90%
Rental Income 12,891 14,010 - - 9,885 71%
From Other Agencies 252 381 - - 167 44%
Charges To Other Funds 10,574 10,604 - - 7,916 75%
Other Revenues 2,010 2,156 - - 1,404 65%
Total Revenues 143,044 149,116 - - 102,619 69%
Operating Transfers-In 17,529 17,910 - - 13,111 73%
Encumbrances and Reappropriation 5,571 - - -
From Infrastructure Reserve -
Total Sources of Funds 160,573 172,597 - - 115,730 67%
Expenditures & Other Uses
City Attorney 2,453 2,967 45 508 1,891 82%
City Auditor 1,088 1,110 5 35 718 68%
City Clerk 1,258 1,283 - 17 824 66%
City Council 497 659 - 62 367 65%
City Manager 2,499 2,737 8 155 2,040 80%
Administrative Services 7,280 7,512 26 198 5,276 73%
Community Services 22,700 24,042 92 1,815 16,172 75%
Library 7,793 8,622 117 186 5,384 66%
People Strategy and Operations 3,265 3,761 13 248 2,157 64%
Planning and Community Environment 13,608 15,141 228 1,107 8,972 68%
Public Safety 60,962 62,418 198 1,042 45,548
Public Works 13,751 14,564 100 1,071 9,906 76%
Non-Departmental 1,228 1,147 - - 1,074 94%
Cubberley Lease 7,268 7,268 - - 5,428 75%
Total Expenditures 145,650 153,231 832 6,444 105,757 74%
Operating Transfers-Out 843 1,843 - - 10,552 573%
Transfer to Infrastructure 13,226 13,226 - - - 0%
Total Uses of Funds 159,719 168,300 832 6,444 116,309 73%
Net Surplus (Deficit) 854 4,297
Budget Amendments Authorized by Council:
CSD park maintenance (6/12/13)227
Election costs (9/9/13)585
Homeless Systems (11/18/13)125
Management Compensation Update (1/27/14)98
Comprehensive Plan (3/17/14)200
Midyear (5/5/14)(4,678)
Total Augmentations Authorized by Council - (3,443)
Net Surplus/(Deficit) Excluding BAOs 854 854
Budget Amendments Authorized by Council after 3/31:
Golf Course (4/29/14)100
Total Augmentations Authorized by Council after 3/31:- 100
Net Surplus/(Deficit) After BSR Drawdown 854 4,197
Beginning Reserves 30,355 30,355
Projected Ending Reserves 31,209 34,552
BSR % of Total Use of Funds 19.5%21.2%
BUDGET (as of 03-31-14)
CITY OF PALO ALTO
FISCAL YEAR 2014 THIRD QUARTER FINANCIAL REPORT
GENERAL FUND
(in thousands of dollars)
7/15/2014