HomeMy WebLinkAboutStaff Report 10079
City of Palo Alto (ID # 10079)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 6/18/2019
City of Palo Alto Page 1
Summary Title: Fiscal Year 2019, Third Quarter Financial Report
Title: Fiscal Year 2019, Third Quarter Financial Report
From: City Manager
Lead Department: Administrative Services
Staff recommends that the Finance Committee review and approve the Third (3 rd) Quarter
financial report.
Background
The purpose of this report is to provide the Finance Committee with information on the
financial condition of the City’s General Fund and Enterprise Funds as of the end of the 3rd
quarter (ending March 31, 2019) of fiscal year (FY) 2019.
Discussion
This report summarizes the actual financial activity of the General and Enterprise Funds for the
first nine-months of the fiscal year and compares these financial results to the same prior year
period and to the FY 2019 Adjusted Budget.
The General Fund Third Quarter Financial Report (Attachment A) provides a breakdown of
revenues by source and expenses by function, with separate columns for Adopted Budget and
Adjusted Budget. The Adjusted Budget column includes prior year commitments that were
carried forward into this fiscal year and amendments to the FY 2019 Adopted Budget through
March 31. Encumbrances and actual expenses for the nine-month period are also reported.
General Fund revenues (excluding operating transfers and other sources) through the 3rd
quarter total $129.0 million, or 66 percent of the Adjusted Budget. Compared to the same prior
year period, this fiscal year’s actuals are 7 percent higher and is driven by increased cash
receipts for sales tax and utility user tax compared to prior year.
General Fund expenses for 3rd quarter are 3 percent higher than prior year and are tracking at
73 percent of Adjusted Budget which is similar to the prior year trend .
Following is a detailed discussion of the most significant revenue and expense items.
City of Palo Alto Page 2
Revenue Highlights for 3rd Quarter FY 2019
Following table highlights the City’s major revenue sources for the 3rd quarter compared to the
same quarter in the prior year. The 3rd quarter is also compared to the adjusted budget for the
year.
% change FY 2019 %FY 2018 %
Property Tax 1%46,232$ 64%42,327$ 69%
Sales Tax 21%31,747 68%30,208 59%
Charges for Services -1%28,419 57%25,125 65%
Transient Occupancy Tax -3%25,049 61%24,398 64%
Utility User Tax 7%16,092 72%15,367 71%
Permits and Licenses -6%8,545 71%8,432 77%
Documentary Transfer Tax -13%8,034 60%6,930 80%
All Other Revenue Sources -6%32,875 73%33,543 76%
Total Revenue 7%$196,993 66%$186,330 68%
129,031$ $127,387
6,107 6,528
4,801 5,510
23,984 25,484
16,157 16,375
15,251 15,650
11,626 10,860
29,429$ 29,050$
21,674 17,930
3rd Quarter Actuals Adjusted Budget
FY 2019 FY 2018
City of Palo Alto
General Fund Revenue
FY 2019 3rd Quarter
(000's)
Property tax revenue for the last three years had growth rates in the low 7 percent to a high 8
percent in FY 2018. It’s expected the FY 2019 adjusted budget of $46.2 million, which is $3.9
million or 8.5 percent higher than the prior year’s actual revenue will be met or exceeded. The
budget includes conservative assumptions for Excess Educational Revenue Augmentation Fund
(ERAF) revenue. Though the City has received Excess ERAF for over four years and this revenue
source continues in the current fiscal year, this portion of the property tax revenue is not
considered ongoing.
Sales tax revenue had a robust 3.9 percent increase in FY 2018 after plateauing between FY
2015 to FY 2017. As of the 3rd quarter, cash receipts are $2.2 million or 21 percent higher than
the 3rd quarter of the prior year. The FY 2019 outlook is that revenue will exceed the Adjusted
Budget due to a combination of activities including strong economic performance in the auto
sales and leasing sectors; a larger than expected sales tax receipt for FY 2018 collections, and a
negative adjustment in this fiscal year due to sales tax misallocation to Palo Alto, in prior fiscal
years.
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On the horizon for sales tax, the U.S. Supreme Court's ruling in Wayfair v. South Dakota in June
2018 allows states more authority to require out-of-state sellers to collect use tax. Previously,
California individuals were responsible for reporting and paying use tax on out -of-state
purchases. The California Department of Tax and Fee Administration (CDTFA) announced that it
will require out-of-state retailers to collect and remit use tax beginning on April 1, 2019 if in the
preceding or current calendar year their sales into California exceed $100,000, or 200 or more
separate transactions. In late April 2019, the Governor signed into law AB 147 which increased
the sales threshold to $500,000 or more. Per the City’s sales tax consultant (MuniServices or
Avenu Analytics), the Wayfair decision is expected to lead to increased use tax compliance
resulting in an additional $219 million in California sales tax revenue in FY 2019 and $554
million in FY 2020. These estimates were calculated prior to the increased sales tax threshold
and the revised threshold will result in lower sales tax estimates for the state. Prior to the
threshold change, the FY 2019 impact of the Wayfair decision was expected to be nominal in FY
2020. The City’s sales tax forecast will be updated once staff receives updated information.
Transient occupancy tax (TOT) revenue is expected to exceed the Adjusted Budget of $25.1
million, which is $0.1 million or 0.5 percent higher than the prior year’s actual receipts. In
addition to the modest base receipts growth, the voter approved 1.5 percent tax rate increase,
which went into effect on April 1, 2019, is expected t o bring in an additional $0.8 million in
revenue. The Adjusted Budget does not include the additional 1.5 percent that went into effect
on April 1, 2019. The cash receipts for the 3rd quarter decreased $0.4 million or 2.6 percent due
to timing of collections. The actual revenue represents 7 ½ months of TOT earnings not the 9
months in this report period. Economically, cumulative growth in the first two and half quarters
has been 2.4 percent. During the first two and half quarters, average daily room rates and
occupancy were $277 per day and 76.7 percent which is 4.7 percent higher and 0.9 percent
lower over the prior year, respectively. This revenue stream will continue to be monitored and
adjustments will be brought forward as appropriate.
Documentary transfer tax is expected to be at or slightly below the adjusted budget of $8.0
million. This revenue source is highly dependent on sales volume and the mix of commercial
and residential sales, resulting in variances or that may include significant, one -time
transactions. Revenue for the 3rd quarter is $4.8 million and is $0.7 million, or 12.9 percent,
below prior year’s receipts for the same time period due to large commercial sales in prior year.
Revenue as of the 3rd quarters in FY 2019 is consistent with FY 2016 and FY 2017 receipts for
the same time period.
Permits and licenses revenue is down primarily due to a decrease in new construction permit
revenue mainly for the $1.4 million permits issued to Channing House and Leland Stanford Jr.
University Board of Trustee from the same period last year.
City of Palo Alto Page 4
Expense Highlights for 3rd Quarter FY 2019
Following is a table which highlights the City’s expenses by function for the 3 rd quarter,
compared to 3rd quarter of the prior year. Each quarter’s expense is expressed as a percentage
of the Adjusted Budget for each year.
City of Palo Alto
General Fund Expenses
FY 2019 3rd Quarter
(000's)
FY 2019 FY 2018 % change FY 2019 %FY 2018 %
Police 31,546$ 29,577$ 7%42,602$ 74%42,774$ 69%
Fire 24,511 25,132 -2%33,204 74%32,556 77%
Community Services 21,659 18,662 16%30,263 72%28,967 64%
Public Works 12,236 12,901 -5%18,662 66%19,079 68%
Development Services 8,987 8,382 7%13,103 69%13,194 64%
Library 6,814 6,677 2%9,767 70%9,771 68%
Administrative Services 5,600 5,638 -1%7,834 71%8,253 68%
Planning and Community Env 5,458 6,127 -11%10,509 52%10,938 56%
All Other Departments 15,982 15,309 4%30,383 53%25,067 61%
Total Expenses 132,793$ 128,405$ 3%196,327$ 68%190,599$ 67%
3rd Quarter Actuals Adjusted Budget
Total expenses for the 3rd quarter of the fiscal year are up $4.4 million or 3 percent from the
same quarter last year, but in total it is 7 percent lower than the adjusted budgeted amounts
for FY 2019.
Community Services increased $3.0 million or 16 percent from the same quarter last year. The
increase is due to Golf course operations, as the Golf course re-opened in May 2018.
Development Services increased $0.6 million or 7 percent from the same quarter last year. This
is due to higher salaries and benefits, overtime and contract services
Police and Fire comprises 42 percent of total General Fund expenditures for the 3rd quarter,
which is comparable to the prior year. Following is a table which highlights some Police and
Fire salaries and overtime for the 3rd quarter.
City of Palo Alto Page 5
Public Safety
Salaries and Overtime Expense
FY 2019 3rd Quarter YTD
(000's)
FY 2019 FY 2018 % change FY 2019 %FY 2018 %
Inc (Dec)
Police - Salaries 13,180$ 12,534$ 5%18,991$ 69%18,827$ 67%
Police - Overtime 1,921 1,746 10%1,813 106%1,700 103%
Total Police 15,101 14,280 6%20,804 73%20,527 70%
Fire - Salaries 9,770 9,515 3%14,356 68%13,914 68%
Fire - Overtime 2,580 3,108 -17%2,094 123%1,571 198%
Total Fire 12,350 12,623 -2%16,450 75%15,485 82%
Total Public Safety
Salaries & Overtime 27,451$ 26,903$ 2%37,254$ 74%36,012$ 75%
3rd Quarter YTD Actuals Adjusted Budget
Police overtime is 10 percent higher from prior year due to staff vacancies. The Patrol Division
and Communications Center are both impacted by the number of current vacancies. In addition
to that the officers received a salary increase starting July 1, 2018. On a combined basis, salaries
and overtime are at 73 percent of adjusted budget through the 3rd quarter of the fiscal year.
Fire overtime is 17 percent lower due to fewer vacancies for the third quarter in FY 2019. On a
combined basis, salaries and overtime are at 75 percent of the budget t hrough the 3rd quarter
of the fiscal year.
In a recent audit of the Fire Department’s records for FY 2015, it was determined that the
Department needs to refund $165,000 to the State Ground Emergency Medical Transport
(GEMT) program. The State GEMT program provides reimbursements to emergency medical
service programs/organizations to reduce the financial loss of ambulance transports for
patients covered by Medi-Cal. In FY 2015, the Department received reimbursements totaling
approximately $210,000; however, the recent audit identified $165,000 of ineligible
reimbursements that need to be refunded. It is anticipated that a year-end budgetary action
will be needed to fund the $165,000 owed to GEMT, and an additional budgetary action may be
needed once the audit of FY 2016 is completed. Subsequent to FY 2016, the Fire Department
applied additional direction to its methodology of determining eligible reimbursable expenses
City of Palo Alto Page 6
to exclude engine medics from GEMT. As a result of this change in methodology, it is not
anticipated that adjustments will be necessary for reimbursement periods after FY 2016
General Fund Budget Stabilization Reserve (BSR) Balance
As reported to the Finance Committee on December 4, FY 2018 ended with a surplus of $11.5
million when compared to the FY 2019 Adopted Budget and a BSR balance of $52.8 million.
After deducting the 2019 General Adopted Budget and subsequent budget amendments to the
reserve through Council approved actions, the BSR balance is $42.3 million which is 20.1
percent of FY 2019 expenditures and operating transfers adopted budget. The Finance
Committee approved a recommended $2.0 million reduction in the BSR to transfer funds from
the BSR to the Infrastructure Reserve; this would bring the BSR to $40.3 million or
approximately 19 percent of the FY 2019 Adopted Budget expenses.
Enterprise Funds
Following is a summary of change in net position for each of the Enterprise Funds for the nine
months ended March 31, 2019, including a comparison of results from the same period last
year.
City of Palo Alto
Enterprise Funds Change in Net Position
FY 2019 3rd Quarter
3rd Qtr 3nd Qtr Increase
FY 2019 FY 2018 (Decrease)% Change
Water 9,149$ 8,902$ 247$ 3%
Electric 12,227 6,247 5,980 96%
Fiber Optic 2,278 1,182 1,096 93%
Gas 5,121 3,369 1,752 52%
Wastewater collection 2,126 1,036 1,090 105%
Wastewater treatment 14,547 7,940 6,607 83%
Refuse 5,751 7,079 (1,328)-19%
Storm Drainage 1,973 2,197 (224)-10%
Airport 1,458 3,403 (1,945)-57%
Total Change in Net Position 54,629$ 41,356$ 13,273$ 32%
Water Fund increased $0.2 million from prior year due to increase in connection fees and
other operating revenues.
City of Palo Alto Page 7
Electric Fund increased $6.0 million from prior year due to increase in operat ing revenues as a
result of 6 percent rate increase effective July 1, 2018, connection fees and other operating
revenues offset by the decrease in operations and maintenance costs.
Fiber Optics Fund increased $1.1 million from prior year due to increas e in operating revenues
mainly from Dark Fiber Backbone Commercial Lease.
Gas Fund increased $1.8 million from prior year as a result of rate increase and higher
consumption rate coupled with a decrease in carbon neutral purchases offset by the increase in
commodity and transportation costs.
Wastewater Collection Fund increased $1.1 million from prior year due to an 11 percent rate
increase effective July 1, 2018.
Wastewater Treatment Fund increased $6.6 million from prior year as a result of an increase in
State Revolving Fund Loan cost reimbursement for the Dewatering & Loadout Facility Project
and higher sewage treatment and operating costs resulting to higher partner’s billing.
Refuse Fund decreased $1.3 million from prior year due to decrease in operating revenues and
increase in operations and maintenance costs.
Storm Drain Fund decreased $0.2 million from prior year due to increase in operating transfers
to Capital Projects Fund for Charleston Arastradero Corridor project.
Airport Fund decreased $1.9 million from prior year due to the decrease in grant revenues for
the Airport’s Apron Reconstruction Capital Improvement Project.
Pension Update
Following is a table which shows the employee count in each of the Miscellaneous and Safety
Plans as of March 2019. As of that date, 49 percent of the City’s full -time employees were
enrolled in Tier 2 and 3 plans, compared to 45 percent as of March 2018.
City of Palo Alto Page 8
Mar-19 Mar-18 Mar-19 Mar-18
Tier 1 1 4 Tier 1 58 62
Tier 2 2 2 Tier 2 7 6
Tier 3 4 4 Tier 3 24 15
Sub-total 7 10 Sub-total 89 83
Tier 1 92 102 Tier 1 3 3
Tier 2 43 47 Tier 2 0 0
Tier 3 59 54 Tier 3 0 0
Sub-total 194 Sub-total 3 3
Tier 1 255 300 Tier 1 3 4
Tier 2 59 67 Tier 2 0 1
Tier 3 217 191 Tier 3 0 0
Sub-total 531 558 Sub-total 3 5
Tier 1 44 44 Tier 1 40 44
Tier 2 1 1 Tier 2 5 4
Tier 3 2 2 Tier 3 25 23
Sub-total 47 47 Sub-total 70 71
Tier 1 6 6
Tier 2 1 1
Tier 3 0 0
Sub-total 7 7
Tier 1 1 1
Tier 2 0 0
Tier 3 1 1
Sub-total 2 2
Total Tier 1 392 450 Total Tier 1 111 120
Tier 2 105 117 Tier 2 13 11
Tier 3 282 251 Tier 3 49 38
Grand Total Misc Plans 779 818 Grand Total Safety Plans 173 169
%Tier 1 50%55%%Tier 1 64%71%
Tier 2 13%14%Tier 2 8%7%
Tier 3 36%31%Tier 3 28%22%
Tier 1 2.7% @ 55 Tier 1 3% @ 50
Tier 2 2% @ 60 Tier 2 3% @ 55
Tier 3 2% @ 62 Tier 3 2.7% @ 57
Police Management
Association
Police Management
Fire Management
PAPOA
Service Employees
International Union
Utilities Management
Miscellaneous Plans Safety Plans
Fire Chiefs
Association
Employee Group
IAFFCity Council and
Council Appointed
Officers
Employee Group
Management and
Professional
Attachments:
• Attachment A: General Fund 3rd Quarter Financial Report
ATTACHMENT A
CITY OF PALO ALTO
GENERAL FUND THIRD QUARTER FINANCIAL REPORT
QUARTER ENDING MARCH 31, 2019
(in thousands)
BUDGET ACTUALS (as of 03/31/2019)
Adopted Adjusted Pre Rev/Exp % of Adj
Categories Budget Budget Encumbr Encumbr Actual Budget*
Revenues & Other Sources
Sales Tax 31,247 31,747 - - 21,674 68%
Property Tax 45,332 46,232 - - 29,429 64%
Transient Occupancy Tax 25,049 25,049 - - 15,251 61%
Documentary Transfer Tax 7,434 8,034 - - 4,801 60%
Utility Users Tax 16,092 16,092 - - 11,626 72%
Motor Vehicle Tax, Penalties & Fines 2,032 2,032 - - 1,706 84%
Charges for Services 28,419 28,419 - - 16,157 57%
Permits & Licenses 8,545 8,545 - - 6,107 71%
Return on Investment 1,166 1,166 - - 929 80%
Rental Income 15,734 15,734 - - 11,849 75%
From Other Agencies 2,943 3,229 - - 1,263 39%
Charges To Other Funds 10,093 10,147 - - 7,703 76%
Other Revenues 567 567 - - 536 95%
Total Revenues 194,653 196,993 - - 129,031 66%
Operating Transfers-In 19,772 20,074 - - 15,056 75%
Encumbrances and Reappropriation 7,818 - - - -
Contribution from Budget Stabilization Reserve - - - - - -
Total Sources of Funds 214,425 224,885 - - 144,087 66%
Expenditures & Other Uses
City Attorney 3,264 3,580 60 190 2,352 73%
City Auditor 1,258 1,168 104 913 87%
City Clerk 1,282 1,267 128 834 76%
City Council 488 501 42 294 67%
City Manager 4,386 4,791 300 690 2,870 81%
Administrative Services 7,963 7,834 43 62 5,600 73%
Community Services 28,914 30,263 51 2,214 21,659 79%
Development Services 12,561 13,103 925 8,987 76%
Fire 31,825 33,204 44 408 24,511 75%
Library 9,664 9,767 252 6,814 72%
Office of Emergency Services 1,509 1,678 865 52%
Human Resources 3,591 3,796 42 150 2,646 75%
Planning and Community Environment 8,791 10,509 380 1,664 5,458 71%
Police 41,951 42,602 126 569 31,546 76%
Public Works 18,462 18,662 152 2,381 12,236 79%
Non-Departmental 3,824 13,602 5 5,208 38%
Total Expenditures 179,733 196,327 1,198 9,784 132,793 73%
Operating Transfers-Out 5,726 9,397 - - 8,441 90%
Transfer to Infrastructure 25,172 27,172 - - 20,379 75%
Total Use of Funds 210,631 232,896 1,198 9,784 161,613 74%