HomeMy WebLinkAboutStaff Report 10793
City of Palo Alto (ID # 10793)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/3/2019
City of Palo Alto Page 1
Summary Title: First Quarter Financial Report FY2020
Title: First Quarter FY 2020 Financial Report
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee review and approve the financial report for the
first quarter of Fiscal Year 2020.
Background
The purpose of this report is to provide information on the financial condition of the City’s
General Fund and Enterprise Funds as of the end of the first (1st) quarter of fiscal year (FY)
2020.
Discussion
This report summarizes the actual financial activity of the General and Enterprise Funds for the
three-month period July 1, 2019 through September 30, 2019 and compares those amounts to
the FY 2020 Adjusted Budget as well as to the report for the same period in FY 2019.
Attachment A provides a breakdown of revenues by source and expenses by function, with
separate columns for the Adopted Budget and the Adjusted Budget. The Adjusted Budget
column includes prior year commitments that were carried fo rward into this fiscal year and
Council approved budget amendments to the FY 2020 Adopted Budget through September 30.
Encumbrances and actual expenses for the three-month period are also reported.
General Fund revenues (excluding operating transfers and other sources) for the 1st quarter FY
2020 total $25.7 million, which is 7 percent higher than the same period in FY 2019 and
comprises 12 percent of the current year Adjusted Budget. Cash receipts declined in Property
tax, Charges for Services and permits & licenses over the prior year’s 1st quarter. These lower
levels are not indicative of the annual expected receipts in FY 20 20, they merely reflect a timing
difference.
City of Palo Alto Page 2
General Fund expenses for 1st quarter are 3 percent higher than prior year, however, they are
tracking at 22 percent of Adjusted Budget which is 1 percent lower than the prior year trend.
Following is a detailed discussion of the most significant revenue and expense items.
Revenue Highlights for 1st Quarter FY 2020
Following is a table which highlights the City’s major revenue sources for the 1st Quarter,
compared to 1st Quarter of the prior year. Each quarter’s revenue is expressed as a percentage
of the Adjusted Budget for each year.
% change FY 2020 %FY 2019 %
Property Tax -17%48,634$ 0%$45,332 0%
Sales Tax 35%34,346 7%31,247 6%
Charges for Services -5%30,267 15%28,419 17%
Transient Occupancy Tax 10%29,309 11%25,049 12%
Utility User Tax 6%17,581 20%16,092 21%
Permits and Licenses -6%8,667 20%8,545 22%
Documentary Transfer Tax 40%8,369 23%7,434 19%
All Other Revenue Sources 7%33,997 24%32,535 24%
Total Revenue 7%$211,170 12%$194,653 12%
$25,701
1,761 1,882
1,926 1,376
8,170 7,654
4,595 4,827
3,199 2,920
3,528 3,336
89$ $107
2,433 1,800
1st Quarter Actuals Adjusted Budget
FY 2020 FY 2019
City of Palo Alto
General Fund Revenue
FY 2020 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 fall and then again beginning in
late winter/early spring. FY 2019 actual property tax revenue was $47.3 million which included
unusual receipts of $2.7 million for excess Educational Revenue Augmentation Fund (ERAF)1
distributions from the County of Santa Clara.
The FY 2020 budgeted amount is $48.6 million, 2.75 percent higher than the prior year’s actual
revenue. Since the adoption of the FY 2020 budget, the County of Santa Clara has revised the
property tax forecast upwards by $1.9 million which is expected to be reflected in the mid -year
1 ERAF is the fund used to collect and disburse property taxes that are shifted to/from cities, the County, and
special districts prior to their reallocation to K-14 school agencies. When the state shifts more local property tax
than required to support schools these funds are returned and known as excess ERAF.
City of Palo Alto Page 3
budget adjustment. The $1.9 million increase is attributable to higher than expected excess
ERAF estimated at $3.8 million, which is above prior year levels of $2.7 million .
Sales tax revenue – for the 1st quarter has increased by $633,000 or 35 percent, from the same
period last year. Due to the timing delay in sales tax collection by the State and remittance to
the City, this only represents one month’s sales tax activity. In addition, in fiscal year 2018 the
California Department of Tax and Fee Administration (CDTFA) was established and introduced
new technology and collection process which had issues resulting to delays of distribution in
sales tax. This resulted in fiscal year 2018 being economically lower by $0.7 million and Fiscal
Year 2019 being higher by the same amount. CDTFA also made allocation timing changes so the
35 percent year over year increase for one-month receipts isn’t indicative of economic
performance for the remainder of FY 2020. However, base receipts remain healthy and mid-
year upward budget adjustment is expected. As in prior years, there is continued erosion of
brick and mortar receipts caused by steady growth in on -line retail sales. However, increased
receipts from the county pool, which include a growing number of on -line retailers collecting
sales and use tax, has been offsetting these losses.
Transient occupancy tax (TOT) – revenue of $3.2 million represents about one- and one-half
month of collections which includes the 1.5 percent TOT rate increase for a total TOT rate of
15.5 percent that went into effect in April 1, 2019. Starting with FY 2019, 4th quarter, the base
TOT decreased by 5.4 percent with average occupancy declining by 1.8 percent but average
room rates increasing by 2.6 percent. This trend continued in the first two months of FY 2020
with the base TOT decline of 4.6 percent. Based on this trend, which is consistent with most
regional trends, a downward mid-year budget adjustment is expected.
For the first two months (July and August) of FY 2020, daily average room rates increase d by 0.9
percent from $272.32 per day to 274.80 per day while the occupancy rate declined by 4.8
percent from 83.5 percent to 79.5 percent. As noted in the table below, this is in line with a
similar trend reported in August for most northern California regions with a few exceptions. The
below table contains average room rates and occupancy percentage for northern California
regions in August 2019 as well as the City of Palo Alto’s August data.
City of Palo Alto Page 4
Month of August
Avg. Daily Room Rate Occupancy Percentage
2019 ($) 2018 ($) Chg. 2019 2018 Chg.
San Francisco 294.01 286.50 2.6% 91.8% 90.2% 1.8%
San Francisco Airport 212.00 208.51 1.7% 89.5% 91.8% -2.5%
San Jose/Peninsula 226.56 225.70 0.4% 83.0% 85.4% -2.9%
Oakland/East Bay 177.85 179.85 -1.1% 83.4% 85.4% -2.3%
Monterey/Carmel 427.77 393.57 8.7% 86.0% 89.5% -3.9%
Central Valley 109.12 107.78 1.2% 77.9% 77.8% 0.1%
Sacramento 135.61 133.01 2.0% 79.8% 82.7% -3.4%
Marin County 203.62 203.63 0.0% 87.5% 86.8% 0.8%
Napa County 304.53 295.45 3.1% 82.4% 79.7% 3.4%
Sonoma County 221.58 216.57 2.3% 83.4% 84.8% -1.7%
Other Northern California 135.46 129.03 5.0% 82.8% 83.9% -1.3%
Overall Average 218.42 213.78 2.2% 84.7% 85.8% -1.2%
City of Palo Alto (August only) 271.26 278.19 2.6% 83.2% 80.5% -2.7%
Source: CBRE Hotels August 2019 report, Trends in the Hotel Industry except for Palo Alto
Documentary transfer tax – cash receipts total $1.9 million, or 23 percent of the FY 2020
budgeted amount, and are $550,000 higher than prior year receipts for the same period due to
one large commercial sale. This revenue source is volatile since it is highly dependent on sales
volume and the mix of commercial and residential sales. For example, in FY 2018, receipts were
boosted due to large commercial sales resulting in total annual receipts of $9.2 million whi le FY
2019 had fewer and smaller commercial sales resulting in annual receipts of only $6.9 million
Permits and licenses revenue – is down primarily due to a decrease in new construction permit
revenue.
City of Palo Alto Page 5
Expense Highlights for 1st Quarter FY 2020
Following is a table which highlights the City’s expenses by function for the 1 st quarter,
compared to 1st quarter of the prior year. Each quarter’s expense is expressed as a percentage
of the Adjusted Budget for each year.
FY 2020 FY 2019 % change FY 2020 %FY 2019 %
inc (dec)
Police 10,588$ 10,201$ 4%44,822$ 24%42,843$ 24%
Fire 8,414 7,636 10%35,261 24%32,047 24%
Community Services 7,598 7,144 6%32,481 23%29,699 24%
Public Works 3,887 3,978 -2%20,302 19%19,004 21%
Planning and Development Services 3,977 4,421 -10%23,258 17%23,768 19%
Library 2,562 2,295 12%10,532 24%9,836 23%
Administrative Services 1,925 1,887 2%8,755 22%8,038 23%
All Other Departments 5,109 5,248 -3%29,274 17%20,655 25%
Total Expenses 44,060$ 42,810$ 3%204,685$ 22%185,890$ 23%
1st Quarter Actuals Adjusted Budget
FY 2020 1st Quarter
City of Palo Alto
General Fund Expenses
(000's)
Total expenses for the 1st quarter of the fiscal year are up 3 percent from the same quarter last
year, but in total they are slightly lower by 1 percent of full-year budgeted amounts from the
same quarter last year. Overall, expenses are expected to run higher than FY 2019 with the FY
2020 Adjusted budget of $204.7 million being approximately 10% higher overall.
In FY 2020, the Office of Transportation was established which previously was a division of the
Planning and Community Environment Department and the Development Services Department
was combined with the Planning and Community Environment Department to form the
Planning and Development Services Department. This reorganization is reflected in the FY 2020
figures by reporting the Office of Transportation u nder “all other departments” and combining
the two prior departments of Development Services and Planning. This is causing much of the
year over year variances in that department.
Police and Fire comprises 43 percent of the total General Fund expenditures for the 1st quarter,
which is comparable to the prior year. Following is a table which highlights Police and Fire
salaries and overtime expenditures for the 1st quarter.
City of Palo Alto Page 6
FY 2020 FY 2019 % change FY 2020 %FY 2019 %
Inc (Dec)
Police - Salaries 4,426$ 4,378$ 1%19,514$ 23%19,272$ 23%
Police - Overtime 717 674 6%1,842 39%1,777 38%
Total Police 5,143 5,052 2%21,356 24%21,049 24%
Fire - Salaries 3,378 2,966 14%14,131 24%14,356 21%
Fire - Overtime 572 918 -38%1,673 34%1,912 48%
Total Fire 3,950 3,884 2%15,804 25%16,268 24%
Total Public Safety
Salaries & Overtime 9,093$ 8,936$ 2%37,160$ 24%37,317$ 24%
1st Quarter YTD Actuals Adjusted Budget
Police and Fire
Salaries and Overtime Expense
FY 2020 1st Quarter YTD
(000's)
Police overtime is 6 percent higher from prior year due to a major incident that occurred in the
first quarter, the President of the United States (POTUS) visit and staff vacancies. On a
combined basis, salaries and overtime are at 24% of budget through the 1st quarter of the fiscal
year which is consistent with prior year spend. The Department’s overtime analysis is included
in Attachment B.
Fire overtime is 38 percent lower than FY 2019 primarily due to lesser vacancies this year than
the same period in prior year and the City did not send any crews on strike teams during this
reported period. Fire is expected to generate overtime savings during the year due to a new
deployment model expected to be deployed during the second half of the fiscal year . On a
combined basis, salaries and overtime are 25% of the budget through the 1st quarter of the
fiscal year. The Department’s overtime analysis is included in Attachment B.
The Police and Fire salaries increases are due to new labor contracts and an increased number
of filled positions when compared to mainly this period in FY 2019.
City of Palo Alto Page 7
General Fund Budget Stabilization Reserve (BSR) Balance
As reported to the Finance Committee on November 19, the General Fund ended with a Budget
Stabilization Reserve of $54.8 million. The chart below outlines the recommended uses. Once
all these adjustments are taken into consideration, the remaining BSR would be at $44.4 million
when approved by the City Council, above the City Council target of 18.5 percent of budgeted
expenses.
Year-End Budget Stabilization Reserve (BSR) Summary
(000’s)
General Fund BSR Balance, June 30 2019 54,811
Uses of the FY 2019 Surplus
FY 2020 Approved Adjustments to the BSR Balance
FY 2020 Adopted Budget 1,292
FY 2020 City Manager Reports Budget Amendments (450)
Recommended Budget Amendments
Reserve for proceeds from the sale of 335 Webster (2,900)
Additional funding for General Liability & Workers Compensation Reserves (1,400)
Transfer to the General Capital Improvement Fund (471) (3,500)
Transfer to the General Benefits Fund: 115 Pension Trust Fund Contribution (3,500)
Current Projected FY 2020 BSR Level (June 30, 2019) $44,352
Enterprise Funds
Following is a summary of change in net position for each of the Enterprise Funds for the three
months ended September 30, 2019, including a comparison of results from the same period last
year.
City of Palo Alto
Enterprise Funds Change in Net Position
FY 2020 1st Quarter
1st Qtr 1st Qtr Increase
FY 2020 FY 2019 (Decrease)% Change
Water 8,630$ 7,918$ 712$ 9%
Electric 6,941 8,742 (1,801)-21%
Fiber Optic 415 370 45 12%
Gas (261)248 (509)-205%
Wastewater collection 687 687 0 0%
Wastewater treatment 1,302 1,415 (113)-8%
Refuse 3,440 3,814 (374)-10%
Storm Drainage 650 697 (47)-7%
Airport 522 213 309 145%
Total Change in Net Position 22,326$ 24,104$ (1,778)$ -7%
City of Palo Alto Page 8
Water Fund increased $0.7 million from prior year due to a combination of an increase in
connection and capacity fee revenue and a decrease in operating transfers. In FY 2019, there
was a transfer of $0.3 million for phase 1 of the Smart Grid project.
Electric Fund decreased $1.8 million from prior year due to an increase in commodity purchases
and transmission costs. In addition, the Electric Fund sold large volumes of surplus energy on
the spot market in FY 2019 due to above average hydroelectric generation.
Gas Fund decreased $0.5 million mainly due to lower City sales as a result of the retirement of
the incinerators by the Regional Water Quality Control Plant (RWQCP). The RWQCP has moved
to Sludge hauling instead.
Refuse Fund decreased $0.4 million from prior year due to an increase in GreenWaste contract
costs.
Airport Fund increased $0.3 million from first quarter of prior year as a result of the receipt of
the federal grant reimbursement for the Airport Apron Reconstruction Project in the first
quarter of this year.
Stakeholder Engagement
This report has been prepared by the Accounting Division and reviewed by partner
departments, the Treasury team and the Office of Management and Budget for certain
sections.
Resource Impact
This is an Informational Report, so no actions or adjustments are needed at this time.
Environmental Review
This is not a project for purposes of the California Environmental Quality Act (CEQA).
Attachments:
• Attachment A: General Fund First Quarter Financial Report FY 2020
• Attachment B. Public Safety Overtime Analysis for Q1 FY 2018- 2020Q1
11/26/201910:21 AM
ATTACHMENT A
CITY OF PALO ALTO
GENERAL FUND FIRST QUARTER FINANCIAL REPORT
FISCAL YEAR ENDING JUNE 30, 2020
(in thousands)
BUDGET ACTUALS (as of 09/30/2019)
Adopted Adjusted Pre % of Adj
Categories Budget Budget Encumbr Encumbr Actual Budget*
Revenues & Other Sources
Sales Tax 34,346 34,346 - - 2,433 7%
Property Tax 48,634 48,634 - - 89 0%
Transient Occupancy Tax 29,309 29,309 - - 3,199 11%
Documentary Transfer Tax 8,369 8,369 - - 1,926 23%
Utility Users Tax 17,581 17,581 - - 3,528 20%
Motor Vehicle Tax, Penalties & Fines 2,032 2,032 - - 349 17%
Charges for Services 30,127 30,267 - - 4,595 15%
Permits & Licenses 8,667 8,667 - - 1,761 20%
Return on Investment 1,388 1,388 - - 540 39%
Rental Income 16,326 16,326 - - 4,155 25%
From Other Agencies 2,756 2,756 - - 317 12%
Charges To Other Funds 10,908 10,908 - - 2,754 25%
Other Revenues 587 587 - - 55 9%
Total Revenues 211,030 211,170 - - 25,701 12%
Operating Transfers-In 20,999 20,999 - - 5,250 25%
Encumbrances and Reappropriation 7,791 - - - -
Total Sources of Funds 232,029 239,960 - - 30,951 13%
Expenditures & Other Uses
City Attorney 3,387 3,627 5 250 800 29%
City Auditor 1,235 1,295 10 45 139 15%
City Clerk 1,346 1,441 76 262 23%
City Council 498 540 42 64 20%
City Manager 4,546 5,219 160 472 952 30%
Administrative Services 8,519 8,755 113 189 1,925 25%
Community Services 30,913 32,481 614 5,897 7,598 43%
Fire 34,864 35,261 126 727 8,414 26%
Human Resources 3,902 4,058 - 126 886 25%
Library 10,314 10,532 35 482 2,562 29%
Office of Emergency Services 1,728 1,845 146 219 20%
Office of Transporation 2,312 2,312 218 9%
Planning and Development Services 20,356 23,258 424 4,354 3,977 38%
Police 44,666 44,822 78 886 10,588 26%
Public Works 19,142 20,302 411 1,981 3,887 31%
Non-Departmental 9,024 8,937 30 1,569 18%
Total Expenditures 196,752 204,685 1,976 15,703 44,060 30%
Operating Transfers-Out 5,023 5,023 - - 1,251 25%
Transfer to Infrastructure 28,962 28,962 - - 7,240 25%
Total Use of Funds 230,737 238,670 1,976 15,703 52,551 29%
Attachment B
Q1
2018 2019 2020
POLICE DEPARTMENT
Overtime Expense
Adopted Budget $1,700,000 $1,776,500 $1,842,231
Modified Budget 1,700,000 1,812,931 1,842,231
Net Overtime Cost - see below 347,677 185,811 194,800
Variance to Budget 1,352,323 1,627,120 1,647,431
Overtime Net Cost
Actual Expense $2,286,527 $2,604,366 $717,808
Less Reimbursements
California OES/FEMA (Strike Teams)- 36,431 -
Stanford Communications 75,275 91,001 31,253
Utilities Communications Reimbursement 38,227 46,158 15,400
Local Agencies (A)11,431 12,172 2,562
Police Service Fees 73,600 125,025 25,779
Total Reimbursements 198,533 310,787 74,995
Less Department Vacancies 1,740,318 2,107,768 448,014
Net Overtime Cost $347,677 $185,811 $194,800
Department Vacancies (number of days)5,777 7,538 1,547
Workers' Compensation Cases 8 24 2
Department Disabilities (number of days)219 217 72
FIRE DEPARTMENT
Overtime Expense
Adopted Budget $1,396,436 $1,911,761 $1,672,872
Modified Budget (B)1,571,436 2,093,761 1,672,872
Net Overtime Cost - see below 2,675,517 2,403,254 572,342
Variance to Budget (1,104,081) ($309,493)$1,100,530
Overtime Net Cost
Actual Expense $3,839,426 $3,047,510 $572,342
Less Reimbursements
California OES/FEMA (Strike Teams)489,062 182,000 -
Total Reimbursements 489,062 182,000 -
Less Department Vacancies 674,847 462,256 -
Net Overtime Cost $2,675,517 $2,403,254 $572,342
Department Vacancies (number of days)5,293 1,229 0
Workers' Compensation Cases 4 26 7
Department Disabilities (number of days)732 343 60
NOTES:
(A)Includes Animal Control Services contract with Los Altos and Los Altos Hills.
(B)FY 2020 does not include adjustments for Strike Teams as of Q1. These amounts will be reported through the year as
reimbursements are confirmed.
Public Safety Departments
Overtime Analysis for Fiscal Years 2018 through 2020
11/26/2019