HomeMy WebLinkAboutStaff Report 11750
City of Palo Alto (ID # 11750)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/15/2020
City of Palo Alto Page 1
Summary Title: First Quarter Financial Report FY2021
Title: First Quarter FY 2021 Financial Report
From: City Manager
Lead Department: Administrative Services
Recommendation
This report is informational and does not require an action by the Finance Committee.
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) 2021
(September 30, 2020). The figures presented here are unaudited.
On October 19, 2020, staff presented to Council preliminary Q1 financial status and discussed
next steps in monitoring, modeling, and addressing the City’s economic recovery plan (CMR ID
11596). The report detailed key tax revenue highlights and the strategic work for a Community
and Economic Recovery strategy. This staff report is a follow up to the preliminary Q1 financial
status that provides Q1 results and analysis.
Discussion
The FY 2021 1st quarter ended on September 30, 2020. This report summarizes the actual
financial activity of the General and Enterprise Funds for the three-month period and compares
those amounts to the same period of the prior year and to the FY 2021 Adjusted Budget. These
results are still not conclusive because it is still early to predict a trend with insufficient data for
FY2021 and with continuing uncertainty brought by the COVID-19 pandemic.
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 2021 Adopted Budget through September 30. Encumbrances and actual
expenses for the three-month period are also reported.
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General Fund revenues (excluding operating transfers) for the 1st quarter of FY 2021 totaled
$20.2 million, which is 21.2 percent lower than the same period of the prior year and comprises
11.6 percent of the current year Adopted Budget. Cash receipts as expected declined in all
General Fund revenues except Documentary Transfer Tax over prior year’s 1st quarter. The
General Fund revenues are 11.6 percent of the Adjusted Budget, but it is not indicative of the
annual expected receipts in FY 2021 due to timing of major revenues received over the fiscal
year.
General Fund expenses (excluding operating transfers) for 1st quarter are 5.4 percent lower
than prior year and are tracking at 22.4 percent of Adjusted Budget (excluding encumbrances).
The following is a detailed discussion of the most significant revenue and expense items.
Revenue Highlights for 1st Quarter FY 2021
The 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.
Table 1
% change FY 2021 %FY 2020 %
Property Tax 59.6%$52,000 0.3%$48,634 0.2%
Sales Tax -30.3%20,500 8.3%34,346 7.1%
Charges for Services -16.5%25,984 14.8%30,267 15.2%
Transient Occupancy Tax -86.1%14,900 3.0%29,309 10.9%
Utility User Tax -5.8%15,100 22.0%17,581 20.1%
Permits and Licenses -11.4%7,770 20.1%8,667 20.3%
Documentary Transfer Tax 5.7%4,700 43.3%8,369 23.0%
All Other Revenue Sources -11.8%34,088 21.1%33,997 24.0%
Total Revenue -21.2%$175,042 11.6%$211,170 12.2%$20,244 $25,701
1,560 1,761
2,036 1,926
7,202 8,170
3,837 4,595
446 3,199
3,325 3,528
$142 $89
1,696 2,433
1st Quarter Actuals Adjusted Budget
FY 2021 FY 2020
General Fund Revenue
FY 2021 1st Quarter
(000's)
Property tax revenue in the 1st quarter of the fiscal year is only a nominal amount as property
tax receipts are paid by the County over three months beginning in the month of November
and then again beginning in March. The FY 2021 secured and unsecured property tax assessed
values growth rates are 7.6 percent and 12.7 percent, respectively, an average of 7.8 percent.
These higher assessed values reflect continued strength in commercial and residential real
estate markets.
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Typically, during a recession, property tax impact is delayed by a year. Based on trends from the
last two recessions (Great Recession and Dot-Com Bust), because of the stability of the City’s
assessed value and retention of properties by owners during economic recessions, this revenue
source plateaus rather than steeply decline. However, there are two items that have created
uncertainty to this historical trend in FY 2021 and beyond. First, COVID-19 has upended many
historical trends including on how the new workforce structure will look like in the future (e.g.
working from home versus office) and its potential impacts to commercial secured and
unsecured property tax.
The second is the continued receipt of excess Educational Revenue Augmentation Fund (ERAF)
distributions from the County of Santa Clara. Excess 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. Due to the
uncertainty of whether local agencies will continue to receive excess ERAF funds, it is not
considered a permanent local revenue source. The FY 2021 Adopted Budget assumes $2.8
million in excess ERAF revenue, in FY 2020 and FY 2019, actuals were $3.9 million and $2.7
million, respectively. The County of Santa Clara’s revised estimate for FY 2021 is $5.0 million. In
addition to the uncertain amount of ERAF revenue the City is to receive, the State is claiming
that five counties (Marin, Napa, San Francisco, San Mateo, and Santa Clara) are calculating
excess ERAF in way that that is contrary to state law where too much property tax revenue is
being shifted from schools to other local agencies. The final resolution of this dispute, both in
timing and amount, creates further uncertainty in the current and future fiscal years. Taking all
these factors into consideration, actual FY 2021 property tax revenue is expected to be at or
slightly above the FY 2021 Adopted Budget.
Sales tax revenue cash receipts for the 1st quarter has decreased by $737,000 or 30.3 percent,
from the same period of last year. This only represents one month’s sales tax activity due to
delay in sales tax collection by the State and remittance to the City. In performance terms, this
decline is overstated due to the State offering certain businesses the option to defer sales tax
payments through interest free payment plans. This plan allows large businesses to delay their
sales and use tax remittances for 90 days and small businesses to defer remittance over 12
months. For example, for the fourth quarter of FY 2020, cash receipts declined by 37.7 percent,
however, if the businesses remitted the sales tax on time, the cash receipt decline is 23.4
percent only. Although this revenue continues to be significantly impacted by COVID-19, the
forecast at this time expects receipts to be above the adopted budget but this is expected to be
revised as additional actual receipts occur and performance data is received.
Charges for services revenue is down $758,000 or 16.5 percent, compared to the same quarter
of last year is due to the following:
• Paramedic service fees decreased $330,000 over the same period of last year due to
fewer trips.
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• Program and classes decreased $381,000 due to limited operations caused by COVID-19
restrictions.
Transient occupancy tax (TOT) revenue of $446,000 represents about one and half month of
collections which is a decrease of $2.8 million or 86.1 percent, compared to the same period of
last year. Four hotels that closed in late FY 2020 have re-opened while ten hotels representing
26.5 percent of available rooms remain closed. The two new Marriott hotels with 301 rooms
are expected to open in mid-December.
During this first quarter period, the open hotels average daily room and occupancy rates were
$130.72 per day and 44.5 percent, respectively. For the open hotels, occupancy percentage
ranges from 8.0 percent to over 70 percent, however, the higher occupancy was at the expense
of a deep decline in average room rates (declines range from 25 percent to 65 percent). The
shelter in place order that restricted the travel and hotel businesses impact continues. The
staff estimates that revenue will fall between $5.5 million to $11 million below the adopted
budget. At this time, staff is closely monitoring sales tax, property tax, and documentary tax
revenues which combined may mitigate the loss of TOT revenue. However, this is unknown at
this time, especially as the Santa Clara County along with over 90 percent of the state of
California returns to the most severe tier of restrictions with additional county specific
restrictions as well.
Utility User Tax receipts total $3.3 million, or 22 percent of the FY 2021 budgeted amount. This
is $203,000, or 6 percent, lower than the prior year’s receipts of the same period due to lower
business consumption of water, gas, electric, and telephone services as a result of continued
COVID-19 impacts. The expectation is that the FY 2021 total adopted budget will be realized.
Documentary transfer tax cash receipts for two and half months total $2.0 million, or 43.3
percent of the FY 2021 adjusted budget and are $110,000 or 5.7 percent higher than prior year
receipts for the same period with the number of transactions being 20 percent higher.
However, based on four months receipts of FY 2021, documentary transfer tax has increased
$268,000, or 10.3 percent, compared to the same period of prior year and with the number of
transactions being 23.1 percent higher. This revenue source is volatile since it is highly
dependent on sales volume and the mix of commercial and residential sales, but if this trend
continues, it is expected that receipts will exceed the adopted budget.
Permits and licenses revenue is down by $201,000 or 11.4 percent, compared to the same
quarter of last year primarily due to a decrease in new building and two-story homes
construction permit revenues.
All other revenue sources cash receipts for the 1st quarter has decreased $968,000 or 11.8
percent, from the same period of last year primarily due to the following:
• Facility and property rentals decreased $1.1 million due to lower number of tenants and
late payments.
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• Parking violations decreased $263,000 due to suspended parking enforcement.
• The decreases were partially offset by the receipt of $427,000 COVID-19 Relief Fund
Cares Act, this is approximately half of the nearly $850,000 in relief funds expected to
be received in FY 2021.
Expense Highlights for 1st Quarter FY 2021
The following is a table which highlights the City’s expenses by function for the 1st quarter,
compared to 1st quarter of the prior year. Each quarter’s expense is expressed as a percentage
of the Adjusted Budget for each year.
Table 2
Expenditures FY 2021 FY 2020 % change FY 2021 %FY 2020 %
Police 10,274$ 10,588$ -3.0%40,590$ 25.3%44,822$ 23.6%
Fire 8,608 8,414 2.3%33,917 25.4%35,261 23.9%
Community Services 6,583 7,598 -13.4%30,090 21.9%32,481 23.4%
Public Works 4,014 3,887 3.3%19,843 20.2%20,302 19.1%
Planning and Development Services 3,566 3,977 -10.3%18,719 19.1%23,258 17.1%
Library 2,198 2,562 -14.2%8,572 25.6%10,532 24.3%
Administrative Services 1,755 1,925 -8.8%8,645 20.3%8,755 22.0%
All Other Departments 4,662 5,109 -8.7%25,555 18.2%29,274 17.5%
Total Expenses 41,660$ 44,060$ -5.4%185,931$ 22.4%204,685$ 21.5%
1st Quarter Actuals Adjusted Budget
FY 2021 1st Quarter
General Fund Expenses
(000's)
Total expenses for the 1st quarter of the fiscal year are down $2.4 million or 5.4 percent from
the same quarter of last year and are right in line at 22.4 percent of full-year budgeted amount.
The overall decreased is expected as a result of budgetary reductions including service delivery
reductions and concessions resulting from the COVID-19 and its impacts on the City’s financial
situation.
Attachment A showed that the total expenses, including encumbrances for the 1st quarter are
31 percent of the adjusted budget primarily due to the purchase orders for Community Services
and Public Works. The Community Services purchase requests / orders are for golf course
management, childcare subsidy, senior services and others while Public Works orders are for
janitorial services, tree trimming services and others. These purchase requests / orders cover
the entire year. From these encumbered funds, invoices are drawn down, or paid against them.
Police and Fire comprises 45.3 percent of the total General Fund expenditures for the 1st
quarter, which is 2 percent higher compared to the prior year. Following is a table which
highlights some Police and Fire salaries and overtime for the 1st quarter.
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Table 3
Police and Fire
Salaries and Overtime Expense
FY 2021 1st Quarter YTD
(000's)
FY 2021 FY 2020 % change FY 2021 %FY 2020 %
Police - Salaries $4,468 4,426$ 0.9%$17,321 25.8%$19,514 22.7%
Police - Overtime 351 717 -51.0%944 37.2%1,842 38.9%
Total Police 4,819 5,143 -6.3%18,265 26.4%21,356 24.1%
Fire - Salaries 3,513 3,378 4.0%13,530 26.0%14,131 23.9%
Fire - Overtime 794 572 38.8%1,931 41.1%1,673 34.2%
Total Fire 4,307 3,950 9.0%15,461 27.9%15,804 25.0%
Total Public Safety
Salaries & Overtime $9,126 $9,093 0.4%$33,726 27.1%$37,160 24.5%
1st Quarter YTD Actuals Adjusted Budget
Police overtime is 51 percent lower than the prior year due to suspension of specialized police
units such as the traffic enforcement and investigation units. Suspension of these specialized
units resulted in reduced service levels and ability to respond to non-urgent calls. The actual
Police overtime is 37.2 percent of adjusted budget due to additional staffing of retail patrol
detail which will be reimbursed by the local retailers in the current fiscal year. Excluding the
$96,000 estimated retail patrol overtime cost, overtime would have been 27 percent of the
adjusted budget. On a combined basis, salaries and overtime are at 26.4 percent of budget
through the 1st quarter of the fiscal year. The Department’s overtime analysis is included in
Attachment B.
Fire overtime is 38.8 percent higher than FY 2020 and 41.1 percent of the adjusted budget
primarily due to strike team deployment to multiple California wildfires (August Complex, Glass,
Fire, CSU, North Complex, Creek Fire and others) which will be reimbursed by the State. In addition,
the department staffed Station 8 for over 1,000 hours on red flag danger days. Fire salaries is 26
percent of the adjusted budget is partially attributable to the extension of the Fire
Department’s FY 2021 staff reduction plan to March 2021. During the 1st quarter, five FTE
Firefighters still working at the beginning of the quarter and subsequently reduced to three FTE
towards the end of the quarter. On a combined basis, salaries and overtime are 27.9 percent of
the budget through the 1st quarter of the fiscal year. The Department’s overtime analysis is
included in Attachment B.
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The Police and Fire salaries increases are minimal due to reductions in the unrepresented
Management and Professionals Group at the equivalent of a 10 percent ‘give-back’ that
consists of a wage freeze, furlough, and reduced flexible management benefits. Agreements
with safety groups include a deferral of wage increases for one year in the Fire Chief’s
Association (FCA), Police Management Association (PMA), and Palo Alto Peace Officers’
Association (PAPOA), and deferral of wage and step increases for one year in the International
Association of Fire Fighters (IAFF) Group.
General Fund Budget Stabilization Reserve (BSR) Balance
As reported to the Finance Committee on December 1, the General Fund ended with a Budget
Stabilization Reserve of $35.9 million which is $0.5 million below the Council’s 18.5 percent
target of the FY 2021 Adopted expenses of $36.4 million. Through the first quarter there have
been no changes to the BSR.
Enterprise Funds
Following is a summary of change in net position for each of the Enterprise Funds for the three
months ended September 30, 2020, including a comparison of results from the same period last
year.
Table 4
City of Palo Alto
Enterprise Funds Change in Net Position
FY 2021 1st Quarter
1st Qtr 1st Qtr Increase
FY 2021 FY 2020 (Decrease)% Change
Water $8,898 $8,630 $268 3%
Electric 3,644 6,941 (3,297)-48%
Fiber Optic 356 415 (59)-14%
Gas (530)(261)(269)103%
Wastewater collection 222 687 (465)-68%
Wastewater treatment 1,316 1,302 14 1%
Refuse 2,539 3,440 (901)-26%
Storm Drainage 737 650 87 13%
Airport 57 522 (465)-89%
Total Change in Net Position $17,239 $22,326 ($5,087)-23%
Electric Fund decreased $3.3 million from prior year due to lower operating revenues as a
result of lower energy consumption.
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Gas Fund decreased $0.3 million due to lower operating revenues as a result of lower
consumption offset by the decreased in operating expenses.
Wastewater Collection Fund decreased $0.5 million from prior year due to decrease in
revenues and increased in operating costs.
Refuse Fund decreased $0.9 million from prior year due to lower operating revenues as a result
of reduction of commercial and industrial services caused by COVID-19.
Airport Fund decreased $0.5 million from prior year due to decrease in federal grant
reimbursement for the Airport Apron Reconstruction Project.
Stakeholder Engagement
This effort to manage and monitor the financial status of City funds continues to be a citywide
effort coordinated among all departments. Outside consultants for expertise on major revenues
categories including Sales Tax and Property Tax are consulted regularly to provide updates to
the forecasted revenue collections.
Resource Impact
At this time, this report does not recommend an action amending the City’s financials,
however, depending on trends and further input from Council, actions may be necessary later
in the year to better align revenues with expected collections. In addition, actions with financial
impacts may result from Council direction on areas such as rent/lease forgiveness, usage of the
$744,000 reserve, as well as attrition ramps necessary for public safety personnel. The City has
prudently planned for this economic recessionary period and at this time, continues to monitor
activities closely.
Environmental Review
The action recommended is not a project for the purposes of the California Environmental
Quality Act.
Attachments:
• Attachment A: General Fund 1st Quarter Report FY 2021
• Attachment B: Public Safety Overtime 1st Quarter FY 2021
11/20/20208:05 AM
(in thousands)
BUDGET ACTUALS (as of 9/30/2020)
Adopted Adjusted Pre % of Adj
Categories Budget Budget Encumbr Encumbr Actual Budget*
Revenues & Other Sources
Sales Tax 20,500 20,500 - - 1,696 8%
Property Tax 52,000 52,000 - - 142 0%
Transient Occupancy Tax 14,900 14,900 - - 446 3%
Documentary Transfer Tax 4,700 4,700 - - 2,036 43%
Utility Users Tax 15,100 15,100 - - 3,325 22%
Motor Vehicle Tax, Penalties & Fines 1,925 1,925 - - 108 6%
Charges for Services 25,984 25,984 - - 3,837 15%
Permits & Licenses 7,770 7,770 - - 1,560 20%
Return on Investment 1,100 1,100 - - 280 25%
Rental Income 15,949 15,949 - - 3,098 19%
From Other Agencies 2,448 2,448 - - 549 22%
Charges To Other Funds 11,992 11,992 - - 3,008 25%
Other Revenues 674 674 - - 159 24%
Total Revenues 175,042 175,042 - - 20,244 12%
Operating Transfers-In 21,359 21,359 - - 5,340 25%
Encumbrances and Reappropriation 5,676 - - - -
Contribution from Development Services Reserves 500 500 - - - -
Total Sources of Funds 196,901 202,577 - - 25,583 13%
Expenditures & Other Uses
City Attorney 3,485 3,753 50 460 761 34%
City Auditor 828 869 0 31 167 23%
City Clerk 1,245 1,297 5 49 268 25%
City Council 419 509 21 89 56 33%
City Manager 3,161 3,332 32 271 919 37%
Administrative Services 8,362 8,597 20 224 1,755 23%
Community Services 28,362 29,662 1,254 5,171 6,583 44%
Fire 33,607 33,776 132 655 8,608 28%
Human Resources 3,554 3,660 17 104 880 27%
Library 8,421 8,525 - 362 2,198 30%
Office of Emergency Services 1,356 1,532 33 303 267 39%
Office of Transporation 1,904 2,212 0 173 467 29%
Planning and Development Services 17,386 18,569 199 2,569 3,566 34%
Police 40,377 40,590 400 449 10,274 27%
Public Works 18,397 19,625 2,533 1,181 4,014 39%
Non-Departmental 8,235 8,267 - 69 878 11%
Total Expenditures 179,100 184,775 4,697 12,158 41,660 32%
Operating Transfers-Out 4,334 4,334 - - 1,087 25%
Transfer to Infrastructure 13,467 13,468 - - 3,367 25%
Total Use of Funds 196,901 202,577 4,697 12,158 46,114 31%
Net Change to BSR 0 (0)
Budget Amendments in the General Fund Authorized by Council thru 9/30/2020
Total Budget Amendments Authorized by Council - -
BSR Balance 33,045 35,870
BSR % of Adopted Total Use of Funds 16.8%18.2%
* Adopted BSR reflects FY 2020 Year-End Estimate at the time of the FY 2021 Budget Adoption. Adjusted BSR reflects FY 2020 Year-End Actuals based on the CAFR.
ATTACHMENT A
CITY OF PALO ALTO
GENERAL FUND FIRST QUARTER FINANCIAL REPORT
FISCAL YEAR ENDING JUNE 30, 2021
Attachment B
Q1
2019 2020 2021
POLICE DEPARTMENT
Overtime Expense
Adopted Budget (A)$1,776,500 $1,842,231 $944,186
Modified Budget 1,812,931 1,842,231 944,186
Net Overtime Cost - see below 185,811 441,197 87,715
Variance to Budget 1,627,120 1,401,034 856,471
Overtime Net Cost
Actual Expense $2,604,366 $2,566,590 $350,764
Less Reimbursements
California OES/FEMA (Strike Teams)36,431 - -
Stanford Communications 91,001 110,177 21,170
Utilities Communications Reimbursement 46,158 54,086 10,782
Local Agencies (B)12,172 9,329 826
Police Service Fees 125,025 205,126 49,364
Total Reimbursements 310,787 378,717 82,141
Less Department Vacancies (A)2,107,768 1,746,677 180,908
Net Overtime Cost $185,811 $441,197 $87,715
Department Vacancies (number of days)7,538 6,192 584
Workers' Compensation Cases 24 30 8
Department Disabilities (number of days)217 700 250
FIRE DEPARTMENT
Overtime Expense
Adopted Budget (C)$1,911,761 $1,672,872 $1,931,121
Modified Budget (D)2,093,761 2,086,872 1,931,121
Net Overtime Cost - see below 2,403,254 1,831,059 739,401
Variance to Budget ($309,493)255,813 1,191,720
Overtime Net Cost
Actual Expense $3,047,510 $2,018,548 $793,859
Less Reimbursements
California OES/FEMA (Strike Teams) 182,000 114,000 -
Total Reimbursements 182,000 114,000 -
Less Department Vacancies (C)462,256 73,489 54,457
Net Overtime Cost $2,403,254 $1,831,059 $739,401
Department Vacancies (number of days)1,229 173 208
Workers' Compensation Cases 26 33 9
Department Disabilities (number of days)343 227 98
NOTES:
(A)The FY 2021 Police Department budget was reduced by the equivalent of 11.0 Police Officers (position "freezes") and $900,000 in overtime.
(B)Includes Animal Control Services contract with Los Altos and Los Altos Hills.
(C)The FY 2021 Fire Department budget was reduced by the equivalent of 8.0 sworn positions (position "freezes"). The overtime budget
was increased over the prior year by approximately $200,000 to extend the cross-staffing of Medic 61 one year.
(D)The FY 2020 Modified Budget includes overtime adjustments recommended as part of the FY 2020 Mid-Year review for
Strike Team reimbursements ($114,000) and to extend the cross-staffing of Medic 61 for six months on overtime ($300,000).
Public Safety Departments
Overtime Analysis for Fiscal Years 2019 through 2021