HomeMy WebLinkAboutStaff Report 14630
City of Palo Alto (ID # 14630)
Finance Committee Staff Report
Meeting Date: 12/6/2022 Report Type: Action Items
City of Palo Alto Page 1
Title: First Quarter Fiscal Year 2023 Financial Report
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
This report is informational and does not require an action by the Finance Committee.
EXECUTIVE SUMMARY
The purpose of this report is to provide the Finance Committee with information on the
financial status of the City’s General Fund and Enterprise Funds as of the end of the First (1 st)
Quarter of Fiscal Year (FY) 2023 (July 1, 2022 through September, 2022). The figures presented
here are unaudited.
For the 1st quarter, the General Fund revenues totaled $30.9 million which is 1.5 % higher than
the same period of the prior year while expenditures totaled $47.5 million which is 13.68%
higher that than prior year and are tracking at 20.4% of Adjusted Budget which is comparable
to the prior year trend.
All Enterprise Funds, except Airport Fund, resulted to a positive change in net position. The
total change in position decreased by $5.9 million, or 51.0%, lower than the same period of the
prior year.
BACKGROUND
This report summarizes the financial information of the General and Enterprise Funds for
First(1st) quarter ending September 30, 2022 of Fiscal Year (FY) 2023 and compares those
amounts to the same period of the prior year and to the FY 2023 Adjusted Budget.
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 2023 Adopted Budget through September 30. Encumbrances and actual
expenses for the three-month period are also reported.
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DISCUSSION & ANALYSIS
General Fund revenues (excluding operating transfers) for the 1st quarter of FY 2023 are $30.9
million which is 14.4% of the current year Adjusted Budget. The actual revenues totaled $30.9
million, 1.5% higher than the same period of the prior year (increase of $0.4 million). All of the
major taxes except documentary transfer taxes were higher compared to the same period of
the prior year. This indicates the economy is showing positive signs of recovery; however,
mixed economic data increases difficulty in determining if this trend will continue. The first
quarter General Fund cash receipts are not indicative of the annual expected receipts in FY
2023 due to timing of major revenues received over the fiscal year .
For the 1st quarter, General Fund expenses totaled $47.5 million which is $5.7 million, 13.68%
higher than the prior year and tracking at 20.4% of Adjusted Budget which is comparable to the
prior year trend.
The following is a detailed discussion of the most significant revenue and expense items.
Revenue Highlights for 1st Quarter FY 2023
The following highlights the City’s major revenue sources for the 1 st 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 2023 %FY 2022 %
Property Tax 216.4%$59,770 0.3%$51,228 0.1%
Sales Tax 29.1%32,580 7.8%28,184 7.0%
Charges for Services 20.6%30,786 20.9%24,515 21.7%
Transient Occupancy Tax 81.3%18,199 14.6%8,428 17.4%
Utility User Tax 0.6%15,579 22.4%14,370 24.2%
Permits and Licenses -4.9%9,499 18.7%7,761 24.1%
Documentary Transfer Tax -41.5%7,217 16.7%7,137 28.9%
All Other Revenue Sources -11.3%41,851 30.2%41,650 34.2%
Total Revenue 1.5%$215,481 14.4%$183,273 16.6%
General Fund Revenue
FY 2022 1st Quarter
(000's)
1st Quarter Actuals Adjusted Budget
FY 2023 FY 2022
$174 $55
2,551 1,976
6,427 5,327
2,663 1,469
3,495 3,473
$30,942 $30,495
1,781 1,872
1,207 2,062
12,644 14,261
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 2022 actual prop erty tax revenue was $59.4 million,
$6.1 million (11.5%) higher than the FY 2022 adjusted budget and $2.8 million (4.9%) over the
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prior year. Robust property sales in FY2022 resulted in higher than anticipated assessed value
growth and an additional $1.1 million in excess Educational Revenue Augmentation Fund
(ERAF) distributions contributed to these increased receipts.
The excess ERAF distributions from the County of Santa Clara in fiscal years 2018, 2019, 2020,
2021, and 2022 receipts are $1.4 million, $2.7 million, $3.9 million, and $5.6 million, and $6.6
million, respectively. Of this $6.6 million receipt, $1.7 million has been set aside for the at-risk
amount due to the lawsuit filed in November 2021 by the California School Boards of
Association and its Education Legal Alliance against the Controller of the State of California for
over the calculation methodology of the Excess ERAF.
The FY 2023 budget amount is $59.8 million, 0.7% higher than the prior year’s actual revenue.
This budget amount has been reduced by $1.5 million for the on-going FY 2023 Excess ERAF
lawsuit at-risk amount; without this reduction the budget increase would have been $1.9
million or 3.2% higher.
Sales tax revenue cash receipts for the 1st quarter have increased by $0.6 million, or 29.1%,
from the same period of last year. This represents one month’s sales tax activity due to the
two-month delay between sales tax collection by the State and remittance to the City. The FY
2022 actual sales tax revenue was $32.7 million, $3.6 million or 12.3% higher than FY 2021.
While the outlook of the local activity appears positive and sales tax continue to perform well,
the FY2023 estimate remain below pre-pandemic actuals of $36.5 million in FY 2019. Due to the
economic uncertainties, the FY 2023 adopted budget anticipates the sales tax recovery will
soften.
Charges for services revenue is up $1.1 million or 20.6%, compared to the same quarter of last
year. The decrease is due to combination of the following items:
• Program and class revenues increased by $0.7 million due to increase of enrollees and
additional programs such as modern dance and metal jewelry classes.
• Plan check fees increased by $0.3 million due to large projects at 1036 E Meadow Circle ,
2225 E Bayshore Road and 525 Charleston Road.
Transient occupancy tax (TOT) revenue of $2.7 million represents about one and half month of
collections which is an increase of $1.2 million or 81.3%, compared to the same period of last
year. This same period last year, marked a starting point for recovery from the pandemic with
most travel restrictions being removed during this time in 2021. When compared to the pre-
pandemic actuals of $3.2 million on Q1 in FY 2020 the receipts in FY 2023 Q1 are $0.5 million or
15.6% below pre-pandemic levels. This indicates that TOT revenue remains low and still
affected by pandemic. The FY 2023 adopted budget of $18.2 million is still significantly below
the FY 2019 actuals of $25.6 million. In addition, two major hotels have opened in the last year
and a half adding almost 300 rooms.
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During the first two months of the first quarter, hotels average daily room and occupancy rates
were $251.04 per day an increase of 74.9%; a 61.2% increase in average daily room and 24.4%
in occupancy rates over the same period of the prior year. As of writing of this report, the
occupancy percentage of individual hotels ranged from around 30% to over 95%.
Documentary transfer tax cash receipts for two and half months total $1.2 million, or 16.7% of
the FY 2022 adjusted budget and is $0.9 million, or 41.5%, lower than prior year receipts for the
same period. The number of transactions are 30.3% lower compared to prior first quarter. This
revenue source is volatile, it is highly dependent on sales volume and the mix of commercial
and residential sales. The prior year had a record receipt due to nine large commercial sales
which is not expected to occur in FY 2023. Staff continues to monitor these receipts closely due
to significant fluctuations that can occur anytime depending on the real estate sales activity.
All other revenue sources cash receipts for the 1st quarter have decreased $1.6 million or
11.3%, from the same period of last year primarily due to lower revenue from ARPA allocation.
Expense Highlights for 1st Quarter FY 2022
The following highlights the City’s expenses by function for the 1 st quarter, compared to 1st
quarter of the prior year. Each quarter’s expense is expressed as a percentage of the Adjusted
Budget for each year.
Expenditures FY 2023 FY 2022 % change FY 2023 %FY 2022 %
Police 12,333$ 10,507$ 17.4%47,723$ 25.8%43,319$ 24.3%
Fire 10,502 9,137 14.9%41,379 25.4%35,951 25.4%
Community Services 6,713 6,816 -1.5%34,429 19.5%32,098 21.2%
Public Works 4,504 3,935 14.5%22,667 19.9%19,980 19.7%
Planning and Development Services 4,223 3,507 20.4%26,131 16.2%19,855 17.7%
Library 2,133 2,055 3.8%10,524 20.3%8,976 22.9%
Administrative Services 2,301 1,934 19.0%10,107 22.8%9,201 21.0%
All Other Departments 4,743 3,851 23.2%39,827 11.9%31,359 12.3%
Total Expenses 47,452$ 41,742$ 13.7%232,787$ 20.4%200,739$ 20.8%
General Fund Expenses
FY 2023 1st Quarter
(000's)
1st Quarter Actuals Adjusted Budget
Table 2
For the 1st quarter of the fiscal year, total expenses increased $5.7 million, or 13.7%, compared
to the same quarter prior year and are trending in line with total budget at 20.4%. The 13.7%
increase is due to increased salary and benefit expense, including overtime, primarily due to the
4.0% cost of living adjustment wage increase for all labor groups, effective April 2022. Staff
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continues to work on filling vacant positions though maintains a high vacancy level which is
expected to generate savings in FY 2023.
Attachment A shows total expenses, including encumbrances for the 1st quarter are 29% of the
adjusted budget. This is higher than 25% due to some purchase orders that cover the entire
year (i.e., golf course management, consultant fees and others). It is the City’s practice in many
instances to encumber budget funds for the fiscal year so that invoices are drawdown, or paid
against, the encumbrances.
Police and Fire comprise 48.1% of the total General Fund expenditures for the 1st quarter,
which is 16.2% higher compared to the prior year. The following highlights Police and Fire
salaries and overtime for the 1st quarter.
Table 3
FY 2023 FY 2022 % change FY 2023 %FY 2022 %
Police - Salaries $4,476 $4,241 5.5%$20,026 22.4%$17,499 24.2%
Police - Overtime 740 379 95.3%973 76.1%944 40.1%
Total Police 5,216 4,620 12.9%20,999 24.8%18,443 25.1%
Fire - Salaries 3,553 3,219 10.4%15,997 22.2%13,676 23.5%
Fire - Overtime 1,070 1,202 -11.0%2,124 50.4%1,931 62.2%
Total Fire 4,623 4,421 4.6%18,121 25.5%15,607 28.3%
Total Public Safety
Salaries & Overtime $9,839 $9,041 8.8%$39,120 25.2%$34,050 26.6%
1st Quarter YTD Actuals Adjusted Budget
Police and Fire
Salaries and Overtime Expense
FY 2023 1st Quarter YTD
(000's)
Police overtime is 95.3% higher than the prior year and 76.1% of adjusted budget due to the
following:
• Backfilling 14 vacancies: 7 police officers, 2 dispatchers, 5 other records and support
staff. The vacancy rate is still high despite vigorous hiring.
• 7 employees on various levels are on extended leave.
• Catching-up on a hiring and training freeze which results in positions being allocated
from patrol to training (academy/Field Training Officer).
• Backfill to meet patrol and dispatch minimum staffing requirements.
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The Department is anticipating overtime to continue this fiscal year, but it should improve
when the staff clearing training requirements are completed. On a combined basis, salaries and
overtime are 24.8% of the budget through the 1st quarter of the fiscal year.
The Fire overtime is 11.0% lower than the same period in prior year and 50.4% of adjusted
budget. Overtime is generated when there are firefighters on leave and the position is
backfilled with overtime. In FY 2023 1st quarter overtime was primarily generated from the
firefighter positions that were vacant, however, there were positions that have been filled in
current year, which reduces overtime spending. The department is actively recruiting entry
level firefighters to keep up with staff turnover, there are currently 3 new firefighters in a Joint
Fire Academy. Despite of the decreased overtime in the FY 2023 1st quarter, the department
expect the overtime to rise as there is more staff turnover. Overtime was also generated to
staff Fire Station 8 during high fire danger days. This is reimbursed by Santa Clara County Fire,
which will show in the midyear budget as an adjustment to the revenue and overtime.
On a combined basis, salaries and overtime are 25.5% of the budget through the 1st quarter of
the fiscal year. The Department’s overtime analysis is included in Attachment B.
General Fund Budget Stabilization Reserve (BSR) Balance
Based on information reported in the FY 2022 Annual Comprehensive Financial Report (ACFR)
CMR 146321, the City’s current BSR balance is $59.8 million, approximately $14.2 million above
the 18.5% target of $45.6 million for FY 2023. There are recommended adjustments in line with
the City Manager’s authority for transfer of excess BSR, adjusted for a recommendation to
reserve funds to safeguard the financial stability by re-establishing an economic uncertainty
reserve. Staff do recommend a transfer to the Infrastructure Reserve as inflationary costs are
impacting capital project needs including anticipated significant price increases in the
Automated Parking Guidance Project, as well as a need to provide safety improvements to
critical assets such as the artificial turf playing fields. These actions will leave the BSR at $45.8
million or $0.2 million above the 18.5% Council recommended level. Staff anticipates returning
to Council in February 2023 with the FY 2023 Mid-Year Review and recommendations in
alignment with the allocation below for the appropriation of BSR funds above the 18.5% level.
1 https://www.cityofpaloalto.org/files/assets/public/agendas -minutes-reports/agendas-minutes/finance-
committee/2022/20221129/20221129pfcsm-linked.pdf
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Enterprise Funds
Following is a summary of changes in net position for each of the Enterprise Funds for the three
months ended September 30, 2022, 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 2023 FY 2022 (Decrease)% Change
Water $3,701 $5,321 ($1,620)-30%
Electric 2,245 1,943 302 16%
Fiber Optic 202 170 32 19%
Gas 364 (631)995 158%
Wastewater collection 116 (32)148 463%
Wastewater treatment 7,054 660 6,394 969%
Refuse 3,419 3,316 103 3%
Storm Drainage 502 788 (286)-36%
Airport (11)120 (131)-109%
Total Change in Net Position $17,592 $11,655 $5,937 51%
Water Fund decreased $1.6 million, or 30.0%, from prior year due to overall decrease in
revenues and increase in operation costs. Revenue decreased despite a 4% rate increase
effective July 1, 2022 due to voluntary water conservation efforts. The increase in operation
costs is driven by commodity purchases and cost. The San Francisco Public Utilities Commission
(SFPUC) commodity rate increased from $4.10 to $4.75, a 15% increase due to drought
conditions.
Electric Fund increased $0.3 million, or 16.0%, from prior year due to a 5% rate increase
effective July 1, 2022, partially offset by increase in operating expenses. The majority of the
costs are related to energy purchases, mainly due to rising transmission cost and low levels of
water supply that lead to lower-than-normal generation from hydroelectric plants.
Gas Fund increased $0.9 million, or 158.0%, from prior year due to a $2.1 million increase in
revenue from customer sales partially offset by higher commodity purchases. A 4% rate
increase effective July 1, 2022 resulted in an average overall rate increase of $0.55 compared to
FY 2022. In additional, overall average consumption in FY 2023 increased compared to FY 2022.
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Wastewater Treatment Fund increased $6.4 million, or 969.0%, from prior year as a result of
an earlier receipt of $4.8 million in partner payments, compared to FY 2022 and a $1.7 million
reimbursement from the California State Water Resources Control Board for the Primary
Sedimentation Tank project.
Storm Drainage Fund decreased by $0.29 million, or 36.0%, from prior year due to higher
operating expenses related to salary and benefits costs, contract services, and indirect charges.
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. The City 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 FY2023 First Quarter General Fund Financial Report
• Attachment B FY2023 First Quarter Public Safety Overtime Analysis
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CITY OF PALO ALTO
GENERAL FUND FIRST QUARTER FINANCIAL REPORT
FISCAL YEAR ENDING JUNE 30, 2023
(in thousands)
BUDGET ACTUALS (as of 9/30/2022)
Adopted Adjusted Pre % of Adj
Categories Budget Budget Encumbr Encumbr Actual Budget*
Revenues & Other Sources
Sales Tax 32,580 32,580 - - 2,551 8%
Property Tax 59,770 59,770 - - 174 0%
Transient Occupancy Tax 18,199 18,199 - - 2,663 15%
Documentary Transfer Tax 7,217 7,217 - - 1,207 17%
Utility Users Tax 15,579 15,579 - - 3,495 22%
Motor Vehicle Tax, Penalties & Fines 1,784 1,784 - - (127) -7%
Charges for Services 30,786 30,786 - - 6,427 21%
Permits & Licenses 9,249 9,499 - - 1,781 19%
Return on Investment 1,066 1,066 - - 204 19%
Rental Income 15,499 15,499 - - 3,429 22%
From Other Agencies 9,179 9,179 - - 5,631 61%
Charges To Other Funds 13,690 13,690 - - 3,426 25%
Other Revenues 548 633 - - 81 13%
Total Revenues 215,146 215,481 - - 30,942 14%
Operating Transfers-In 22,532 22,532 - - 5,633 25%
Encumbrances and Reappropriation 159 10,457 - - - -
Contribution from Development Services Reserves 399 399 - - - -
Total Sources of Funds 238,236 248,869 - - 36,575 15%
Expenditures & Other Uses
City Attorney 4,234 4,622 - 468 1,046 33%
City Auditor 979 1,174 0 714 9 62%
City Clerk 1,429 1,502 80 144 287 34%
City Council 436 485 - 75 82 32%
City Manager 4,094 4,446 176 188 784 26%
Administrative Services 9,745 10,107 31 323 2,301 26%
Community Services 32,866 34,429 1,550 6,228 6,713 42%
Fire 40,981 41,379 59 737 10,502 27%
Human Resources 4,742 4,982 50 236 850 23%
Library 10,211 10,524 219 536 2,133 27%
Office of Emergency Services 1,342 1,500 60 323 167 37%
Office of Transporation 1,718 1,737 0 19 390 24%
Planning and Development Services 22,615 26,131 91 3,560 4,223 30%
Police 47,401 47,723 38 900 12,333 28%
Public Works 20,104 22,667 109 3,721 4,504 37%
Non-Departmental 19,088 19,377 25 294 1,129 7%
Total Expenditures 221,986 232,787 2,486 18,467 47,452 29%
Operating Transfers-Out 4,962 4,962 - - 1,241 25%
Transfer to Infrastructure 20,400 20,400 - - 5,100 25%
Total Use of Funds 247,348 258,149 2,486 18,467 53,793 29%
Net Change to BSR (9,112) (9,279) (17,218)
Budget Amendments in the General Fund Authorized by Council thru 9/30/2022
Action to support Downtown Streets Team (06/20/2022) CMR#14526 (167)
Total Budget Amendments Authorized by Council - (167)
BSR Balance as of 9/30/2022 45,538 45,371
BSR % of Adopted Total Use of Funds 18.4% 18.3%
ATTACHMENT A
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Attachment B
Q1
2021 2022 2023
POLICE DEPARTMENT
Overtime Expense
Adopted Budget (A)$944,186 $944,186 $972,512
Modified Budget (B)944,186 1,244,186 972,512
Net Overtime Cost - see below 366,045 781,344 345,785
Variance to Budget 578,141 462,842 626,727
Overtime Net Cost
Actual Expense $1,431,959 $2,319,043 $740,075
Less Reimbursements
California OES/FEMA (Strike Teams)- - -
Stanford Communications 64,906 107,684 34,431
Utilities Communications Reimbursement 33,191 56,004 18,047
Local Agencies (C)2,412 5,456 1,362
Police Service Fees 467,167 120,411 5,863
Total Reimbursements 567,676 289,556 59,704
Less Department Vacancies (A)498,238 1,248,143 334,586
Net Overtime Cost $366,045 $781,344 $345,785
Department Vacancies (number of days)1,494 3,903 1,143
Workers' Compensation Cases 14 11 3
Department Disabilities (number of days)1,007 1,221 318
FIRE DEPARTMENT
Overtime Expense
Adopted Budget (D)$1,931,121 $1,931,121 $2,124,054
Modified Budget (E)2,971,460 2,703,621 2,124,054
Net Overtime Cost - see below 1,792,228 4,073,011 747,593
Variance to Budget 1,026,424 (1,369,390) 1,376,461
Overtime Net Cost
Actual Expense $2,840,968 $4,684,796 $1,070,143
Less Reimbursements
California OES/FEMA (Strike Teams) 887,531 - -
Total Reimbursements 887,531 - -
Less Department Vacancies (D)161,208 611,784 322,549
Net Overtime Cost $1,792,228 $4,073,011 $747,593
Department Vacancies (number of days)1,942 1,717 938
Workers' Compensation Cases 14 35 10
Department Disabilities (number of days)387 947 200
NOTES:
(A)The FY 2022/23 Police Department budget was increased by 4.0 Police Officers, 1.0 Business Analyst, and 2.0 Public Safety Dispatcher.
(B)Police Department adopted budget not modified during FY 2023, Q1
(C)Includes Animal Control Services contract with Los Altos and Los Altos Hills.
(D)The FY 2022/23 Fire Department budget was increased by 1.0 Deputy Chief, 0.20 40-Hour Captain, 3.0 Fire Fighter Trainee,
and 0.05 Fire Marshal.
(E)Fire Department adopted budget not modified during FY 2023, Q1
Public Safety Departments
Overtime Analysis for Fiscal Years 2021 through 2023
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