HomeMy WebLinkAbout1998-11-17 City Council (5)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
ATI~NTION: FINANCE COMMITTEE
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:NOVEMBER 17, 1998 CMR: 425:98
SUBJECT:1997-98 FINANCIAL SUMMARY STATUS REPORT AND
ORDINANCE CLOSING THE 1997-98 FISCAL YEAR
RECOMMENDATION
Staff recommends the Finance Committee review and forward the attached ordinance to the
City Council for approval, authorizing: 1) closing of the 1997-98 Budget; 2) reappropriation
offunds into the 1998-99 Budget; 3) closing of capital improvement projects which have
been completed, and transfer of remaining balances tO the appropriate reserves; and 4)
continued funding of the General Fund Infrastructure Reserve, consistent with the Council
approved General Fund Reserves policy (CMR:210:97).
BACKGROUND
This report summarizes financial results for fiscal year 1997-98 for the General Fund, Capital
Improvement Fund, Internal Services Funds and the Enterprise Funds. It provides an
analysis of the performance of each fund in comparison to the Budget, as adopted by Council
and adjusted throughout the fiscal year. Changes in the various factors affecting the City’s
financial performance are identified, and the impact of such changes is assessed.
A "Yearend Summary" section presents significant fmancial results and trends from the
1997-98 fiscal year. This is followed by a more detailed analysis of the revenues, expenses
and reserves of the City’s principal funds.
CMR:425:98 Page 1 of 28
DISCUSSION
The City’s financial position remains healthy, with the General Fund reporting a net
operating surplus of $5.1 million and General Fund discretionary reserves increasing by $6.1
million during 1997-98. The Electric and Water Funds ended the year within the Council-
approved reserve levels. The Gas Fund Supply Rate Stabilization Reserve (RSR) and
Distribution RSR reserve currently exceed the maximum target. (The Electric and Gas RSR
have been split into Supply and Distribution reserves to allow for appropriate tracking of the
supply and distribution components of the two utilities in a deregulated environment. This
change in the reserves and new guidelines for the utility reserves were approved as part of
the 1998-99 Adopted Budget, as described in CMR:194:98.) A 7 percent rate decrease,
approved as part of the 1998-99 Adopted Budget, will help lower the Gas reserves to be
closer to the Council-approved guidelines.. The Wastewater Treatment, Wastewater
Collection, and Refuse RSR levels also exceed the Council-approved maximum guidelines
and recommendations for addressing these overages will be presented with the City
Manager’s 1999-2001 Proposed Budget.
RESOURCE IMPACT
Adoption of the attached budget closing ordinance allows for reappropriation and carryover
of fimding from the 1997-98 Budget for the completion of specific operating budget
programs or projects in the current fiscal year. In addition, the closing of completed capital
improvement projects balances to the Budget Stabilization Reserve (BSR) releases unspent
monies for further appropriation by Council. The BSR has been capped at the maximum
level, in accordance with Council policy, and the remaining surplus has been utilized to fund
the Reserve for Emergencies, to the Council-approved target. After funding the BSR and the
Reserve for Emergencies, the remaining General Fund surplus has been applied to the
General Fund Infrastructure Reserve, bringing the closing balance in the reserve to $12.6
million from $8.2 million in 1996-97.
POLICY IMPLICATIONS
This recommendation is consistent with existing policies.
ENVIRONMENTAL REVIEW
The action recommended is not a project for purposes of the California Environmental
Quality Act.
CMR:425:98 Page 2 of 28
ATTACHMENT
1997-98 Year-End Summary
Attachment 1 - Ordinance of the Council of the City of Palo Alto Authorizing
Closing of the Budget For Fiscal Year 1997-98
Exhibit A - 1997-98 Reappropriation Requests
Exhibit B - Utility Fund Summaries for 1997-98
Exhibit C - Utility Funds Reserves Summary
Exhibit D - Capital Improvement Projects Completed & Closed in 1997-98
PREPARED BY:Stanley Arend, Accounting Manager
Linda Craig, Senior Financial Analyst
Joyce Aung, Staff Accountant
REPORT
COORDINATOR: Virginia Harrington, Budget Manager
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
CARL
Director,Services
CC: n/a
CMR:425:98 Page 3 of 28
EXECUTWE SUMMARY
REVENUE OVERVIEW AND BUDGET CHALLENGES
The California and Palo Alto economies showed
continued strength during 1997-98, particularly in
the real estate, construction and retail segments.
Locally, employment grew and several revenue
sources increased significantly over the prior year.
However, recent international financial events
have spread to domestic markets and are expected
to decelerate revenue growth in the coming year.
While the City can look back upon several years
of solid financial results, it must look forward with
tempered expectations. The City should assess
carefully the demands upon its resources in the
upcoming two-year budget and should adopt a
level funding scenario for both revenues and
expenditures.
Millions
20.00
15.00
10.00
500
General Fund: Sales Tax
92-93 93-94 94-95 95-96 96-97 97-98
O Sales Tax
General Fund revenues increased $8.5 million or
9.2% overall from 1996-97 to 1997-98. Sales tax
revenues kept pace with a 9.5% increase, driven
by strong automobile, restaurant and miscella-
neous retail sales. Booming real estate and busi-
ness activity generated exceptionally high
increases over last year with property tax revenues
increasing by $1.2 million or 15.1%, transient
occupancy tax (TOT) revenues increasing by $0.7
million or 14.5%, and documentary transfer tax
Mllions
9.00
8.50
8.00
7.50
7.00
6.50
Property Tax
92-93 93-94 94-95 95-96 96-97 97-98
(~) (2)B Property Tax
Excludes a $ t9 million ERAF shift.
) Denotes first year of full ERAF shift of S t2 million
revenues by $1.0 million or 51.0 percent. On the
expenditure side, the General Fund is closing the
year well within the adjusted budget. However,
the $9.2 million or 10.7% increase in expenditures
represents a slightly higher rate than revenues.
While still indicating a very strong financial year,
the 1997-98 increase to General Fund reserves of
$5.0 million is $0.8 million or 16% less than last
year’s $5.8 million. While this is a slight change,
staff is forecasting a slowdown in the economy in
the coming year.
The f’mancial crisis in Asia that is affecting global
markets can be expected to adversely impact the
State and local economies as well. California’s
gross domestic product relies on exports more
heavily than other states and exports have suffered
dramatically from weak demand abroad. In addi-
tion, technology stocks have taken the brunt of
recent market volatility and this can be expected
to affect consumer confidence, spending patterns
4
and employment since technology firms dominate
the local economy. In addition, the sales of auto-
mobiles and electronics which have led the City’s
largest revenue source (sales tax) to five years of
spectacular growth are especially sensitive to
downturns in the economy and give more reason
for a conservative outlook.
with a goal to expand and modernize library ser-
vices. New facility needs such as the public safety
building and a joint library with the school district
will continue to place demands on City resources.
Further, the impacts of utility deregulation may
place constraints on equity transfers to the General
Fund.
Although the General Fund’s current financial
position is sound, significant fiscal challenges lie
ahead. The City’s strong revenue base is subject to
economic adjustments and to unanticipated
swings in State fiscal policies. On the horizon, the
City faces a potential threat to its vehicle license
tax revenues, which amounted to $2.5 million in
1997-98. Over the next decade, the City’s infra-
structure replacement and maintenance require-
ments stand at $95 million. This represents an
increase of approximately 100 percent over cur-
rent infrastructure spending levels. In addition, to
address traffic safety concerns, new traffic and
Utility Users Tax
Mllions
6.00
6.00
5.00
4.00
3.00
2,00
1.00
Transient Occupancy Tax
92-93 93-94 94-95 95-96 96-97 97-98
[] Transient Occupancy Tax
GENERAL FUND EXPENDITURES
General Fund operating departments spent $1.7
million less than their adjusted budgets during fis-
cal year 1997-98 (an unspent contingency for
Proposition 218 of $1.0 million and non-depart-
mental activity are excluded). The most signifi-
cant savings occurred in the following
departments:
93-94 94-95 95-96 96-97 97-98
[] Llility Users Tax
transportation infrastructure projects worth $42.7
million have been identified. A feasibility study
for a new local shuttle system has also been initi-
ated. A Library Master Plan has been developed,
Administrative Departments: Savings of $0.4 mil-
lion primarily from lower salary expenditures due
to vacancies.
Community Services: Savings of $0.4 million
from lower than anticipated water costs due to
heavy winter rains.
Public Works: Savings of $0.6 million from lower
salaries due to vacancies, and lower than antici-
pated liability insurance, landfill fees, water usage
and vehicle maintenance.
The Infrastructure Reserve created in 1996-97,
increased by $4.4 million from a balance of $8.2
million to $12.6 million.
For comparison, while last year’s operating
departmental savings were $1.8 million, operating
savings in
1997-98 were
$1.7 million.
This slightly
lower amount
for the current
year is yet
another indica-
tion of a poten-
tial tightening
of the City’s
fiscal picture,
that future
year-end sav-
ings may be
lower, result-
ing in reduced
supluses in the
future to further
fund discretion-
ary reserves.
The Budget Stabilization Reserve (BSR) has
increased by $1.2 million from $17.9 million to
$19.1 million. It will remain capped at 20 percent
of the adopted bud-
get, or $19.1 mil-
lion. Funds in
excess of this
amount were used
. first to fund the
Reserve for Emer-
gencies to the
Council-approved
level, and then to
fund the Infrastruc-
ture Reserve, in
accordance with
Council’s priority
regarding infra-
structure.
The Reserve for
Emergencies was
funded to the
Council approved
level of $5.9 mil-
GENERAL FUND RESERVES
The City’s financial position remains healthy,
with the General Fund reporting a net operating
surplus of $5. ! million. Overall, General Fund dis-
cretionary reserves increased $6.1 million during
1997-98 principally from strong revenues and the
expenditure savings in the operating departments.
The amount of the increase is 3% more than last
year’s addition of $6.0 million.
lion, targeted at 10 percent of General Fund Salary
and Benefits, using a portion of the available oper-
ating surplus.
UTILITY FUNDS
The Electric and Water Funds ended the year
within the Council-approved Rate Stabilization
Reserve (RSR) levels. Gas RSR balances cur-
rently exceed the maximum target. A seven per-
6
cent rate decrease approved as part of the 1998-99
Adopted Budget will bring the Gas reserves closer
to the Council approved guidelines. The Wastewa-
ter Treatment, Wastewater Collection, and Refuse
RSR levels also exceed the Council-approved
maximum and recommendations for addressing
these averages will be presented with the City
Manager’s Proposed 1999-2001 Budget. The
Electric and Gas RSR’s have been split into Sup-
ply and Distribution reserves to allow for appro-
priate tracking of the supply and distribution
components of the two utilities in a deregulated
environment. The establishment of separate sup-
ply and distribution reserves was approved as part
of the 1998-99 Adopted Budget.
In general, the Utility Funds experienced moder-
ate increases in revenues with corresponding
increases in expenditures. One exception is the
Water Fund where revenues were $1.8 million or
10.8% lower this year than last year due to lower
water consumption resulting from heavy winter
rains. For the same reason, the Water Fund real-
ized $1.5 million in purchase cost savings.
A combination of strong revenues and cost sav-
ings in the Electric Fund allowed it to reach the
maximum reserve levels permitted under the
Council guidelines and also to transfer $13.9 mil-
lion to the Calaveras Reserve. This increased the
balance in the Calaveras Reserve to $55.6 million
at year end, which is 60% of its January 1,2001
target level of $92.1 million. The purpose of this
reserve is to pay for "stranded costs" associated
with the Calaveras Hydroelectric Project. This fis-
cal year staff continued to expend considerable
effort responding to the challenges posed by
deregulation. Staff dedicated a large effort to the
implementation of the policy to provide customers
open access to the supplier of their choice and to
selling energy and energy-related services outside
of the City’s service territory.
UTILITY FUNDS RESfiRVE SUMMARY ($000)
$10,000 -
$5,000 -
r [] 97-98 ACTLAL
[] 66-97 ACTUAL
In 1997-98 Electric rates were restructured to bet-
ter identify the costs of delivering power to the
City’s different customer types. In addition, the
City began to implement a new Customer Infor-
mation System to provide for customer billing and
payment options. The Utilities Department also
plans to select and implement a new Work Order
Management system in the upcoming fiscal year
to improve control over individual capital
projects. These systems are important for the con-
tinued financial health of the utility funds and
together they are expected to improve staff effi-
ciency and customer satisfaction.
7
GENERAL FUND SUMMARY ($000s)
Reve_~nues
Sales Taxes
Property Taxes
Utility-Users Tax
Transient Occupancy Tax
Other taxes, frees & penalties
Service fees and permits
Charges to Other Funds
Rental Income
Other Revenues
1996-97
Actual+Enc+ !
Reapprop~
1997-98 1997-98 1997-98
Adopted Adjusted Actual+Enc
Budget Budget Reapprop
1997-98
Budget
Variance
$18,277!$19,995 $19,700 $20,011 $311
$7,7351 8,177 8,405 8,903 498
$5,5091 5,414 5,485 5,780 295
$5,1071 4,900 5,700 5,846 146
$5,299!5,253 5,718 6,694 976
$9,0871 8,365 8,697 8,872 175
$6,9381 7,411 7,701 7,554 (147)
$9,5441 10,594 9,784 10,022 238
$8,101i 7,968 9,766 10,036 271
Add: Operating Trangfers In
Prior Year Encum & Reapprop
12,7591
2,802
12,962 12,889 12,824 (64)
n/a 3,068 3,068 0
Expenditures
Administrative Departments
Community Services
Fire
Planning
Police
Public Works
Non-Departmental
Contingency for Prop. 218
$12,777 $12,729 $15~71
$17,027i 17,466 18,906
$13,101.12,723 13,929
$5,077 4,666 5,747
$15,6741 15,856 17,274
$10,463!10,748 12,304
$4,816 ,8,168 5,472
$0 1,000 1,000
$14,888
$18,484
$13,799
$5,702
$17,094
$11,692
$5,006
$o
($383)
(423)
(130)
(45)
(180)
(612)
(466)
(1,000)
Add: Operating Trans Out 6,469i 6,090 7,868 7,891 23
C’M:R:425:98 Page 8 of 28
GENERAL FUND SUMMARY ($000s)
1996-97 1997-98 1997-98 1997-98 1997-98
Actual+Eric+ i Adopted Adjusted Actual+Eric Budget
Reapprop !Budget Budget Reapprop Variance
Revenues
Sales Taxes
Property Taxes
Utility Users Tax
Transient Occupancy Tax
Other taxes, frees & penalties
Service fees and permits
Charges to Other Funds
Rental Income
Other Revenues
$18,277!
$7,7351
$5,509i
$5,1071
$5,299i
$9,087 i
$6,938 i
$9,544i
$8,101
$19,995 $19,700 $20,011 $311
8,177 8,405 8,903 498
5,414 5,485 5,780 295
4,900 5,700 5,846 146
5,253 5,718 6,694 976
8,365 8,697 8,872 175
7,411 7,701 7,554 (147)
10,594 9,784 10,022 238
7,968 9,766 10,036 271
Add: Operating Transfers In
Prior Year Encum & Reapprop
12,7591 12,962 12,889 12,824 (64)
2,802!rda 3,068 3,068 0
Expenditures
Administrative Departments
Community Services
Fire
Planning
Police
Public Works
Non-Departmental
Contingency for Prop. 218
$12,777
$17,027
$13,101
$5,077
$15,674
$10,463
$4,816
$0
$12,729 $15,271
17,466 18,906
12,723 13,929
4,666 5,747
15,856 17,274
10,748 12,304
8,168 5,472
1,000 1,000
$14,888
$18 484
$13 799
$5 702
$17 094
$11 692
$5 006
$0
($383)
(423)
(130)
(45)
(180)
(612)
(466)
(1,000)
Add: Operating Trans Out 6,469 6,090 7,868 7,891 23
CMR:425:98 Page 8 of 28
GENERAL FUND REVENI~S
Sales Tax
$20,011
(The information on all the charts following are in $O00’s.)
$311
Compared to the adjusted budget, actual sales tax revenues are $.31 million, or 1.6 percent,
above budget. The City’s sales tax receipts are $1.73 million, or 9.5 percent higher than
1996-97 receipts. While dipping below the double digit increase experienced in 1995-96,
sales tax revenues continued to show strength in 1997-98.
Economic segments contributing to the positive results include: new automobile,
miscellaneous retail and restaurant sales. New automobile and miscellaneous retail sales
showed sharp increases in the last two quarters of 1997-98, and restaurant receipts continued
their steady ascent. Segments curbing growth included apparel and office equipment stores,
and light industry. Uncharacteristically, department store sales showed no growth in the last
two quarters of 1997-98.
Sales tax revenues have grown by a striking 36 percent over the past three years. This
exceptional growth rate is unlikely to continue. The Asian crisis, stock market volatility and
emerging economic slowdown may portend slower growth in the near future. Automobile
and electronic sales, which are particularly vulnerable to cyclical economic trends, may well
flatten, if not decrease in the coming year.
Property Tax
$8,903
Property tax revenue ended the year $.50 million, or 5.9 percent above the adjusted budget
and $1.17 million, or 15.1 percent above prior year actuals. Accounting for prior year
adjustments both in 1996-97 and 1997-98, property tax revenues actually grew by $.79
million or 10.0 percent over 1996-97 levels.
CMR:425:98 Page 9 of 28
As a result of rising residential and commercial property values that are now reflected in the
County’s property tax rolls, and the resolution of backlogged property tax appeals, the City
has experienced the highest year-to-year increase in property tax receipts in the past five
years. A double-digit increase is not anticipated for 1998-99, but rather continuation of
current revenue levels with moderate growth of around three percent.
Utility Users Tax
$5,509 $5,485 $5,780 $295
Revenues from the utility users tax (UUT) have posted respectable gains. Total UUT
revenues are $.30 million, or 5.4 percent above budget. Compared to 1996-97, revenues
increased by $.27 million, or 4.9 percent.
UUT revenues from sale of City utilities are $.22 million, or 5.7 percent above budget~ and
$. 13 million, or 3.2 percent, over prior yearreceipts. Electric and gas sales exceeding budget
were primarily responsible for the positive results.
UUT telephone revenues are $.08 million, or 4.6 percent above the adjusted budget, and $. 15
million or 8.8 percent above 1996-97 levels. Demand for telephone lines for Internet
connections and strong business activity have continued to fuel higher revenues. It appears,
however, that UUT telephone revenues are beginning to plateau, indicating a potential
saturation in Internet connections and a possible slowdown in business activity.
Transient Occupancy Tax
$5,107 $5,700 $5,846 $146
Transient occupancy tax (TOT) revenues showed strength by rising $.15 million, or 2.6
percent above budget, which was adjusted upward by $800,000 at midyear. Revenues for
1997-98 are $.74 million, or 14.5 percent above prior year levels. While TOT revenues are
expected to maintain 1997-98 levels into the next year, a more moderate growth pattern may
be emerging. In the last quarter of 1997-98, TOT revenues grew more slowly than in prior
CMR:425:98 Page 10 of 28
quarters, with June 1998 revenues falling below June 1997 levels. Occupancy rates for
1997-98 hovered around 79 percent, similar to the 80 percent rate experienced in 1996-97.
Other Taxes, Fines and Penalties
$5,299 $5,718 $6,693 $976
This category consists of documentary transfer taxes, motor vehicle in-lieu taxes, and frees
such as parking violations and library late fees.
Documentary transfer tax revenue in 1997-98 ($3.0 million) surged past the already strong
levels achieved in 1996-97 ($2.0 million). Compared to the budget, adjusted upward at
midyear by nearly $.4 million, transfer taxes were $.73 million, or 31.7 percent above budget.
Testifying to the City’s heated real estate market, transfer taxes rose $1.04 million or 51.9
percent above prior year levels. This dramatic increase is unlikely to continue in the coming
year. During 1997-98, several large transactions occurred that significantly contributed to
the high tax receipts. It is important to note that transfer taxes can vary considerably from
year to year. In addition to real estate prices, volume and the mix of commercial and
residential sales drive these revenues.
Motor vehicle in-lieu taxes are $.23 million, or 10.1 percent above budget, and $.42 million,
or 20.0 percent above prior year levels. This revenue source is based on vehicle license fees
(which, in turn, are based on the value of vehicles). The robust State economy and the
continued strength of new automobile sales have contributed to the growth in this revenue
source.
Fine revenues are $.02 million, or 1.5 percent above budget, and $.06 million, or 4.8 percent
below 1996-97 revenues. Due to a high turnover rate among parking citation personnel in
1997-98, Citation revenues fell in comparison to 1996-97.
CMR:425:98 Page 11 of 28
Service Fees and Permits
$9,087 $8,697 $8,872 $175
Service fees and permits are $. 18 million, or 2 percent above the adjusted budget, and $.22
million, or 2.4 percent below prior year actuals. Building renovation activity in both
residential and commercial areas continued during 1997-98, but at a slightly slower pace than
the prior year. Fees for plan checking, major subdivision and fire permits accounted for
approximately $.31 million of the positive variance. The fees and permits include activity
for the construction of the new Palo Alto Medical Foundation facility. Also contributing to
the positive results are higher-than-projected class program and Children’s Theatre
performance fees of approximately $.29 million. These increases are offset by other fees that
ended the year below projections ($.37 million), primarily due to lower-than-anticipated
green fee revenues at the golf course.
Charges to Other Funds
$6,938 $7,701 $7,554 ($147)
This category consists primarily of charges to the Utility Funds for services provided by
General Fund departments, which were under budget by $.08 million. General Fund
administrative department savings in such areas as salaries and benefits (due to vacancies)
and contract services were responsible for this variance. The remaining shortage ($.07
million) is attributed to lower-than-expected revenues from engineering and inspection
services provided by the Public Works Department and communications dispatch services
charges provided by the Police Department.
CMR:425:98 Page 12 of 28
Rental Income
$9,544 $9,784 $10,022 $238
Rental income is $.24 million, or 2.4 percent over the adjusted budget. Compared to the
prior year, rental income increased $.48 million, or 5 percent. Property rental income was
$. 14 million above the adjusted budget, as a result of higher-than-expected property rental
income, mostly from higher activity related to the Sheraton Hotel (former Holiday Inn). The
remaining favorable variance of $. 10 million is a consequence of higher income from City
facility rentals.
Other Revenues
$8,101 $9,766 $10,036 $271
Other Revenue, a category that consists of interest income, fare and communications services
provided to Stanford University, State, Federal and local grants, donations and contributions,
and miscellaneous sales, is above the adjusted budget by $.27 million, or 2.8 percent, and
above prior year actuals by $1.9 million, or 24 percent. The positive variance is attributed
to the $.4 million Federal Emergency Management Act (FEMA) reimbursement related to
the storms of 1998 and $.5 million in income, due to the restatement of the investment
portfolio from cost (carrying value) to market value. Beginning in 1997-98, government
accounting standards require the City to carry its investments at market value instead of cost.
The market value of the General Fund portion of the portfolio exceeded cost by $.5 million
in 1997-98. Since the City holds all of its investments until maturity; this gain in market
value will never be realized. As a result, this amount, $.5 million, is set aside (designated)
in the City’s reserves and is not available for appropriation. There is a negative variance of
$.25 million, due to other agency reimbursements for capital projects not yet received due
to construction delays related to the heavy winter rains. In addition, there were revenues for
projects such as the establishment of a secured bicycle facility at the University Avenue
Caltrain Station and the Sand Hill Road Project that were budgeted, but not received, in
1997-98. It is anticipated that these grants and other reimbursements will be received in
1998-99 upon completion of the work.
CMR:425:98 Page 13 of 28
Operating Transfers In
$12,759 $12,889 $12,824 ($64)
The operating transfers negative variance is due to lower-than-budgeted transfers from the
University Avenue Parking District and the Housing Improvement Program (HIP) Fund. The
Parking District transfers were lower than anticipated because maintenance staff who
perform lot sweeping were diverted to efforts related to the February storms. The HIP
transfers were based on actual activity in the Fund.
GENERAL FUND EXPENDITURES BY DEPARTMENT
Administration
$12,777 $15,271 $14,888 ($383)
The majority of the positive variance ($.38 million) resulted from lower-than-anticipated
salary expenditures due to vacancies. In addition, charges to all City departments to fund the
City’s liability insurance requirements were $.15 million lower than expected. This
reduction was based on the annual review of outstanding and potential dental, workers
compensation, and general liability claims.
Community Services
$17,027 $18,906 $18,484 ($423)
The positive variance from the adjusted budget is due largely to lower-than-anticipated water
costs. For the fourth year, Community Services Department water expenses have been low,
due to heavy winter rains.
CMR:425:98 Page 14 of 28
Fire
$12,777 $13,929 $13,799 ($130)
The majority of the variance resulted from lower-than-expected charges to fund the City’s
liability insurance requirements of $. 11 million.
Planning
$5,077 $5,747 $5,701 ($45)
The savings resulted from lower-than-expected liability insurance charges. The Planning
Department has also requested reappropriations of$. 12 million for consulting contracts that
were delayed due to workload issues in 1997-98. The funding for this request is included in
the actual 1997-98 expenditures shown above.
Police
$15,674 $17,274 $17,094 ($180)
The majority of the variance resulted from lower-than-expected charges to fund the City’s
self-insurance requirements of $. 15 million.
CMR:425:98 Page 15 of 28
Public Works
$10,463 $12,304 $11,692 ($612)
The department had several vacancies, which resulted in salary savings of $.30 million. In
addition, the department had lower-than-expected expenses in charges to fund the City’s self-
insurance requirements ($. 10 million), landfill fees ($.07 million), water usage ($.03 million),
and vehicle maintenance ($.03 million). The remainder of the variance is in contract services
for projects delayed, due to the storms of 1998.
Non-Departmental
$4,816 $5,472 $5,006 ($466)
The positive variance resulted mainly fi~om unspent salary and non-salary contingency funds
($.49 million), offset by higher-than-budgeted lease payments ($.21 million) to the Palo Alto
Unified School District for the City use of school sites.
Proposition 218
$0 $1,000 $0 ($1,000)
Due to the ambiguity of certain key portions of Proposition 218, the "Right to Vote on
Taxes" initiative approved by Califomia voters in November 1996, staff conservatively
budgeted a contingency for Proposition 218 in the 1997-98 Budget. This contingency was
budgeted in the event that subsequent legal analysis showed the need to move portions of
services funded by various Utility Funds to the General Fund. After a thorough analysis of
Proposition 218, it was determined that the contingency funds were not needed. As a result,
they have reverted to General Fund reserves.
CMR:425:98 Page 16 of 28
Operating Transfers
$6,469 $7,868 $7,891 $23
Operating transfers to the Debt Service Funds were higher than budgeted, due to lower-than-
anticipated interest earnings on funds held by the City’s trustee.
GENERAL FUND ~SERVES
Net from General Fund Operations $5,056
Closed Capital Improvement Projects 375
Change in Stores Inventory and Notes Receivable 147
Reserves
Change in Reserve for Streets and Sidewalks 167
Change in Reserve for Emergencies (275)
Change in Reserve for Infrastructure Improvements (4,436)
Transfer from Capital Improvement Fund for Harbor
Marsh Improvements 480
Initial Funding of Reserve for Gain/Loss on Investments (450)
All Other General Fund Reserve Changes 87
The strong financial performance in 1997-98 resulted in an operating surplus of $5.1 million
being available to fund reserves. The Reserve for Emergencies has been increased from $5.6
million to $5.875 million. This is consistent with the Council-approved guideline for the
Reserve, which is 10 percent of General Fund salaries and benefits. The BSR has been
increased from $17.9 million to $19.05 million. This is consistent with the Council-approved
guideline, which is that the Reserve should be 20 percent of General Fund Adopted Budget
CMR:425:98 Page 17 of 28
expenditures. A new reserve related to the restatement of the investment portfolio from cost
to market value has also been established, as the gain related to the investment would not
materialize unless the City’s securities are sold prior to their maturity. The Infrastructure
Reserve has been increased by $4.4 million, resulting in a year-end balance of $12.6 million
in this Reserve. Contributing to the General Fund reserves were a transfer from the Capital
Improvement Fund due to closed capital projects and a transfer from the Capital
Improvement Fund to reflect a prior year receipt of a portion of the reimbursement from San
Francisco Airport for the Harbor Marsh Improvement Project. This reimbursement correctly
belongs to the General Fund discretionary reserves.
Provided below are all General Fund reserve balances as of June 30, 1998. The reserves are
separated into "Discretionary Reserves" (those reserves which are uncommitted from a legal
and budgetary perspective) and "Non-Discretionary Reserves", (those reserves which have
commitments associated with them).
CMR:425:98 Page 18 of 28
Budget Stabilization Reserve $17,900,003 $19,050,591 $1,150,588
Reserve for Streets and Sidewalks/
School Site Projects 428,554 262,855 (165,699)
Reserve for Emergencies 5,600,000 5,875,000 275,000
Reserve for Infrastructure
Improvements 8,152,042 12,588,000 4,435,958
Reserve for Unrealized Gain/Loss 0 449,907 449,907on Investments
Total Discretionary Reserves $32,080,599 $38,226,353 $6,145,764
Reserve for Encumbrances $2,570,182 $4,071,820 $1,501,638
Reserve for Reappropriations 1,134,909 964,284 (170,625)
Reserves for Inventory 2,085,772 1,953,656 (132,116)
Reserves for Notes Receivable 703,661 688,808 (14,803)
Total Non-Discretionary Reserves $6,494,474 $7,678,568 $1,184,094
CAPITAL IMPROVEMENT FUND
Capital project expenditures and encumbrances were $19.4 million compared to an adjusted
budget of $31.4 million. The larger projects underway during the year included the $5.6
million Golf Course Improvement project, the $1.7 million Rinconada Pool Site
Improvements, the $.9 million Downtown Parking Structure Feasibility Study, and $.7
million Municipal Service Center Seismic Improvements.
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Of the total, $5.6 million was spent or encumbered for street and sidewalk improvements,
with funding provided from Gas Tax, and the General Fund. At year-end, $375,000 in
projects were completed or closed (see list Exhibit D).
INTERNAL SERVICE FUNDS
The Vehicle Replacement functional area of the Vehicle Maintenance and Replacement Fund
spent or encumbered $4.0 million of a $4.2 million budget. During the year, several major
fire equipment vehicles were purchased (aerial ladder trucks, transport engines and an
ambulance) and the backlog of vehicles due for replacement in prior years was reduced. The
Vehicle Maintenance functional area remained within budget in terms of both expenses and
revenues from departments. However, the budget anticipated a reduction in the retained
earnings in the Vehicle Maintenance portion of this Fund, almost to zero.
In 1997-98, the Computer Replacement Fund was established with a $2 million equity
transfer from the Vehicle Maintenance and Replacement Fund. During its first year, the
Fund purchased or encumbered $1.025 million of a $1.46 million budget.
Overall, the Internal Service Funds increased their retained earnings during the year by $.8
million.
ENTERPRISE FUNDS
Electric Fund
Revenues
Expenditures
Purchases
Operations, Transfers
and Other
Capital Expenses
Debt Service
$81,956
25,843
29,623
13,729
0
$90,779
32,771
35,273
12,548
$91,351
32,771
34,311
11,331
0
$ 572
0
(962)
(1,217)
0
CMR:425:98 Page 20 of 28
Revenues
Electric Fund revenues are $.6 million higher than the Adjusted Budget. Favorable variances
were realized in interest earnings ($.4 million), and repayments from Western Area Power
Administration on loan advances ($.4 million). In addition, the implementation of the
accounting change to restate the investment portfolio from cost to market value resulted in
an interest gain of $.6 million. Offsetting these variances were lower connection charges and
fees ($.2 million) and lower revenues ($.6 million) from the City’s installation of fiber optic
lines.
Expenses
Power purchase costs are $.8 million above the budget, which was adjusted downward ($3.9
million) at midyear in anticipation of lower power prices on the spot market. Power costs
shot up during the summer months, which along with higher power usage, resulted in a
negative variance. The attached BAO includes amendments to cover the cost overrun and
the information reflected in the table above includes this adjustment.
Operating expense savings totaled $1 million in the Electric Fund. In the Resource
Management area, design and implementation of new Demand Side Management (DSM) and
other marketing programs were delayed due to staff’s continued involvement with electric
deregulation issues, resulting .in $.4 million savings. Additionally, a $.4 million savings
resulted from the Utilities Department decision to pull out of the Los Altos Treatment Plant
(LATP) Site Project. Utility Administration and charges to all City departments to fund the
City’s self-insurance requirements were lower than expected by $.2 million. A number of
Capital Improvement Program (CIP) projects were completed below budget, resulting in a
$1.2 million savings. In CIP project #9702 (New Step Van Purchase), staff is requesting a
supplemental appropriation of $.01 million to pay for modifications in the design and size
of the vehicle to accommodate fiber optic network installation equipment. This adjustment
is included in the attached BAO.
Reserves
The combination of strong revenues and cost savings resulted in healthy reserve balances.
The 1997-98 Electric Fund’s RSR balance at year-end is $22.7 million. In accordance with
the new-Utility Funds Reserve Policy approved by the Council in June, this balance
represents the maximum allowable balance in the Distribution RSR ($8.1 million) and the
CMR:425:98 Page 21 of 28
Supply RSR ($14.6 million).
The Calaveras Reserve balance rose to $55.6 million at yearend, which is almost 60 percent
of stranded cost estimates associated with the Calaveras Hydroelectric Project. Northern
California Power Agency (NCPA) refinanced the outstanding bonds related to this project
in June 1998, which has resulted in lower debt service payments for the City. In conjunction
with the 1999-2001 proposed budget, staff will present to the Council revised stranded cost
estimates based on the new debt service obligations.
Gas Fund
Revenues
Expenditures
Purchases
Operations, Transfers
and Other
Capital Expenses
Debt Service
(sooo) I 1 ........
$20,125
9,734
6,706
4,447
0
$20,581
9,907
8,356
4,678
0
$22,007
9,719
7,302
4,636
0
$1,426
(188)
(1,054)
(42)
0
Revenues
Total Gas Fund revenues are $1.4 million above budget, resulting entirely from higher gas
sales. Actual gas consumption was 7 percent higher than the forecast, due mainly to E1Nino-
related weather patterns during the winter and spring months.
Expenses
Gas purchase costs are $.2 million lower than the Adjusted Budget, resulting from a one-time
credit adjustment of $.4 million for prior fiscal year gas purchases. Without this adjustment,
the gas purchase costs were $.2 million above budget, as the City purchased additional
natural gas to meet the increased consumption during the winter months. Operating savings
CMR:425:98 Page 22 of 28
of$1.1 million, primarily in Resource Management ($.6 million), were due to cancellation
of various DSM programs; as staff spent more time to prepare for energy deregulation.
Additionally, a $.5 million savings resulted from the Utilities Department decision to pull out
of the LATP Project.
Reserves
The Gas Fund’s year-end RSR balance is $16.4 million ($7.9 million in the Distribution RSR
of $7.9 million and a Supply RSR balance of $8.5 million), exceeding the maximum
guideline level by $9.5 million. The 1998-99 Adopted Budget includes a 7 percent gas rate
decrease to help bring the RSR within desired limits. ~
Refuse Fund
Revenues
Expenditures
Payments to PASCO
Other Expenses
Capital Expenses
Debt Service
$21,716
6,338
13,255
600
0
$24,104
7,199
15,213
2,150
0
$23,205
6,854
13,997
2,150
0
($ 899)
(345)
(1,216)
0
0
Revenues
Overall Refuse Fund revenues were $.9 million below budget. Operating transfers from
other utility funds related to the development of former LATP Site were $1.3 million less
than the Budget. During 1997-98, the draft Environmental Impact Report (EIR) for the
LATP site was prepared. Based on a review of the draft EIR, there is insufficient room at
the site for the proposed utility staging yard. Therefore, the attached BAO recommends
reducing the CIP for the LATP Sites to reflect the withdrawal of the Utilities Department
participation in the project. The attached BAO includes adjustments to the budgets of the
respective utility funds to reflect the change in the scope of this project. Offsetting lower
transfers were higher landfill disposal fees ($.2 million), customer billings ($.2 million) and
CMR:425:98 Page 23 of 28
royalty income from gas exploration activities at the landfill site ($. 1 million).
Expenses
Payments to Palo Alto Sanitation Company (PASCO) were $.3 million below budget.
Operating expenses in the Refuse Fund were also $1.2 million lower than the budget. In the
Solid Waste functional area, savings mainly resulted from lower salary costs ($.3 million)
due to vacancies and lower contributions for the SMART Station operation and maintenance
costs ($.3 million). The remaining expense savings were in contract costs ($.6 million) and
general expense categories of the Collection and Disposal functional area.
Reserves
Despite lower operating transfers, the Refuse RSR balance at yearend is $6 million, mainly
a result of operational savings. This is $2 million higher than the Council-approved
maximum guideline level. Staff will return with the 1999-2001 .Budget with the
recommendations to address this reserve overage.
,Storm Drainage Fund
Revenues
Expenditures
Operating Expenses
Capital Expenses
Debt Service
$ 6,872
1,544
6,825
275
$ 6,361
1,918
4,775
285
$ 6,265
1,889
4,775
285
($ 96)
(29)
0
0
Revenues
Storm Drainage revenues were $. 1 million below budget, mainly due to lower interest
CMR:425:98 Page 24 of 28
earnings and customer revenues.
Expenses
Operating expenses savings of $.03 million were
maintenance activities for the storm drainage system.
the result of lower-than-budgeted
Reserves
The 1997-98 year-end Storm Drainage-RSR balance is $.5 million. The Storm Drainage
Fund does not have a formal reserve policy, but a positive RSR balance will ensure that the
Fund will remain solvent while long term options for the Storm Drainage Fund are explored.
Wastewater Collection Fund
Revenues
Expenditures
Sewer Treatment Exp.
Operating Expenses
Capital Expenses
Debt Service
$15,112
3,824
1,993
9,601
165
$15,833
4,157
2,698
10,466
175
$15,963 $130
4,158
2,260
10,393
175
1
(438)
(73)
0
Revenues
Total Wastewater Collection Fund revenues were $.1 million higher than the adjusted
budget. Higher interest income ($.1 million) and groundwater discharge fees to local
industries ($.2 million) accounted for the favorable variance. These increased revenues were
offset by lower sewer billings ($. 1 million) and revenues from sewer connection activities
CMR:425:98 " Page 25 of 28
($.1 million).
Expenses
There were $.4 million savings in operating expenses including a $.2 million savings
resulting from the Utilities Department decision to pull out of the LATP Project; lower salary
costs ($.1 million), due to unfilled vacancies in the Sewer Operation area; and lower
allocated general and administrative charges ($. 1 million), due to savings in various General
Fund administrative departments.
Reserves
The Collection Fund RSR at year-end is $7.4 million, which is $2.4 million above the
maximum guideline level approved by the Council. A recommendation on this excess
reserve balance will be made as part of the 1999-2001 Budget.
Wastewater Treatment Fund
Revenues
Expenditures
Operating Expenses
Capital Expenses
Debt Service
$14,085
10,894
2,475
360
$14,981
11,611
2,538
380
$14,854
11,443
2,538
380
$(127)
(168)
0
0
Revenues
Wastewater Treatment Fund revenues are based on the cost reimbursements from RWQCP
Partners. The negative revenue variance of $. 1 million reflects cost savings at the Plant in
1997-98.
Expenses
CMR:425:98 Page 26 of 28
The Treatment Fund’s actual expenses were $.2 million below budget. Lower salary
expenses ($.1 million) and allocated general and administrative costs ($.1 million)
contributed to this favorable variance.
Reserves
The Treatment Fund’s 1997-98 year end RSR balance is $3.4 million, which is the upper
limit of the reserve policy established by Council.
Water Fund
Revenues
Expenditures
Purchases
Operations, Transfers
and Other
Capital Expenses
Debt Service
$17,058
4,815
6,370
4,846
0
$15,244
4,704
7,544
5,032
0
$15,224
4,283
6,583
4,901
0
($20)
(421)
(961)
(131)
0
Revenues
Water sales were slightly below budget, resulting from lower water consumption, due to
heavy rains during the winter. The lower-than-anticipated water sales were offset by higher
interest earnings, bringing total revenues in line with the budget.
Expenses
Driven mainly by lower water consumption, wholesale water purchase costs were $.4 million
CMR:425:98 Page 27 of 28
below budget. Operating expenditures were $1.0 million below budget, resulting from
savings in the following functional areas:
¯Resource Management ($.4 million), due to lower salary expenses and lower spending
on conservation programs, due to non-drought conditions.
¯Water Transmission & Distribution ($.2 million), resulting from lower salary expenses
due to staff’s involvement in other utility funds.
¯Support Services ($.2 million), due to lower salary costs as staff spent more time on
electric deregulation matters.
¯A $.2 million savings resulted from the Utilities Department decision to pull out of the
LATP Site Project.
Reserves
Bolstered mainly by favorable expenditure variances, the Water Fund’s RSR balance reached
$7.5 million, only $.3 million below the Council approved maximum guideline level.
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