HomeMy WebLinkAboutStaff Report 2405-3096CITY OF PALO ALTO
Finance Committee
Regular Meeting
Tuesday, December 03, 2024
Agenda Item
4.Informational Item: First Quarter Fiscal Year 2025 Financial Status Report
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Finance Committee
Staff Report
From: City Manager
Report Type: INFORMATION REPORT
Lead Department: Administrative Services
Meeting Date: December 3, 2024
Report #:2405-3096
TITLE
Informational Item: First Quarter Fiscal Year 2025 Financial Status Report
RECOMMENDATION
This report transmits the City of Palo Alto’s Fiscal Year 2025 First Quarter Financial Status
Report. Staff recommends the Committee review and accept this report.
EXECUTIVE SUMMARY
The purpose of this report is to provide the City Council with information on the financial status
of the City’s General Fund and Enterprise Funds as of the end of the First (1st) Quarter of Fiscal
Year (FY) 2025 (July 1, 2024 through September 30, 2024). The figures presented in this report
are unaudited.
For the 1st quarter, General Fund revenues totaled $31.0 million, or 9.2% higher than the same
period of the prior fiscal year. Expenditures totaled $64.3 million, 17.9% higher than prior year
and are tracking at 22.9% of Adjusted Budget.
All Enterprise Funds, except Gas and Airport Funds, resulted in a positive change in net position.
The total change in position increased by $11.3 million, or 51.0%, higher 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, 2024 of Fiscal Year (FY) 2025 and compares those amounts
to the same period of the prior year and to the FY 2024 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 2025 Adopted Budget through September 30, if any. Encumbrances and
actual expenditures for the three-month period are also reported.
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ANALYSIS
As of September 30, 2024, General Fund expenditures ($64.3 million) exceeds the revenue
receipts ($31.0 million). First quarter General Fund receipts are not indicative of the annual
expected receipts in FY 2025 due to timing of major revenues received over the fiscal year.
Revenues and expenditures are tracking within the FY2025 adjusted budget, comparable to
prior fiscal year trend.
General Fund revenues (excluding operating transfers) for the 1st quarter are $31.0 million, or
12.0%, of the current year Adjusted Budget. Actual revenues totaled $31.0 million, 9.2% or $2.6
million higher than the same period of the prior fiscal year. Major taxes increased by $1.9 million
compared to the same period of prior fiscal year driven primarily by Transient Occupancy Tax
(TOT) and Utility Users Tax revenue. Sales and documentary transfer taxes are nearly identical to
the same period in prior fiscal year. This reflects ongoing economic conditions and reinforces the
forecast of a gradual return to moderate growth beginning in 2026.
For the 1st quarter, General Fund expenditures totaled $64.3 million, $9.8 million or 17.9% higher
than the prior fiscal year and tracking at 22.9% of adjusted budget, slightly higher compared to
prior budget versus actual at 19.4%. The City is making significant efforts to fill vacant positions
while this budget to actual variance also reflects the change in budget assumptions between FY
2024 and FY 2025 which reflected a 2% increase for a total presumed vacancy factor of 5% instead
of 3% in assumed vacancies.
The following is a detailed discussion of the most significant revenue and expense items.
st Quarter FY 2025
The following highlights the City’s major revenue sources for the 1st Quarter, compared to 1st
Quarter YTD, compared to the same period of the prior fiscal year. Revenue for each period is
expressed as a percentage of the Adjusted Budget.
As of September 30, 2024, General Fund expenditures ($64.3 million) exceeds the revenue
receipts ($31.0 million). First quarter General Fund receipts are not indicative of the annual
expected receipts in FY 2025 due to timing of major revenues received over the fiscal year.
Revenues and expenditures are tracking within the FY2025 adjusted budget, comparable to
prior fiscal year trend.
General Fund revenues (excluding operating transfers) for the 1st quarter are $31.0 million, or
12.0%, of the current year Adjusted Budget. Actual revenues totaled $31.0 million, 9.2% or $2.6
million higher than the same period of the prior fiscal year. Major taxes increased by $1.9 million
compared to the same period of prior fiscal year driven primarily by Transient Occupancy Tax
(TOT) and Utility Users Tax revenue. Sales and documentary transfer taxes are nearly identical to
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the same period in prior fiscal year. This reflects ongoing economic resilience despite elevated
inflationary pressures, consistent with a forecasted modestly weak economy in FY 2025 and a
gradual return to moderate growth starting in 2026.
st quarter, General Fund expenditures totaled $64.3 million, $9.8 million or 17.9%
higher than the prior fiscal year and tracking at 22.9% of Adjusted Budget, slightly higher
compared to prior budget versus actual at 19.4%.
Revenue Highlights for 1st Quarter FY 2025
st Quarter, compared to 1st
Quarter YTD, compared to the same period of the prior fiscal year. Revenue for each period is
expressed as a percentage of the Adjusted Budget.
Table 1
Property tax revenue in the 1st quarter of the fiscal year is the typical nominal amount as
property tax receipts are mostly paid by the County over three months beginning in the month
of November and then again beginning in March. FY2024 actuals are $3.2 million or 5.1% over
the prior fiscal year primarily driven by change in assessed values due to ownership change in
FY 2024 plus the expected 2% Proposition 13 overall annual increase in FY 2025
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ERAF distributions from the County of Santa Clara in fiscal years 2021, 2022, 2023, and 2024
receipts were $5.6 million, $6.6 million, $6.4 million, and $7.0 million respectively. In FY 2024,
the reserve for Excess ERAF, representing the at-risk amount related to the State Controller’s
Office auditing finding on Marin County, totaled $5.6 million. The state’s assertion is former
Redevelopment Agency funds which are now part of the regular property taxes should be
excluded from the excess ERAF calculation. Marin County is challenging this finding and the
County of Santa Clara has filed a lawsuit. The estimate is, if this audit finding is sustained, 20%
to 22% of excess ERAF is at risk for fiscal years 2021 to 2025. If the finding holds, the County of
Santa Clara, as well as other Excess ERAF counties, may be negatively impacted for future fiscal
years as well. This reserve, as of FY 2024, is consistent with prior year methodology of
assumptions for this challenge. Also, consistent with prior year, the FY 2025 budget has been
reduced by this at-risk amount.
Sales tax revenue cash receipts totaled $2.6 million for the 1st quarter. 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 2024 actual sales tax revenue was $37.5 million, $0.6 million
or 1.5% higher than FY 2023.
Transient occupancy tax (TOT) cash receipts for about one and half months totaled $3.9
million, or 14.2% of the FY 2025 adjusted budget and is $1.2 million, or 45.1%, increase than
prior fiscal year receipts for the same period. The 45.1% increase is due to timing of individual
hotel receipts and does not reflect the true economic performance. This revenue is at an
economic crossroad. In July and September, there were growth of 8.6% and 5.3%, respectively,
but in August, receipts declined by 2.5%: over the prior fiscal year’s actual receipts. As of
writing of this report, 1st quarter revenue is $7.1 million, an increase of $0.3 million, or 3.8%,
higher the prior fiscal year. Without considering inflation, the FY 2025 adopted budget of $27.9
million is higher than the FY 2019 pre-pandemic actuals of $25.6 million by $2.2 million or 8.6%.
The FY 2024 had similar level or $2.3 million or 9% growth over the prior years. The revised
forecast is expecting a flattening of this revenue.
st quarter of FY 2025, hotels average daily room and occupancy rates are $238.76
per day and 70.2%, respectively, a 2.5% increase in average daily room and 10.8% decrease in
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occupancy rates over the same period of the prior fiscal year. In comparison, the five- and ten-
year annual compound annual growth rate on actual receipts was 1.6% and 8.5%, respectively.
Documentary transfer tax cash receipts for two and half month total $1.5 million, or 20.6% of
the FY 2025 adjusted budget and is $0.1 million, or 9.6%, increase than prior year receipts for
the same period due to the higher total property sales value. The number of transactions is
2.0% higher compared to prior fiscal year first quarter. This revenue source is volatile, it is
highly dependent on sales volume and the mix of commercial and residential sales. Staff
continues to monitor these receipts closely due to significant fluctuations that can occur
anytime depending on the real estate sales activity. The budgeted amount of $7.3 million,
which is 3.5% higher than the actual receipts of the prior year, is still expected to be realized.
Utility User Tax (UUT) revenue total $4.5 million, or 22.5% of the FY 2025 adjusted budget and
is $0.9 million, or 4.9% than the prior year’s actuals. This is $0.6 million, or 15.7%, higher than
the prior fiscal year’s receipts due to rate increases and strong telephone UUT. This trend has
led to revising the budgeted forecast to $20.6 million, $0.7 million or 3.5% higher than the current
budget. The revised forecast is 8.4% higher than the prior year’s actual receipts.
Business Tax revenue in the 1st quarter of the fiscal year is a nominal amount as business are
required to file business tax quarterly but it is due the first day of the following quarter
(October 1st) and is delinquent 30 days later. FY 2025 Adjusted Budget includes $4.8 million for
business tax revenue. The tax became effective in January 2023, with the rate through January
2025 being half of the full rate, or 3.75 cents per square foot per month. The full rate will be
assessed starting January 2025 at 7.5 cents per square foot per month. The tax has an annual
cap of $0.5 million per business and both the rate and the cap are increased by 2.5% annually
beginning FY 2027.
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Expenditure Highlights for 1st Quarter FY 2025
The following highlights the City’s expenditures by function for the 1st quarter, excluding
encumbrances, compared to the same quarter in prior year. Each quarter’s expense is
expressed as a percentage of the Adjusted Budget for each year.
For the 1st quarter of the fiscal year, total expenses increased by $9.8 million, or 17.9%, compared
to the same quarter prior fiscal year, aligning with total budget at 22.9%. This increase is primarily
due to higher salaries and benefits costs, including pension and medical expenses; a 4.0% cost of
living adjustment for all labor groups (effective July 1, 2024), flexible compensation options; rising
health costs; and the addition of new positions.
Attachment A shows total expenses, including encumbrances for the 1st quarter are 33.4% of the
adjusted budget. Most departments exceed 25% due to purchase orders that cover the entire
year (i.e., landscape maintenance, contract services, consultant fees and others). It is the City’s
practice to encumber budget funds for the fiscal year, allowing invoices to be drawn down, or
paid against these encumbrances.
Community Services expenditures increased $2.0 million, or 24.4%, due mainly due to salaries
and benefits ($0.8 million increase) and contract services ($1.1 million increase). Most of the
contract services increases are as follows:
•Golf course fee contract services are higher by $0.8 million due to the timing of invoice
payments for the golf course management; prior fiscal year was delayed until the 2nd
quarter.
•Landscape maintenance due to additional sites and services on weekends, increase in
required minimum staffing level and higher material, and labor cost.
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•Animal service provider cost.
Public Works expenditures increased $1.1 million, or 23.6%, primarily due to salaries and
benefits ($0.4 million increase) and contract services ($0.6 million). The increases of contract
services are due to higher janitorial service contact and consultant fees. The increase in
janitorial service contract, effective December 2023, was due to new higher wage and benefits
standards, and additional City facilities and service frequency at some facilities. Consultant fees
increase is due to the Sustainability Climate Action Plan (S/CAP) Funding Study.
Police and Fire accounted for 46.7% of total General Fund expenditures in the 1st quarter,
consistent with the prior year.
The following highlights Police and Fire salaries and overtime for the 1st quarter.
Table 3
Police overtime is 40.2% higher than the prior fiscal year and 96.2% of adjusted budget. In the
first quarter of FY 2025, the Department had 7 vacancies out of 142 full-time positions: one
Lieutenant, three Dispatchers, one Records staff, and two Police Officers. Of the 76 filled
PAPOA positions, 10 (13%) were in training, 10 (13%) were on long-term leave and 56 (74%)
were available for duty.
Currently, eight officers focus to investigations, three to traffic enforcement, two to personnel
and training, two to special problems and one on Psychiatric Emergency Response Team,
leaving 40 police officers available for patrol. These officers respond to approximately 110 calls
daily, conduct enforcement stops and participate in community outreach. The Department
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operates five patrol teams, each with four to five members. Most overtime is attributed to
filling police positions to address staffing gaps from vacancies or absences and to respond to
sporadic increases in demand such as major accidents. The Department will continue to
monitor overtime and any impact on budget appropriation including additional overtime
incurred in alignment with the recent retail theft grant activities. An analysis is included in
Attachment B.
Fire overtime is 60.4% higher than the same period in prior year and 63.1% of the adjusted
budget. Department overtime were incurred due to backfilling vacancies on shift. The
department current deployment model requires 24 positions daily for Fire Engines and
Ambulances to operate fully. Any vacancy must be backfilled to maintain operational readiness.
Vacancies can arise from several factors, including unfilled positions, employees on injury leave,
new hires still in training and not yet off probation, or those on vacation or other leaves of
absence. In FY 2025 Q1, with 10 vacant positions and three employees on injury leave, overtime
levels remained high as we needed to fill these positions daily. An analysis is included in
Attachment B.
General Fund Budget Stabilization Reserve (BSR) Balance
Based on information reported in the FY 2024 Annual Comprehensive Financial Report (ACFR),
the City’s current General Fund Budget BSR ended FY 2024 at $65.9 million; after adjusting the
BSR for FY 2025 uses approved by Council1 in the amount of $2.6 million, the net BSR balance
was $63.3 million, or $8.9 million above Council’s 18.5% BSR target level. By policy, the City
maintains a BSR balance of 15-20% of the annual operating expense, with a target level of
18.5%. The $8.9 million is comprised of $7.9 million or 1.5% budget variance in comparison to
total FY 2024 actual General Fund revenues and expenditures, which is well within acceptable
standard deviation given the complexity, size and fluctuation of the General Fund, and an
additional $1 million due to an isolated misclassification of prior reappropriation, which staff
discovered in the year-end close reconciliation. Staff recommends that the $8.9 million above
the 18.5% BSR target level be allocated between the Capital Fund Infrastructure Reserve (IR)
($3.0 million) and Budget Uncertainty Reserve ($5.9 million). The budget actions to allocate the
BSR funds above the 18.5% target level will be included in the FY 2025 Mid-Year Review
(February 2025).
1 City Council Meeting, June 17 2024, Staff Report 2406-3140: https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=82926
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Enterprise Funds
The following is a summary of changes in net position for each of the Enterprise Funds for the
three months ending September 30, 2024, along with a comparison to the same period last
fiscal year.
Table 4
increased $1.3 million, or 37.7%, from prior year fiscal year, due to an increase in
operating revenues primarily from customer sales, which was partially offset by an increase in
operating expenses. The increase in customer sales resulted from 9.5% overall rate increase for
residential and commercial customers, effective July 1, 2024, and higher consumption. Operating
expenses have increased, driven by higher commodity costs. The wholesale commodity rate
from San Francisco Public Utilities Commission (SFPUC) increased from $5.21 to $5.67 per CCF,
reflecting a 9.0% increase.
increased by $10.0 million, or 123.0%, from prior fiscal year, due to increase in
operating revenues, from a new data center, customer sales and resource adequacy sales, and
decrease in operating. The expense decrease is driven by lower joint agency service payment to
Northern California Power Agency (NCPA) due to lower debt service costs of the Calaveras
hydroelectric project, and lower transmission costs and commodity expense due to higher-than-
expected hydro generation. The increase in customer sales revenue is due to rate increases
effective July 1, 2024, and higher commercial usage. The rate changes were based on the electric
cost of service study including higher demand rates due to rising local capacity costs. While the
increase in resource adequacy capacity sales is due to favorable market conditions.
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Wastewater Collection Fund increased by $0.9 million, or 1714.5% from prior year due to an
increase in operating revenue primarily from customer sales and from connection fees. The
increase in customer sales resulted primarily from 15.0% overall rate increase for residential
and commercial customers, effective July 1, 2024. The rate increase allows the highest priority
sewer mains to be replaced while allowing the reserves to gradually replenish before the next
major project.
Wastewater Treatment Fund increased $1.3 million, or 24.2%, from the prior fiscal year
primarily due to revenue increase from the partner agencies. The revenue increases can be
attributed to various factors, including higher operating and maintenance expenses, increased
salary and benefit costs, elevated permitting fees, and rising contract costs. This fund recovers
its increased expenses from partner agencies including the Wastewater Collection Fund. The
partner agencies cover these expenses either quarterly or annually, depending on the specific
agency per the agreement terms. The billing is based on the FY2025 adopted budget, the
previous year's sewage flow, and the existing partner debt service. Any excess or underbilling
(adopted budget vs. actual expenses) is calculated at the end of the fiscal year, and then an
additional cost or credit is provided based on the results of this calculation.
Airport Fund decreased $0.9 million, or 123.9%, mainly due to decrease in federal grants.
Federal grants from the Federal Aviation Administration for the Apron Reconstruction (AP-
16000) have been fully utilized in FY 2024 and for the Airport Layout Plan (AP-21000) is nearing
to its end, remaining 20% of the grant is to be received in current fiscal year.
FISCAL/RESOURCE IMPACT
STAKEHOLDER ENGAGEMENT
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ENVIRONMENTAL REVIEW
ATTACHMENTS
APPROVED BY:
11/14/20248:15 AM
CITY OF PALO ALTO
GENERAL FUND FIRST QUARTER FINANCIAL REPORT
FISCAL YEAR ENDING JUNE 30, 2025
(in thousands)
BUDGET ACTUALS (as of 9/30/2024)
Adopted Adjusted Pre % of Adj
Revenues & Other Sources
Sales Tax 39,577 39,577 - - 2,585 6.5%
Property Tax 68,623 68,623 - - 94 0.1%
Transient Occupancy Tax 27,857 27,857 - - 3,950 14.2%
Documentary Transfer Tax 7,260 7,260 - - 1,499 20.7%
Utility Users Tax 19,943 19,943 - - 4,486 22.5%
Other Taxes and Fines 1,757 1,757 - - 173 9.9%
Charges for Services 38,507 38,637 - - 6,169 16.0%
Permits & Licenses 10,813 10,813 - - 2,803 25.9%
Return on Investment 3,264 3,264 - - 905 27.7%
Rental Income 16,367 16,367 - - 3,687 22.5%
From Other Agencies 3,725 3,725 - - 749 20.1%
Charges To Other Funds 15,096 15,096 - - 3,811 25.2%
Other Revenues 781 930 - - 78 8.4%
Total Revenues 258,333 258,612 - - 31,009 12.0%
Operating Transfers-In 29,148 29,148 - - 7,287 25.0%
Encumbrances and Reappropriation 16,093 28,510 - - - 0.0%
Contribution from Development Services Reserves 682 682 - - - 0.0%
Total Sources of Funds 304,256 316,952 - - 38,296 13.3%
Expenditures & Other Uses
City Attorney 5,023 5,576 - 775 834 28.9%
City Auditor 990 1,908 0 1,635 0 85.7%
City Clerk 1,443 1,540 15 199 339 35.8%
City Council 512 551 0 115 95 38.1%
City Manager 5,592 5,807 30 194 1,506 29.8%
Administrative Services 11,967 12,154 13 499 2,843 27.6%
Community Services 41,159 42,300 248 8,773 10,136 45.3%
Fire 55,008 55,441 55 625 14,550 27.5%
Human Resources 5,509 5,660 47 133 1,365 27.3%
Library 12,528 12,840 218 688 3,230 32.2%
Office of Emergency Services 1,728 2,091 - 325 403 34.8%
Office of Transporation 4,304 4,810 1,200 338 801 48.6%
Planning and Development Services 24,327 29,009 0 4,416 5,425 33.9%
Police 55,812 56,365 75 1,317 15,500 30.0%
Public Works 24,856 27,190 5,286 1,764 5,977 47.9%
Non-Departmental 17,265 17,475 110 449 1,306 10.7%
Total Expenditures 268,021 280,716 7,298 22,245 64,310 33.4%
Operating Transfers-Out 6,314 6,314 - - 1,578 25.0%
Transfer to Infrastructure 32,526 32,526 - - 8,131 25.0%
Total Use of Funds 306,861 319,556 7,298 22,245 74,019 32.4%
Net Change to BSR (2,605)(2,604)(35,723)
BSR Balance, FY 2024 65,936 65,936 559 diff
breakdown
BSR Balance, FY2025 63,331 63,332
BSR % of Adopted Total Use of Funds 21.5%21.5%
ATTACHMENT A
Attachment D
2023 2024 2025 Q1
POLICE DEPARTMENT
Overtime Expense
Adopted Budget (A)$972,512 $1,028,988 $1,098,939
Modified Budget (B)972,512 1,028,988 1,098,939
Net Overtime Cost - see below 1,107,518 1,160,290 487,967
Variance to Budget (135,006) (131,303) 610,972
Overtime Net Cost
Actual Expense $2,940,019 $3,467,691 $1,057,188
Less Reimbursements
Other Program Reimbursements 878 259,747 228,000
California OES/FEMA (Strike Teams) - - -
Stanford Communications 124,868 99,161 24,373
Utilities Communications Reimbursement 64,599 56,429 14,844
Local Agencies (C)4,949 6,574 1,776
Police Service Fees 100,413 117,433 30,462
Total Reimbursements 295,707 539,345 299,455
Less Department Vacancies (A)1,536,794 1,768,057 269,766
Net Overtime Cost $1,107,518 $1,160,290 $487,967
Department Vacancies (number of days)4,876 5,419 838
Workers' Compensation Cases 23 24 4
Department Disabilities (number of days)739 625 220
FIRE DEPARTMENT
Overtime Expense
Adopted Budget (D)$2,124,054 $2,146,234 $2,721,066
Modified Budget (E)3,801,054 2,146,234 2,721,066
Net Overtime Cost - see below 1,740,750 1,734,841 1,252,437
Variance to Budget 2,060,304 411,393 1,468,629
Overtime Net Cost
Actual Expense $3,589,198 $4,099,233 $1,716,248
Less Reimbursements
California OES/FEMA (Strike Teams) 341,629 - -
Total Reimbursements 341,629 - -
Less Department Vacancies (D)1,506,819 2,364,392 463,810
Net Overtime Cost $1,740,750 $1,734,841 $1,252,437
Department Vacancies (number of days)4,105 5,297 1,062
Workers' Compensation Cases 32 9 6
Department Disabilities (number of days)484 389 85
NOTES:
(A)The FY 2025 Police Department budget was increased by 1.0 Police Lieutenant.
(B)Police Department adopted budget has not been adjusted in FY 2025.
(C)Includes Animal Control Services contract with Los Altos and Los Altos Hills.
(D)The FY 2025 Fire Department budget was increased by 3.0 Fire Fighters.
(E)The Fire Department adopted budget has not been adjusted in FY 2025.
Public Safety Departments
Overtime Analysis for Fiscal Years 2023 through 2025