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HomeMy WebLinkAboutStaff Report 430-07HONORABLE CITY COUNCIL ATTENTION:FINANCE COMMITTEE FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:DECEMBER 18, 2007 CMR: 430:07 SUBJECT:FIRST QUARTER FISCAL YEAR 2007-08 FINANCIAL RESULTS This is an informational report and no Council action is required. The purpose of this report is to provide the Council with information on the financial condition of the City’s General Fund (GF) as of the first quarter (July-September) of 2007-08. DISCUSSION The Silicon Valley economy is performing well. Local job growth continues at a 1-2 percent annual rate and technology firms are showing strong bottom lines. This has translated into healthy tax revenues for the City. Recent trends and events in the State and national economies, however, are of concern. Problems in the housing and credit markets continue to worsen, negatively affecting jobs and revenue in other areas of California. Should these trends continue and have an adverse impact on consumer spending, local jurisdictions could experience a leveling or falling off of key, economically sensitive revenue sources. Exhibit A (attached) shows first quarter actual revenues as a percentage of the Adjusted Budget. By the end of the first quarter, the City would normally be expected to receive one quarter or 25 percent of projected revenues. In fact, due to the timing of State and county payments and other seasonal factors, revenues reflected in the City’s General Ledger may not represent a full quarter of activity. It is only when the City closes its books at year-end that revenue performance compared to budget can be realistically assessed. Nevertheless, staff has attempted to describe variances that are at least 5 percentage points below the 25 percent level and to comment on whether budget goals will be met in these categories. Revenue Highlights for First Quarter Fiscal Year 2007-08 Financial Results Sales Tax receipts for the first quarter of fiscal year 2007-08 are 15 percent of budget. This is primarily a consequence of the timing of the State’s quarter cent, "triple flip" biannual payments, which are made in January and June. When the "triple flip" payment is made in January, a more accurate comparison of actual revenue to budget estimate can be made. After correcting for prior year negative adjustments of $314,000, sales taxes for the first quarter of the fiscal year turned in an economic performance that was 1.5 percent or $70,000 better than the first quarter of 2006-07. Without these adjustments, however, receipts were 5.3 percent or CMR:430:07 Page 1 of 4 $250,000 below the first quarter of last fiscal year. At this time, the rate of growth in City sales tax appears to be slowing compared to prior quarters. This possible trend will be monitored carefully. Economic segments displaying strength in the first quarter include electronic equipment and department stores; those showing some weakness include auto and furniture/appliance sales. Property Tax payments from the county essentially begin in October and are fully paid by the first half of the fiscal year in January. As a consequence, receipts during the first quarter are not indicative of future results. Staff projects that property tax receipts will be somewhat higher than the adopted budget and that an adjustment at midyear may be necessary. Transient Occupancy Tax (TOT) receipts reflect activity for the first two months of the quarter. This is due to City requirements on when taxes are to be remitted by hoteliers and is the principal reason for the 16 percent of budget statistic shown in Attachment A. Actual revenues for the first 2 months are 9.3 percent higher than budget and revenues for the month of September are tracking similarly. Occupancy and per diem rates have been moving upward over those in 2006- 07. It is important to note that the strongest TOT months are April, May and June. Staff is optimistic at this time that the $7.0 million target for 2007-08 will be realized. Other Taxes and Fines are below the first quarter 25 percent guideline. The Documentary Transfer Tax represents 62 percent of this revenue source. For the past two years, the volume of sales in the commercial sector has outpaced expectations and residential market transactions remained firm. This revenue source was 4.1 percent below budget in the first quarter but was showing signs of resurgence in October 2007. The transfer tax is a volatile revenue category that is sensitive to transaction volume, the mix of residential and commercial transactions, and the size of individual transactions. This revenue source will be monitored closely given the deep- seated problems in the housing and credit markets. A mid-year budget adjustment may be necessary if revenues do not move upward. Fines and Penalties are also below the first quarter 25 percent guideline. A decrease in parking violation fees is the primary cause for this decline. Two Parking Enforcement Officers (PEO) have been on disability since the beginning of the fiscal year. Without a full staff of PEOs, the anticipated budgeted revenue for the year may not be met. The Police Department is currently working on a PEO hiring plan that is anticipated to minimize the revenue impact in the upcoming quarters. Expense Highlights for First Quarter Fiscal Year 2007-08 Financial Results Expenditures are often cyclical in nature and a department’s commitments could include items for the entire fiscal year. Given this, departments are generally within their expected target range. Excess of Overtime Expenditures to Budget General Fund Overtime Analysis: Attachment B shows total overtime expenditures reaching 54 percent of budget. Although most of the General Fund departments are below their overtime budgets, the Fire, Community Services and Police Departments exceed their budgets for the following reasons: CMR:430:07 Page 2 of 4 DEPARTMENT HEAD APPROVAL: CARL YEATS Director, Administrative Services CITY MANAGER APPROVAL: EMILY HARRISON Assistant City Manager ATTACHMENTS Attachment A: 2007-08, First Quarter Financial Report, General Fund Attachment B: 2007-08, First Quarter General Fund Overtime CMR:430:07 Page 4 of 4