HomeMy WebLinkAboutStaff Report 462-08City of Palo Alto
C .ty Manager’s Report
TO:
ATTENTION:
HONORABLE CITY COUNCIL
FINANCE COMMITTEE
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:
REPORT TYPE:
DECEMBER 16, 2008
DISCUSSION REPORT
CMR: 462:08
SUBJECT:First Quarter Fiscal Year 2009 Financial Results
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 of Fisc.al Year 2009.
DISCUSSION
The U.S. has and continues to deal with its worst financial crisis since the Great Depression. The
economy is faced with a tight credit market, growing unemployment, weak banks, and a severe
housing downturn. Palo Alto’s unemployment rate is 3.5 percent while the nation and the State’s
are 6.7 percent and 8.2 percent, respectively.
Evidence is beginning to emerge in Fiscal Year 2009 that consumer and business confidence is
eroding and that economically sensitive revenue sources such as sales, documentary transfer, and
transient occupancy taxes are at risk. Sales taxes in the City of Palo Alto and surrounding cities
have weakened in recent quarters; hotel days are moving downward slowly; and assessed
property values are growing at a slower rate based on data from the County Assessor’s Office.
Given these trends, Fiscal Year 2009 will present revenue challenges requiring adjustments at
midyear.
Revenue Highlights for First Quarter Fiscal Year 2009
Attachment A (attached) shows first quarter year-to-date actual revenues as a percentage of the
adjusted budget. City revenues fluctuate so that a quarterly comparison will not accurately
reflect year-end totals. In fact, due to seasonal, State and county payment, and other timing
variations, revenues reflected in the City’s General Ledger may not represent a full quarter of
CMR: 462:08 Page
activity. It is only when the City "closes its books" at year-end that 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 the budget
goals will be met in these categories.
Sales Tax receipts for the first quarter of fiscal year 2009 are at 15 percent of budget. A
significant portion of this is a consequence of the timing of the State’s ."triple flip" biannual
payments which are made in January and June. Even after adjusting for the timing difference,
receipts are expected to be below budget for the year. At this time, staff anticipates a midyear,
negative budget adjustment between $1.2 to $1.5 million,
The 2007 fourth and 2008 first quarter results, unadjusted for one-time events, showed 1.7
percent and 3.5 percent declines, respectively. The 2008 second quarter results showed a 5.3
percent or $0.26 million increase over the first quarter of Fiscal Year 2008. Staff believes these
positive results, which are a result of County pool receipts, are one-time in nature and are
unlikely to continue. Department store and auto dealership sales were noticeably weak, while
apparel stores, restaurants, and service stations turned in stronger performances.
t’ropert£ Tax payments from the County essentially begin in October and are fully paid for 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 exceed the adopted
budget and positive adjustments of around $1.3 to $1.6 million at midyear will occur..
Historically, movements in property tax tend to lag sales and TOT performance so any weakness
in these receipts will not appear until fiscal year 2010.
Transient Occupancy Tax ~OT) on taxes on hotel stays revenues for the first quarter of the year
are exceeding prior year levels, primarily due to the TOT rate increasing from 10 percent to 12
percent in January 2008. Evidence is mounting, however, that occupied days are declining. In
the first quarter of fiscal year 2008, occupied days dropped, compared to prior year by 10,305.
Jurisdictions in the San Jose - South Bay area are experiencing similar declines in occupancy
rates.
The attached report shows that 26 percent of budgeted TOT revenues have been co!lected in the
first quarter. This result shows that we are on target as of the first quarter. However, based on
the downward trend in days, staff expects a negative adjustment at midyear estimated at $0.5
million, will be required.
Other Taxes and Fines are well below the first quarter 25 percent guideline. The documentary
transfer tax represents 62 percent of this source and it is nearly 34 percent below budget in the
first quarter as a result of a slowing housing market. The transfer tax, paid upon the sale or
transfer of a residential or commercial property, peaked in fiscal year 2007 and declined by 7.8
percent in fiscal year 2008. Declining property sales and the tightening credit markets have
contributed to declines in this typically robust resource. The transfer tax can be a volatile
revenue category since it is sensitive to transaction volume, the minx of residential and
commercial transactions, and the size of individual transactions. As with other economically
sensitive revenues, a downward mid-year revision of around $1.0 million will be needed.
CMR: 462:08 Page
Permits and Licenses are 17 percent of budget. A decrease in new construction building permits
and internal street cut fees contributed to the decline. Residential permits are down
approximately 20 percent and commercial has decreased by 15 percent. The combination is an
approximate decrease in revenue of $790,000 compared to 2007-08. Also, hazardous materials
permits are not billed until the third quarter and internal street cut fees are not billed until year-
end.
Expense Highlights for First Quarter Fiscal Year 2009
In many areas, expenditures are cyclical in nature and a department’s commitments could
include items for the entire fiscal year. Given the nature of cyclical expenditures and possible
commitments for the entire fiscal year, department budgets, as a whole, are within their expected
target range.
Excess of Overtime Expenditures to Adjusted Budget
General Fund Overtime Analysis:
Attachment B shows total overtime expenditures reaching 45 percent of adjusted budget.
Although most of the General Fund departments are below their overtime budgets, the Fire,
Police, Community Services, Planning and Public Works Departments exceed their budgets for
the following reasons:
The Fire Department is at 59 percent of adopted budget for overtime. The main factors
contributing to overtime usage are sick leave and coverage due to vacations ($274,000),
staffing of Fire Station #8 ($142,000) and Med 1 ($98,000) and the extraordinary length
of deployments for Out-of-County Strike Teams whose time for unscheduled days off are
compensated with overtime ($67,000). A large majority of this outlay will be reimbursed
and reflected in the midyear report.
The Police Department is at 38 percent of the adopted budget for overtime. The main
factors contributing to overtime usage are staffing shortages due to disability leave,
vacancies in patrol and the 9-1-1 dispatch center, and academy and field training
programs ($125,000). Also, overtime was incurred in the investigation of a major
homicide ($75,000); the response and investigation of street robberies ($18,000); and
traffic control services at Stanford Football games and other events ($30,000). The
traffic control services are partially offset by the university and other sponsors. Overtime
usage will be partially offset with salary savings.
The Community Services Department is at 27 percent of the adopted budget for overtime.
Overtime usage was mainly in three program areas. Overtime in the Children’s Theatre
program was mainly due to summer show productions and short staffing. Open Space and
Parks Administration incurred overtime to ensure adequate Ranger coverage within open
space as the operation requires coverage 365 days per year. Overtime is needed for
holidays and for emergencies such as fires and medical calls when staff is held beyond
the end of a shift. Recreation!Aquatics incurred overtime for staffing at special events,
summer camp overnight trips and operating a city pool seven days a week during
summer.
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The Planning Department is at 45 percent of the adopted budget for overtime primarily
due to two factors. One was the required overtime for completion of the Baylands Master
Plan to meet City Council direction for plan completion by fall 2008. Secondly, overtime
for the Commute Coordinator to develop the Fiscal Year 2009 work program and work
with school groups prior to school opening in September. The Commute Coordinator
position was previously a Management position but was converted to a Union position in
Fiscal Year 2008, resulting in the need to pay overtime. The position is half-time.
However, the work demands fluctuate with increased workload at certain periods of the
year.
The Public Works Department is at 31 percent of the adopted budget for overtime. The
main factors contributing to overtime use were normal standby time, emergency call-
outs, and weekend tree cutting.
Staff will continue to monitor overtime expenditures in the context of overall expenditures and
make appropriate adjustments as necessary at midyear.
W~ith the Police and Fire Departments removed from the overtime analysis, General Fund
overtime expenditures are at 28 percent of the adjusted budget as of the first quarter.
ENVIRONMENTAL REVIEW
This is not a project for the purposes of the California Environmental Quality Act.
PREPARED BY:
ALLEN LEE
Senior Accountant, Administrative Svcs.
TARUN NARAYAN
Senior Financial Analyst, Administrative Svcs.
CMR: 462:08 Page 4 of 5
DEPARTMENT HEAD APPROVAL:
LALO PEREZ
Director, Administrative Services
CITY MANAGER APPROVAL:
KEENE
City Manager
ATTACHMENTS
Attachment A: Fiscal Year 2009, First Quarter Financial Report, General Fund
Attachment B: Fiscal Year 2009, First Quarter General Fund Overtime
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Attachment A
CITY OF PALO ALTO
2009 Q1 FINANCIAL REPORT
GENERAL FUND
(in thousands of dollars)
~BUDGET
ili i 1111
Revenues & Other Sources
Sales Tax
Property Tax
Transient Occupancy Tax
Utility Users Tax
Other Taxes and Fines
Charges for Services
Permits & Licenses
Return on Investment
Rental Income
From Other Agencies
Charges To Other Funds
Other Revenues
Total Revenues
22,402 22,40:
23,510 23,51~
8,424 8,42,
10,783 10,78:
8,816 8,81~
20,849 20,84~
5,767 5,761
2,348 2,34,
13,426 13,421
86
10,952 10,95:
1,531 1,53
128,894 128,894
Operating Transfers-In 17,677 17,677
Encumbrances and Reappropriation 4,46(;
Total Sources of Funds 146,571 151,031
Expenditures & Other Uses
City Attorney 2,778 3,722
City Auditor 931 1,062
City Clerk 1,260 1,347
City Council 315 378
City Manager 2,231 2,648
Administrative Services 7,153 7,64(3
Community Services 21,600 22,388
Fire 24,260 24,712
Human Resources 2,822 3,088
Library 6,570 6,855
Planning and Community Environment 10,419 11,037
Police 29,831 30,333
Public Works 13,859 14,307
Non-Departmental 7,980 6,970
Total Expenditures 132,009 136,481~
Operating Transfers-Out 13,300 16,737
Total Uses of Funds 145,309 153,217
Net Surplus (Deficit)1,262 (2,186
Beginning Reserves 25,176 26,102
Projected Ending Reserves 26,438 23,916
* Excludes encumbrances, reappropriation and infrastructure reserve
A CTUALS (three months ended 9-30-08)
-3,356 15%
-112 0%
-2,172 26%
-3,197 30%
-1,690 19%
-4,937 24%
-955 ~ 7 °,/o
-566 24%
-3,592 27%
-29 34%
-2,680 24%
-604 39%
-23,890 19%
-4,395 25%
-28,285 19%
5 803 835 44%
,114 207 30%
47 41 279 27%
29 94 33%
185 126 706 38%
36 331 2,199 34%
54 3,168 6,973 46%
62 352 7,033 30%
108 101 846 34%
323 134 1,822 33%
389 1,197 3,022 42%
18 686 8,041 29%
78 1,056 3,615 33%
230 1,784 29%
1,5351 8,1381 37,4561 35%
4,174 25%
Attachment B
CITY OF PALO ALTO
2009 Q1 FINANCIAL REPORT
GENERAL FUND OVERTIME
(in thousands of dollars)
ACTUALS (three monhs ended 9-30-08)
City Attorney -0%
City Auditor -0%
City Clerk 7 7 -0%
City Council -0%
City Manager 3 3 -0%
Administrative Services 45 45 6 13%
Community Services 185 185 50 27%
Library 58 58 13 22%
Fire 1018 1018 604 59%
Human Resources 4 4 -0%
Planning and Community Environment 66 66 30 45%
Police _1000 1000 380 38%
Public Works 112 112 35 31%
Total Overtime 2,498 2,498 --1,118 45%