HomeMy WebLinkAboutStaff Report 2307-1774CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Monday, January 22, 2024
Council Chambers & Hybrid
5:30 PM
Agenda Item
15.First Quarter Fiscal Year 2024 Financial Status Report
City Council
Staff Report
From: City Manager
Report Type: INFORMATIONAL REPORT
Lead Department: Administrative Services
Meeting Date: January 22, 2024
Report #:2307-1774
TITLE
First Quarter Fiscal Year 2024 Financial Status Report
RECOMMENDATION
This report is informational and does not require an action by the City Council.
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) 2024 (July 1, 2023 through September 30, 2023). The figures presented here are
unaudited.
For the 1st quarter, General Fund revenues totaled $28.4 million, 8.2% lower than the same
period of the prior year. Expenditures totaled $54.5 million, 14.9% higher that than prior year
and are tracking at 19.4% of Adjusted Budget, comparable to prior year trend.
All Enterprise Funds, except Gas Fund, resulted to a positive change in net position. The total
change in position increased by $4.6 million, or 26.1%, 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, 2023 of Fiscal Year (FY) 2024 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 2024 Adopted Budget through September 30. Encumbrances and actual
expenses for the three-month period are also reported.
ANALYSIS
GENERAL FUND
As of September 30, 2023, General Fund expenditures ($54.5 million) exceeds the revenue
receipts ($28.4 million). First quarter General Fund receipts are not indicative of the annual
expected receipts in FY 2024 due to timing of major revenues received over the fiscal year.
Revenues and expenditures are tracking within the FY2024 adjusted budget.
General Fund revenues (excluding operating transfers) for the 1st quarter are $28.4 million, or
11.7% of the current year Adjusted Budget. Actual revenues totaled $28.4 million, 8.2% or $2.5
million lower than the same period of the prior year. Major taxes increased slightly compared
to the same period of prior fiscal year driven primarily by Utility Users Tax revenue. As
discussed in the Long-Range Financial Forecast1, while the economy is currently not trending
into recessionary period that was predicted for the past several quarters, first quarterly results
indicate a stagnant economy or modest growth.
For the 1st quarter, General Fund expenses totaled $54.5 million, $7.1million or 14.9% higher
than the prior year and tracking at 19.4% of Adjusted Budget, 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 2024
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 year. Revenue for each period is
expressed as a percentage of the Adjusted Budget.
1 Finance Committee, December 5, 2023, Item #1:
https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=64163
Table 1
in the 1 st 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. FY 2023 actual property tax revenue was $63.1 million, $2.9
million or 4.7% higher than the FY 2023 adjusted budget and $3.8 million or 6.4% over the prior
fiscal year. The increase is primarily driven by change in assessed values due to ownership
change in FY 2022 and FY 2023 plus the 2% Proposition 13 overall annual increase.
Excess Educational Revenue Augmentation Fund (ERAF) distributions from the County of Santa
Clara in fiscal years 2021, 2022, and 2023 receipts were $5.6 million, $6.6 million, and $6.4
million, respectively. In FY 2023, the reserve for Excess ERAF, representing the at-risk amount
related to the State Controller’s Office auditing finding on Marin County, totaled $4.1 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 it is not known if this will be elevated to a court case. The estimate
is, if this audit finding is sustained, 22% of excess ERAF is at risk for fiscal years 2021, 2022, and
2023. If the finding holds, the County of Santa Clara, as well as other Excess ERAF counties,
could face similar audit findings likely starting in FY 2025. This reserve is consistent with prior
year methodology of assumptions for this challenge.
The FY 2024 updated forecast is $64.7 million, $1.6 million or 2.5% higher than the prior year’s
actual revenue. This is $0.9 million higher than the budgeted amount of $63.8 million and has
been reduced by $1.5 million for the on-going FY 2024 Excess ERAF audit at-risk .9amount.
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Without this reduction the forecasted amount would have been a $3.1 million, or 4.9%, increase
compared to prior year’s actual revenue.
Sales tax revenue cash receipts totaled $2.5 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 2023 actual sales tax revenue was $36.9 million, $4.2 million
or 12.9% higher than FY 2022, due to a combination of continued pandemic recovery, robust
consumer spending and inflation.
Transient occupancy tax (TOT) revenue of $2.7 million represents about one and half month of
collections which about equal the same period for last fiscal year. As of writing of this report, 1st
quarter revenue is $6.8 million, similar to the prior year trend. Data for October 2023 (as of the
writing of this report) indicates an upward trend of approximately 15% compared to the same
period of last fiscal year. The FY 2024 adopted budget of $26.8 million is a higher than the FY
2019 pre-pandemic actuals of $25.6 million. With TOT revenue remaining stagnant in the 1st
quarter, then experiencing 15% growth in October 2023, staff is continuing to monitor 2nd
quarter results to determine whether or not this growth trend will continue or flatten.
st quarter of FY2024, hotels average daily room and occupancy rates are $234.50
per day and 68.9%, respectively. A 11.2% increase in average daily room and 9% increase in
occupancy rates over the same period of the prior fiscal year. As of October 2023, the average
daily room and occupancy rates percentage of individual hotels are averaging approximately
$244.59 and 70.3%, respectively.
Documentary transfer tax cash receipts for two and half months total $1.4 million, or 23.1% of
the FY 2024 adjusted budget and is $0.2 million, or 13.3%, increase than prior year receipts for
the same period due to the higher total property sales value. The number of transactions is
11.6% 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. 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 $5.9 million, which is 2.9% higher
than the actual receipts of the prior year, is still expected to be realized.
Permits and Licenses revenue increased by $0.8 million, or 45.8%, from the same quarter last
year primarily due to an in increase in new construction permit revenue.
All other revenue sources cash receipts for the 1st quarter have decreased $3.9 million or
30.9%, from the same period of last year primarily due to the American Rescue Plan Act (ARPA)
allocation which was received in full in FY2023.
st quarter.
Expense Highlights for 1st Quarter FY 2024
st quarter, compared to the
same quarter in prior year. Each quarter’s expense is expressed as a percentage of the
Adjusted Budget for each year.
Table 2
st quarter of the fiscal year, total expenses increased $7.1 million, or 14.9%, compared
to the same quarter prior year and are trending in line with total budget at 19.4%. The increase
is driven by salaries and benefits increases that include pension and medical expenses; the 4.0%
cost of living adjustment wage increase for all labor groups (effective July 1, 2023); management
market adjustments aligned with benchmark studies (effective December 31, 2022), flexible
compensation to allow employee choice in health and other benefit options, and addition of new
positions. Staff continues to work on filling vacant positions while the City maintains a high
vacancy level which is expected to generate savings in FY 2024.
st quarter are 25.8% of the
adjusted budget. Some of the departments are higher than 25% due to some purchase orders
that cover the entire year (i.e., landscape maintenance, contract services, consultant fees and
E F F I %F %F %
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1 A
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.
st quarter,
which is 13.1% higher compared to the prior year. The following highlights Police and Fire
salaries and overtime for the 1st quarter.
Table 3
Police overtime is 1.9% higher than the prior year and 73.3% of adjusted budget due to the
following:
•Backfilling 13% vacancies: 12 police officers, 1 community service officer, 4 dispatchers
and 1 administrative associate.
•6% of staff are unavailable to work due to benefited leaves or industrial injuries.
•13% of filled recruits are in training, in-house or at the police academy.
Fire salaries is 18.5% higher than the same period in prior year due to management market rate
adjustment, 4.0% cost of living adjustment wage increase effective July 1, 2023, and training a
significant number of entry level firefighters to fill vacancies on shift.
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1 A
Fire overtime is 19.3% higher than the same period in prior year and 59.5% of adjusted budget
due to backfilling entry level firefighters while completing Joint Fire Academy and vacancies. In
the spring of 2023, the Department hired total of 13 entry level firefighters which accounts for
16% of all on-shift personnel positions. Although the positions are filled, those 13 recruits must
complete a 6-month academy before being able to work on shift. In August 2023, the 13-entry
level firefighters graduated from the academy and are now working on shift.
The Department continuous to struggle to fill vacancies, as of writing of this report, the
Department is still carrying 12 vacancies among the International Association of Fire Fighters
(IAFF)ranks. The overtime hours will remain high as backfill is required to maintain daily
operations with a high vacancy rate.
On a combined basis, salaries and overtime are 26.7 % of the budget through the 1st quarter of
the fiscal year. The Department’s net overtime cost is $1.0 million after deducting the
reimbursements and salary savings due to vacancies. Analysis is included in Attachment B.
General Fund Budget Stabilization Reserve (BSR) Balance
Based on information reported in the FY 2023 Annual Comprehensive Financial Report (ACFR)2,
the City’s current General Fund Budget BSR ended FY 2023 at $61.5 million; after adjusting the
BSR for FY 2024 uses approved by Council through September 2023, the net BSR balance was
$57.9 million. When accounting for uses through December 2023, the net BSR balance is $57.3
million, $3.4 million above Council’s 20% 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%. However, in
development of the FY 2024 budget, the Council adopted the BSR at the 20% level ($53.9
million) to mitigate risk due to economic uncertainty. In alignment with Council policy, staff
recommends that the $3.4 million excess is split between the Capital Fund Infrastructure
Reserve (IR) and the Section 114 Pension Trust fund ($1.7 million each). Staff anticipates
returning to Council in February 2024 with the FY 2024 Mid-Year Review and recommendations
in alignment with the allocation below for the appropriation of BSR funds above the 20.0%
level.
Enterprise Funds
Following is a summary of changes in net position for each of the Enterprise Funds for the
three months ending September 30, 2023, including a comparison of results from the same
period last year.
2 11/28/2023 CMR# 2308-1857 Finance Committee Staff Report, Approval of the FY 2023 ACFR YE Budget
Amendments, and Resolution to Extend and Amend the Development and Services Reserve Fund Policy
https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=64203
Table 4
Electric Fund increased $5.9 million, or 261.0%, from prior year, due to overall increase in
operating revenues mainly from customer sales and surplus energy sales partially offset by
increase in operating expenses. The 20% increase in base rate effective July 1, 2023 and surplus
energy sales from favorable hydroelectric generation , resulted in a $7.0 million increase in
revenues despite the deactivation of the Electric Hydro Adjuster (E-HRA).The deactivation of E-
HRA is made possible due to receipt of a $23.9 million refund from the Bureau of Reclamation of
overcharges associated with the Central Valley Project, where the City gets most of its
hydroelectric power. The refund is a result of a successful litigation the City participated in
against the Bureau. The increase in operating expenses is driven by higher transmission costs as
well as salaries and benefits.
Fiber Optics Fund increased by $0.5 million, or 238.6% from prior year due to the timing of
Stanford University’s projects billing.
Gas Fund decreased by $0.8 million, or 218.4% from the same period due to decrease in
revenue from customer sales and loss on disposal of fixed assets partially offset by lower
commodity purchases. The customer sales decreased by $0.7 million primarily due to decrease
of natural gas price. The gas distribution rate increased 8% effective July 1, 2023 but the system
average rate decreased by 10.4% due to decrease in natural gas market prices which are pass-
through in nature. Gas commodity prices decreased due to milder temperatures that
diminished demand for heating and an above-average level of gas storage. During the current
fiscal year there are disposals or early retirement of gas meters resulting in a $0.4 million
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loss. Majority of the retired gas meters were due to incompatibility with the new advanced
metering infrastructure or smart meter endpoints.
Wastewater Treatment Fund decreased by $1.6 million, or 22.6 % from the same period mainly
due to the timing of the CA State Water Resources Control Board reimbursements for the
Primary Sedimentation Tanks (PST) and Secondary Treatment Upgrades (STU) projects. These
reimbursements will be subsequently adjusted to a liability as the City is expected to repay the
loans following the completion of each project.
Airport Fund increased by $0.8 million mainly due to a $0.7 million increase in federal grants
for Federal Aviation Administration for projects Apron Reconstruction (AP-16000) and Airport
Layout Plan (AP-21000).
FISCAL/RESOURCE IMPACT
STAKEHOLDER ENGAGEMENT
ENVIRONMENTAL REVIEW
ATTACHMENTS
APPROVED BY:
1/8/20249:20 AM
CITY OF PALO ALTO
GENERAL FUND FIRST QUARTER FINANCIAL REPORT
FISCAL YEAR ENDING JUNE 30, 2024
(in thousands)
BUDGET ACTUALS (as of 9/30/2023)
Adopted Adjusted Pre % of Adj
Revenues & Other Sources
Sales Tax 36,272 36,272 - - 2,548 7.0%
Property Tax 63,785 63,785 - - 85 0.1%
Transient Occupancy Tax 26,834 26,834 - - 2,723 10.1%
Documentary Transfer Tax 5,920 5,920 - - 1,368 23.1%
Utility Users Tax 18,457 18,457 - - 3,876 21.0%
Other Taxes and Fines 3,417 3,417 - - 240 7.0%
Charges for Services 35,131 35,131 - - 6,462 18.4%
Permits & Licenses 10,151 10,256 - - 2,597 25.3%
Return on Investment 1,846 1,846 - - 204 11.1%
Rental Income 15,858 15,858 - - 3,910 24.7%
From Other Agencies 3,333 8,133 - - 312 3.8%
Charges To Other Funds 15,496 15,496 - - 3,901 25.2%
Other Revenues 636 1,713 - - 174 10.1%
Total Revenues 237,136 243,117 - - 28,400 11.7%
Operating Transfers-In 23,932 23,932 - - 5,983 25.0%
Encumbrances and Reappropriation 15,000 43,471 - - - 0.0%
Contribution from Development Services Reserves 1,084 1,084 - - - 0.0%
Total Sources of Funds 277,152 311,604 - - 34,383 12.9%
Expenditures & Other Uses
City Attorney 4,668 5,287 20 763 1,031 34.3%
City Auditor 986 1,692 0 843 19 51.0%
City Clerk 1,491 1,641 50 170 276 30.2%
City Council 439 541 3 81 126 38.8%
City Manager 4,715 4,823 254 144 1,088 30.8%
Administrative Services 11,099 11,250 44 371 2,423 25.2%
Community Services 38,224 39,853 1,006 3,737 8,145 32.3%
Fire 46,761 47,464 96 589 12,513 27.8%
Human Resources 4,747 5,280 25 275 1,036 25.3%
Library 12,138 12,599 105 598 2,602 26.2%
Office of Emergency Services 1,576 1,981 55 247 275 29.1%
Office of Transporation 2,704 5,207 - 1,787 638 46.6%
Planning and Development Services 26,055 30,049 13 2,263 5,054 24.4%
Police 51,764 52,241 403 727 13,309 27.6%
Public Works 23,668 25,563 118 1,793 4,834 26.4%
Non-Departmental 14,893 35,079 45 1,166 1,170 6.8%
Total Expenditures 245,928 280,549 2,238 15,555 54,538 25.8%
Operating Transfers-Out 5,042 5,042 - - 1,261 25.0%
Transfer to Infrastructure 28,538 28,538 - - 7,134 25.0%
Total Use of Funds 279,508 314,129 2,238 15,555 62,933 25.7%
Net Change to BSR (2,356)(2,525)(28,550)
Budget Amendments in the General Fund Authorized by Council thru 9/30/2023 (28,996)
Crossing Guard Services Contract (8/7/2023)CMR#2307-1797 (169) 446 diff
breakdown
Total Budget Amendments Authorized by Council - (169)
BSR Balance 57,649 57,480
BSR % of Adopted Total Use of Funds 20.6%20.6%
Attachment A
Attachment B
2022 2023 2024 Q1
POLICE DEPARTMENT
Overtime Expense
Adopted Budget (A)$944,186 $972,512 $1,028,988
Modified Budget (B)1,244,186 972,512 1,028,988
Net Overtime Cost - see below 781,344 1,108,396 420,253
Variance to Budget 462,842 (135,884) 608,735
Overtime Net Cost
Actual Expense $2,319,043 $2,940,019 $754,265
Less Reimbursements
Other Program Reimbursements - 878 -
California OES/FEMA (Strike Teams)- - -
Stanford Communications 107,684 124,868 26,426
Utilities Communications Reimbursement 56,004 64,599 14,162
Local Agencies (C)5,456 4,949 2,104
Police Service Fees 120,411 100,413 19,223
Total Reimbursements 289,556 294,829 61,915
Less Department Vacancies (A)1,248,143 1,536,794 272,096
Net Overtime Cost $781,344 $1,108,396 $420,253
Department Vacancies (number of days)3,903 4,876 828
Workers' Compensation Cases (F)11
Department Disabilities (number of days)1,221 750 267
FIRE DEPARTMENT
Overtime Expense
Adopted Budget (D)$1,931,121 $2,124,054 $2,146,234
Modified Budget (E)2,703,621 3,801,054 2,146,234
Net Overtime Cost - see below 4,073,011 1,740,750 953,074
Variance to Budget (1,369,390) 2,060,304 1,193,160
Overtime Net Cost
Actual Expense $4,684,796 $3,589,198 $1,276,385
Less Reimbursements
California OES/FEMA (Strike Teams) - 341,629 -
Total Reimbursements - 341,629 -
Less Department Vacancies (D)611,784 1,506,819 323,311
Net Overtime Cost $4,073,011 $1,740,750 $953,074
Department Vacancies (number of days)1,717 4,105 617
Workers' Compensation Cases (F)35
Department Disabilities (number of days)947 536 126
NOTES:
(A)The FY 2024 Police Department budget was increased by 1.0 Court Liaison Officer, 1.0 Administrative Associate, 2.0 Public Safety
Dispatchers, and 2.0 Police Officers.
(B)Police Department adopted budget has not been adjusted in FY 2024.
(C)Includes Animal Control Services contract with Los Altos and Los Altos Hills.
(D)The FY 2024 Fire Department budget was increased by 2.0 Fire Inspectors.
(E)The Fire Department adopted budget has not been adjusted in FY 2024.
(F)Not available and will be provided in next quarterly report
Public Safety Departments
Overtime Analysis for Fiscal Years 2022 through 2024