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HomeMy WebLinkAbout14 MID-YR BUDGET RVW 02-20-96;., e E N DA------' DATE: February 14, 1996 NO. 14 2-20-96 Inter-Com TO: FROM: SUBJECT: HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL WILLIAM A. HUSTON, CITY MANAGER 1995-96 MID-YEAR BUDGET REVIEW RECOMMENDATION: That the City Council authorize: 1. Transfer of $1,000,000 from the General Fund reserve to the Capital Projects Fund--Reserved. 2. Transfer of $1,426,796 from the General Fund reserve to the Park Development Fund. .DISCUSSION: Attached is a report from the Finance Director which discusses the status of the City's operating and capital funds. Each February, the City Council receives a report which projects the City's financial condition through the end of the fiscal year. The report describes any potential problem areas and · recommends corrective actions. Given the financial uncertainties of the past several years, this. approach has enabled the City to take corrective actions without adversely affecting operations. Mid- year adjustments made in a timely manner prevent the disruption caused by taking actions late in the fiscal year. The 1995-96 General Fund is projected to be balanced through June 30, 1996. As indicated in the Finance Director's report, projected revenue is less than the budgeted amount. The reduction in anticipated revenue is offset by expenditure savings. The City's approach of containing costs .throughout the year mitigates reductions in revenue. The principal reductions in operating revenue (property tax, sales tax and development-related fees) are 'due to general economic-conditions. Property tax is most reflective of the economic uncertainty that continues to linger. In 1992-93, actual property tax revenue was $3,997,791. For 1995-96, projected property tax revenue is $3,477,000. Compounding the problem is the State diversion of property tax revenue to balance the State budget. Sales tax revenue (which constitutes 49.7% of total 1995-96 projected General Fund revenue) continues to be elastic, depending upon general economic conditions. It is important to keep in mind that the City cannot expect sales tax revenue to continue to grow at past rates. With buildout of the auto center and Tustin Market Place, it is more prudent and realistic to anticipate a leveling-off of sales tax growth. Growth rates in sales tax will more likely follow general inflation rates until new development occurs in the future (base reuse, Pacific Center East project, E1 Camino Plaza project, etc.) Overall, the General Fund is financially secure. However, it must be stressed that for the past several years and most likely for the next several, the General Fund will be very tight. There will be limited new discretionary income, particularly since the operating cost of new facilities (Sports Park, Columbus-Tustin Gymnasium, youth center, etc.) will come on line. The potential impact of discussions about restructuring local government finance also should be kept in mind. The State Constitutional Revision Commission is drafting its recommendations to the State Legislature, some of which could have major impacts on how local government finances services. The Finance Director's report discusses the reasons why the July 1, 1995, audited General Fund balance was higher than anticipated when the 1995-96 budget was prepared and adopted. The increase in fund balance is due to one-time savings and a one-time adjustment in how annual operating revenue is accrued. Because the adjustments are largely non-recurring, it is recommended the amount that exceeds the City's policy of a fifteen percent General Fund reserve be transferred to capital funds..To, do otherwise will skew the General Fund reserve and could create an expectation that additional monies are available for future operating expenses. Using one-time, non-recurring income for annual operating expenses would create a deficit budget. The recommended transfers to the Capital Projects Fund--Reserved and Parks Development Fund is based on the need to accumulate funds for projects that the City Council has directed as priorities and for other future projects. Priority projects include: · Tree park $1,700,000 · 5.0-acre park (Tustin Ranch Road) 1,600,000 · Jamboree/Edinger Overpass 5,500,000 · 800 MHz System (net of trust account) 750,000 · Measure M--Maintenance of Effort expenses 1,200,000 Staff will present to the City Council at a later date a report which provides options for funding the above and other key projects. The recommended transfers does not mean the projects are approved to proceed; it merely reserves the funds for capital projects. The projected June 30, 1996, fund balances contained in the Finance Director's report reflect the recommended transfers. ~ Inter-Com DATE: FEBRUARY 14, 1996 TO: FROM: SUBJECT: WILLIAM~.,~. HUSTON, CITY MANAGER RONALD ~v FINANCE DIRECTOR MIDYEAR BUDGET REVIEW Attached is the Midyear Budget· Review for fiscal year 1995-96. Before I begin the analysis of the current year projections, I will address the significant change in the audited balance at 7-1-95 versus the projected balance as presented to the City Council in the draft Budget document. The projected fund balance at 6-30-95 was originally estimated to be $4,142,000 at the time the Budget for fiscal 1996 was adopted. Through the audit process, there was a significant prior period adjustment, $1,106,629, which increased the ending fund balance for fiscal 1994. This adjustment has been realized by all Cities which have initiated the new Government Accounting and Standards Board (GASB) Statement No. 22, which deals with the accrual of certain governmental taxes such as property tax, sales tax and motor vehicle in-lieu fees. Under Statement No. 22, we are required to change the accrual period for these revenues to include the month of August following the June 30 fiscal year close. In order to accomplish this during the current year, the recommended action is to restate the prior period ending balance, 6-30-94, by accruing the August 1994 receipts into fiscal 1994, and including the August 1995 receipts as accrued into fiscal year 1995. The net effect of this change in procedure is to book 13 months of revenue for sales tax and motor vehicle in-lieu fees in fiscal 1994. The City of Tustin adjustment for these two sources was an increase of $1,106,629 in fiscal 1994 revenue, which resulted in an increase in the audited fund balance at 7-1-94 going into the new fiscal year. This change in accrual periods also changed the projected 1995 revenues and expenses. The following reconciliation of fund balance will detail the actual adjustments. Projected Balance at 6-30-94 Prior Period Adjustment/Statement No. 22 Net Increase in Projected Revenues Net Increase in Expenditure Savings Other Miscellaneous Adjustments Audited Balance' at 6-30-94 $4,142,665 1,106,629 504,000 522,000 <265,208> $6,010,086 This increase in fund balance should be viewed as one-time only. The change in accrual periods skews the increase in revenues for the fiscal year. We will adjust the fiscal 1996 projections to match the same accrual periods. The savings in expenses during the year are dominated by salary and benefits. These types of savings are controlled by authorization to fill vacant positions and the recruitment process itself. During fiscal 1994 as well fiscal 1995, all positions are budgeted for the full year even if they are vacant as of the start of the year. During the previous three years, we have averaged twenty-one recruitments a year. Year-to- date 1996, we have initiated eight recruitments. The adjustments which impact the beginning fund balance total $2.4 million. They should be' viewed as one-time resources, not recurring, and are available for appropriation. FISCAL YEAR 1996 MIDYEAR REVIEW The body of the attached report follows a similar format as the draft 1996 Budget summary. The report begins with current fund balance projections, revenues by fund, General Fund Department Expense Summaries, other operating expenses such as Community Development Block Grants, Redevelopment Agency, Water, and Capital Improvement Status by fund. Overall, we do not see any significant deficiencies in any one fund that is cause for concern at this. time. Current fund balance projections are all within a reasonable relationship to the adopted budget. In most cases, any shortfall in revenue projected is offset by a similar savings in expenses. As in prior years, the focus of this report will be on the General, RDA and the Water funds. GENERAL FUND As of this report, we are projecting General Fund revenues to exceed expenses by $15,600. This is in light of a projected shortfall in revenues of $795,000 which is detailed on page three of the report. On the expense side, we are projecting a savings of $804,000. Significant revenue shortfalls appear in property taxes, $143,000; sales tax, $209,000; construction related fees, $523,091; and community service fees, $211,300. On the bright side franchise fees are up $150,000; license and permits are up $66,000; interest income is up $40,000; and the Regional Narcotics Suppression Program Grant is up $37,300. If we exclude non-recurring revenues relating to new construction, my conclusion, based on these projected numbers, is that our more significant revenue sources such as property taxes, sales tax'and motor vehicle in-lieu fees have plateaued or, at the very least, future increases are going to be more modest. Property tax revenue has been on a decline prior to 1992-93 due to permanent transfers to the State to be redirected to schools, and a steady decline in assessed values reflecting current market conditions. - 2 - Sales tax revenue appears to be increasing, but at a more moderate rate than prior years. We may be seeing a period of increases reflecting general market conditions rather than the inclusion of major sources such as new auto dealers or a Micro Center that we have experienced in the past. We are currently projecting a modest increase in sales tax revenues of 1.3% based on receipts to date. We will not have a better projection until, we receive the fourth quarter reconciliation from the State in late March. As of this writing, we have not heard of any significant increases in sales during the holidays. We will continue to monitor sales tax closely. Motor vehicle in-lieu fees are driven by new car sales. As cars become older and the auto registration fees decline, the amount transferred to local government tends to decline. New car sales mitigate the decline and in some cases actually increase the allocation. Registered car owners are the primary impact on these revenues, not point of sale as is the case with the sales tax. Operating expenditures have been reviewed by each Departmen~ and the year end projections are summarized on page 6 of the report. As of this date we are projecting a General Fund expenditure savings of $804,400, which is 3.2% of the adopted budget. Personnel salary and benefits make up 56% of the projected savings, $452,000, and contractual services make up an additional 23%, $181,000. The balance of the projected savings is made up of miscellaneous operating savings. In summation, current projected General ~Fund revenues exceed projected expenditures by about $15,000. The ending fund balanCe at 6-30-96 is estimated to be $3,598,903 as stated on page 1 of the report. This is net of the transfers of excess fund balance to the Capital Improvement Fund and the Park Development fund which are part of our midyear recommendations. Projected General Fund expenditures of $26,611,149 shown in the fund balance sheet (page 1) reflect the recommended transfers. The estimated fund balance is 14.88%.of the net General fund expenditures. REDEVELOPMENT AGENCY The Redevelopment Agency is also experiencing a decline in tax increment income due to the loss of assessed value generally experienced throughout the County. Operationally, the Redevelopment Agency creates debt then expenses the resources generated by that debt on Agency projects. In essence, the Agency spends available fund balance and uses current revenue to service debt. We are receiving sufficient tax increment to service existing debt. We currently have adequate resources available to meet current program needs as identified by the Agency. - 3 - WATER ENTERPRISE The Water Enterprise Fund is projecting an operating savings of $1 million for the year due primarily to the delay in bringing the new Seventeenth Street desalter on-line and a reduction in purchased water costs.. Current revenues appear to be on track but that may change depending on the amount of rain we receive in the next couple of months. We are currently below normal for rainfall, and we are almost out of the wet season. If it continues to be dry, it may cause an increase in consumption which may require us to purchase more water. There are sufficient resources to meet short term demand without impacting our working capital balances. We are presently projecting a balance of approximately $3 million in bond related capital improvements financed by the bond issue. We are also undertaking approximately $1.2 million of ongoing system improvements which are not bond issue related. A total $4.2 million' of construction in progress is currently managed by the Water Enterprise. We are not currently requesting a rate increase, but will be updating the 1992 Financing Plan before year end to determine the next step in the implementation of the major reservoir and distribution system improvements addressed in the original financing plan. In conclusion, the balances addressed in this report are within the projections made in the adopted Budget. The General Fund as currently stated is balanced through the remainder of the year. 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