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HomeMy WebLinkAbout03/01/2011, B3 - 2010-11 MID-YEAR BUDGET REVIEW counat Mn„ 3111 aGEnaa nEpoat '�"°.b" B 3 C I TY O F SAN LUIS O B 1 S P 0 FROM: Katie Lichtig, City Manager Mary Bradley, Interim Director of Finance&Information Technology Debbie Malicoat, Finance Manager Jennifer Thompson, Revenue Supervisor SUBJECT` 2010-11 MID-YEAR BUDGET REVIEW RECOMMENDATION Review and discuss the City's financial condition and status of City goals at the mid-point of fiscal year 2010-11. DISCUSSION The accompanying Mid-Year Budget Review for 2010-11 provides a comprehensive overview of the City's fiscal condition at the mid-point of the fiscal year. The Transmittal Memorandum (starting on page A-1) sets forth a concise summary of key General Fund revenue and expenditure trends since adoption of the 2009-11 Financial Plan Supplement in June 2010. The report's main focus is on the General Fund, however updated information is provided for each fund. The report also includes a comprehensive status of major City goals, capital improvement plan (CII') projects and other important objectives. . Background: Purpose of the Mid-Year Budget Review The City's two-year Financial Plan provides for the submittal of a report on our financial status to the Council every six months. For fiscal monitoring purposes, on-line access to up-to-date information is available to all departments; financial reports are issued monthly to key staff members; and quarterly financial reports are distributed to the Council and staff on an ongoing basis. Additionally, we issue focused reports to the Council and staff on key revenues such as sales tax, transient occupancy tax and investments, as well as ad hoc reports as needed. However, the formal submittal of a review at the mid-point of the fiscal year provides an opportunity to take a broader look at the City's financial picture, including: 1. Updating beginning fund balance projections based on actual results for the prior fiscal year. 2. Analyzing revenue trends since adoption of the Financial Plan, and revising revenues and ending fund balance projections accordingly. 3. Identifying and presenting any fiscal problem areas to the Council, and recommending corrective action or additional funding if required. 4. Presenting the status of major City goals, CIP projects and other important objectives. B3-1 2010-11 Mid-Year Budget Review APage 2 Report Organization The accompanying Mid-Year Budget Review is organized into five main sections: Section A: Transmittal Memorandum, which provides a concise review and analysis of the City's financial position and summarizes any mid-year budget adjustments which might be requested. Section B: Comprehensive presentations of projected revenues, expenditures and changes in fund balance/working capital for each of the City's funds for 2010-11 compared with original budget estimates and actual results from 2009-10. Section C. Detailed supporting documentation for the requested mid-year budget adjustments. (There are none this year.) Section D: Recent financial and revenue reports: Quarterly Financial Report, Sales Tax Newsletter and Monthly TOT Report. Section E. Status reports on major City goals, other important objectives and major CIP projects. This includes recommended "Action Plan" revisionsasdiscussed in the report. General Fund Summary The Financial Plan Supplement adopted in June 2010 indicated that the General Fund was in balance — that is, revenues and expenditures were equal, considering the $3 million in stop gap measures implemented in the current fiscal year. Because the City has a two-year budget, at the end of the first year of the Financial Plan, when there are non-staffing items that were not spent during the year, budget for these items is generally carried forward to the second year of the Plan. At the same time, because the expenditures did not occur, there is fund balance remaining, which also carries forward to the second year of the Plan. This allows the City to manage expenses over the two-year period. At the end of 2009-10, there were unspent operating budgets, some of which were not required for carryover to the next fiscal year. Of the unspent amount, $1.1 million carried over to the current fiscal year. Along with this, an offsetting amount of fund balance rolled forward as well. In fact, the beginning fund balance in the current year was actually $1.7 million higher than originally budgeted — $1.1 million because of planned expenditures that didn't happen in the first year, but still could be used in the second year of the Financial Plan and $600,000 because of other savings. To date, the Council has approved about $200,000 in additional operating expenditures in the current fiscal year. In addition to the carryovers, other changes to the budget include assumptions made for adjustments to salaries and benefits that, due to recent employee group agreements, will not be necessary in the current fiscal year as well as assumptions for current year expenditure savings. B3-2 I 2010-11 Mid-Year Budget Review Page 3 In analyzing current revenue and expenditure trends, the Mid-Year Budget Review also anticipates that revenues will be about $300,000 higher than originally budgeted. As reflected in the Mid-Year document, revenues from most of the City's key sources appear to have reached bottom and are slowly recovering, however they remain below the levels experienced prior to the economic downturn. Additional detail is provided in the Mid-Year Budget Review. All of these changes will result in the General Fund ending the current fiscal year with$1.3 million more in fund balance than was originally anticipated when the 2010-11 budget was prepared. This is $1 million more than the minimum reserve policy requires. While this is positive news,the Mid- Year Budget indicates that there is a structural gap between revenues and expenditure and absent corrective action,this gap will continue. The attached report is staffs best professional judgment about the state of the General Fund at this point in time and it is subject to change as our assumptions become realities. More clarity on the General Fund's financial position will be provided to the Council in April in the context of Strategic Budget Direction, at which time the Council can provide direction on the best use of reserves in excess of the policy minimum. Updated General Fund Five-Year Fiscal Forecast As part of the background materials prepared for the Council Goal Setting Workshop, the General Fund Five-Year Fiscal Forecast (Forecast) was updated in December 2010. The December Forecast projected a budget gap of$3 million in 2011-12, growing to $3.4 million in 2013-14. On average,the budget gap was projected to be$2.7 million over the five-year period. Based on the revised revenue and expenditure assumptions included in the Mid-Year Budget Review, modifications to the budget that the Council has already approved, and staff's continued analysis of current trends, we know that the projected gap between revenues and expenditures has narrowed. This is primarily due to two factors: revenues appear to be recovering slightly better than originally anticipated and recent employee contracts have helped contain costs. Staff is still in the process of reviewing capital projects and the appropriate level of funding to meet those needs as well as other factors that will impact the fiscal situation in the next five years. Council will receive a formal update of the Forecast on April 12, 2011 in the context of providing Strategic Budget Direction. Significant Changes in Other Funds Golf Fund On June 2, 2010 Council deferred implementing a $1.00 per round rate increase. The Mid-Year Budget Review reflects the fiscal impacts of this deferral, which results in an additional contribution from the General Fund of$79,300. B3-3 1 � l 2010-11 Mid-Year Budget Review Page 4 Parking Fund On June 2, 2010 Council deferred implementing a proposed rate increase. The Mid-Year Budget Review reflects the fiscal impacts of this deferral, which results in reduced revenues of$357,400 from the original budget. Water Fund Based on current trends, revenue estimates for water sales revenues have been revised downward significantly. There are a variety of factors that influence water sales. A full fund analysis will be presented in June 2011 with the 2011-13 Financial Plan. Transit Fund Public Works staff has recently discovered that there may be a shortfall of Federal Transit Administration (FTA) funding for 2010-11. In February2011, the Federal government released its first apportionment for FTA formula funding. FTA is one of the two largest funding sources for the Transit Fund each year. Due to reporting inconsistencies in the National Transit Database, the appropriation for the SLO Urbanized Area (UZA) was reduced by approximately $450,000. The National Transit Database reporting was impacted by a medical leave of absence by SLO Transit's Resident Manager. During this leave of absence, the City sought and received reporting requirement waivers, however it was not known at the time that such a waiver would potentially reduce transit funding for the UZA. Staff is working with the FTA to discuss the circumstances that lead to the reporting inconsistencies, which in tum lead to the reduction in funding. The hope is that the FTA will reverse the decision. In the event that the decision stands staff proposes to offset the effect primarily by deferring one capital bus replacement ($377,000) that was approved in this year's federal program of projects. This reduced amount affects the operating assistance grant that has been reflected for the Transit Fund in the current fiscal year. To be conservative, these changes are being implemented with the Mid-Year Budget and can be reversed should the FTA reverse its initial decision. Additionally, staff will seek to program some of the existing SLO UZA reserve for operations to cover the shortfall. A final apportionment is scheduled for later this fiscal year. ATTACHMENTS 1. Mid-Year Budget Review for 2010-11 G:\Budget Folders\C.Mid-Year Budget Reviews\Mid-Year Budget Review-2010-11\Council Agenda Report,2010-1 I.doc B3-4 ' 1 It has just come to my attention that when the Mid-Year Budget document was printed, page A-3 was printed twice and page A-4 was not printed. I apologize for not catching this error. Attached is page A-4 for your reference. Below is a link to the electronic document on the website, which has the correct pages. http://www.slocity.org/finance/download/bud,getO9-11/Mid-Year%20Document%202010-11.pdf If you have any questions, please feel free to contact me. Thanks!. Debbie Malicoat Finance Manager City of San Luis Obispo 990 Palm Street San Luis Obispo, CA 93401 RED FILE voice: 805-781-7128 fax: 805-781-7401 MEETING AGENDA DATE4L1/_jL ITEM # 13 3 RECEIVED o . . v COUNCIL o CDD DIR c My MOR o FrrDIR FEB 2 8 2011 ° "STCM °MEC1W a ATTORNEY a PW DIR o CLSUUORIO o POUCECHMF SLO CITY CLERK C PIS ° RISC DIR o TRIBUNE a tMLDI UTILDlR o NEW MW o HR DIR o SLOCrrYNEWS o COUNCIL o CM MOR o CLERK 1 � TRANSMITTAL MEMORANDUM Based on current trends, revenue estimates for water Interfund Transactions sales revenues have been revised downward significantly. There are a variety of factors that This portion of Section B reflects actual interfund influence water sales. A full fund analysis will be transfers for 2009-10 along with the original budget presented in June 2011 with the 2011-13 Financial and revisions for 2010-1T. The revised operating Plan. transfers are generally driven by Council approved changes since the adoption of the 2010-11 budget. Transit Fund The reimbursement transfers are based on the 2009- 2011 Cost Allocation Plan adopted by Council on Public Works staff has recently discovered that there February 2,2010. may be a shortfall of Federal Transit Administration (FTA) funding for 2010-11. In February 2011, the Projected Ending Fund Balances/Working Federal government released its first apportionment for Capital FTA formula funding. FTA is one of the two largest funding sources for the Transit Fund each year. Due to Based on the revised revenue projections and reporting inconsistencies in the National Transit expenditures summaries, this part of Section B Database, the appropriation for the SLO Urbanized includes a summary of projected changes in Area (UZA) was reduced by approximately $450,000. financial position for each of the City's operating This reduced amount affects the operating assistance funds. As with the revenue projections, the changes grant that has been reflected for the Transit Fund in the in financial position schedules include the actual current fiscal year. Staff proposes to offset the effect fund balances/working capital for.2010-11 and the primarily by deferring one capital bus replacement original budget and revised projections for 2010-11. ($377,000) that was approved in this year's federal program of projects.These changes are reflected in the Based on the revised revenue and expenditure enclosed Mid-Year Budget Review. Additionally, projections for the General Fund, the ending fund staff will seek to program some of the existing SLO balance is anticipated to be $1.3 million higher than UZA reserve for operations to cover the shortfall. originally budgeted. This is $1 million more than the minimum reserve policy requires. While this is Staff is working with the FTA to discuss the positive news, the Mid-Year Budget indicates that circumstances that led to the reporting inconsistencies, there is a structural gap between revenues and which in tum led to the reduction in funding. The expenditure and absent corrective action, this gap will National Transit Database reporting was impacted by a continue. medical leave of absence by SLO Transit's Resident Manager. During this leave of absence, the City MID-YEAR BUDGET RE UESTS sought and received reporting requirement .waivers, however it was not known at the time that such a waiver would potentially reduce transit funding for the As noted previously, there are no mid-year operating UZA. A final apportionment is scheduled for later this or capital budget requests that need to be approved fiscal year. now. Capital Improvement Plan PROSPECTS FOR THE FUTURE. This part of Section B reflects the original CIP budgets for 2010-11 by fund, re-appropriations for General Fund Five-Year Forecast encumbrances and carryovers, and budget changes to date since approval of the 2010-11 Financial Plan As part of the background materials prepared for the Supplement in June 2010. The total capital Goal Setting Workshop, on December 14, 2010 improvement plan. is $8,981,700 greater than Council received an updated General Fund Five- projected in the Supplement due primarily to Year for 2011-12 through 2015-16. The Forecast carryovers and encumbrances. There are no new projected a budget gap of $3 million in 2011-12, CIP projects for Council consideration. growing to $3.4 million in 2013-14. On average, the A-4