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Home My WebLink About02/17/1998, 5A - MID-YEAR BUDGET REVIEW council M=*Dm a-,7.98 j acEnaa REpoRt CITY OF SAN LU 15 O B I S P O FROM: John Dunn,City Administrative O�ff-,icyj Bill Statler,Director of Finance y►.(.y _ Prepared By: Linda Asprion,Revenue Manager SUBJECT: MID-YEAR BUDGET REVIEW CAO RECONEHENDATION ■ Consider the mid-year budget review for 1997-98. ■ Approve mid-year budget requests for operating programs and capital improvement plan projects totaling$584,000 in 1997-98 and$208,700 in 1998-99 summarized as follows: 1997-98 199S-99 Operating programs 534,000 208,700 Capital improvement plan(CIP)pro'ects 50,000 1 1 TOTAL $584.0001 $208,700 All of the requests are for General Fund programs and projects, and supporting detail for each of the requests is provided in the mid-year budget review document. DISCUSSION Overview—How Are We Doing? While the enclosed mid-year budget review takes a comprehensive look at our financial condition and trends at the mid-point of the fiscal year, the following briefly answers the question "how are we doing." Overall, our updated projections compare very favorably with the 1997-99 Financial Plan projections. Key revenues throughout the General Fund are performing very well compared with budget estimates (largely due to an improving local economy), and expenditures are generally on- target with our projections. These two factors—improved revenues and contained costs—result in General Fund balances at the end of 1997-99 that are stronger than original Financial Plan projections. While a number of fiscal challenges continue to face us as recently discussed in the"long-term fiscal health white paper,"the simple fact is that we are in a better position today to meet these challenges than we have been since the very early 1990's. ■ Ending general fund balance. We will end 1997-99 with a General Fund balance of$6.4 million. This is $2.2 million greater than estimated in the 1997-99 Financial Plan; and represents an ending balance that is 30% of operating expenditures compared with our minimum fund balance policy of 20%. Council Agenda Report—Mid-Year Budget Review Page 2 ■ Future prospects. As detailed in the mid-year budget review document, not all of this improved ending balance will be ongoing — there are several "one-time" resources that contribute to this. However, in viewing the long-tern implications of our improved financial situation, we have about $650,000 more in financial capacity annually than reflected in the 1997-99 Financial Plan. In short, we have an improved fiscal situation; and because of this, there will be interest in considering enhanced programs and new CIP projects in order to more fiilly address adopted goals, policies and plans. However,we need to put this in context: we are in better fiscal shape, but this represents an increase in General Fund resources of about 2.5% — a significant, but not overwhelming increase. We should also place this improvement in the context of our longer-term goals as already set forth in the third and fourth years of our.adopted capital improvement. For example,the average annual General Fund contribution to the CIP is $2.4 million for 1997-99; for 1999-01, this increases to $3.7 million, an annual increase of$1.3 million. This means our improved situation only covers about half of the budget-balancing steps we already knew we would have to undertake in 1999-01. So while we our fortunate that we are in better shape than we previously thought, we also have a large number of currently unmet community needs which will compete for any additional resources. Where to From Here? At this point, we have only proposed mid-year budget requests that need to be approved now in order to meet timing requirements or adequately fund current programs through the end of the fiscal year. If the Council wants to consider program enhancements in light of our improved fiscal, we recommend that these be considered in the context of the 1999-01 Financial Plan process for the following reasons: ■ Purpose of the Financial Plan. The Financial Plan process is designed to link high- priority goals with resource needs. In this context, it makes sense to consider new or enhanced programs in the goal-setting context that the Financial Plan process provides. ■ Better sales tax information. Improved sales tax revenue is one of the key factors driving our improved fiscal situation. While we believe that our revised sales tax revenue projections are warranted based on recent trends, fourth quarter (Christmas) sales are the single most important quarter in the year. We will not know these results until late April at the soonest. Accordingly, we should avoid making any significant ongoing funding commitments until we know the results of the Christmas quarter. ■ Completion of major plans. There are a number of plans underway that will provide us with further direction on our long-term finding needs once they are completed. These include the pavement management plan, flood management plan, Higuera/Osos street bridge replacement, Mid-Higuera area plan and downtown infrastructure plan. Based on IL Council Agenda Report—Mid-Year Budget Review Page 3 the status of these plans, the 1999-01 Financial Plan will be an appropriate time for considering their funding requirements in light of other City priorities. Individual Council members have previously mentioned two specific high-priority areas where they would like to augment resources: street maintenance and open space protection. We agree that these two areas need to be addressed at some level before the 1999-01 Financial Plan. We recommend doing this in June as part of the 1998-99 budget update process when we will know the sales tax results for the Christmas quarter, and the pavement management plan will be completed 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 comprehensive quarterly financial reports are distributed to the Council and Management Team on an ongoing.basis. 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: ■ Comparing revised revenue and expenditure projections with those originally made in the 1997-99 Financial Pian. ■ Identifying and presenting any fiscal problem areas to the Council, and recommending corrective action or additional finding if required ■ Reviewing the progress being made in achieving major City goals and other important objectives. Report Organization Introducing the accompanying mid-year budget review is an Executive Summary that highlights key mid-year budget issues and trends, and summarizes the General Fund's projected financial condition at the end of 1996-97 compared with original projections in the 1997-99 Financial Plan. This executive .summary is followed by the transmittal memorandum that provides a comprehensive review and analysis of the City's financial position, and summarizes the need for the requested mid-year budget adjustments. The report also includes: ■ Comprehensive presentations of projected revenues, expenditures and changes in fiord balance/working capital for each of the City's funds for 1997-98 and 1998-99 compared with original budget estimates. ■ Detailed supporting documentation for the requested mid-year budget adjustments. ■ Status report on major city goals,other Council objectives and CIP projects. ENCLOSURE Mid-Year Budget Review for 1997-98 G:Finance/Mid Year 97/Council Agenda Report YW-3