CC 02-21-2024 Item No. 9 Accept the City Manager's Mid-Year Financial Report for Fiscal Year 2023-24_Supplemental ReportCC 2-21-2024
Item No. 9
Accept the City
Manager's Mid-Year
Financial Report for FY
2023-24
Supplemental Report
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CITY COUNCIL STAFF REPORT
SUPPLEMENTAL 1
Meeting: February 21, 2024
Agenda Item #9
Subject
Accept the City Manager’s Mid-Year Financial Report for Fiscal Year 2023-24
Recommended Action
1. Accept the City Manager’s Mid-Year Financial Report for Fiscal Year 2023-24
2. Adopt Resolution No. 24-XXX approving Budget Modification No. 2324-326, increasing
appropriations by $10,057 and revenues by $807,672.
Background:
Staff’s responses to questions received from councilmembers are shown in italics.
Q1: How did the City build up the fund balance in the general fund? (General Question)
Staff Response: Unassigned fund balance has grown over the years primarily due to the following
factors:
Revenue
• Revenues above budgeted amounts in Sales, Property, and Transient Occupancy Tax and
one-time large payments in other taxes for construction tax from development projects like
Apple Campus 2 and the Sale of Pruneridge Ave.
• Large federal funding during the pandemic for (CARES) $735,259, and American Rescue
Plan Act/(ARPA/SLRF) $9.8 million.
Expenditures
• Expenditures below budgeted amounts primarily in Salary and Benefits due to salary
savings from vacancies. The city has averaged about 20 vacancies annually.
• Contract Savings in Law Enforcement, Public Works, and Community Development
• Suspension of Transfer to 429 Capital Reserve beginning in FY21. Prior year transfers
have ranged from $8M to $ 20M with $38M transferred between FY18 and FY20.
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Historically the City has been structurally balanced and has not needed to program these
additional savings because ongoing revenues were sufficient to cover budgeted expenses.
Most recently the City began to build unassigned fund balance intentionally given the uncertainty
around the sales tax audit, where previously it would transfer these funds to the Capital Reserve
Fund (429) to fund future Capital Improvement Projects.
Q2: How can the City be in a budget crisis with such a large fund balance? (General
Question)
Staff Response: The bulk of the City’s estimated $137.5 million of fund balance in the General
Fund is earmarked, with only $26 million available for programming by the City Council. The
City’s fund balance can be looked at like your own checking account. Think of $137.5 million as
your account balance on payday, it appears you have quite a bit of money on hand, however, you
still need to earmark/reserve and pay for upcoming bills such as utilities, mortgage, car payments
etc. Once you have earmarked those dollars you only have $26 million left to spend.
Let’s add one more layer of complexity here and say you know your financial situation may be
changing soon with a decreased dollars coming into your account. This will cause you to be short
money for all necessary payments in the months and years to come. Knowing this you will want to
be careful how you spend your $26 million because until you can correct the deficit that you are in
you will use this money to make up the shortfall.
If you only look at one point in time ($137.5 million), it appears that you don’t have an issue but
once all scenarios are taken into consideration, you realize that future deficit will eat into your
savings unless you can bring in additional income or reduce spending. Any items you choose to
earmark will grow this balance, but this is one-time money that does not solve the structural
deficit problem. This is exactly what the City is doing with its budget conversation for the current
and future fiscal years.
Q3: Beginning PDF 172 of the agenda packet there is a list of “Detailed Budget Carryovers,
Council approved Adjustments, and Encumbrance Carryovers.”
Please provide the year each was budgeted for and why the item was not removed from
the budget. Several items appear to be needing revisions and a timeline to do so, can that
also be provided.? (Council Member Moore)
Staff Response: Carryovers and Encumbrance Carryovers are defined in the Mid-Year Financial
Report on page 2, “Carryovers and encumbrances are appropriations approved in prior years but
have not yet been spent and are still required for ongoing projects or obligations.” Projects were
carried overdue the project not yet being completed or started. Attached is an updated special project
listing with all projects with “in progress” or “not started” status now having an estimated
completion date.
Q4: Will you please look into the practice of budgeting for cost allocation. I do not see this
practice repeated elsewhere, as cost allocation appears to be used to set fees more
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accurately. (Council Member Moore)
Staff Response:
As described on page 1 of the Cost Allocation Plan:
The primary objective of a CAP is to spread costs from central support divisions, generally
called “Central Service Divisions” to those divisions, cost centers, and/or funds that receive
services in support of conducting their operations. In doing so, an organization can both
better understand its full cost of providing specific services to the community, and also
generate organizational awareness regarding indirect (overhead) costs associated with
operations.
As described on page 97 of the FY 2023-24 Adopted Budget:
In addition to the direct cost of providing services, the City has indirect costs. Indirect costs
include shared expenses where a department provides support to other departments (e.g.,
legal, finance, human resources, IT, facilities, and maintenance). The CAP allows the City to
understand the full cost of providing specific services to the community more accurately. For
example, the full cost of the Quinlan Community Center includes its direct costs (e.g.,
salaries, benefits, materials, and contracts) plus its indirect costs (e.g., finance, human
resources, and IT). The CAP helps the City analyze the full cost of the Quinlan Community
Center as if it were a stand-alone business that had costs for services such as finance, human
resources, and IT.
The inclusion of a cost allocation in the budget is a standard practice in municipal budgeting.
However, the CAP costs for the General Fund are not always included. The City began including
these CAP charges between General Fund departments in FY2017. Having the CAP costs listed
for all budgets allows for a comparison across funds of the actual costs of providing a service.
These costs are offset by revenue received in each program budget, thus resulting in a net zero
impact on the budget.
City of Milpitas Adopted Budget:
City of Santa Clara Adopted Budget:
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Attachments Provided with Original Staff Report:
A – FY 2023-24 Mid-Year Financial Report
B – Draft Resolution
C – Description of Carryovers and Adjustments as of December 31, 2023
D – Description of Budget Transfers as of December 31, 2023
E – FY 2023-24 Mid-Year Recommended Adjustments
F – Mid-Year Performance Measures & Workload Indicators
G – FY 2022-23 Special Projects Update
H – FY 2023-24 Mid-Year Special Projects Update as of December 31, 2023
I – Competitive and Non-Competitive Citywide Grants Tracking
J – Capital Improvement Program Project Status