TITLE
Recommendation to receive and file the Fiscal Year 2012 Second Quarter Budget Performance Report. (Citywide)
DISCUSSION
This report includes information on the City's Fiscal Year 2012 (FY 12) budget performance through March 31, 2012 for all funds, with particular emphasis on the General Fund.
Summary
The actions initiated by the City Manager at the end of the first quarter to close the projected $11 million General Fund budget gap appear to be working and no further action is proposed at this time.
As of the end of the second quarter, expenditures in all City funds are expected to end the year under budget. General Fund revenue, however, is projected to end the year at about $392 million or 2.9 percent under budget. To close the mid-year shortfall as discussed in the First Quarter report, the City Manager directed the implementation of a 1 percent savings target and recommended the use of one-time revenue of $5 million from FY 11, which was reserved at year-end to address potential revenue shortfalls in FY 12. A remaining $150,000 shortfall is expected to be resolved before year-end.
FY 12 - All Funds
There are no significant spending or revenue concerns to report at this time. Please see Attachment A for a complete summary of expenditures by fund. Staff will update the City Council in the third quarter budget performance report if any new problems arise. All discussion of General Fund changes is included in separate sections below.
FY 12 General Fund Expenditures
As of March 31, 2012, all departments have estimated to end the year within their appropriations, except the Police Department. The Police Department estimated at the end of March that it will be over adjusted budget, but has committed to end the year within appropriations and their estimates at the end of April show they are on track to do so. See Attachment D for a summary of expenditures by department and Attachment footnotes for an explanation of any relevant changes. In addition, a single audit finding related to Technology Services' grant charges could increase costs for General Fund departments, if not in FY 12, then potentially in FY 13.
FY 12 General Fund Revenue
As reported in the first quarter performance report, the General Fund revenues have declined or grown slower than expected since the budget was adopted. That trend has not reversed itself in the second quarter, but hasn't worsened noticeably. Second quarter estimates are projecting an $11.8 million shortfall in the General Fund.
Seventy-five percent of the FY 12 major revenue deviations from adopted projections are within the General Fund's top 40 revenues (including transfers). These decreases in revenue estimates include $3.5 million in transfers from other funds, $2.8 million in projected utility users tax revenues, $1.2 million in franchise fee revenues and the $1.1 million in prior-year property taxes.
The largest decreases in transfers from other funds are from the SERRF and Towing Funds. As stated in the first quarter performance report, the SERRF Fund will not make a budgeted $2.1 million net facility transfer to the General Fund as a result of ending FY 11 with insufficient fund balance to exceed the minimum amount required by the JPA agreement. While Towing and Lien Sales has reduced expenditures, the budgeted transfer to the General Fund will be $1 million lower as a result of continuing declines in towing volumes and associated revenues over the past few years, which have reduced the Towing fund balance below desired levels. The declines in utility users taxes (UUT) are primarily in Electric and Telephone UUT, which have exhibited 5.5 percent and 6.5 percent year-over-year decreases in revenue, respectively, during the first half of FY 12. Additionally, at least a $600,000 reduction in Gas UUT is expected with the end of the City's current price hedging contract in the second half of FY 12. Associated decreases can be seen in the gas and electric franchise revenue, which are exhibiting combined declines of $1.2 million, with $900,000 reflecting the nationwide decline in the commodity price of natural gas. The City is also experiencing reductions in prior-year property taxes, which had been stable until FY 12. Conversations with the County Assessor's Office indicate that prior-year assessment appeals submitted by property owners Countywide, and recognized in the current tax roll year are resulting in revenue reductions in FY 12.
A summary of the top 40 General Fund revenues is included in Attachment B. Attachment C provides a more detailed breakdown of General Fund revenue performance and variances by department. Many of the departmental variances are captured in the footnotes to this attachment.
FY 12 General Fund Budget To Be Balanced by Year-End
The current estimates, based on six months of data, show General Fund expenses coming in slightly under budget. Financial Management does not anticipate any issues with expenditures ending the year within budgeted Citywide appropriation. As previously mentioned, however, the General Fund revenue and fund transfers are currently estimated to come in $11.8 million under budget. In order to end the fiscal year in balance, the City Manager initiated a 1 percent savings target Citywide for all General Fund departments at the end of the first quarter. Both the Police and Fire Departments are expected and are able to accommodate the 1 percent adjustment without further impacts to services. In addition, the FY 11 revenue surplus of $5 million will be applied, as needed, to further offset the FY 12 shortfall.
These actions, in combination, reduce the projected deficit to less than $500,000. Past history indicates it is very possible that unexpected revenues or additional department savings will cover the remaining shortfall. If revenues drop further than estimated, additional actions may be recommended.
TIMING CONSIDERATIONS
City Council action on this matter is requested on May 22, 2012.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
JOHN GROSS
DIRECTOR OF FINANCIAL MANAGEMENT
APPROVED:
PATRICK H. WEST
CITY MANAGER