TITLE
Recommendation to receive and file the Fiscal Year 2011 Third Quarter Budget Performance Report. (Citywide)
DISCUSSION
This report reflects the City’s Fiscal Year 2011 (FY 11) budget performance through June 30, 2011. The report includes financial information for all funds and departments.
Summary
Overall, the General Fund expense is coming in slightly under budget, with the exception of a couple departments, as reported in the second quarter performance report. This trend is expected to continue through the remaining part of the fiscal year, but we do not anticipate any issues to end the year within budgeted appropriation. The General Fund revenue is currently estimating to come in $942,657 under budget. While this is of some concern, we anticipate that the revenue shortfall will close during the last quarter and, by year-end any shortfall will be nominal. At this time, we will not be highlighting any other funds. We will provide updated information regarding specific funds, such as Prop H Fund and Towing Fund, in the year-end report
As of June 30, 2011, the City’s Adjusted Budget for all funds was $3.5 billion. With 75 percent of the fiscal year complete, expenditure performance in all funds is at 50 percent of budget, or $1.7 billion. Year-to-date revenues for all departments and all funds were at $2 billion, or 76.9 percent of the $2.6 billion in budgeted revenue.
The total Adjusted General Fund Budget as of June 30, 2011 was $389.1 million. With 75 percent of the fiscal year complete, expenditure performance in the General Fund spending reached 71.6 percent of budget, or $278.6 million. Approximately $314.1 million, or 81.3 percent, of anticipated General Fund revenue has been collected year-to-date.
FY 11 Expenditures - All Funds
The City’s Adopted FY 11 Budget for all funds includes $2.5 billion of annual funds, $463.6 million of carryover (multi-year grants and capital project funds), prior year encumbrances (goods and services ordered in FY 10 but received in FY 11) and City Council-approved budget amendments, which combined as of June 30, 2011, bring the total Adjusted City Budget to $3.5 billion. Please see Attachment A for a breakdown of Citywide expenditures by fund.
Exhibit 1 - All City Funds by Fund Type
As illustrated in Exhibit 1 above, the City’s 37 funds are grouped into six fund types comprising the $3.5 billion adjusted budget. The majority of these funds are restricted, such as the Harbor Fund, Gas Fund and Tidelands Funds that are designated for specific and limited activities. The majority of core community services provided in the City, such as police and fire services, libraries and parks, are largely supported by the General Fund, which comprises only 11 percent of the entire Adjusted City Budget.
FY 11 General Fund Revenue
Secured property tax is the single largest General Fund revenue for the City. Adjusting revenue to account for the State property tax take-away in 2010 results in a 3 percent increase in secured property tax revenue. This is the first quarter since the recession began that we have seen growth in secured property tax revenues. Declines in revenue from parking-related fees and citations demonstrate the changes over past years in consumer behavior to avoid parking fees and citations. Revenues related to parking-related fees have experienced year-over-year declines of approximately 10 percent.
While many revenues are stagnant or declining, a few, such as Transient Occupancy Tax and Sales and Use Tax, are experiencing growth. Transient Occupancy Tax revenue has come in higher at this point in the fiscal year than anticipated. During the first five months of the calendar year, Long Beach average daily room and occupancy rates have increased by 5.6 and 8.4 percent, respectively, resulting in a 12 percent increase in the revenue per available room over the same time the previous year. Additionally, during the January-March 2011 quarter, statewide sales tax receipts experienced increases of 6.5 percent over the same quarter a year ago. During this period, City of Long Beach sales receipts increased by 12 percent due to increases in the building materials-retail (attributed to Edison Material & Supply, the City’s largest sales tax generator), restaurant and service station categories.
The Department of Financial Management continues to monitor revenue performance on a weekly basis and modifies forecasts based on evolving economic performance data. Current and projected revenue performance is based upon a variety of factors, and includes both structural and one-time revenues. It is important to note the risks inherent in projecting revenue, as the City has limited, if any, authority to affect certain revenue streams. The table below highlights performance through June 30, 2011 for selected General Fund revenues.
A summary of the top 40 General Fund revenues is included in Attachment B. Exhibit 2 below shows the City’s top 10 General Fund revenue sources in FY 11 as a percentage of total year-to-date General Fund revenue.
Exhibit 2 - Top 10 FY 11 General Fund Revenue Sources as a Percentage of the $314.1 million Total Year-to-Date
FY 11 General Fund Revenue by Department
As of June 30, 2011, General Fund departments had generated $314.1 million, or 81.3 percent, of budgeted revenues. 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.
General Fund revenue is currently projected to end the year at approximately $942,657, or 0.24 percent, under budget. Declines in revenue such as those we are experiencing this year are driven by factors largely external to the City’s control. At this time, five departments are estimating revenues to end the year between 2 and 8 percent under budgeted levels. Fire, Police and Public Works are projecting the largest revenue shortfalls. Part of the shortfall can be attributed to national economic factors within business and industry, such as the drastic declines in construction projects and the massive deficits affecting governmental entities with which the City has contracts for services. Additional underperforming revenues are within categories such as parking citations, meters and off-street parking, and recreation-related activities, declines in these revenues appear to be caused by changes in individual behaviors.
The Department of Financial Management will continue to monitor revenue performance on an on-going basis and work with departments to maximize revenue collection.
FY 11 General Fund Expenditures by Department
As of June 30 2011, General Fund departments are estimating to end the fiscal year at $388.4 million, or 0.18 percent, under Adjusted Budget, showing an improvement from the previous report. The last performance report indicated that the City Manager had issued a directive to Departments to end the fiscal year at their mid-year estimates-to-close, and most Departments have held to this edict, demonstrating their ability to carefully manage their budgets. A couple notable performances in departments warrant a mention.
• While the Police Department is currently estimating to close the fiscal year slightly above its adjusted budget, the Department has submitted a plan describing reduction efforts underway in order to end the year within budget. For example, eligible gang and narcotics enforcement expense will be shifted to grant funding, non-career employee hours have been reduced, and general cutbacks have been implemented for materials and supplies. The Department has currently spent 76 percent, or $6.4 million, of its overtime budget, and will closely monitor expenses for the rest of the fiscal year. However, significant unforeseen incidents such as SWAT callouts or officer involved shootings may consume additional overtime that cannot be mitigated before year-end.
• As part of Government Reform initiatives in the FY 11 Adopted budget, the management of Parking Operations was moved to the Department of Public Works and the move of the budget will be reflected in the fourth quarter budget adjustment report. This function has consistently been under budgeted for the past few years. At this time, management believes that this budgetary issue for FY 11 will be resolved by the year-end.
Exhibit 3 shows the City’s Top 10 General Fund year-to-date expenditures in FY 11 by department as a percentage of total General Fund expenditures. Together, Police and Fire account for 68 percent of General Fund expenditures. The Police, Fire, Public Works, Parks, Recreation and Marine, and Library Services departments account for 85 percent of General Fund expenditures.
Exhibit 3 - Ten Largest FY 11 General Fund Expenditures Year-to-Date by Department, as a Percentage of the $278.6 million Total Expenditures.
*Citywide Activities include debt payments, pass through transactions, old Police and Fire pension plan, General Fund CIP funding, etc.
Conclusion
The City has taken deliberate steps over the past three quarters to reign in expenditures as unanticipated events have led to potential overages. The Department of Financial Management will closely monitor the General Fund expense and major revenue streams for the remaining part of the year. The City is committed to being fiscally responsible and conservative as State and federal actions can create unforeseen challenges in the current year.
TIMING CONSIDERATIONS
City Council action on this matter is not time critical.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
JOHN GROSS
DIRECTOR OF FINANCIAL MANAGEMENT/CFO
APPROVED:
PATRICK H. WEST
CITY MANAGER