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FROM: DIRECTOR OF FINANCE AND INFORMATION TECHNOLOGY
DATE: FEBRUARY 21, 2006
SUBJECT: FY05-06 MIDYEAR FINANCIAL REPORT
Attachment A (PDF)
Staff Coordinator: Kathryn Downs, Deputy Director of Finance and Information Technology
1) Receive and file the midyear financial report; and
2) ADOPT RESOLUTION NO. 2006- , AMENDING RESOLUTION NO. 2005-53, THE BUDGET APPROPRIATION FOR FY05-06, TO ADJUST APPROPRIATIONS IN THE GENERAL FUND, STREET MAINTENANCE FUND, PROPOSITION C FUND, PROPOSITION A FUND, CAPITAL IMPROVEMENT PROJECTS FUND, MEASURE A CAPITAL FUND AND WATER QUALITY FLOOD PROTECTION FUND.
Based upon Staff’s analysis of the City’s financial activities during the first half of FY05-06, it appears that revenues and expenditures will generally approximate the budget, except as described otherwise in this report. Except as noted below, fund balances as of June 30, 2006 are expected to approximate estimated fund balances presented with the FY05-06 budget (see Attachment A – "FY05-06 Combined Summary Of Funds – Midyear Financial Report").
Total estimated General fund revenue is expected to exceed the FY05-06 budget of $14,850,750 by about $870,000. If the City Council approves the seven recommended General fund expenditure budget adjustments totaling $156,000 and a recommended transfer out of $65,979, the revised estimate of June 30, 2006 General fund reserves will be $12,486,024.
The Municipal Code of the City of Rancho Palos Verdes requires that a midyear review of the annual budget be presented to the City Council. Based upon Staff’s analysis of the City’s financial activities during the first half of FY05-06, it appears that revenues and expenditures will generally approximate the budget, except as described otherwise in this report.
The Summary Schedule of General Fund Revenue is presented below. Discussion regarding revenue projections for several other funds of the City has been included later in the report. It is important to understand that these revenue projections are based upon Staff's analysis using trend comparisons with previous years, and reports provided by state, county and local agencies. It should be noted that future economic activity, legislation and policy decisions, as well as any other unforeseen circumstances could affect the City's revenue stream for the remainder of FY05-06.
The midyear financial report also includes discussion and analysis of anticipated expenditures, the status of major projects not yet completed, and other relevant developments related to the FY05-06 budget. If the activity of a particular fund, department or program is not discussed, there is nothing significant to report and revenues and expenditures are not expected to materially deviate from the amounts budgeted. Throughout the midyear financial report, Staff has recommended several budget adjustments necessary to assure budgetary compliance.
FINANCIAL REPORT AND MANAGEMENT DISCUSSION AND ANALYSIS
Staff has included the "FY05-06 Combined Summary of Funds - Midyear Financial Report" (Attachment A) to summarize the estimated FY05-06 activity and ending fund balances for all funds within the City. The schedule includes revised revenue and expenditure projections.
General Fund Revenue
It is difficult to estimate future revenue from sources such as utility users taxes and permit fees. These types of revenues are predicated on conditions outside the City’s control. As an example, planning and building permit revenues will fluctuate with the economy, as well as other conditions such as the weather. Additionally, several significant franchise tax revenues are received annually after preparation of the midyear report. For these revenues, Staff has either reported FY05-06 estimated revenues as the budgeted amount or a conservative figure based on the amount of information currently available.
SUMMARY SCHEDULE OF GENERAL FUND REVENUE:
Discussion and analysis regarding General fund revenues is presented below. If a particular revenue source is not discussed, there is nothing significant to report and anticipated revenues are not expected to materially deviate from the FY05-06 budget. Staff has only requested budget adjustments for material expected variances; therefore, the $15.7 million revenue estimate above will not perfectly match the revised General fund revenue budget.
Property Transfer Tax
Based on year to date activity, Staff anticipates that Property Transfer Tax will approximate $405,000 during FY05-06. Property Transfer Tax received during FY04-05 was about $402,000, and the FY05-06 budget is $325,000. Staff requests a budget increase of $80,000 for this revenue.
Property Tax In Lieu Of Vehicle License Fees (VLF)
The State has reported that the City will receive $2,792,544 of Property Tax In Lieu Of VLF during FY05-06. The reported amount is $667,844 more than the budgeted amount of $2,124,700. Within the staff report titled "FY04-05 Comprehensive Annual Financial Report And Independent Auditors’ Report On Compliance And Internal Control" dated February 21, 2006, Staff has proposed a recommendation to increase the revenue budget by $667,844.
Property Tax In Lieu Of Sales Tax
The State has not provided information regarding the amount of Property Tax In Lieu Of Sales Tax the City is expected to receive. Staff estimates that about $248,000 will be received during FY05-06. Approximately $243,000 was received in FY04-05 and the FY05-06 budget is $309,200. Staff requests a budget decrease of $60,000 for this revenue line item.
Based upon year to date activity for Sales Tax, it appears FY05-06 revenue will approximate the FY04-05 amount of $1,008,618; however, the FY05-06 budget is $909,600. Staff recommends a budget increase of $100,000 for Sales Tax.
Franchise Tax And Utility Users Tax (UUT)
Based upon year to date activity for Franchise Tax and Utility Users Tax, it appears FY05-06 revenue will approximate the FY04-05 amounts of $1,306,756 and $1,901,380, respectively. The FY05-06 budget amounts for Franchise Tax and Utility Users Tax are $1,231,300 and $1,827,900, respectively. Staff recommends budget increases of $70,000 for Franchise Tax and $70,000 for UUT.
The Trump National Golf Course closed for improvements in August 2004 and recently re-opened to the public with a temporary permit. Staff recommends the City Council decrease the FY05-06 revenue budget by $110,000. The original $195,500 budget was based upon a full year of operation.
Planning, Building & Safety And Other Permits
Within this category, Staff expects Building & Safety permit revenue will be about $160,000 less than budgeted amount of $913,900. The shortfall is attributable to two factors: 1) Plan check activity is down by 21% versus FY04-05, and 2) Valuation of permitted building activity has significantly decreased. The price of the building permit fee is driven by building valuation. During FY04-05, permit activity was primarily for new homes; yet during FY05-06, permitting has been limited to mostly re-model activities. Staff requests a budget decrease of $160,000 for Building & Safety permit revenue. The cost of contracted Building & Safety services is currently tracking to total about $340,000 for FY05-06. The budgeted expenditure for these services is $496,000. City Council may direct Staff to reduce the Building & Safety expenditure budget; however, Staff does not recommend an expenditure adjustment at this time, as remaining FY05-06 Building & Safety permit activity may increase.
The interest revenue budget was based upon an estimated General fund reserve balance between $10 and $11 million. Due to favorable FY04-05 variances, the current estimate of General fund reserves is about $12.5 million (with requested expenditure and transfer out adjustments). In addition, the interest rate assumption used when preparing the budget was 2.5%. Currently, the City’s investment portfolio is earning approximately 4%. Staff requests a $170,000 increase to the FY05-06 interest revenue budget of $274,600.
Other Use Of Money And Property
The General fund revenue budget includes $30,000 for Point Vicente Interpretive Center (PVIC) gift shop sales and admissions within this revenue category. Due to the installation of exhibits and resulting delay of the PVIC grand opening, Staff requests a $30,000 budget reduction.
Vehicle License Fees (VLF)
The State has reported that the City will receive about $375,000 of VLF revenue. Staff proposes a $40,000 increase to the FY05-06 revenue budget of $334,100.
The overall expected favorable variance to budgeted General fund revenue is $870,362. Staff has requested net revenue budget adjustments totaling $170,000 with this staff report. Within the staff report titled "FY04-05 Comprehensive Annual Financial Report And Independent Auditors’ Report On Compliance And Internal Control" and dated February 21, 2006, Staff has requested a separate revenue budget increase of $667,844 for Property Tax In Lieu of VLF.
General Fund Expenditures
Based on a historical analysis of prior years, total General fund expenditures for the first six months of the fiscal year should not exceed 45% of budgeted appropriations in order to track within budgeted limits. Total General fund expenditures through December 31, 2005 were approximately 32% of budget; therefore, it appears estimated expenditures for FY05-06 will be within the total General fund budget. Budgetary compliance is by program. As there are a few individual programs that are expected to vary from budget, Staff requests the following budget increases to assure budgetary compliance.
City Council Minute Taker
The cost of preparing comprehensive minutes averages about $650 per meeting. The City has been invoiced $4,565 for minute taking service for the first 7 meetings of the fiscal year. The budget for minute taking service is $15,000, yet Staff expects a total cost of $25,000 for FY05-06. Staff requests a budget increase of $10,000 for this expenditure.
Staff expects that an additional $11,000 will be needed to continue recruiting for the vacant Public Works Director position and potential recruiting for other vacancies during the remainder of the fiscal year. The entire FY05-06 budget of $6,200 for this expenditure has already been consumed. Staff requests a budget increase of $11,000 for recruiting.
Safety Special Programs
The FY05-06 budget provides for traffic control services at Rancho Vista elementary school. A Community Service Officer (CSO) normally provides this service. There are two vacant CSO positions. A Deputy is currently providing the service at a higher billing rate. Staff expects an additional $10,000 will be needed during FY05-06 and requests an increase to the current budget of $12,600.
Public Works Administration
The Public Works Director vacancy has required the City to hire a temporary Director at a higher hourly rate. Staff expects an additional $70,000 will be required for Public Works Administration salaries and expenses for the remainder of FY05-06 and requests an increase to the current budget of $346,800.
Public Works Staff has determined that due to activities of the Traffic Safety Commission, an additional $30,000 is required for Traffic Engineering services. Staff requests a $30,000 increase to the existing $70,000 FY05-06 budget.
Staff requests a $25,000 FY05-06 budget increase to complete preparation of the Trails Plan.
General Fund Transfers
Staff is able to use $15,000 of Waste Reduction monies to conduct storm drain screening as part of the General fund Storm Water Quality program that accounts for National Pollutant Discharge Elimination System (NPDES) activities. Staff requests a budget increase for General fund transfers-in of $15,000. There is currently adequate budget within the Waste Reduction fund to make this transfer.
On June 21, 2005, City Council approved the Notice Of Completion for the City Hall elevator project. The project included a refurbishment of the City Hall reception area. The elevator was funded entirely with Community Development Block Grant (CDBG) monies, and the reception area was funded with a $77,222 General fund transfer to the CDBG fund authorized by City Council on June 15, 2004. All project costs, including expenditures for the reception area, were recorded in the CDBG fund. As of June 30, 2005, the CDBG fund had a deficit balance of $65,979. Staff requests a budget adjustment of $65,979 for the authorized General fund transfer to the CDBG fund.
Estimated General Fund Balance, June 30, 2006
The FY05-06 budget estimate of the June 30, 2006 unreserved General fund balance was $10,376,460. As shown above, Staff estimates that the June 30, 2006 fund balance will approximate $12,708,003. The $2,331,543 estimated favorable variance is calculated as follows:
If the City Council authorizes the budgeted adjustments described in the General fund expenditures and General fund transfers sections of this report, the June 30, 2006 estimated General unreserved fund balance would be $12,486,024 ($12,708,003 less $221,979 of requested additional expenditure appropriations and transfers out). The estimated unreserved General fund balance is greater than the City Council’s reserve policy level, currently calculated as $7,844,297 or 50% of the revised budgeted General fund revenue of $15,688,594.
CAPITAL PROJECTS FUNDS
Capital Improvement Projects (CIP) Fund Revenue and Transfers In
Certain project construction costs are reimbursed with grant funds or transfers from restricted funds of the City (e.g. Proposition C and Quimby funds). The amount of FY05-06 grant revenue or transfers from other funds depends upon the percentage of project completion at fiscal year-end. Current year grant revenue and transfers-in will be less than budget, proportionate to the estimated decrease in year-end project expenditures. Such grant revenue and transfers-in will likely be carried over and re-budgeted to FY06-07 to match the period in which actual project expenditures will be incurred.
CIP Fund Expenditures
Sixteen projects, with total costs of approximately $7 Million, are budgeted for FY05-06. Historically, many projects are not completed prior to fiscal year-end and need to be re-budgeted or carried over as a continuing appropriation to the next fiscal year. Staff expects that this is also true for FY05-06. An update of major projects is included below.
PVIC Expansion (FY05-06 budget of $2,393,961, lifetime budget of $6,335,081)
Work is complete on this project. Public Works Staff expects to recommend approval of the project Notice of Completion at the March 7, 2006 City Council meeting.
Annual Residential Overlay (FY05-06 budget of $1,921,976)
Staff expects to advertise for bids in March 2006 and begin construction in May 2006, after City Council awards a contract. Staff expects that the majority of this expenditure budget will need to be carried forward to FY06-07.
Portuguese Bend Open Space Acquisition (FY05-06 budget of $1,000,000)
On December 20, 2005, escrow closed for the purchase of Portuguese Bend Open Space. The total purchase price was $17,074,057 and was funded from the following sources:
The City is the buyer and holds title to the land; therefore, Generally Accepted Accounting Principles (GAAP) dictate that grant funding and contributions from PVPLC and the City of Rolling Hills must be recognized in the City’s revenue, and the entire cost of the land purchase must be recognized in the City’s expenditures. To assure budgetary compliance, Staff requests the following budget adjustments for this transaction:
The requested budget adjustments will have no effect on the CIP fund balance.
Annual Arterial Overlay (FY05-06 budget of $725,000)
This project, currently in the design phase, will be combined with the arterial slurry budget of $520,000 in the Street Maintenance fund for one FY05-06 arterial-rehabilitation project. Staff expects to provide a contract recommendation to City Council in May 2006. Staff also expects that the majority of this expenditure budget will need to be carried forward to FY06-07.
Various Storm Drain Improvements (FY05-06 budget of $729,877)
Staff has attached the FY05-06 Storm Drain Budget and Status Of Projects (see attachments B.1 and B.2) to provide a status of these various improvements. This budget is mostly comprised of exigent interim improvements to storm drains that facilitate permanent reconstruction at a later date, when funding may be available from the Water Quality Flood Protection (WQFP) Storm Drain User Fee and General Fund Reserves. Staff offers additional information regarding emergency storm drain activities in the WQFP section of this staff report.
Shoreline Park and PVIC Safety Fencing (FY05-06 budget of $150,000)
The plans for this project are currently being prepared. Staff expects to provide a contract recommendation to City Council in June 2006. Staff also expects that a majority of this expenditure budget will need to be carried forward to FY06-07.
CIP Fund Transfers
As part of FY04-05 continuing appropriations to FY05-06, City Council approved a reclassification of $472,000 of storm drain lining from the CIP fund to the WQFP fund. Staff requests a budget adjustment to transfer $472,000 of the CIP fund balance to the WQFP fund.
Estimated CIP Fund Balance, June 30, 2006
The estimated fund balance presented below includes the requested revenue and expenditure adjustments for the open space land purchase and the requested fund balance transfer noted above.
The FY05-06 budget estimate of the June 30, 2006 CIP fund balance was $355,433. As shown above, Staff has estimated that the June 30, 2006 fund balance will approximate $113,686. The $241,747 estimated unfavorable variance is calculated as follows:
Estimated Affordable Housing In-Lieu Fund Balance, June 30,2006
The FY05-06 budget estimate of the June 30, 2006 Affordable Housing In-Lieu fund balance was $2,031,392. The FY04-05 budget included a developer fee from the proposed Long Point resort project (Terranea) in the amount of $931,910. Generally, the Affordable Housing In-Lieu fee is remitted after construction and prior to occupancy. Currently, there are no developer fees included with the adopted FY05-06 budget or the proposed FY06-07 budget.
Development Impact Mitigation (Environmental Excise Tax) Revenues
The FY05-06 budget for Environmental Excise Tax (EET) revenue is $197,100. The revenue estimate was based upon construction of 77 new homes. Based on information currently available, Planning Staff believes that only about 21 new homes will be constructed during FY05-06. Staff requests a $143,000 budget decrease for EET revenue.
Estimated Development Impact Mitigation Fund Balance, June 30 2006
The FY05-06 budget estimate of the June 30, 2006 Development Impact Mitigation fund balance was $329,786. As shown above, Staff estimates the June 30, 2006 fund balance will approximate $171,201. The estimated unfavorable variance is primarily due to the requested revenue budget decrease of $143,000, noted above.
Water Quality Flood Protection (WQFP) Expenditures
On March 15, 2005, City Council approved a storm drain expenditure plan that included $100,000 to be spent from the WQFP fund during FY04-05 for engineering the ultimate improvements to McCarrell Canyon storm drain facilities. There was no budget resolution for the $100,000 allocation presented to City Council at that time, and the engineering has not yet been performed. Staff requests a budget adjustment to formalize the City Council action taken on March 15th and appropriate the $100,000 allocation, which is included in the attachments B and B.1 as "McCarrell Canyon Ultimate Improvements."
The status of projects budgeted within the WQFP fund is presented in attachments B.1 and B.2. In addition to $2,000,000 of projects included in the Storm Drain User Fee Rate Model, the City Council has approved additional emergency lining projects totaling $579,700 funded with additional General fund transfers. The ongoing process of videotaping is disclosing that more storm drains are in need of repair than had been projected originally. Approximately 80 storm drain facilities were recently inspected. Public Works Staff determined that more than 80% of the facilities inspected need to be lined or replaced. The 30-year WQFP program includes $4.6 million for storm drain lining, or approximately $140,000 annually after FY05-06. The FY05-06 lining budget is currently $1,551,700. Public Works Staff expects to bring additional storm drain lining requests to the City Council in the future. Additional storm drain lining will require additional General fund transfers. The cost of additional lining projects is currently unknown, although Public Works Staff expects to provide some estimates during the 2006 budget process.
Estimated Water Quality Flood Protection Fund Balance, June 30, 2006
The FY05-06 budget estimate of the June 30, 2006 WQFP fund balance was $24,000.
SPECIAL REVENUE FUNDS
Street Maintenance Revenues
The City has received $88,314 of Traffic Congestion Relief monies for the first two quarters of FY05-06. The revenue was not expected or budgeted. Traffic Congestion Relief was last received in FY02-03 and FY01-02. The State Controller has not reported an estimate of the total Traffic Congestion Relief to be paid the City during FY05-06. Historically, payments are not equal over all four annual quarters, and the fourth quarter payment has been immaterial. Staff requests a revenue budget increase of $110,000 as a conservative estimate of total FY05-06 Traffic Congestion Relief. These monies are restricted to certain street maintenance activities. Public Works staff expects to request use of these monies for the FY06-07 Residential Overlay program during the 2006 budget process.
Street Maintenance Expenditures
Due to the heavy rainfall of 2005, the stretch of Palos Verdes Drive South (PVDS) in the Portuguese Bend area has experienced extraordinary movement, and has required additional pavement repairs. Maintenance of PVDS is eligible for Proposition C funding. Staff requests a budget increase of $100,000 for additional PVDS maintenance expenditures and the corresponding operating transfer from the Proposition C fund.
Estimated Street Maintenance Fund Balance, June 30, 2006
The estimated fund balance presented below includes the requested revenue and expenditure adjustments for Traffic Congestion Relief and PVDS maintenance noted above.
The FY05-06 budget estimate of the June 30, 2006 Street Maintenance fund balance was $116,633. As shown above, Staff estimates the June 30, 2006 fund balance will approximate $276,921. The estimated favorable variance is primarily attributable to the Traffic Congestion Relief noted above and additional interest earnings.
Estimated 1911 Act Fund Balance, June 30, 2006
The FY05-06 budget estimate of the June 30, 2006 1911 Act fund balance was $1,161,212. As shown above, Staff estimates the June 30, 2006 fund balance will approximate $1,293,291. The $132,079 estimated favorable variance is primarily attributable to FY04-05 expenditure savings and additional interest earnings.
Estimated Beautification Fund Balance, June 30, 2006
The FY05-06 budget estimate of the June 30, 2006 Beautification fund balance was $518,057. The $345,651 estimated favorable variance is primarily due to timing of City beautification grants to homeowners’ associations. For example, the FY03-04 grants were expended as follows:
Each fiscal year grant program is not disbursed until the following fiscal year. The grant expenditure is carried forward to the next fiscal year to match the disbursement date. Staff elected not to carry forward the FY04-05 grant appropriation of $221,000 to FY05-06. Instead, the FY05-06 grant budget will be used to fund the September 2005 awards. Therefore, a permanent savings of $221,000 was realized. In addition, only $165,682 of the $215,900 FY03-04 City grant budget was disbursed during FY04-05, resulting in another permanent savings of $50,218. Finally, this fund earned about $16,000 more interest than previously calculated and received about $47,000 more in recycling fees than budgeted in FY04-05.
Proposition C Transfers
As noted above, required maintenance to PVDS in the Portuguese Bend area has increased due to heavy rainfall in 2005. Staff requests a $100,000 budget increase to operating transfers out to fund the additional maintenance. PVDS maintenance costs are Proposition C eligible expenditures.
Estimated Proposition C Fund Balance, June 30, 2006
The FY05-06 budget estimate of the June 30, 2006 Proposition C fund balance was $520,391. As shown above, Staff estimates the June 30, 2006 fund balance will approximate $455,688. The estimated unfavorable variance of $64,703 is primarily due to the $100,000 funding request noted above, offset by additional interest earnings during FY04-05.
Proposition A Expenditures
Public Works Staff received the Palos Verdes Peninsula Transit Authority (PVPTA) invoice for the FY05-06 City contribution. The invoice amount was $434,022, or $3,022 more than the budgeted amount of $431,000. Staff requests an expenditure budget increase of $3,022 to allow for the additional contribution to the FY05-06 PVPTA operating budget.
Estimated Proposition A Fund Balance, June 30, 2006
The FY05-06 budget estimate of the June 30, 2006 Proposition A fund balance was $731,490. As shown above, Staff estimates the June 30, 2006 fund balance will approximate $824,664. The estimated favorable variance of $93,174 is primarily attributable to the receipt of $88,682 more Proposition A revenue during FY04-05 than budgeted.
INTERNAL SERVICE FUNDS
Estimated Employee Benefits Fund Balance, June 30, 2006
The FY05-06 budget estimate of the June 30, 2006 Employee Benefits fund balance was $194,935. As shown above, Staff estimates the June 30, 2006 fund balance will approximate $284,588. The estimated favorable variance of $89,653 is primarily due to a FY04-05 favorable health insurance variance of $84,308.
Estimated Equipment Replacement Fund Balance, June 30, 2006
The FY05-06 budget estimate of the June 30, 2006 Equipment Replacement fund balance was $2,041,437. As shown above, Staff estimates the June 30, 2006 fund balance will approximate $2,288,531. The estimated favorable variance of $247,094 is primarily due to FY04-05 expenditure savings, as follows:
RECOMMENDED BUDGET ADJUSTMENTS
Staff recommends the following budget adjustments, as noted within this report.
Except as discussed above, estimated revenues and expenditures are expected to approximate the budget in all funds of the City for FY05-06.
Director of Finance and Information Technology
RESOLUTION NO. 2006-
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF RANCHO PALOS
VERDES, AMENDING RESOLUTION 2005-53, THE BUDGET APPROPRIATION
FOR FY05-06, FOR BUDGET ADJUSTMENTS TO THE CITY'S GENERAL FUND, STREET MAINTENANCE FUND, PROPOSITION C FUND, PROPOSITION A FUND, CAPITAL IMPROVEMENT PROJECTS FUND, MEASURE A CAPITAL FUND, AND WATER QUALITY FLOOD PROTECTION FUND
WHEREAS, Section 3.32 of the Rancho Palos Verdes Municipal Code provides that all expenditures in excess of budgeted allocations must be by supplemental appropriation of the City Council: and
WHEREAS, on May 31, 2005, the City Council of the City of Rancho Palos Verdes adopted Resolution 2005-53, approving a spending plan and authorizing a budget appropriation for FY05-06: and
WHEREAS, certain FY05-06 program and/or department revenues, expenditures and transfers, as described below, are expected to deviate from the amount budgeted; and
WHEREAS, the City Council desires that the FY05-06 budget be adjusted.
BE IT, THEREFORE, RESOLVED BY THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES:
The following adjustments be made to the FY05-06 budget:
PASSED, APPROVED, AND ADOPTED THE 21st DAY OF FEBRUARY 2006.
State of California )
County of Los Angeles )ss
City of Rancho Palos Verdes )
I, CAROLYNN PETRU, City Clerk of The City of Rancho Palos Verdes, hereby certify that the above Resolution No. 2005- was duly and regularly passed and adopted by the said City Council at regular meeting thereof held on February 21, 2006.