CC - Item 4A - Quarterly Financial Updatep ~ 9
MEAD ITY OU NCIL
ROSE C C
~~
~` ~ r STAFF DEPORT
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hPORA; I"Tit '" .
TO: THE HONORABLE MAYOR AND CITY COUNCIL
FROM: OLIVER CHI, CITY MANAGER ~G:rC-~%
DATE: DECEMBER 16, 2008
SUBJECT: QUARTERLY INTERIM FINANCIAL UPDATE
SUMMARY
Historically it has been a common practice with many jurisdictions to provide governing
bodies with financial statement information only once or twice per year. As new audit
standards require greater financial awareness on the part of governing bodies, the
issuance of unaudited interim summary financial reports provides a means of
communicating that information. Additionally, before the new audit standards were
issued,.the city management work plan included issuing quarterly financial reports so
the City Council and the public would have increased City financial familiarity.
It is with the team's work plans and new audit requirements in mind that the first quarter
FY 2008-09 Quarterly Interim Financial Update report is being issued. The report is
unaudited and does not include the extensive accounting accruals and adjustments that
are included in audited financial statements. However, the attached report provides a
summarized look at the City's finances for the first quarter of FY 2008-09 and is
expected to be valuable for assessing the City's overall financial condition.
Staff Recommendation
Staff recommends that the City Council receive and file the Quarterly Interim Financial
Update report.
PUBLIC NOTICE PROCESS
This item has been noticed through the regular agenda notification process..
Submitted by:
Steven Brisco
Finance Director
Attachment A: Quarterly Interim Financial Update
APPROVED FOR CITY COUNCIL AGENDA: O ~ ITEM NUMBER:
Attachment A
Co~~ ®f R®sem~~
Zoos-o9 CZ~arterly ~nterem Financial Update
For the quarter Ended ~/3®/0~
The purpose of this report is to present a "big
picture" review of the financial progress of the
City for the first quarter. Typical. of California
city government, Rosemead's first quarter
revenues appear low when compared to the
budget. Revenues are low due to the reversal
of FY 2007-08 accounting accruals in July, later
payments of tax distributions to the City by the
County and the State as well as franchise fees
that are not due to the City until late in the
fiscal year. At the same time, most of the
expenditures, except for capital outlay and one-
time expenditures for annual insurance
premiums, are evenly spent throughout all four
quarters. The effect is a first quarter net loss
condition for the General Fund, however this is
normal and no cause for alarm.
The focus of this report is on discretionary
funds such as the General Fund and the
Rosemead Housing Development Corporation's
fund. The Rosemead Community Development
Commission's funds are only briefly discussed
because their only source of revenue (property
tax increment) will not be allocated to local
agencies by the County until late in the second
quarter.
Finances in Brief
General Fund revenues (excluding a sales tax
allocation correction by the State) are "on
track" .with budget expectations when
compared to the three year- moving average
first quarter.
Total General Fund expenditures are 18.9% of
the budget for the first quarter.. The first
quarter also includes a significant expenditure
for the City's annual insurance premiums of
$312 thousand.
Special revenue funds such as CDBG, HOME,
Gas Tax and Prop A and C have received $1.8
million in revenue for the quarter and spent
$1.1 million for the quarter. The excess
revenue is due to a deferred gas tax payment of
$244 thousand paid by the State in September
and by CDBG and HOME fund reimbursements
received in the FY 2008-09 first quarter for FY
2007-OS expenditures.
Community Development Commission (CDC)
funds have not received any revenue for the
quarter. Property tax increment payments to
local agencies from the County are scheduled to
begin late' in the second quarter (November).
CDC expenditures totaling $6.2 million for the
quarter are $4.3 million for the purchase of the
Rosemead Inn, $1.7 million for debt service
payments and $219 thousand was charged to
the CDC funds for salaries and benefits. All
expenditures were paid from cash balances on
hand.
Rosemead Housing Development Corporation,
which is the legal entity for the City's low
income senior housing apartments, received
revenues and transfers this quarter total $165.8
thousand as opposed to projected revenue for
the quarter of $180 thousand. FY 2007-08
revenues for the same quarter were
approximately the same. Expenditures for the
quarter are $90 thousand as opposed to
budgeted quarterly appropriations of $86
thousand. ' The trend of underperforming
revenues and excessive expenditures will lead
to an eventual net loss if corrective measures
are not taken. Staff will be evaluating various
options and will present them at a future date.
_,
Page 1
Attachment A
General Fund Revenues
10.4% ($1.9 million) of estimated General Fund
revenues have been collected in the first
quarter (see Chart 1). While this seems like a
small percentage of the total budgeted
revenue, it must be remembered that
significant amounts of .revenues, such, as
franchise fees, property taxes and property tax
in-lieu payments are received in subsequent
quarters.
Fines & Penalties. ,Receipts of Court Fines
revenue ($69 thousand) is more than four times
greater than that received in the first quarter of
FY 2007-08. This is due to delays in collection
and reporting of fines in FY 2007-08. Total
collections for the FY 2008-09 are expected to
match collections of the previous year
Other Revenue. There was minimal activity
with other revenues during the first quarter and
no significant events are noted.
Taxes. Taxes include Sales Tax, Property Tax,
Taxes In-lieu, Transient Occupancy Tax and the
like. In this quarter there is a one-time spike in
Sales Tax due to a retro adjustment by the
California Board of Equalization (BOE). The
City's sales tax consultant notified the BOE of
their error approximately three years ago and
has been working with the City to ensure this
correction was made. The makeup payment
had been expected by team members and is
included in the- FY 2008-09 budget. As
compared with the three year rolling average,
the remainder of sales tax collections meets
expectations for the first quarter. Property
Taxes collections are minimal at $62.1
thousand, Property Tax distributions resume in
November and $328.0 thousand of Transient
Occupancy Tax has been accrued for this report.
licenses and Permits. Revenue for the quarter
was more than three times that of the same
quarter last year. Building Permit revenue is
more than triple the amount of last year. The
increase in Building Permit revenue does not
reflect any large projects, but rather,. many
projects with higher valuations. Additionally,
several high valuation projects are working their
way through the process this year and team
members expect that Building Permit revenue
will meet or beat budgeted revenue projections
by year end. Also, Vehicle License Fee
collections are 35.5% more than the same
quarter last year, due more to the timing of the
cash receipts than new revenue.
General Fund Revenues
$12,000 100's~.,.,., _ ____
$10,000 ~ -_~__.___._______.__._.__.._________.._
$8,000
$6,000
$4,000 ~ -_.-__.___ __-.-
$2,000
e`' mow' e~ e~ e`' ~' et
~a+~~`$o \`e~5 ~ra~~ ~~c ey~~~ ~~r
~ ~ ~J
9/30/2007 ~~~9/30/2008
Chart 1
General Fund Expenditures
General Fund salary and benefits as well as
maintenance and operations are fairly evenly
paid throughout the year and are tracking
within budgetary ranges for the first quarter of
this fiscal year. Capital outlay is mostly for
large, one-time items and they do not track
evenly throughout the year. They are, however
within the budgetary range at this time.
Page 2
Attachment A
General Fund Expenditures continued .
Salary and Benefits. There was a major shift in
budgeting for Salaries and Benefits this year
(see Chart 2). In prior years a significant portion
of Salary and Benefits were charged to the CDC
funds. In the FY 2008-09 budget a major effort
was made to identify a more precise association
between CDC project work performed and
Salary and Benefits charged to the CDC. In
many instances a stronger case was made to
charge the General Fund, instead of the CDC
funds. In fact, the budget adjustment is a $1.6
million shift from CDC funds to government and
special revenue funds. However, the total cost
for salary and benefits, except for the normal
cost of living adjustment, is. budgeted
comparably to FY 2007-08. One additional
change should be noted here. Engineering
services are now being provided by team
members rather than a contract engineering
service. Consequently, there is a shift in
budgeted cost from contract engineering
services to salary and benefits.
Maintenance and Operations. Maintenance
and operating expenses include three
noteworthy expenditures in the first quarter of
FY 2008-09 when compared to the ,same
quarter last year. The first is a one-time
expenditure of about $80.0 thousand to update
the General Plan compared to $10.0 thousand
last year for general plan update services.
Second, FY 2008-09 building inspection costs
were about $25.0 thousand more than last
year's first quarter, primarily due to the timing
of payments. Finally, in FY 2008-09 $10.2
thousand was spent on pool improvements.
The remainder of maintenance and operating
expenses are being spent in expected budgetary
proportions for the quarter. The expenditures,
mentioned above,; were included .~ in the FY
2008-09 budget and represent timing issues,
not over-expenditures.
Capital Outlay. ,This is another expenditure
category that is characterized by relatively
large, one-time expenditures rather than a
smooth even flow of expenditures throughout
the year. Accordingly, it may appear that the
first quarter's expenditures are excessively large
or small. However, by the end of the fiscal year
the expenditures should be in line with the
budget. For the first quarter of FY 2008-09
$127 thousand was spent on Council Chamber
renovations. Another $10 thousand was spent
on smaller capital outlay items, primarily
equipment and machinery. For the first quarter
of FY 2007-08 $42 thousand. was spent office
furniture and park improvements. Several
projects, as well as equipment and machinery
are included in the FY 2008-09 budget and will
be spent in subsequent periods. .
General Fund 0=xpenditures
f ($100's)
$15,000
i.~ -
$10,000 ~ ,
- $5,000 ~ ---
s
ai f
$- tom.- i ----_ ___. ~ ~s,
Sal & Bnft Maint & Capital
Opn
®9/30/2007 ~i9/30/2008
Chart 2
Community Development Commission
The CDC has received no property tax
increment income during the first quarter. Los
Angeles County (County) will resume Property
Tax Increment distributions in November and
will continue through August 2009. The July
and August 2008 property tax increment
payments were, accrued .to FY 2007-08. The
delay of revenue distributions until November
by the County is normal. The Rosemead Inn
was purchased for $4.3 million, debt service of
$1.7 million was paid in late September and
Page 3
Attachment A
$219 thousand of Salaries and Benefits has
been charged to the CDC funds. CDC
expenditures were paid with currently held
cash. As property tax increment is received
from the County the cash balance. will be
replenished. There have been no other CDC
expenditures in the first quarter.
Rosemead Housing Development
The Garvey and Angelus senior housing project
finances remain remarkably consistent each
quarter. With basically no vacancies and a list
of people waiting to move in when vacancies
occur, the revenues remain constant each
quarter. However, due to normal inflation, the
operating expenses are creeping up and are
beginning to outpace revenues in the Angelus
complex (Chart 3). Also, maintenance expenses
have been routine in nature but, like any
building, will eventually require .expensive
major repairs. Routine operating costs are also
subject to normal inflationary pressures and it
would be prudent management practice to
provide for regular, modest increases in the
rents to prepare for the inevitable need for
major maintenance and pay for ever increasing
operating costs. The following table will further
illustrate the need to adjust the rents:
Rosemead Housing Development Corp.
Quarter Ended 9/30/2008
Angelus vvr~ti~ey
Rents $ 40,229 $ 63,054
Low-Mod
transfer 31;250 31,250
Expenditures (89,245) (90,719)
Outlook for the Future
In spite of the bad economic news that is
reported in the .media on a daily basis, the
outlook for Rosemead remains remarkably
resilient. A meeting with the City's sales tax
consultant revealed that sales tax revenue for
July, August and September sales decreased by
a mere 0.2%. Sales tax for the same period
County-wide declined 2.6%. The housing
market is less .affected in Rosemead than in
newer communities such as in the Inland
Empire because our neighborhoods are
established and do not consist of large new
developments that were purchased at peak
housing prices.
Rosemead has a good blend of businesses. It is
not overly dependent on one industry for its
sales tax revenue, such as automobile sales.
Furthermore, Rosemead has two major retailers
that historically do well in slower economic
conditions, Target and WalMart. Finally, with
new retail activity expected in the next year
'there should.. be even more financial
sustainability. However, in the short run
Rosemead has had to bear some of the burden
of the State's fiscal downturn. Later this fiscal
year the. City is required to contribute almost
$300 thousand of property tax increment
revenue to the State coffers. In the longer run,
Team ,Member's emphasis on economic
development in.the City will continue to build a
fiscally healthy Rosemead for generations to
come.
Income
oss) ~ $ (17,766) ~ $ 3,585
Chart 3
Page 4