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CC - Item 4A - Quarterly Financial Updatep ~ 9 MEAD ITY OU NCIL ROSE C C ~~ ~` ~ r STAFF DEPORT ~~, ~ ,~ 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