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CC - Item 6I - Quarterly Interim Financial Update for the Quarter Ending on September 30, 2017ROSEMEAD CITY COUNCIL TO: THE HONORABLE MAYOR AND CITY COUNCIL FROM: BILL R. MANIS, CITY MANAGER DATE: NOVEMBER 14, 2017 SUBJECT: QUARTERLY INTERIM FINANCIAL UPDATE FOR THE QUARTER ENDING ON SEPTEMBER 30, 2017 SUMMARY The City of Rosemead Quarterly Financial Update for the Quarter that ended on September 30, 2017, is attached for City Council review. The Treasurer's Report of Cash and Investments for the City as of September 30, 2017, is also attached for review. It should be noted, that the annual financial reports for the Fiscal Year that ended on June 30, 2017, are currently being prepared and reviewed by the City's auditor. These reports should be available in early January 2018. STAFF RECOMMENDATION That the City Council receive and file the Financial Update report (Attachment A) and the Treasurer's Report of Cash and Investments (Attachment B). FISCAL IMPACT — None STRATEGIC PLAN IMPACT This item relates to the Strategic Plan's Strategy 5: Finance, Action Item A; to improve transparency and communication with the public regarding continuous monitoring and internal controls of City finances. PUBLIC NOTICE PROCESS This item has been noticed through the regular agenda notification process. Prepared by: �� zi� - Pearl Lieu, Finance Director ITEM NUMBER: City Council Meeting November 14, 2017 Page 2 of 2 Attachment A: Quarterly Financial Update for the Quarter Ended September 30, 2017 Attachment B: Treasurer's Report of Cash and Investments Attachment A Quarterly Financial Update for the Quarter Ended September 20, 2017 Q1 City of Rosemead Quarterly Interim Financial Update 2017-18 For the Quarter Ended 9/30/17 With only 25% of the fiscal year completed, major revenues generated from taxes (Property Tax, Sales Tax and Transient Occupancy Tax (TOT)) have not yet been received. Additionally, many expenditures related to annual payments for memberships or insurance are due in July so expenditures in some categories may appear higher than normal, but that is to be expected. GENERAL FUND General Fund Financial Condition: With only 25% of the year completed, 8.6% of estimated revenues have been collected and that is slightly lower than a year ago. All categories appear to be on target and annual revenues are expected to meet or exceed expectations. By the end of this quarter, 18% of total appropriations have been spent and that is consistent with a year ago. Top Ten Revenues. The City's top ten revenue sources account for about 92% of total General Fund Revenues. Focusing on these sources can provide a useful understanding of the City's revenue position. Overall, these key revenues are performing as expected for this time of the fiscal year. VLF Tax In -Lieu $6,232 - 0% Sales & Use Tax 5,524 755 149' Property Tax 2,668 71 3% Trans Occupancy Tax 2,100 17 19/ Building Permits 1,470 373 25% Franchise Fees 1,125 - 0% Instructional Classe�3 6_G___f6a7 Parking Citations 400 65 16% Public Works Permits 350 100 29% Business Licenses 200 47 24% Total 520.472 51.494 7% Property Tax In -Lieu of VLF. Property Tax In - lieu of Vehicle License Fees, the City's number one revenue source, was the creation of the Page 1 Attachment A State's 2004 budget balancing Triple Flip computation. In it, 90% of the City's Vehicle License Fees (VLF) was swapped for a like amount of revenue from the State's portion of property tax. It is paid in two equal installments, one in January and one in May. There has been no indication that the amount will vary from the revenue estimate. Sales & Use Tax. The first two monthly payments (July and August) in the fiscal year are accrued (counted) in June for fiscal year 2016/17. This is because the sales tax collected in these months is for sales generated in the prior year. Since this accounting is done the same each year, the actual revenue will catch- up with the budgeted revenues once all 12 monthly payments have been received. The opening of Lucille's Smokehouse BBQ and Starbucks Drive-Thru should help increase sales tax. Sales tax revenues appear to be in-line with our budgeted figures. Financial Aid/Low & No (Property Tax). This revenue does not flow in 12 equal installments; instead, about 85% of the revenue is collected between December and May. Therefore, the minimal collection in the first quarter of the year is normal and does not create cause for concern. Transient Occupancy Tax. TOT revenues were budgeted higher than in the prior year due to the opening of the Hartford Hotel. Fiscal year 2016/17 TOT revenues exceeded the budget by $213,000. Third quarter TOT revenues are earned and reported in the first quarter but not collected until October. Therefore, the low dollar amount in the first quarter is expected. Building Permits. Building Permit revenues are up $171,000 from the prior year which is a large increase. The primary reason for this increase is various mixed use projects and new projects are under construction. Building activity during the first quarter of the year has been steady with a solid mixture of commercial and residential projects. This should help continue the positive momentum for the next several months. Franchise Fees. Utility Franchise Fees are one of the top ten budgeted revenues but they are paid annually in the third quarter of the fiscal year. Along with the Utilities, the City also receives a franchise payment from our waste hauler of $125,000 per quarter which significantly strengthens this revenue category. Instructional Classes. Instructional class revenues are generated from customers who participate in a variety of cultural, physical fitness, self-improvement, and special interest classes taught by contract instructors. The City retains 30% revenue share with contract classes. Revenues are consistent with the prior year and in line with the budget. Parking Citations. These fines are collected at the Public Safety Center, through a third party collection service. Collections are up slightly from the previous fiscal year and are in line with the budget. Public Works Permits. Public Works Permit revenues are consistent with the prior year and in line with the budget. Business Licenses. Business license revenues are fees received from applicants in obtaining the business license to operate a business within the City. Revenues are consistent with Expenditures. At 18%, General Fund expenditures are well within budget parameters. Since certain large one-time payments such as insurance premiums are made at the beginning of the fiscal year along Attachment A with increased part-time personnel costs for summer programs and aquatics, it's not uncommon to have first quarter expenditures higher than 25%. The following table illustrates expenditures by major category: (Thousands) SPECIAL REVENUE FUNDS When specific purpose revenues are restricted as to their use, they are usually accounted for in special revenue funds such as the ones below. The following tables summarize the financial condition of the City's major special revenue funds. They are all within budget expectations. While some of the funds show negative balances year to date, they are all within budget parameters. (Thousands) Revenues $943 $0 - Expenditures - - - Transfers In (Out) Balance, Year -to -Date $943 $0 (Thousands) Revenues $1,553 $209 13% Expenditures (798) (111) 14% Transfers(Out) -CIP - Balance, Year -to -Date $755 $98 (Thousands) Staffing $6,838 $1,644 24% Maint. & Operating 15,153 2,373 16% Capital Outlay - - - Transfers(Out) —CIP 600 - Total $22,591 $4,017 18% SPECIAL REVENUE FUNDS When specific purpose revenues are restricted as to their use, they are usually accounted for in special revenue funds such as the ones below. The following tables summarize the financial condition of the City's major special revenue funds. They are all within budget expectations. While some of the funds show negative balances year to date, they are all within budget parameters. (Thousands) Revenues $943 $0 - Expenditures - - - Transfers In (Out) Balance, Year -to -Date $943 $0 (Thousands) Revenues $1,553 $209 13% Expenditures (798) (111) 14% Transfers(Out) -CIP - Balance, Year -to -Date $755 $98 (Thousands) Page 2 Revenues $637 $161 25% Expenditures (365) (51) 14% Transfers(Out) -CIP (500) - - Balance. Year -to -Date fS228) $110 Revenues $2,018 $487 24% Expenditures (1,365) (182) 13% Transfers(Out) -CIP (650) - - Balance, Year -to -Date $3 $305 Page 2 Revenues $637 $161 25% Expenditures (365) (51) 14% Transfers(Out) -CIP (500) - - Balance. Year -to -Date fS228) $110 (Thousands) IYiStIL• .. Revenues $651 $42 6% Expenditures - - - Transfers(Out) -CIP (350) - Balance, Year -to -Date $301 $42 (Thousands) 1 Revenues $875 $71 8% Expenditures (813) (93) 11% Transfers(Out) —CIP (50) (5) 10% Balance, Year -to -Date $12 ($27) (Thousands) (Thousands) Revenues $207 $0 - Expenditures (151) (3) 2% Transfers(Out) —CIP - - Balance, Year -to -Date $56 ($3) ROSEMEAD HOUSING DEVELOPMENT CORPORATION (RHDC) As has been discussed in previous Quarterly Financial Updates, the RHDC funds are operating at non -sustainable levels. In prior years, the Department of Finance approved the Operating and Assistance Agreement between the RHDC and the Successor Agency as an Enforceable Obligation which will provide funding to offset the annual shortfall for the near future. A long term plan for sustainable operations will still need to be developed to ensure ongoing operations of the two senior housing complexes into the future. Also included in RHDC funds are the HOME funds budgeted to provide funds for the First Time Homebuyer program and Owner -Occupied Rehabilitation (OOR) loans. Revenues $1,145 $117 10% Expenditures (1,553) (100) 6% Transfers In (Out) - - Page 3 Attachment A OUTLOOK FOR THE FUTURE The City's General Fund revenues are projected to reflect modest increases over the prior fiscal year. The City anticipates an increase in TOT due to the opening of the Hartford Hotel in July 2017. Recent additions to the business community include a Starbucks Drive-Thru and Lucille's Smokehouse BBQ restaurant. Projects currently underway include Ross, Panda Express, and Hampton Inn and Suites. These new businesses will continue to grow, diversify, and strengthen the City's sales tax base. There are also several mixed-use projects under construction that will be completed in fiscal year 2017/18. All of these are expected to increase our revenues in the upcoming year. Growth in sales tax and TOT continue to be the sources of greatest future opportunity to strengthen the City's financial status. During fiscal year 2017/18, the City will continue to support the development of a Garvey Avenue Corridor Specific Plan and Environmental Impact Report (EIR) to spur and guide economic development at key opportunity sites. In conclusion, fiscal year 2016/17 ended on a positive note with revenues exceeding budgeted amounts in several categories, including property taxes, TOT, sales tax, public work permits, and building permits. As a result of this, it is projected that the City's General fund balance may exceed $18 million at the end of fiscal year 2017/18. However, our City and other cities are faced with increasing pension costs. The City's unfunded liability pension obligation is projected to be $26.4 million, with a shortfall of $8.8 million to be paid over 30 years. The City is projecting an annual payment of approximately $1.3 to $1.8 million for the next 8 years to fund these pension costs. This does not include further potential reduction in assumptions; the outer years pension obligations are uncertain. Revenues $617 $3 0% Expenditures (759) (105) 14% Transfers(Out) —CIP - - Balance, Year -to -Date ($142) ($102) (Thousands) Revenues $207 $0 - Expenditures (151) (3) 2% Transfers(Out) —CIP - - Balance, Year -to -Date $56 ($3) ROSEMEAD HOUSING DEVELOPMENT CORPORATION (RHDC) As has been discussed in previous Quarterly Financial Updates, the RHDC funds are operating at non -sustainable levels. In prior years, the Department of Finance approved the Operating and Assistance Agreement between the RHDC and the Successor Agency as an Enforceable Obligation which will provide funding to offset the annual shortfall for the near future. A long term plan for sustainable operations will still need to be developed to ensure ongoing operations of the two senior housing complexes into the future. Also included in RHDC funds are the HOME funds budgeted to provide funds for the First Time Homebuyer program and Owner -Occupied Rehabilitation (OOR) loans. Revenues $1,145 $117 10% Expenditures (1,553) (100) 6% Transfers In (Out) - - Page 3 Attachment A OUTLOOK FOR THE FUTURE The City's General Fund revenues are projected to reflect modest increases over the prior fiscal year. The City anticipates an increase in TOT due to the opening of the Hartford Hotel in July 2017. Recent additions to the business community include a Starbucks Drive-Thru and Lucille's Smokehouse BBQ restaurant. Projects currently underway include Ross, Panda Express, and Hampton Inn and Suites. These new businesses will continue to grow, diversify, and strengthen the City's sales tax base. There are also several mixed-use projects under construction that will be completed in fiscal year 2017/18. All of these are expected to increase our revenues in the upcoming year. Growth in sales tax and TOT continue to be the sources of greatest future opportunity to strengthen the City's financial status. During fiscal year 2017/18, the City will continue to support the development of a Garvey Avenue Corridor Specific Plan and Environmental Impact Report (EIR) to spur and guide economic development at key opportunity sites. In conclusion, fiscal year 2016/17 ended on a positive note with revenues exceeding budgeted amounts in several categories, including property taxes, TOT, sales tax, public work permits, and building permits. As a result of this, it is projected that the City's General fund balance may exceed $18 million at the end of fiscal year 2017/18. However, our City and other cities are faced with increasing pension costs. The City's unfunded liability pension obligation is projected to be $26.4 million, with a shortfall of $8.8 million to be paid over 30 years. The City is projecting an annual payment of approximately $1.3 to $1.8 million for the next 8 years to fund these pension costs. This does not include further potential reduction in assumptions; the outer years pension obligations are uncertain. Attachment A While the City's General Fund is positive, and revenues continue to be strong, the long term growth of expenditures will still likely outpace the growth in revenues. Therefore, prudent spending and examining means to generate additional revenues must continue to be pursued to ensure the City remains in a positive financial position. 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