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CC - Item 4A - Quarterly Interim Financial Update• ROSEMEAD CITY COUNCIL STAFF REPORT CJ TO: THE HONORABLE MAYOR AND CITY COUNCIL FROM: OLIVER CHI, CITY MANAGER DATE: March 10, 2009 SUBJECT: QUARTERLY INTERIM FINANCIAL UPDATE FOR THE QUARTER ENDED 12/31/2008 SUMMARY Attached is the City of Rosemead Quarterly Financial Update for the Quarter Ended 12/31/2008 for City Council review. Staff Recommendation Staff recommends that the City Council receive and file the update report (Attachment A). PUBLIC NOTICE PROCESS This item has been noticed through the regular agenda notification process. Submitted by: • Steven Brisco Finance Director Attachment A: Quarterly Financial Update for the Quarter Ended 12/31/2008 APPROVED FOR CITY COUNCIL AGENDA: _j 0 ITEM NUMBER: q Attachment A • • • Q2 City of Rosemead Quarterly Interim Financial Update 2008-09 For the Quarter Ended 12/31/08 The purpose of this report is to present a "big picture" review of the financial progress of the City through the second quarter of fiscal year 2008-2009. Typical of California city government, Rosemead's second quarter revenues still appear low when compared to the budget because of the timing of revenue receipts. Franchise fees, property tax in-lieu of sales tax and property tax in-lieu of motor vehicle license fees are not received in 12 equal installments, instead franchise fees are received only once per year at the end of the fiscal year. The two in-lieu fees just mentioned are very significant in size and are received in January and May of each year. Additionally, the last payments for certain revenues are received after the end of the fiscal year but are counted (accrued) in the current fiscal year. An example of accrued revenue is the Community Development Commission's revenue which is paid unevenly by the County from November through August but all the revenue is included in the current fiscal year. At the same time, many expenditures, except for capital outlay and one-time expenditures for annual insurance premiums are evenly spent throughout all four quarters. The effect is for the earliest quarters of the fiscal year to experience a net loss condition. However, this is normal and no cause for alarm. The focus of this report is on discretionary funds such as the General Fund, Rosemead Community Development Commission's funds and the Rosemead Housing Development Corporation's fund. Finances in Brief General Fund revenues (excluding a sales tax allocation correction by the State) are slightly below budget expectations and are beginning to reflect the general state of the economy. For example, building permit revenues are below initial expectations as a result of limited financing opportunities to developers and individuals alike due to the struggling economy. Total General Fund expenditures are 52.1% of the budget at the end of the second quarter. Special revenue funds such as CDBG, HOME, Gas Tax and Prop A and C have received $3.1 million in revenue through the first and second quarters and $1.6 million was spent for the same period. The excess revenue is due to a FY 2007-08 deferred gas tax payment of $483 thousand paid by the State in September, $924 thousand from a Proposition 113 Gas Tax Grant and $140 thousand from Traffic Congestion Relief Program Gas Tax revenue. CDBG and HOME funds reimbursement revenues are $21 thousand in arrears. CDBG and HOME programs are on a reimbursement basis and expenditures will be reimbursed by HUD in subsequent quarters. Community Development Commission (CDC) funds received $2.6 million of gross property tax increment payments from Los Angeles County in November and December. From that amount the CDC must transfer 20% to the Low and Moderate Income Housing Fund, pass- through payments to the County Fire Protection District, Rosemead area school districts and L.A. County for administration fees. CDC expenditures totaled $7.6 million for the two quarters ending December 31, 2008. Excess expenditures were paid with accumulated prior year fund balances, primarily due to timing differences between the time when cash is needed as opposed to when it is received. Page 1 , Attachment A • • • Rosemead Housing Development Corporation serves as the legal entity for the City's low income senior housing apartments. Rents, and transfers from the Low and Moderate Income Housing Fund through the second quarter totaled $329.3 thousand. FY 2007-08 revenues for the same quarter were approximately the same. Expenditures for the quarter were $184 thousand. General Fund Revenues $5.6 million (31.1%) of budgeted General Fund revenues have been collected in the first and second quarters of the fiscal year (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. Taxes. General Fund taxes include Sales Tax, Property Tax, Taxes In-lieu, Transient Occupancy Tax and the like. Total taxes, not including a one-time Sales Tax makeup payment, is about 2% lower than last fiscal year for the same period. At the end of the second quarter, sales tax revenue collected was about 5% ($94,000) behind budget projections. Total Property Tax collections are $765 thousand (41.9%) through the end of the second quarter. The current year's Property Tax collections are $8 thousand lower than last year's first half year property tax collections. The decline is attributable to adjustments to assessed value and the loss of unsecured tax from offices such as Country Wide Funding. $687 thousand of Transient Occupancy Tax has been counted for in this report, a comparable amount to last year. It comes as no surprise that a recurring pattern of slowing revenues is emerging in the General Fund. Staff is taking a very cautious approach to revenue expectations and already is contemplating if and what the appropriate defensive tack should be for the remainder of the fiscal year as well as the development of the Page 2 FY 2009-10 budget. Licenses and Permits. Since last quarter's report, all building permit revenues have declined sharply, a direct reflection of the stressed economy and associated difficulty in obtaining financing. Building permit revenue is $593 thousand or 41.3% of budgeted revenue. Considering the current economic conditions it is difficult to believe that the rate of building permit revenue receipts will accelerate sufficiently, if at all, in the second half of the fiscal year to meet annualized budget expectations. The management team will consider corrective actions for the remainder of the fiscal year. Motor Vehicle License Fee (MVLF) collections are 42% less than the same period a year ago. The drop in MVLF is due to sharply decreased vehicle registration collections by the Department of Motor Vehicles (DMV). In fact, the State did not remit any MVLF in November and December to local government. However, the State has scheduled payments to local agencies for the rest of the year. Staff will remain watchful of this revenue source throughout the year and adjustments to the budget may be necessary. Fines & Penalties. Combined receipts from Court Fines are $140 thousand and are significantly greater than they were for the same period last year. The quicker receipt of revenues are the result of improved enforcement, collections and reporting. Total collections for the FY 2008-09 are expected to match collections of the previous year at $411 thousand. Other Revenue. Other General Fund revenues are $628 thousand higher than the same period last year due to a one-time $519 thousand reimbursement from L.A. County for a special Garvey Center project, as illustrated by Chart 1. Attachment A • • J General Fund Revenues $4,000 -«000's _ $3,500 $3,000 - $2,500 $2,000 $1,500 i" - $1,000 $500 4"°\ce~Q~° ~\~ecS `ra~~ F~ceSw~c O`r 0 12/31/2008 0 12/31/2007 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 combined first and second quarters 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. General Fund Expenditures Salary and Benefits. General Fund Salary and Benefit charges are slightly above budget projections at 51.3% due mainly to payment timing differences. There will also be some additional salary savings by the end of the year due to leaving certain non-critical positions vacant. It is expected that by the end of the fiscal year the timing differences will even out and Salaries and Benefits will conclude the year within budget plans. (See Chart 2). Maintenance and Operations. Through the first half of the fiscal year, maintenance and operating expenses totaled $5.9 million or 52.2% of the budget. Individual line item budget variances can be well above or below Page 3 appropriation levels but when combined total 52.2 % of the budget. Some of the more significant variances are discussed below. With 50% of the fiscal year complete 86.7% of the Building Inspections line item has been spent. However, it is expected that inspection costs will slow with the decline in building projects throughout the City. Miscellaneous construction costs are $60 thousand above budget and the budget will be adjusted to bring it in line with actual expenditures. One-time costs for insurance premiums exceed the budget by $74 thousand due to an accounting decision that recorded a retrospective payment in the FY 2007-08, it could have been recorded in FY 2008-09. Either accounting treatment is justifiable. The combined remainder of maintenance and operating expenses, including some one-time expenditures, are being spent in expected budgetary proportions for the first half of the fiscal year. Staff will continue to monitor Maintenance and Operations expenditures and make adjustments when needed. Capital Outlay. This is an expenditure category that is characterized by relatively large, one- time expenditures rather than a smooth even flow of expenditures throughout the year. In any quarter expenditures may seem large or small, however, by the end of the fiscal year, with careful monitoring, the expenditures should be in line with the budget. Through the second quarter of FY 2008-09 $149 thousand has been spent on park and pool improvements, the purchase of equipment and office furniture and the development of the website. The budget for General Fund capital outlay is $443 thousand including $250 thousand which is programmed to be transferred into the Capital Improvement Program Fund for funding of large projects. With careful monitoring by staff, expenditures will remain within budgetary constraints for the year. Attachment A • • • General Fund Expenditures ($1,000's) $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 8 12/31/2008 9 12/31/2007 Chart 2 Community Development Commission The CDC has received two property tax increment payments from L.A. County during the first half of the fiscal year totaling $2.6 million. This amount is in line with budget projections for the first half of the fiscal year. 20% of property tax increment must be transferred to the Low and Moderate Income Housing Fund when it is received. Low and Moderate projects have very specific requirements and are not planned for in the FY 2008-09 budget but will be in future budget years as specific projects are identified. CDC expenditures for the first and second quarters of the year totaled $7.6 million. Expenditures included: 1) $4.3 million for the purchase of the Rosemead Inn, 2) $1.7 million for debt service payments, 3) $443 thousand for salaries and benefits, 4) $384 thousand for fire protection pass-through and 5) $245 thousand for transfers to the Low and Moderate Income Housing Fund in the second quarter of fiscal year 2008-09. Rosemead Housing Development Corporation As reported in the first quarter update report the Garvey and Angelus senior housing project finances remain remarkably consistent each quarter. However, in addition to normal operating costs, $352 thousand is due to the City for land leases and administrative support costs. In the FY 2009-10 budget, management team members will present a plan to address the continuing deficit in the housing fund. With costs already held to a bare minimum the management team will evaluate various options. The following chart, with combined first and second quarter data (not including the transfer to the City), will further illustrate the need to evaluate the fund: Rosemead Housing Development Corp. First and Second Quarters Ended 12/31/2008 'Angelus r~_+ Garvey NY Rents $ 79,551 $ 124,785 Low-Mod transfer 62,500 62,500 Expenditures (86,464) (97,526) Transfer to City (169,800) (181,800) Income (loss) $ (114,213) $ (92,041) Chart 3 Outlook for the Future In spite of the downturns in some accounts, most notably building permit and related accounts, the outlook for Rosemead remains remarkably resilient, for now. However, with the Chairman of the Federal Reserve Bank declaring that he doesn't expect the decline in the economy to bottom out until the end of this calendar year, the consequence to Rosemead is the obvious loss of fees and the continuing decline of sales tax revenues. The evidence: Construction in the City has greatly decreased and the City's Sales Tax Consultant is predicting a continued slide in sales tax. Additionally, though the State recently passed a budget, they are still faced with significant shortfalls for the foreseeable future. Historically, the State has Page 4 Sal & Bnft Maint & Capital Opn Attachment A • turned to local government for financial assistance and it is probable that this will happen again. A trailer bill to the recent State budget required the CDC to pay an additional $377 thousand passed through to the State Education Revenue Augmentation Fund (ERAF) and local school districts. The CDC is also required to pay another $296 thousand to the State ERAF in May. Property tax revenue remains fairly stable and other sizable revenues, for example property tax in-lieu accounts, are expected to beat this year's revenue estimates. The first of two property tax in-lieu installments, which was received in January, was larger than expected and, barring any state confiscations, the second payment, due in May, should exactly match the first. While there are causes for optimism we must also remain vigilant about the City's finances. If corrections need to be made they must be done • quickly and decisively. The FY 2009-10 budget, which is now in production, will also lay the groundwork for a fiscally precarious year. It is this attention to financial detail that will lead to Rosemead excellence. is Page 5