TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Javier Carcamo, Finance Director
PREPARED BY: Jennifer Terry, Finance Manager
SUBJECT:
title
Fiscal Year 2024/25 Third Quarter Financial Status Report and Proposed Budget Adjustments
end
RECOMMENDATION
recommendation
Receive and file the report;
Approve the adjustments to the Fiscal Year 2024/25 Operating Budget as referenced in the Fiscal Impact section of this report;
Approve the use of Sustainability Reserves and establish appropriations for previously approved Capital Improvement Projects; and
Approve the Updated Schedule of Authorized Positions List.
body
PRIOR ACTION/VOTE
On June 6, 2023, the City Council, the Boards of Directors of the Murrieta Fire District, the Community Services District, the Murrieta Library District, the Housing Authority, and the City Council acting as Successor to the Redevelopment Agency, adopted a series of Resolutions (23-4671, MFD 23-219, CSD 23-276, MLB 23-17, RSA 23-29, and MHA 23-43) approving the Operating Budgets for Fiscal Years FY 2023/24 and 2024/25 (Vote: 4-0-1).
Subsequently, the City Council, the Boards of Directors of the MFD, CSD, MLD, SA, and the HA approved amendments to the Fiscal Year 2024/25 Operating Budget on August 20, 2024, November 19, 2024, December 3, 2024, and March 4, 2025 (Vote: 5-0).
CITY COUNCIL GOAL
Maintain a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency.
BACKGROUND
The City of Murrieta (City) adopts a biennial budget every two years, starting in odd-numbered years. The budget period runs from July 1 to June 30. The Government Finance Officers Association (GFOA) recommends that all governments implement a formal process to compare the budget to actual results to monitor financial performance. To comply with these best practices, staff prepares quarterly budget reports for the City Council to review and consider. These reports ensure transparency and provide opportunities for staff to adjust the Operating Budget based on analyzed trends.
This Third Quarter Budget Update Report serves four (4) purposes:
1. Provide a Fiscal Year 2024/25 Budget Update through the Third Quarter of the Fiscal Year (July 1 - March 31, 2025);
2. Request City Council approval of Revenue budget adjustments based on year-to-date actuals and appropriate Expenditure budgets for several accounts in Attachment 3;
3. Approve the use of Sustainability Reserves and establish appropriations for previously Approved Capital Improvement Projects; and
4. Requests approval of the Updated Schedule of Authorized Positions List.
Third Quarter Budget Updates provide an update on Revenue collections and Expenditures to date. Staff has provided the City Council with three (3) significant updates to Revenues and Expenditures at the August 20, 2024, November 19, 2024, and March 3, 2025, City Council Meetings. This budget update includes a few new Expenditure requests and modifications to Revenue budgets based on year-to-date collections, all of which will be discussed later in the report. The table below provides a Citywide Summary of Revenues collected through the end of the Third Quarter, March 31, 2025. The discussion regarding Expenditures will follow the Revenue discussion.
As of March 31, 2025, the City collected $120,389,262, in Revenue, which is approximately 63% of the $189,822,174, Amended Revenue Budget. Some Revenues, such as Property Taxes and Special Assessments, are not received monthly, unlike permit and recreation fees, which can be anticipated monthly. Therefore, Revenue collections will not track at 75% of the budget through the nine months of the Fiscal Year. The remaining collections of Property Taxes, Special Taxes, and Special Assessments are received in June and July; hence, these Revenues will be reflected in the Fourth Quarter Budget Update.
Excluding Sales Tax, our Revenues are tracking strongly. Interest Earnings are still in the four percent (4%) range, which is helping to augment the decline in Sales Tax receipts. Property Taxes are also coming in higher than the budget.
• Sales Tax receipts are collected on a two-month delay. As of March 31, 2025, the City has collected Sales Tax receipts through February. For the first eight (8) months of collections, Sales Tax receipts are approximately $420,000, less than last Fiscal Year. The City had originally budgeted Sales Tax revenues to be three percent (3%) higher than in Fiscal Year 2023/24. However, as part of tonight’s action, a reduction of four percent (4%) in the Sales Tax budget, or approximately $2.2 million, is being proposed.
• Other Miscellaneous Revenues are trending higher than what would normally be collected through the Third Quarter. The continued higher interest rates are generating higher interest earnings from our short and long-term investment accounts. This Revenue category also includes Miscellaneous Revenues, Revenue from Other Agencies, and Grant-Related Revenue, which fluctuates annually.
o Included in the requested adjustments to the Operating Budget is a request to increase the interest earnings budgets across all funds to coincide with actual collections through March 31. Additionally, there are requests to adjust other Miscellaneous Revenue accounts based on year-to-date actuals.
• Charges for Services include Revenues collected for specific benefits, government services, regulatory needs, or use of government property. Internal Service Charges are for services provided to all city departments by Risk Management and Information Services are included in this category. The City is tracking slightly above the Third Quarter 75% and have included a few requests to increase certain Charges for Services accounts.
Similar to the delay experienced in Sales Tax collections, Franchise Tax revenues are also received on a delayed schedule, which explains why only 37% has been collected year-to-date. This collection rate is consistent with the same period last year. All other revenue sources are tracking as expected or are close to projected levels.
The table below summarizes the Citywide Expenditures through March 31, 2025.
The City's Amended Expenditure Budget is $178,943,130, of which $125,768,075, or approximately 70%, has been spent through March 31, 2025.
• Personnel expenditures are at 70% of the budget and are in line with the number of pay periods remaining for the fiscal year. Earlier in the Fiscal Year, staff evaluated the number of vacant positions each department had and established a vacancy factor to account for those unfilled positions. This vacancy factor will help ensure the budget is met as closely as possible.
• Operations and Maintenance (O&M) Expenditures are at 58% of the budget. These Expenditures include day-to-day expenses such as utilities, supplies, training, software, equipment, and consulting services. Some of these Expenditures occur in one lump sum, while others are spread out over the course of the year. As of March 31, there is approximately $3.7 million in encumbrances in addition to our total expenses. Encumbrances are planned purchases that are anticipated to be completed by the end of the fiscal year. Taking into account those planned purchases, the current total is at 64% of the O&M Budget.
• Capital Outlay Expenditures are typically one-time purchases for vehicles, fixtures, and equipment. As of March 31, Capital Outlay Expenditures budgeted in the Operating Budget have consumed 55% of the Amended Budget. Like the O&M category, Capital Outlay also has encumbrances, which are planned purchases anticipated to be completed by the end of the fiscal year. Taking into account those planned purchases, the Capital Outlay Budget is 87%.
• Capital Improvement Plan (CIP) Expenditures are budgeted in the Capital Improvement Budget, which is budgeted in a sub-ledger of the Operating Budget; however, when CIP Projects incur expenses, the Expenditures are reflected on the General Ledger and appear in the total Expenditures to date. The CIP Budget provides for the significant maintenance or replacement of existing public facilities and assets and for the construction or acquisition of new ones. Funding for these expenditures typically utilizes Reserves set aside for Capital Projects or from the Fund Balances of Special Revenue Funds. These expenditures have been categorized separately to signify that the expenditures are different from the Operating Budget.
Attachment 2 includes details for the Third Quarter Revenue and Expenditures by General Ledger Account through March 31, 2025.
Third Quarter Adjustments
Occasional adjustments to the Operating Budget are necessary. Given that we prepare a biennial or two-year budget, it is difficult to anticipate every need over the course of two years and to anticipate changes in economic conditions. This Budget Update requests a few department-requested Expenditure appropriations based on the actual costs of budgeted items and for unplanned expenditures. Additionally, staff is proposing to increase Revenues for Property Taxes and Interest Earnings and decrease Sales Tax, among other Revenue accounts that are in line with Fiscal Year 2024/25, actuals-to-date.
The proposed Citywide (all-funds) adjustments include an increase in Expenditures of $87,900 and a net increase in Revenues of $4,656,260. The Proposed Revenue and Expenditure Budget Updates affect the Operating Transfer to the Fire Districts, Community Services District, and the Library. As a result, the Transfer In and Transfer Out budgets are proposed to be reduced by $2,961,605. The following table provides a summary of the proposed Citywide changes.
Appropriation of Reserves
At the beginning of the Fiscal Year, the City Council approved Unassigned Fund Balances to be set aside for future Capital Improvement Projects. Three (3) of those projects were approved for construction in the Fiscal Year 2024/25 Capital Improvement Budget. Staff is asking the City Council to appropriate $120,000, from the Fleet Replacement Reserves for a portion of the cost of the Police Department Mobile Command Center, $200,000, from the Facility Replacement Reserves for the Police Department Locker Room project, and $900,000, for the Fire Facility Reserve for repairs concrete repairs and hook-up to water and sewer at Fire Station 1.
Staffing Changes
Staffing changes are needed from time to time for operational efficiency and effectiveness. There are two requests included in the proposed action. The proposed changes to the Schedule of Authorized Positions have a net zero effect on the Full-Time Equivalent (FTE) count for FY 2024/25, which will remain at 469.09 FTE positions (Attachment 5).
The change from Police Officers to Traffic Investigator modifies the Traffic Division structure, which allows for a career path and retention for officers interested in traffic investigations. The change from a Sr. Management Analyst to a Management Analyst is to be consistent with the current title of the incumbent. The title change for the Traffic Investigator position has no fiscal impact, as both positions have the same salary. There will be a small budgetary savings for the change from the Sr. Management Analyst to a Management Analyst, which will likely be accounted for as budgetary savings at the end of the fiscal year. The table below summarizes the requested changes.
Fund Balance
The General Fund is projected to have an Unassigned Fund Balance of $29,069,144, at the end of Fiscal Year 2024/25. This balance takes into account an approximately $2.5 million negative variance between Revenues and Expenditures (or use of Unassigned Fund Balance), a $833,670 planned contribution to Operating Reserves, and Capital Improvement Project allocations of approximately $2 million.
Measure T Fund is projected to have an Unassigned Fund Balance of $20,270,495, at the end of the Fiscal Year. This balance takes into account an approx. $4.9 million positive variance between Revenues and Expenditures (or contribution to Unassigned Fund Balance), a $626,487, planned contribution to Operating Reserves, $1,220,000, planned use of reserve towards Capital Improvement Projects, and defunding of Capital Improvement Projects totaling $217,249.
The most appropriate time to report the Unassigned Fund Balance is at the end of the fiscal year, typically upon completion of the audit and the Annual Comprehensive Financial Report. All other times are projections and subject to change.
Operating Transfers from Measure T were offset against the beginning Unassigned Fund Balances for the Fire, Community Services, and Library Districts to bring their estimated ending balances to zero. Below is a summarized version of this information. A complete list of the overall changes by fund is included in Attachment 4.
FISCAL IMPACT
The proposed Third Quarter amendments to the Fiscal Year 2024/25 Operating Budget include an $87,900, increase in Expenditures and a $4,656,260, increase in revenue. The Proposed Revenue and Expenditure Budget Updates affect the Operating Transfer to the Fire Districts, Community Services District, and the Library. As a result, the Transfer In and Transfer Out budgets are proposed to be reduced by $2,961,605. Attachment 3 includes a comprehensive list of the requested appropriations by the General Ledger account.
Additionally, staff is asking the City Council to approve the use of $1,220,000, in Sustainability Reserves and establish appropriations for Capital Improvement Projects that are currently approved, with construction underway.
ATTACHMENTS
1. FY 2024/25 Third Quarter Budget to Actual Report - Major Funds
2. FY 2024/25 Third Quarter Budget to Actual Report - All Funds
3. Proposed Third Quarter Budget Requests
4. Fund Balances for All Funds (Estimated)
5. Updated Fiscal Year 2024/25 Authorized Position List