TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Javier Carcamo, Finance Director
PREPARED BY: Tanner Benson, Financial Analyst
SUBJECT:
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Fiscal Year 2024/25 First Quarter Financial Status Report
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RECOMMENDATION
recommendation
Accept the report;
Adjust the Fiscal Year 2024/25 Operating Budget as defined in the Fiscal Year 2024/25 First Quarter Proposed Budget Amendments; and
Approve the updated schedule of Authorized Positions List.
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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).
On August 20, 2024, 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, approved amendments to the Operating Budgets for Fiscal Years (FY 2023/24 and 2024/25) and approved the updated Schedule of Authorized Positions (Vote: 5-0-0).
CITY COUNCIL GOAL
Maintain a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency.
BACKGROUND
The City of Murrieta adopts a Biennial and/or Budget every two years, starting in odd-numbered years, with a fiscal year that runs from July 1 to June 30. The Government Finance Officers Association (GFOA) advises that all governments implement a formal process for comparing budget to actual results to monitor financial performance. To comply with these best management practices, staff prepares quarterly budget reports for City Council review and consideration. These reports ensure transparency and present opportunities for staff to adjust the Operating Budget based on trends analyzed.
This report serves three purposes:
1) Provide a Fiscal Year 2024/25 Budget Update for the First Quarter of the Fiscal Year (July 1 - September 30, 2024);
2) Request appropriations to adjust various revenue and expenditure budgets detailed in Attachment 2; and
3) Request approval of the Updated Schedule of Authorized Positions List.
Revenues Collected Through September 30, 2024
First Quarter revenue does not provide adequate data to conduct a year-end trend analysis. Typically, the most relevant revenue analysis at the end of the First Quarter is to compare the First Quarter data between the current and prior Fiscal Year for the same period since most Revenues may not be received evenly throughout the year. For example, the City receives property taxes in January and May for the December and April tax bill installments.
For Revenue evaluation purposes, Fiscal Year 2023/24 is being used as the base year for comparison in this report. The table below reflects Citywide Revenues collected through the First Quarter.
Sales tax receipts for the current year Fiscal Year 2024/25 were 4% greater than the base year Fiscal Year 2023/24. This increase is in line with the statewide estimates provided by our tax consulting firm (HdL). The City anticipates sales taxes continuing to rise, heading into the Second Quarter, maintaining a slight increase over the prior year for the remainder of the Fiscal Year.
The table below presents the Revenues collected through September 30, for Charges for Services and Other Miscellaneous Revenues, and Sales Taxes collected for the month of July. These Revenues are compared to the previous Fiscal Year. Each of these Revenue sources was impacted by various market pressures on significant industry groups such as building/construction and general consumer goods.
The Charges for Services are currently 11% (or $542,816) higher than the previous year. This is primarily due to the City collecting greater revenues in Charges for Services for plan checks across all Departments. Additionally, our Risk Management Internal Service Fund Allocation increased from the base year. The Risk Management Fund, along with Information Services, charges all Departments for the services they provide. Those “charges” are reflected as Revenue in their fund to offset the expenses associated with providing services. The Risk Management Allocation for the First Quarter increased from $1,516,010 in the base year to $1,870,716 in the current Fiscal Year.
On the other hand, Other Miscellaneous Revenues were 30% (or $2,674,567) lower than the base year. The primary cause of the difference between the base year and the current year is the recognition of Unrealized Gains or Losses required by the Governmental Accounting Standards Board (GASB) Statement No. 31. This is a required non-cash accounting transaction to account for the difference between the value of how much the City purchased an investment for and what the current value is. The Gain or Loss is recorded on June 30, and then the transaction is reversed on July 1, for the purpose of recognizing the change in valuation for financial statement purposes. In the First Quarter of the Fiscal Year, the only transaction in this account is the reversal from the prior Fiscal Year. In Fiscal Year 2023/24, this transaction was to reverse the Unrealized Loss from Fiscal Year 2022/23 of $4,553,676. For Fiscal Year 2024/25 the reversal of the Unrealized Loss from Fiscal Year 2023/24 was $814,416.
Sales Tax collections are 4% above the base year, but slightly below the Fiscal Year 2024/25 budget projections. They are collected on a two-month delay. As such, July 2024, is the only month of Sales Tax that has been remitted by the State of California as of the preparation of this budget update. The City anticipates a continued mild increase in Sales Taxes throughout the Fiscal Year compared to the base year.
The Property Transfer Tax Revenue is 48% (or $83,202) higher than in the base year. This tax is applied to each recorded document involving the sale of real property. The variance is due to a higher frequency of home sales in Fiscal Year 2024/25 compared to the base year.
Revenues from Special Assessments are 100% lower than the base year’s revenues. The base year had a National Pollutant Discharge Elimination System (NPDES) revenue of $335,456. That revenue was a reversal of an accrual established as of June 30, 2023, which was not present in this quarter due to the timing of the revenues received.
Any revenue adjustments based on year-to-date actuals will be addressed later in this Budget Update Report along with proposed adjustments for Expenditures.
Expenditures through September 30, 2024
Certain Expenditures, such as salaries and allocations, remain consistent throughout the year. However, other Expenditures, like Capital Outlay, are usually one-time purchases and, therefore, may not be evenly distributed throughout the year. Hence, it is most relevant to compare the current year to the prior year, as done with the revenue. Below is a table reflecting the Citywide Expenditures through the First Quarter.
Personnel costs for the current year have increased slightly compared to the previous year due to the changes made in the Memorandum of Understanding (MOU) for all of the labor groups. The 9% increase is perfectly in line with what was anticipated based on the MOUs, as it accounts for salary increases such as a 4% cost of living adjustment plus any position eligible to receive a 5% merit increase and increases in other benefits. As part of this budget update, there is a request to include salary savings for vacant positions, which will be discussed later in this report.
In contrast, Operations & Maintenance costs were 62% (or $7,545,602) lower than the base year. While one significant factor contributed to reduced outlays, the City had numerous expenditures this Fiscal Year that exceeded the base year.
• The annual Debt Service payment for the Bonded Mello-Roos Districts is not recorded until the Trustee accounts are reconciled. The Debt Service payment occurs on the September statements which are not made available to the City until the month of October. The statements are currently being reconciled and the payment will be recorded promptly once complete. This amounted to a total of $9,389,841.
• Worker’s Compensation Claims from PERMA had not yet been recorded because they changed the availability of reports from monthly to 45 days after the end of each quarter. The claims from the base year were approximately $900,000.
• General Liability, Workers Compensation, and Employment Practices Insurance costs are higher for Fiscal Year 2024/25 than in the base year.
• Electric Utility costs were $37,940 over the base year.
• Contract Services were utilized earlier in the year compared to the base year. Care Solace was paid later in the year in the base year, work being done on the Parks & Trails Master Plans are one-time costs, Lifeguard Services, Sheltering Services previously paid for by a grant, and design work for several Capital Improvement Projects. These items totaled $385,762.
Additionally, Capital Outlay expenditures have increased by 21% when compared to the base year. The main contributor to the difference from the base year is the purchase of vehicles by the Police Department, spending $445,610 in the First Quarter of the current fiscal year, whereas only spending $48,880 in the base year. The Auto Dealers were having a difficult time supplying the type of vehicles needed for the Police Department fleet.
The detail of Revenues and Expenditures by General Ledger account for the First Quarter is included in Attachment 1.
First Quarter Adjustments
There are three primary reasons for the requested First Quarter Budget Adjustments: 1) adjusting revenues in line with Fiscal Year 2023/24 actuals, 2) adjusting the Personnel budgets to account for a personnel vacancy factor rate. The personnel vacancy factor rate is a tool to account for the fact that not all authorized positions within the workforce will be filled at all times, due to factors like turnover, hiring delays, or vacancies caused by employee retirements or resignations, and 3) department requested budget adjustments (i.e., emergency repairs at the Equestrian Center and Historical Museum, a late reduction from the department-wide budgetary savings measure, budget requests for the Santa Stops program and to establish an expenditure budget for the American Medical Response (AMR) system enhancement grant. Finally, because of proposed increases in revenues and adjustments for vacancy factors, the funds that are dependent on Operating Transfers from Measure T were able to be reduced.
The proposed Citywide all-funds net adjustments include a decrease in expenditures of $1,465,493 and an increase in revenues of $6,626,506. These adjustments do not include changes to the Transfers In and Out. The changes to the Transfers In and Out, each sum to $2,185,117 and together net to zero. The following table provides a summary of the proposed Citywide changes.
The proposed expenditure adjustments include reducing personnel costs by $1,695,014 due to the personnel vacancy factor rate. Staff determined the salary savings by taking the total salaries obtained in Fiscal Year 2024, for all departments and comparing them to the total budget for each department. Staff then compared each department that used less than 90% of their budgeted salary to their Fiscal Year 2025, salary expenditures as of the end of the First Quarter. Any department that also used less than 20% of its personnel cost budget in the First Quarter was selected for salary savings. The salary savings were then calculated by multiplying the actual salary expense from Fiscal Year 2024, by 109% to adjust for the increase in COLA and merit step. Staff took that newly calculated number and subtracted it from the Fiscal Year 2025 amended budget to find an appropriate savings amount.
Operations & Maintenance is being proposed to change by $229,521 due to expenditures that were not part of the adopted budget, such as AMR system enhancement expenses, the Santa Stops program, and emergency repairs at the Equestrian Center and Historical Museum.
The major proposed adjustments for revenues include the following:
• An increase in Property Tax Revenues by 2% of Fiscal Year 2024 final actual revenues. This is to account for the annual increase in the property assessed value due to Proposition 13. Proposition 13 limits how much the assessed value of a property can increase each year. The assessed value can increase by no more than 2% per year, regardless of how much the market value of the property increases. Staff is proposing to increase Property Tax Revenues by $1,984,975 for the current year.
• Other Misc. Revenues are also seeing a proposed increase in order to align budget with the very high-Interest income revenues that were experienced for the First Quarter. Nearly all Interest Income for the First Quarter came in between 50% and 160% of the various Interest Income line budget. The proposed adjustment moves the Interest Income to a higher threshold while also considering that the Federal Reserve has reduced the interest rates by 50 points. This will lead to lower interest income for the rest of the year. The proposed increase makes up $1,304,893 of the Other Misc. Revenue proposed budget adjustment.
• Additionally, the SB1 Road Maintenance and Rehabilitation Fund’s Revenues are being restored in the Other Misc. Revenues category. The prior budget update only took into account the last two months of revenues for the Fiscal Year 2024 SB1 funding, and this update will correctly account for the Fiscal Year 2025 SB1 funding that we expect to receive. This will restore the budget by $2,289,503.80 in the SB1 Fund and make up that portion of the proposed budget adjustment in Other Misc Revenues.
• Staff is also proposing a net decrease in the Measure T Operating Transfers to the three other Major Funds (Fire, Library, and CSD). This transfer from Measure T fund to the Fire District, CSD, and Library funds will see a net decrease of $2,185,117 due to the personnel vacancy factor rate, increased Property Tax, and Interest Income Revenues. Additionally, the Operating Transfer will balance the estimated ending Fund Balance to $0 for all 3 Major funds.
Attachment 2 includes a complete list of the proposed budgetary adjustments to expenditures listed by the General Ledger account.
Change in Authorized Positions
Staff regularly brings the Schedule of Authorized Positions to the City Council to adjust for new positions and titles assigned to current positions. This proposed schedule updates the classification of 2 full-time equivalent (FTE) positions for HR/Risk and adds the Fire Investigator Captain and Fire Battalion Chief Positions for Fire. The Fire Investigator Captain position is grant-funded for a period of two Fiscal Years. These changes have a net impact on the Schedule of Authorized Positions by 2 FTE, bringing the total Citywide FTE count to 468.59. The budgetary changes for the HR positions have a net zero effect, and the budget for the Fire Investigator Captain was added as a separate agenda item.
FISCAL IMPACT
The proposed amendments for the First Quarter of the Fiscal Year 2024/25 Operating Budget decrease Expenditures by $1,465,493. Similarly, the proposed amendments to the Revenues are an increase of $6,626,506. A comprehensive list of the requested appropriations by the General Ledger account is included in Attachment 2.
ATTACHMENTS
1. Fiscal Year 2025 Budget to Actual Report - All Funds for First Quarter
2. Fiscal Year 2025 First Quarter Proposed Budget Adjustments
3. Fiscal Year 2025 Summary of Major Funds
4. Updated Fiscal Year 2024/25 Authorized Position List
5. Estimated Ending Fund Balance