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 2023/24 Year End Report and Approve Appropriations for Carryover of Unspent Amounts from FY 2023/24 to FY 2024/25
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RECOMMENDATION
recommendation
Accept this report;
Amend the Fiscal Year 2024/25 Operating Budget to include the Fiscal Year 2023/24 Carryover Budget; and
Amend the Fiscal Year 2024/25 Operating Budget to include an Appropriation of $230,305.37, as described in the fiscal impact statement.
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PRIOR ACTION/VOTE
On June 6, 2023, the City Council, the Boards of Directors of the Murrieta Fire District (MFD), the Community Services District (CSD), the Murrieta Library District (MLD), the Housing Authority (HA), and the City Council acting as Successor to the Redevelopment Agency (SA), 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 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 2023/24 Operating Budget on November 21, 2023, March 5, 2024, and May 7, 2024 (Vote: 5-0).
CITY COUNCIL GOAL
Maintain a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency.
BACKGROUND
Budgets are projections based on known and anticipated future revenues and expenditure obligations. Staff monitors and analyzes actual revenues and expenditures against projections throughout the Fiscal Year (FY) and provides quarterly reports to the City Council, City Manager, and department directors. They also recommend budget amendments, if necessary. This report aims to provide consistent financial updates by summarizing the Citywide estimated financial operating results for the FY that ended June 30, 2024. While this report is presented at a Citywide summary level, the estimated final results for each major fund, which includes the General Fund, Measure T, Fire District, Community Services District, and Murrieta Library, can be found in Attachment 1. Details for each General Ledger account are included in Attachment 2.
The totals presented herein for FY 2023/24 summarize the actual revenues and expenditures compared to the corresponding adopted and Amended Budget amounts for the year. However, please note that as of the date of this report, the independent external audit for FY 2023/24 has yet to be concluded. As a result, the actual amounts are subject to change should accounting adjustments be necessary before finalizing the audit. This report also includes carryover budget requests for the appropriation of encumbrances from FY 2023/24 to the FY 2024/25 budget.
The financial operating activities for the year exceeded expectations due to a combination of increased revenues and budgetary planned and unplanned savings. Multiple factors contributed to ending the year on a positive note, including higher-than-anticipated revenues from property tax and interest earning, along with other revenue sources. Additionally, savings were achieved primarily through vacant positions and budgetary savings under general Operations & Maintenance.
The City generated $192,419,287 in Revenue and had $163,807,913 in Expenditures for all funds. The Revenue exceeded the Amended Budget by $11,482,070, while Expenditures were under budget by approximately $21,774,585, which was in part due to a 10% operating budgetary reduction request from the City Manager’s Office to help close the budgetary shortfall for the General Fund. This resulted in an operating surplus of roughly $28.6 million for all funds. While these results seem impressive from a citywide perspective, the surplus is shared between more than 100 funds. An overview of some of the significant citywide impacts, as well as information on General Fund and Measure T will be provided.
It is essential to note that the figures listed in this report are subject to change until the annual audit of the City's financial records and the Annual Comprehensive Financial Report (ACFR) are completed.
The following table summarizes all City funds' unaudited Revenue and Expenditures through June 30, 2024. A complete Budget to Actual Report of all accounts is included in Attachment 2.
Revenues
The two areas of Revenue that experienced the most significant increases were in Property Taxes and Other Miscellaneous Revenues.
• Property Taxes for FY 2023/24 were 11% higher than anticipated or approximately $3.3 million above the projection. Property Taxes were budgeted two percent higher than the budget for FY 2022/23. The two percent (2%) accounts for Riverside County’s (The County) increase in ad valorem. Ad Valorem is a tax imposed on the basis of value. The County levies an ad valorem property tax rate equal to one percent (1%) of each property’s full assessed value. The County can increase the ad valorem property tax rate by two percent (2%) each year. Regardless of the percentage increase in market value the assessed value, for tax purposes, can only increase by two percent (2%) annually. The Property Taxes collected in excess of the budget were from new residential and commercial development and changes in valuation due to existing home sales.
• In FY 2023/24 the City received approximately $39.4 million in Other Miscellaneous Revenues, which exceeded the anticipated revenue by 27% or $8.4 million over projections. The largest contribution was from the following:
o $3,739,260 for the Governmental Accounting Standards Board (GASB) 31 entry. This will be discussed later in the General Fund section of the report.
o Interest earnings were over projections by $6,287,878. Investment earnings exceeded our expectations in FY24, but with the recent interest rate reductions from the Federal Reserve, the City does expect its investment earnings to start to normalize.
Expenditures
Citywide Expenditures ended the year being under budget by $21,774,585. The most significant budgetary savings came from Personnel Costs and Operations & Maintenance (O&M).
• Personnel Costs were under budget by $5,351,658 or 6% under the Amended Budget. The majority of the savings resulted from unanticipated vacancies and delays in filling those positions.
• The O&M costs were $11.7 million or 17% less than the Amended Budget. Some of the more significant savings came from the following O&M categories.
• The Contract Services account categories had a net budgetary savings of $6.6 million. These services are generally related to plan checks, inspections, design, and project management services. Professional Services are for services that city staff cannot perform, or for services that are needed to supplement services that staff performs due to the demand in workload. The savings came from Capital Improvement Plan (CIP) projects that were budgeted in the Operating Budget but not complete, grants that were not fully expended, for projects that were not started, or from unused budgets.
• The Maintenance Services category came in under budget by $1.4 million. This category encompasses expenses for general maintenance or repair of City facilities, vehicles, landscaping, equipment, and software. There are two primary reasons for these savings.
o $910,394 was moved from Maintenance Software Licenses to Debt Service accounts, which resulted in positive and negative variances in each of those accounts. This was done in compliance with GASB Statement No. 96, which requires an accounting shift in how the City accounts for subscription-based software licenses. GASB 96 is also called Subscription-Based Information Technology Arrangements (SBITAs).
o The Community Services District’s Zones and Lighting Landscape Districts had a combined budgetary savings of $370,145 within General Maintenance Repair, Landscape Maintenance, and Building Maintenance.
• General Liability and Workers’ Compensation Claims were lower than expected, resulting in budgetary savings. General Liability Claims had budgetary savings of $425,703 and Worker’s Compensation Claims had a budgetary savings of $849,485.
• The Capital Outlay Expenditures came in at $3.4 million or 26% under the Amended Budget. Although there are various construction-related accounts that do exceed their Amended Budget, there are also several projects that have not started accumulating expenditures, giving the appearance of budgetary savings.
• The Allocation, or Internal Service Charges, ended the FY with $1,279,060 under budget. The budgetary savings were from a true-up reconciliation of the Information Technology (IT) and Risk Management Internal Service Funds’ financial activities. The budgetary savings within these funds were credited back to each contributing fund.
The Transfers Out and Transfers In categories were under budget by $4,194,731. Operating Transfers to funds that don’t have sufficient revenues to cover their expenses are “true-up” at the end of the FY.
General Fund
The General Fund is the City’s main operating fund. Most City services are funded from the General Fund such as police and code enforcement services, maintenance of city streets and facilities, community events, economic development, planning, building and engineering services, and the City’s general administration. Likewise, this fund is where all general taxes are collected to fund those services. In FY 2023/24, the General Fund concluded the year significantly exceeding initial projections. Based on the Amended Budget, a $6.4 million deficit was anticipated which would have required the use of Unassigned Fund Balance. Based on the final revenues and expenditures, it resulted in a surplus of approximately $10.8 million.
Revenues
There are two main areas in General Fund Revenues that came in greater than expected, Property Taxes and Other Miscellaneous Revenues. Property Tax and Property Tax in Lieu of Vehicle License combined exceeded projections by $2,321,955. Other Misc. Revenue ended the year at $7,290,965, over projections. The largest contribution was from the following:
• $3,739,259.79, for the GASB 31 entry. This is a required accounting transaction that documents the difference between the book value (or how much the City paid for its investments) and the market value (how much they would be worth if the City sold them on June 30). This transaction is then reversed on July 1.
• Interest Earnings exceeded estimates by $2,770,024. Investment Earnings exceeded our projections. At mid-year, the budget was increased to $2 million but ended at $4.7 million. Staff anticipated interest rate reductions from the Federal Reserve and maintained a conservative budget for Investment Earnings.
• Non-Distributable Interest Earnings $295,818. The accounts for interest from the loan payments received on the former Strechform building and the interest earnings from the Section 115 Pension Trust Fund.
Expenditures
• Personnel Costs came in 5% or $2,559,563, under budget. This is primarily due to vacancies in authorized positions throughout the General Fund in Planning, Engineering, the City Manager’s Office, the City Clerk's Office, Finance, the Police Department, Economic Development, and the Administrative Services Department.
• Operations & Maintenance came in 20% or $ 3,254,778, under budget.
o In total, Contract Services came in approximately $2.1 million under budget. These savings came from several departments.
§ Planning for plan check services that were not needed totaling $913,036;
§ Homelessness services subsidized by other funding sources totaling $405,000;
§ City Manager’s Office had certain operating costs subsidized by other funding sources there were also savings from real estate services that were not needed totaling $167,725;
§ Building & Safety for plan check and inspection services that were not needed totaling $120,112;
§ Non-Departmental budget for special legal services that were not utilized during the year, totaling $302,436; and
§ Engineering for plan check services that were not needed totaling $201,101.
o The City Manager Contingency had budgetary savings of $309,506, for special legal services that were not utilized during the year.
o The Maintenance Services category came in under budget by $315,433, related to software licenses, building, and vehicle maintenance.
o The remaining savings were spread out among several departments across various expenditure categories.
• Capital Outlay came in 53% or $707,633, under budget, the most significant budgetary savings comes from the following:
o $497,959, for the purchase of vehicles and upfitting police vehicles is requested to be carried over to FY25 because the goods were not received prior to the end of the FY.
o $80,278, was earmarked to purchase replacement radios and was not used because the City entered into a new agreement with Motorola to replace all radios department-wide.
o $67,675, remaining from the GovPartner data conversion project to EnerGov.
• Allocations were 12%, or $690,162, under budget. Internal Service Charges for Risk Management and Information Services were trued up at the end of the year based on actual expenses.
• Transfer Out came in 10%, or $104,971, under budget. These were Operating Transfers to make certain CSD Zones and LLDs whole. At the end of the year, these funds were trued up, and only the amount needed to fund their operating shortfall was transferred.
Measure T
In November 2018, the residents of the City of Murrieta (City) approved Measure T, establishing a one percent (1%) general-purpose transaction and use tax within the City. Measure T funds services including, but not limited to, police services such as neighborhood police patrols and crime prevention programs to help prevent gang activity and drug-related crimes; improved fire protection and paramedic services and reduced response times to 911 emergencies; repairing potholes, local streets, public buildings and keeping public areas clean, well-maintained and free of graffiti. Measure T also funds the operating shortfalls for the Murrieta Fire & Rescue, Community Services District, and the Murrieta Public Library.
Based on the Amended Budget, the City anticipated a contribution of $590,537, to Unassigned Fund Balance; however, due to budgetary savings, the fund ended the year with a surplus contributing $5,132,986, to Unassigned Fund Balance.
Revenues
Measure T Revenues ended the year one percent (1%) under budget. While it is not ideal for Revenues to come under budget, a variance of one percent (1%) plus or minus is within best management practices.
Expenditures
Operations & Maintenance was 26%, or $742,557, under budget. The final number was a combination of budgetary overruns and budgetary savings.
Much of the budgetary savings came from Contract Services in the following areas:
• Police Administration for Conceal Carry Weapons (CCW) Background Investigations in the amount of $81,377;
• Non-Departmental budgetary savings associated with the Citywide Beautification Project of approx. $50,000;
• Fire Administration for the Mapping Response System to connect engines to traffic lights was not purchased, and the Wildland Fire Service Agreement was lower than budgeted; combined, resulted in a savings of $95,913;
• Code Enforcement’s Weed Abatement and implementation of the Code Enforcement module in EP&L came in under budget by $132,000;
• Planning came in under budget by $493,500, due to the Madison Specific Plan and Environmental Impact Report not being started before the end of the FY; and
• Other budgetary savings came from Building Maintenance and Safety Equipment from Fire, which totaled $233,142.
Capital Outlay was $100,466 over budget. This was made up of several budgetary savings and overages. Some of the most significant categories that were over budget were:
• Several CIP projects, including Tot Lot installations, design work for the Public Works Yard and City Hall Annex, and Library roof repair, were over budget by $669,427. These projects were only budgeted in the CIP budget and not in the Operating Budget, but when the expenses occurred, they hit the general ledger.
• Several CIP projects at City Hall (plants, motivational signage, and second-floor furniture) and PD (admin. furniture) caused expenses to be over budget by $114,824.
Some of the most significant categories that were under budget were:
• $400,000, savings from an accounting change that moved the Axon payment to Debt Service accounts under O&M. $150,000, savings from a proposed project to improve the rose garden that was not completed. $34,544 savings from Police Administration Furniture & Fixtures, as well as a $90,000, savings from Fire Fleet.
Allocations, also known as internal service charges, were 14%, or $95,013, under budget. At the end of the year, internal service charges for risk management and information services were trued up based on actual expenses.
Transfer Out was 59%, or $4,099,464, under budget. These transfers are to Fire, CSD, and Library and were trued up based on their Revenues exceeding Expenditures. Please see Attachment 1, to review the Budget to Actual summary for Fire, CSD, and Library.
Estimated Components of Fund Balance
In accordance with GASB Statement Number 54, each fund balance is categorized primarily based on the extent of its resource usage constraint. The table below displays the anticipated variations in each fund balance category within the General Fund and Measure T Fund from June 30, 2023, to June 30, 2024.
The balances are not only reliant on the operation outcomes (i.e., the difference between Revenue and Expenditure) but also on the changes in other fund balance categories such as long-term note receivables, inventory, annual debt service payments, capital projects, and unspent appropriations carried over to the succeeding FY. As mentioned earlier, the amounts are subject to change until the external audit and the City's FY 2023/24 financial statements have been completed. Below is a classification of the General Fund and Measure T fund balances. The fund balance classifications for the remaining major funds (Fire, CSD, and Library) can be found in Attachment 4. The estimated fund balances for all funds are also listed in Attachment 5.
For the General Fund, the most significant changes in the fund balance classifications come from Committed and Unassigned.
• The Committed fund balance of the General Fund has increased by approximately 57.6%. The primary reason for this increase is due to increased allocation to Operating Reserves, Pension and OPEB Reserves, Fleet Replacement Reserves, and Facility Repair Reserves. Unassigned Fund Balance has decreased by 6.94%, which brings the estimated Unassigned Fund Balance to $34,483,419.
• This reduction in Unassigned Fund Balance can be partially explained by the allocation to Committed Fund Balance. Operating Reserves, which increased by $3,620,839; Economic Contingency Reserves, which increased by $45,273; Fleet, Facility, and Technology Repair Reserves, which increased by $6,000,000; Continuing Operations, which had an increase of $2,000,000; and Pension Rate Stabilization and Other Post-Employment Benefit Trust (OPEB) Reserves increased by $3,000,000. The balance of the changes, totaling $1,077,803, was from decreased funding set aside for Capital Improvement Projects and Prior Year Encumbrances.
For the Measure T Fund, the most significant changes in the fund balance classifications come from Committed and Unassigned.
• The Committed Fund Balance increased by 101.66%, or $21,899,347. Operating Reserves, which increased by $3,467,705; Economic Contingency Reserves, which increased by $1,282,884; Fleet and Facility Repair Reserves, which increased by $7,367,000; Continuing Operations, which had an increase of $4,000,000; and Pension Rate Stabilization and Other Post Employment Benefit Trust (OPEB) Reserves increased by $6,000,000. The balance of the changes, totaling $218,242, was from decreased funding set aside for Capital Improvement Projects and Prior Year Encumbrances.
It is important to note that while the Unassigned Fund Balances for the General Fund and Measure T appear to be drastically reduced, they were strategically designated as part of the Biennial Budget adoption to enhance the City’s overall Reserves for future fleet and facility needs.
Both Funds have ended more favorably than anticipated. Based on the third quarter update, it was estimated that the General Fund Unassigned Fund Balance would end at $13,738,937, and Measure T Unassigned Fund Balance would at $1,610,006. However, the General Fund Unassigned Fund Balance ended $20,744,482, higher than estimated and Measure T Unassigned Fund Balance ended $12,863,834, higher than estimated.
Requested Carryover (Rollover) FY 2023/24 Budget Appropriations to FY 2024/25
Purchase Orders (POs) are used to procure goods and services required for operating activities and/or specific projects. If the projects remain unfinished by the end of the fiscal year the PO was established, the remaining budget and PO can be carried over to the following year with City Council authorization. Staff identified projects that were not completed during FY 2023/24 due to various reasons such as timing, staffing, reprioritization of workload, or projects spanning multiple years. Most of the PO carryover requests, accounting for 70%, are related to CIP projects, while the remaining 30%, are from Operations.
The requested budget amounts for carryover are currently unspent and available in FY 2023/24. If not requested for carryover, these amounts would have been considered budgetary savings and would have contributed to the fund balance. A brief summary by Fund number is presented below to provide an overview of the carryover requests. For detailed information, please refer to Attachment 3.
Fiscal Year 2024/25 Fire Department Expenditure Budget Request
This Budget Update includes a FY 2024/25 request. Murrieta Fire & Rescue (MFR) requested Finance to establish an expenditure appropriation from the Fire District Fund Assigned Fund Balances and Revenues received in FY 2022/23 to fund qualified expenditures in accordance with the American Medical Response (AMR) Ambulance Agreement #15-097. MFR has $129,100.62, in its Assigned Fund Balance for AMR Enhancement Fees and had Revenues of $251,204.75, in FY23. As a part of the first quarter budget update, $150,000, has already been appropriated into the Expenditure budget. This request adjusts the existing budget for Revenue received to date but not spent. The total requested appropriation for the FY25 Operating Budget is $230,305.37.
FISCAL IMPACT
The Fiscal Impact for Murrieta Fire & Rescue will result in an increase in their Expenditure budget of $230,305.37, in General Ledger account 1513520-62860 using Assigned fund balance and revenue received in prior years. This increase would allow MFR to utilize the existing funds, already received for AMR System Enhancement.
The action related to the carryover of unspent appropriations has no net fiscal impact. The previously authorized expenditures will simply be spent in a later period, which only affects the timing of cash flow.
ATTACHMENTS
1. FY 2023/24 Budget to Actual Report - Major Funds
2. FY 2023/24 Budget to Actual Report - All Funds
3. FY 2023/24 Carryover Requests by General Ledger Account and Purchase Order
4. Components of Fund Balance (Estimated)
5. Fund Balances for All Funds (Estimated)