TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Javier Carcamo, Director of Finance
PREPARED BY: Geovanny Calvopina, Financial Analyst
SUBJECT: Fiscal Year 2023/24 First Quarter Financial Status Report
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RECOMMENDATION
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Accept the report;
Adjust the Fiscal Year 2023/24 Operating Budget as defined in the Fiscal Year 2023/24 First Quarter Proposed Budget Amendments;
Adjust the Fiscal Year 2023/24 Capital Improvement Budget as defined in the Fiscal Year 2023/24 First Quarter Proposed Budget Amendments for projects 08094,13058, and 21034; and
Authorize use of General Fund Continuing Operations Reserves, which were set aside for the four public safety labor negotiations.
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PRIOR ACTION/VOTE
On June 6, 2023, the City Council; the Board of Directors of the Murrieta Fire District (MFD), the Community Services District (CSD), the Murrieta Library District (MLD), the Housing Authority (MHA); and the City Council acting as Successor to the Redevelopment Agency (RSA) 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 15, 2023, the City Council; the Board of Directors of the MFD, the CSD, the MLD, the MHA; and the RSA, adopted a series of Resolutions (23-4699, MFD 23-221, CSD 23-278, MLB 23-18, and RSA 23-30) approving the Capital Budget for FY 2023/24 (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 adopts a biennial budget every two years, starting in odd-numbered years, with a fiscal year 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 Council review and consideration. These reports ensure transparency and present opportunities for staff to adjust the operating budget based on analyzed trends.
This report serves three purposes:
1) Provide a FY 2023/24 Budget Update for the First Quarter of the FY (July 1 - September 30, 2023);
2) Request appropriations for items not included in the original budget adoption and adjust budgets for various expenditures detailed in Attachment 5; and
3) Authorize the use of General Fund Continuing Operations Reserves.
Revenues Collected through September 30, 2023
Revenues collected through the First Quarter do not provide adequate data for a thorough 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, since most Revenues are not received evenly throughout the year. For example, Property Taxes are received by the City in January and May for the December and April tax bill installments.
For revenue evaluation purposes, Fiscal Year 2022/23 is being used as the base year for comparison in this report. Citywide revenues collected through the First Quarter are reflected in the table below.
Sales Tax receipts for the current Fiscal Year were 3% less than the base year, Fiscal Year 2022/23. This decrease aligns with the statewide estimates provided by the City’s sales tax consultant firm (HdL). HdL anticipates a slight decline in the next quarter as well, but in the 3rd quarter of FY24, then moving forward, Sales Tax revenues are expected to return to moderate increases year-over-year.
The table below presents the revenues collected through September 30 for Charges for Services, Transient Occupancy Taxes (TOT), License/Permit Fees, and Business Licenses. These revenues are compared to the previous Fiscal Year 2022/23. Except for Business License revenues, the remaining revenue sources were impacted by various market dynamics facing significant industry groups, such as building/construction and general consumer goods.
Revenues from the “Charges for Services” category are currently 57% lower than the previous year. This is primarily due to the unallocated Administrative Charges for Internal Service Funds, which were not recorded when compiling this report. The decrease in Engineering Services, such as Inspection Charges and Plan Checks, was also a contributing factor. This decrease was driven by a slowdown in development caused by the current economic conditions and high interest rates for home and construction loans.
TOT revenue is only 1% lower than the previous year. While License/Permit Fees are 31% below the base year, they align with the FY 2023/24 projections and have reached 29% of the budgeted actual revenues. This revenue source is 4% above the 25% benchmark. Business Licenses are 36% above the base, indicating growth in the small business sector.
Property Transfer Tax revenues experienced a 36% decrease during the base year. This tax is applied to each recorded document involving real property sales. A decline in home sales can be attributed to the higher interest rates and home prices compared to previous years. Any revenue adjustments based on year-to-date actuals will be made as part of the Mid-Year Budget Update, tentatively scheduled for the second City Council meeting in February.
Expenditures through September 30, 2023
Certain expenditures, such as personnel costs, remain consistent throughout the year. However, other expenditures, like Capital Outlay, are usually for one-time purchases and may not be evenly distributed throughout the year. Similar to revenue analysis, it is most relevant to compare the current year to the prior year. Below is a table reflecting the Citywide Expenditures through the First Quarter.
Personnel costs for the current year have increased compared to the previous year due to the terms approved in Summer 2023 for the Memorandums of Understanding (MOU) for the four public safety labor groups. As part of this budget update, there is a request to authorize the use of General Fund Continuing Operations Reserve to establish the budget for the approved MOU increases, which will be discussed later in this report.
In contrast, Operations & Maintenance costs were 54% lower than in the base year. This was due to several factors:
• Debt service for bonded Mello-Roos districts was not recorded until the trustee bank statements were reconciled, typically the month after the payments are made. This amounted to a total of $11,082,346.
• Workers Compensation Claims from the City’s risk pool, Public Entity Risk Management Authority (PERMA), have not yet been recorded because, effective July 1st, PERMA changed the availability of reports from monthly to 45 days after the end of each quarter. The Workers Compensation Claims will be entered as soon as the statements are available.
• Prepaid expenditures had not been accounted for in the Maintenance Software Licenses account, which accounted for a variance of $850,000.
• A non-recurring grant expenditure of $1.5 million from last year also contributed to the lower costs this year.
At the time data for this report was gathered, the Allocations (Internal Service Charges) and Operating Transfers for the First Quarter had not been allocated. Since then, they have been processed through October.
The detail of Revenues and Expenditures by General Ledger Account for the First Quarter is included in Attachment 1.
First Quarter Adjustments
There are two primary reasons for these First Quarter Proposed Budget Adjustments: 1) adding items not included in the adopted budget, and 2) adjusting the budget for changes that took place shortly after the adoption of the budget.
The proposed adjustments include an increase in expenditures of $6,814,304, which includes amendments for four Capital Improvement Plan (CIP) projects. The following table provides a summary of the proposed Citywide changes.
*The Capital Outlay amount listed above includes proposed changes to three CIP projects.
The proposed adjustments include $5,465,843 for personnel costs due to the approved MOUs through labor negotiations and a true-up of the budget for the CalPERS Pension costs. Operations & Maintenance and Capital Outlay are proposed to change by $1,348,461 due to expenditures not factored into the Adopted Budget, such as property acquisition, Santa Stops program, and other one-time expenses.
The fiscal impact on each affected fund is incorporated into the Estimated Expenditures in Attachment 5, which contains the Estimated Ending Fund Balance for all funds. The proposed Fire District and Library changes result in a negative estimated ending Fund Balance. This variance will be addressed during the Mid-Year Budget Update.
A complete list of the proposed budgetary adjustments to Expenditures listed by General Ledger Account is included in Attachment 2.
FISCAL IMPACT
The proposed amendments for the First Quarter of the FY 2023/24 Operating Budget amount to $6,309,454 in expenditures. Similarly, the proposed amendments for the FY 2023/24 Capital Improvement Budget amount to $504,850. A comprehensive list of the requested appropriations by General Ledger account is included in Attachment 2.
In addition to requesting additional budget appropriations, this item also requests City Council authorization to use $4 million in General Fund Continuing Operations Reserves and allocation to personnel costs. As part of the Biennial Budget Adoption, these funds were set aside for ongoing labor negotiations with the four public safety labor groups.
ATTACHMENTS
1) FY 2023/24 Budget to Actual Report - All Funds for First Quarter
2) FY 2023/24 First Quarter Proposed Budget Adjustments
3) Summary of Major Funds
4) Sustainability Reserves FY 2023/24
5) Estimated Ending Fund Balance