SR - - MID YEAR BUDGET UPDATE STATUS1. SUBJECT
Status of Fiscal Year 2016 -2017 budget and necessary Mid -Year Adjustments and preliminary
projections for Fiscal Year 2017 -18 budget preparation.
2. SUMMARY
This mid -year report provides an update of the FY 2016 -2017 (FY 17) budget and work plans, and
recommends certain budget transfers. In addition, this report also presents a brief review of the
FY 2017 -2018 (FY 18) budget, which is currently being prepared.
3. RECOMMENDED ACTION
1. Receive and file report, and;
2. Approve in one motion the following transfers:
a. Authorize the transfer of $2,000,000 from the unreserved fund balance of the General
Fund to the Capital Projects Fund (500).
b. Authorize the transfer of $1,000,000 from the unreserved fund balance of the General
Fund to the Accrued Liability Fund (760 for PERS).
c. Authorize the transfer of $2,500,000 from the unreserved fund balance of the General
Fund to the Business Investment Fund (115).
ITEM 1 2/14/17
4. FISCAL IMPACT
Sufficient funds are available in the unreserved fund balance of the General Fund to support the
requested appropriations. Approval of the recommended action will result in the following
appropriations:
Action
From:
To:
Amount:
1
General Fund
Capital Projects (500)
2,000,000
2
General Fund
Accrued Liability (760 /PERS)
1,000,000
3
General Fund
Business Investment (115)
2,500,000
TOTAL:
$5,500,000
5. STRATEGIC PLAN GOAL(S)
Goal 2: Be a fiscally healthy community.
Goal 2(b): Analyze future fiscal needs and potential revenue opportunities.
6. GENERAL PLAN IMPLEMENTATION
Not applicable.
7. DISCUSSION and BACKGROUND
Fiscal Year 2016 -2017 Update
Review of Revenues and Expenditures
As the economy continues to show slow improvement, solid gains are reflected in many of our
sources of revenue. The total General Fund revenues for FY 17 are projected at $111.3 million,
$4.9 million, or 4.2% above budget. Sales tax, our largest source of General Fund revenue, is
anticipated to be $41.8 million, $1.5 million below budget of $43.3 million. As fuel prices
continue to remain low, the related sales tax revenue has not met budget expectations. The drop
in fuel sales will be partially offset by increases in auto sales, building and construction, and in the
business and industry sectors, as nearly all other sectors have outperformed expectations.
Current year property taxes are projected to be $26.1 million, $234,000 above budget. This
increase is related to more property tax increment distributed by the County of Orange for the
Successor Agency. Licenses and fees are estimated to be $179,000 above budget of $4.3 million,
mainly due to the increase in building related permits (plumbing, electrical, mechanical, etc.). Use
of Money and Property is expected to be $221,000 above budget, the result of higher interest rates
generating more interest earnings. Revenue from Other Agencies, and Fees for Services, are
expected to be above budget as well. Finally, Miscellaneous Revenues are anticipated to be $5.7
million, $4.9 million higher than the budget of $769,000. The majority of this increase is
contributed by receipts from the sale of surplus properties. Overall General Fund revenue, after
accounting for one -time receipts, is projected to end as estimated.
ITEM 2 2/14/17
Expenditures in the General Fund are currently on target. The adjusted appropriation for FY 17 is
$109.2 million, an increase from $106.3 due to approved budget adjustments. The actual amount
expended and encumbered through December 31, 2016 is $55 million, 50.3% of the total
expenditure appropriation. General Fund historically ends each fiscal year with savings in
expenditures. At this time, staff is anticipating some savings in FY 17; however, it is too soon to
determine what those savings will be, or to estimate the FY 17 year end fund balance.
Mid -Year Report
Attached to this staff report is the Mid -Year Report of the General Fund, detailing total revenue
received, and expenditures by department and category.
At mid -year, $40 million in General Fund revenues had been received, reflecting 37.4% of the
budget, normal for mid -year due to the timing of revenue receipts. Sales tax receipts provided the
largest portion of General Fund revenue at $14.8 million, (34.2%) by the end of the second
quarter. Staff is expecting to receive a larger portion of sales tax receipts in the second half of the
year due to the timing of allocations. Property tax, the second largest source of General Fund
revenue, is at 46.6% of budget, with $12.1 million received by the end of the second
quarter. Transient Occupancy Tax (TOT) is comparable to FY 16, with $2.2 million received, or
42.2% of budget. The remaining revenue sources are on track to meet budget.
Expenditures are within anticipated targets for mid -year. All departments are on pace to meet, but
not exceed, their target expenditures for FY 17. Unlike revenue, which fluctuates from external
factors, expenditures are consistent and remain steady throughout the fiscal year.
Proposed Transfers to Internal Service Funds
Fiscal Year 2015 -16 (FY 16) ended with $108.1 million in revenue, $4.7 million more than
budgeted, resulting in an ending fund balance of $11.8 million. In keeping with City Council's
direction at the October 2016 Council meeting, staff is recommending transfers of $5.5 million
from the General Fund unreserved fund balance to the Capital Projects Fund ($2 million), the
Accrued Liability /PERS Fund ($1.0 million), and the Business Investment Fund ($2.5 million).
Work Plan Summaries
Attached to this staff report is a summary of FY 17 work plan accomplishments for each
department. With the adoption of every fiscal year budget, departments identify an annual work
plan which serves as a roadmap for their planned activities. This report provides a status of those
work plans at mid -year.
Early Look at Fiscal Year 2017 -2018
Our initial analysis suggests the General Fund revenue estimate for FY 18 will be approximately
$108 million, with expenditure estimates slightly above $109 million, leaving us with a budget
gap of $1.0 to $1.5 million. While still very early in the budget process, this expected gap is
primarily due to lower gas prices which are having a sustained effect on General Fund revenues,
while PERS costs will continue to have the greatest impact on expenditures. For FY 18, our PERS
cost is increasing by $2.0 million. A more detailed analysis of revenues and expenditures, along
with budget balancing strategies, will be discussed at the upcoming Budget Study Session.
ITEM 3 2/14/17
Water Fund
Due to the continued drought and ensuing water conservation effort, the City's water production
fell in FY 16 to 23,494 acre feet (AF). With the easing of some restrictions, and a brighter rain -
year outlook, a slight upward trending of water production is currently projected, resulting in a
minor increase of water sales over this time last year. The City's target water production for FY
17 remains at 25,750 AF.
Despite the current rain fall trending higher than the seasonal average in Orange County, the State
Water Resources Control Board remains likely to extend the water conservation mandates based
on future rain, snow pack, and storage conditions statewide. Staff will be returning to City Council
with more information at an upcoming Budget Study Session to discuss the upcoming FY 18
budget.
Sanitation Fund
From July through December 2016, the Sanitation fund received revenues of $2.1 million. This is
an increase of about $229,000 (12.4%) compared to$1.9 million the same time period last year. In
effect, estimated revenues are currently on target, and it is likely that the FY 17 estimated revenue
of $4.1 million will be met or exceeded. However, expenditures in the Sanitation Fund are
projected to be more than the estimated revenue received this fiscal year. For the past several
years, expenditures have remained neutral, but revenues have declined due to the water
conservation efforts.
The Public Works Department is in the process of a sanitation rate study, and staff will make
recommendations on a rate structure that supports the necessary services for the various sanitation
components. Staff will be returning to City Council with more information at the upcoming
Budget Study Session.
8. ATTACHMENTS
• General Fund — Mid Year Report Ending 12/31/16
• Mid -year work Plan Report
ITEM 4 2/14/17