07.01 Mid-Year Budget Update1. SUBJECT
Status of Fiscal Year 2017 -2018 budget and preliminary projections for Fiscal Year 2018 -19
budget preparation.
2. SUMMARY
This mid -year report provides an update of the FY 2017 -2018 (FY 18) budget and work plans. In
addition, this report also presents a brief review of the FY 2018 -2019 (FY 19) budget, which is
currently being prepared.
3. RECOMMENDED ACTION
Receive and file report.
4. FISCAL IMPACT
None.
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 2017 -2018 UPDATE
Review of General Fund Revenues and Expenditures
As the economy continues to show signs of strength, solid gains are reflected in many of our
sources of revenue. The total General Fund revenues for FY 18 are projected at $109.7 million,
$1.8 million, or 1.6% above budget. Sales tax, our largest source of General Fund revenue, is
anticipated to stay on track with the budget of $42.3 million. Slowly rising fuel prices and
consumption as well as strong performance in building and construction, general consumer goods,
and restaurants will continue to bring in revenue as projected. At mid -year, $37.3 million in
General Fund revenues had been received, reflecting 34% 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 $13.7 million, (32.3 %) 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.
Current year property taxes, the second largest source of General Fund revenue, are anticipated to
be $27.2 million, $216,000 above budget. This increase is related to more property tax increment
distributed by the County of Orange for the Successor Agency. At mid -year, property tax, is at
46.9% of budget, with $12.7 million received by the end of the second quarter. Transient
Occupancy Tax (TOT) is comparable to FY 17, with $2.2 million received, or 41.3% of
budget. Use of Money and Property is expected to be $300,000 above budget, the result of higher
interest rates generating more interest earnings and addition of new rental revenue. Based on
current trends, other revenue sources such as real property transfer tax, licenses and permits, and
property tax in lieu of motor vehicle fees are expected to be above budget as well. Finally,
Miscellaneous Revenues are anticipated to be $1.1 million, $474,000 higher than the budget. The
majority of this increase is contributed by reimbursements from the Office of Emergency Services.
Expenditures in the General Fund are currently within target range, with all departments on pace
to meet, but not exceed, their target expenditures for FY 18. Unlike revenue, which fluctuates
from external factors, expenditures are consistent and remain relatively steady throughout the
fiscal year. The adjusted appropriation for FY 18 is $109.6 million, an increase from $107.8
million due to approved budget adjustments. The actual amount expended and encumbered
through December 31, 2017 is $59.6 million, 54.4% of the total expenditure appropriation.
Comparing that to FY 17's actual amount expended and encumbered during the same period, FY
18 is slightly higher by 4.1 %, mainly due to the City issuing a lump sum payment to PERS at the
beginning of this fiscal year to cover cost related to the unfunded liability. Despite this, the General
Fund historically ends each fiscal year with savings in expenditures, and we presume through our
initial analysis that we will meet, or stay slightly below, target appropriations.
Attached to this staff report is the Mid -Year Report of the General Fund, which details and
illustrates total revenue received, and expenditures by department and category.
Budget Adiustments
Along with the approval of the budget, a total of $1.2 million was added to the budget for carryover
appropriations and encumbrances. In addition, to date, the City Council has authorized $588,858
ITEM 2 2/13/18
in budget adjustments to the General Fund. These have been for grants which have corresponding
revenue, as well as for several appropriations, including receiving funds for a General Plan
Amendment related to East Orange and sidewalk steam cleaning services.
During the October 24, 2017 Council meeting, staff recommended a $335,000 mid -year
appropriation from unreserved fund balance to address the cost of the lump -sum payment to
employees from various bargaining groups. However, our year -to -date analysis indicates that we
are projecting an estimated salary savings of $2.1 million at the end of the fiscal year. As such, our
current recommendation is to forego with the mid -year appropriation, and continue to monitor
potential General Fund savings throughout the remaining fiscal year. If an appropriation is needed,
staff will return to the City Council during the budget adoption in June and will include this as part
of the clean-up items for FY 18.
Work Plan Summaries
With the adoption of every fiscal year budget, departments identify an annual work plan which
serves as a roadmap for their planned activities. A summary of FYI work plan accomplishments
for each department is attached to this staff report, and provides a status of those work plans at
mid -year.
Reserve Plan
During one of our budget study sessions last year, staff discussed a formal reserve policy with the
Council. Based on the feedback we received from that session, staff has developed a draft
comprehensive reserve policy. Staff intends to present this to the City Council at an upcoming
study session, with the goal of including the policy for City Council consideration and adoption
concurrently with the FY 19 budget.
Water Fund Fiscal Update
With the easing of some water conservation mandates, the City's water production increased in
FY 17 to 25,968 acre feet (AF), slightly over the target water production of 25,750 AF. This trend
is expected to continue through FY 18. At this point, water production is 15,125 AF, about 57%
of the City's FY 18 target water production of 26,500 AF. For the upcoming FY 19 budget, the
City's target water production is projected to increase slightly to 27,250 AF. This is accounted for
in the Water Rate Model, and revenues and expenditures have been adjusted accordingly. Revenue
in the Water Fund, from July through December 2017, is $14.0 million, up $1.3 million compared
to the same period of last fiscal year.
From a regional standpoint, there are no additional water conservation mandates required for local
water agencies. However, because of the lower than normal rainfall, Metropolitan Water District
of Southern California ended its in -lieu program last month. The in -lieu program allowed local
water agencies to purchase excess imported water at a reduced cost in order to preserve the local
groundwater basin. As in years past, staff will be returning to City Council with more information
at an upcoming Budget Study Session to discuss the upcoming FY 19 budget.
ITEM 3 2/13/18
Sanitation Fund Fiscal Update
In 2017, the Public Works Department completed their sanitation rate study, which was approved
by City Council in July 2017. The sanitation rate adjustment provides the appropriate funding for
necessary maintenance and operational needs on the City's 312 miles of sewer system on a go-
forward basis. The structural changes made to the Sanitation Fund includes new CIP funding for
mainline replacement of hydraulic and structural deficient sewer systems, as well as hot spot
repairs.
From July through December 2017, the Sanitation fund received revenues of $2.9 million, of which
$498,435 were revenues generates by the infrastructure fee. Compared to the same time period last
year, the City has received approximately $719,000 more due to the rate adjustment. Expenditures
at mid -year are currently within target.
EARLY LOOK AT FISCAL YEAR 2018 -19
Our initial analysis suggests the General Fund revenue estimate for FY 19 will be approximately
$111.1 million, with expenditure estimates at $113.2 million, leaving the City with a potential
budget gap of about $2.2 million. While still very early in the budget process, this expected gap
is primarily due to PERS costs continuing to have the greatest impact on expenditures, along with
salary and benefits increases that were negotiated with various bargaining groups. For FY 19, our
General Fund PERS cost is estimated to increase by $2.2 million. A more detailed analysis of
revenues and expenditures, along with budget balancing strategies, will be discussed at the
upcoming Budget Study Session.
8. ATTACHMENTS
General Fund — Mid Year Report Ending 12/31/17
Mid -year work Plan Report
ITEM 4 2/13/18
CITY COUNCIL MINUTES FEBRUARY 13, 2018
END OF CONSENT CALENDAR
* * * * * * **
4. REPORTS FROM MAYOR SMITH — None
5. REPORTS FROM COUNCILMEMBERS — None
6. REPORTS FROM BOARDS, COMMITTEES, AND COMMISSIONS
6.1 Report from City Council Ad Hoc Committees related to Homelessness:
• Community Communications
• Cities and Non - profit Collaboration
• County Engagement
No reports were given.
6.2 Amending the procedures, rules and regulations for the Audit Committee. Resolution
No. 11064. (OR1800.0.27.17)
A Resolution of the City Council of the City of Orange repealing Resolution 9624 and
amending the procedures, rules and regulations for the Audit Committee.
Finance Assistant Director Katrin Bandhauer provided the staff report. She noted that
currently a CPA is required to apply and be appointed as a member of the Audit Committee.
Since the committee was reinstated, only two applications have been received. In order to
encourage more applicants, staff is recommending to change this requirement.
MOTION — Nichols
SECOND — Whitaker
AYES — Alvarez, Whitaker, Smith, Murphy, Nichols
Moved to approve Resolution No. 11064.
7. ADMINISTRATIVE REPORTS
7.1 Status of Fiscal Year 2017 -2018 budget and preliminary projections for Fiscal Year
2018 -2019 budget preparation. (C2500.E.4)
Finance Director Will Kolbow provided the staff report and answered Council's questions
regarding Ca1PERS.
MOTION — Whitaker
SECOND — Nichols
AYES — Alvarez, Whitaker, Smith, Murphy, Nichols
Moved to receive and file report.
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