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CC 2021-11-09_08b Year End Financial Status Report_FY 2020-21MEMORANDUM TO: CITY COUNCIL BY: NICOLE VALENTINE, ADMINISTRATIVE SERVICES DIRECTOR SUBJECT: FISCAL YEAR 2020-21 YEAR -END FINANCIAL STATUS REPORT D ATE: NOVEMBER 9, 2021 SUMMARY OF ACTION: Consider and file the Fiscal Year (FY) 2020-21 Year-End Financial Status Report. IMPACT ON FINANCIAL AND PERSONNEL RESOURCES: Preparation of the Fourth Quarter Financial Status Report requires staff time within the existing work plan and budget for the Administrative Services Department. At year-end, FY 2020-21 revenues for the General Fund were $19.1 million, or three percent (3%) above the Adjusted Budget. Actual Expenditures were $16.9 million, and favorable to the Adjusted Budget by $1.85 million (10%). RECOMMENDATION: It is recommended that the City Council consider, receive, and file the FY 2020-21 Year- End Financial Status Report. BACKGROUND: Each fiscal year, the City Council adopts a budget, which commits government resources and services to accomplish the City’s mission of making Arroyo Grande the best place possible for everyone who lives, works, and visits here. The fiscal year-end financial status report is, in essence, the City’s report card on its financial performance. The purpose of the FY 2020-21 Year-End Financial Status Report is to: •Compare revenues received and expenditures incurred to the budget to determine the City’s financial performance; •Provide explanations for key account variances and identify any potential trends that might impact financial planning; and •Provide other key information including headcount statistics, completed Capital Improvement Projects, and completed Budget Adjustment Requests. Item 8.b. - Page 1 CITY COUNCIL FISCAL YEAR 2020-21 YEAR -END FINANCIAL STATUS REPORT NOVEMBER 9, 2021 PAGE 2 For comparison purposes, the City’s actual results will be compared to the Adjusted Budget. The Adjusted Budget is the City’s original Adopted Budget plus any Council- approved adjustments made during the year. ANALYSIS OF ISSUES: FY 2020-21 Revenue and Expenditures Compared to Prior Year Adjusted Budget Compared to FY 2020-21 Actuals The General Fund is the primary operating fund of the City and accounts for resources and services traditionally associated with government. General Fund revenue at the end of Fiscal Year 2020-21 was $498,575 higher than the Adjusted Budget. Expenditures were $1,853,446 lower than the Adjusted Budget, both positive performance indicators. A more thorough explanation of FY 2020-21 variances is set forth in the attached financial report. The following is a summary of the variances between the Adjusted Budget and Actuals. Revenue ($498,575 higher) Actual revenue exceeded the Adjusted Budget by $498,575 for the year. The significant revenue variances include: • Property tax ended the year favorable by $241,572, or 4% above the Adjusted Budget. Property tax collected grew 6% over the previous fiscal year, as the housing market continues to rise. Property tax represents 31% of the City’s annual revenue. • Actual sales tax revenue exceeded the Adjusted Budget by $47,547, or 1% above the Adjusted Budget. Sales tax collected grew 7% over the previous fiscal year. Certain business categories like building and construction, online shopping, general consumer goods, and food and drugs continued to show strong sales tax receipts during the pandemic and exceeded expectations. Whereas other business categories like restaurants and hotels, auto and transportation were significantly impacted by the economic decline (20% decline in sales tax), fuel and service stations were impacted the most (50% > decline). Sales tax represents 23% of the City’s annual revenue. • The FY 2020-21 budget took a cautious approach when estimating Transient Occupancy Tax (TOT) revenue and forecasted revenue to decrease by approximately 40%. During April, May, and June, with the mask mandates being FY 2020-21 Budget FY 2020-21 Actuals Variance Revenue 18,564,989$ 19,063,564$ 498,575$ Expenditures 18,773,844$ 16,920,398$ (1,853,446)$ General Fund Item 8.b. - Page 2 CITY COUNCIL FISCAL YEAR 2020-21 YEAR -END FINANCIAL STATUS REPORT NOVEMBER 9, 2021 PAGE 3 lifted, the tourism industry began to see a large increase of travelers that helped this revenue exceed the Adjusted Budget by $128,718. • License and permit revenue fell short of the Target by $43,829. The majority of the variance is due to fewer building permits being issued during the Fiscal Year. • Actual recreation fees revenue exceeded the Adjusted Budget by $130,074, or 32%. With COVID-19 restrictions, many programs were modified this fiscal year to adjust to the current guidelines, making FY 2020-21 budget assumptions extremely conservative. The original budget anticipated a decrease in revenue of approximately 40% year over year. Fortunately, the program decrease compared to FY 2019-20 was only 9%. Adjustments to operations continue to help provide recreation programs to the community during the COVID-19 pandemic. Expenditures ($1.85 million lower) Overall, expenditures were lower than the Adjusted Budget by 10% or $1.85 million. The Fiscal Year 2020-21 Year-End Financial Status Report (Attachment 1) provides more detailed explanations of the expenditure variances. The significant expenditure variances include: • The Administrative Services Department variance is attributed to salary savings of approximately $34,300; lower-than-anticipated CalPERS Unfunded Actuarial Liability (UAL) retirement payment of approximately $158,800; utilities savings from electricity, gas and cable of approximately $68,300; and lower than anticipated transfers to CIP projects of approximately $81,600. • The Community Development Department variance is attributed to salary savings of approximately $254,000 and contractual services savings of approximately $269,400. • The Police Department variance is attributed to salary savings of approximately $543,300. Fund Balance The Fund Balance for the General Fund ended the year at $8.0 million. Fund Balance increased this year from $5.9 million at Fiscal Year End 2019-20 because actual revenue exceeded expenditures by approximately $2.1 million. The City’s auditors are working with Staff to complete the Annual Comprehensive Financial Report, which will confirm the FY 20-21 year-end Fund Balance. When this report is finalized, staff will report the final Fund Balance for the FY20-21 General Fund. ALTERNATIVES: 1. Receive and file the Fiscal Year 2020-21 Year-End Financial Status Report; or 2. Provide other direction to staff regarding the FY 2020-21 Year-End Financial Status Report; or 3. Provide other direction to staff. Item 8.b. - Page 3 CITY COUNCIL FISCAL YEAR 2020-21 YEAR -END FINANCIAL STATUS REPORT NOVEMBER 9, 2021 PAGE 4 ADVANTAGES: The financial report presents an updated review of the City’s financial performance for FY 2020-21. Reporting on financial performance is one of the Top 10 Council priorities for FY 2020-21. DISADVANTAGES: No disadvantages have been identified at this time. ENVIRONMENTAL REVIEW: No environmental review is required for this item. PUBLIC NOTIFICATION AND COMMENTS: The Agenda was posted at City Hall and on the City’s website in accordance with Government Code Section 54954.2. Attachment: 1. Year-End Financial Status Report Item 8.b. - Page 4 Page 1 of 10 City of Arroyo Grande Fiscal Year 2020-21 Year-End Financial Status Report INTRODUCTION The following report is an overview of the City’s fiscal position at the end of Fiscal Year (FY) 2020-21. The purpose of this report is to update the public and the City Council on the City’s financial position at year- end and compare actual results to the Adjusted Budget to determine the City’s performance. The report is organized in the following sections: Section 1 – an overview of City’s financial position at the end of the FY 2020-21. As part of the analysis, brief explanations of significant revenue and expenditure variances are included. Section 2 – a listing of any personnel changes occurring during the year and a summary of headcount by department. This section also includes the City’s calculated vacancy rate. Section 3 – an update on the Capital Improvement Projects (CIP) managed by the Public Works and Community Development Departments. This section includes CIP that were completed along with their final cost. Section 4 – a listing of Budget Amendment Requests made throughout the 4th quarter of the fiscal year. Attachment 1 Item 8.b. - Page 5 Page 2 of 10 SECTION 1: OVERVIEW OF FINANCIAL POSITION CITY FUND STRUCTURE The overall City budget is comprised of many individual funds, which are categorized below. This financial report will focus on primarily the General Fund but will also report on all Governmental Funds. General Fund – The General Fund is the primary operating fund of the City, which accounts for resources and services traditionally associated with government. Special Revenue Funds – Special revenue funds are used to account and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. Debt Service Funds – This fund is used to account for the accumulation of resources and payment of long- term debt principal interest. This includes the USDA loan payable issued by the City to finance the relocation of City Hall. Enterprise Funds - An enterprise fund is a separate accounting and financial reporting mechanism for which revenues and expenditures are segregated into a fund with financial statements separate from all other governmental activities. These funds include Water and Sewer services provided to City residents. Private Purpose Fund – The private-purpose fund was created to hold the assets of the former redevelopment agency of the City of Arroyo Grande until they are distributed. Agency Funds – Agency funds are funds that the City holds on behalf of another entity. Currently there are two Agency funds. One is the Sanitation District fund, which accounts for the receipt and remittance of wastewater processing fees on behalf of the South San Luis Obispo Sanitation District. The other is the Downtown Parking Fund, which collects assessments from Arroyo Grande Village merchants for maintenance of the Village parking lots. The following chart below shows an overview of the City’s fund structure. Legislative & Information Services Fire Protection Impact Fees City Hall Debt Service Sewer Successor Agency to RDA Downtown Parking Administrative Services Public Access Television Sewer Facility Sanitation Distribution Community Development Police Protection Impact Water Police Department Park Development Water Facility Recreation Services Park Improvement Lopez Water Public Works Recreation Community Center Grace Lane Assessment District Parkside Assessment District Street (Gas Tax) Traffic Signalization Traffic Circulation Transportation Facility Impact Transportation In-Lieu Water Neutralization In-Lieu Affordable Housing Tourism Business Improvement Dist. Water Availability CDBG Grant Fund State COPS Block Grant Agency FundsSpecial Revenue FundsFIDUCIARY FUNDSGOVERNMENTAL FUNDS ALL FUNDS PROPRIETORY FUNDS General FundDebt Service FundsEnterprise FundsPrivate Purpose FundItem 8.b. - Page 6 Page 3 of 10 CURRENT YEAR ACTUALS COMPARED TO PRIOR YEAR Table 1 below reflects revenue and expenditure patterns of FY 2020-21 and compares results against the prior year’s results for all Governmental Funds as well as the City’s General Fund. The calculated percentages in the table reflect the actuals for both revenue and expenditures, divided by that fiscal year’s annual budget. As Table 1 shows, actual revenues exceeded budget estimates and actual expenditures were less than what was budgeted in both fiscal years for the General Fund and all other governmental funds taken as a whole. Table 1 GENERAL FUND IMPACTS The following discussion focuses on the City’s General Fund performance. The Chart 1 starts off with a simple overview of General Fund performance compared to the budget. Next are expenditures by category (Table 2). This is followed by a summarized look at FY 2020-21 actual expenditures compared to the budget (Table 3). Lastly, a discussion of General Fund revenue is included, which compares actual results to the budget (Table 4). Chart 1 Chart 1 shows a simple comparison of actual revenue and expenditures to the budget. The actual General Fund revenue is more than the budget by $500,000. The actual expenditures totaled $16.9 million for the year, or 10% less than the $18.8 million Adjusted Budget. In total, actual expenditures ended the year $1.9 million lower than the Adjusted Budget. Additional information on General Fund revenue and expenditure variances are discussed in more detail further within this report. Actuals FY 2020-21 Actuals FY 2019-20 Variance Revenue 104%105%-1% Expenditures 75%76%-2% Actuals FY 2020-21 Actuals FY 2019-20 Variance Revenue 103%101%2% Expenditures 90%90%0% Governmental Funds General Fund Item 8.b. - Page 7 Page 4 of 10 Table 2 Table 2 reflects major cost categories within the General Fund. This chart is intended to explain where the City’s resources are spent. With total expenditures of $16.9 million, 60.6% of the City’s cost is associated with personnel costs, 35.7% with operating and maintenance costs, 3.1% with transfers to other funds (primarily transfers to CIP Fund), 0.4% with debt service, and 0.1% with capital outlays. Table 3 reflects the year-end status of all General Fund operating departments. Some departments include multiple divisions. The divisions are consolidated under their respective department, rather than reflected individually within the table. Table 3 – General Fund Expenditures by Department Overall, expenditures were under the Adjusted Budget by 10% or $1.85 million. As was discussed, at the onset of the COVID-19 pandemic, the City took a proactive approach to conservative budgeting in an effort to understand and address the financial impacts due to COVID-19. This played a significant role in the overall expenditure savings for the year as all City departments were under their spending targets. A more detailed explanation of key expenditure variances by individual department/division is provided below. City Administration 1,122,300$ 1,072,096$ 50,204$ 4% Legislative & Information Services 1,030,652 880,049 150,603 15% Administration Services 6,106,913 5,719,362 387,551 6% Community Development 1,990,866 1,452,993 537,873 27% Police Department 5,666,843 5,089,736 577,107 10% Recreation Services 961,620 880,918 80,702 8% Public Works 1,894,650 1,825,245 69,405 4% TOTAL EXPEDITURES 18,773,844 16,920,398 1,853,446 10% % Fav/(Unfav) General Fund Department Variances - Year End General Fund Department 2020-21 Adjusted Budget 2020-21 Actuals Dollar Fav/(Unfav) FY 2020-21 % of Actuals Actuals Personnel Costs 10,260,729$ 60.6% Operating Costs 6,048,381 35.7% Debt Service 60,300 0.4% Capital Outlay 23,954 0.1% Transfers Out 527,035 3.1% Total 16,920,398$ Expenditure Category Item 8.b. - Page 8 Page 5 of 10 KEY EXPENDITURE VARIANCES FOR INDIVIDUAL DIVISIONS/DEPARTMENTS FOR FISCAL YEAR 2020-21 The Administrative Services Department includes the City’s Fiscal as well as Human Resources functions. The Division posted overall salary savings of $193,132 for the year. The majority of the salary savings is attributed to two factors: • Salary savings resulting from the vacancy of the Administrative Services Director position for a portion of the fiscal year $34,301. • The annual CalPERS UAL retirement payment was budgeted at $1,394,500 but the actual expenditure was $1,235,669, resulting in a favorable variance to the budget of $158,831. Other significant variances include: • A savings in the utilities line item of $68,255. This expenditure is associated with electricity, gas, and cable costs. • A savings in the transfer to CIP project costs of $81,581. This expenditure is associated with CIP projects that are funded with the General Fund. The Community Development Department includes the functions of Planning, Engineering, and Building & Safety Divisions. The majority of the favorable variance in this department can be attributed to salary savings and lower spending in contractual services. Salary savings within Community Development is attributed to a number of staffing variances that occurred through the fiscal year and include: • The Community Development Director position remained vacant for five months when the former Community Development Director was appointed as the City Manager in early September 2020. The savings amounted to roughly $86,000 through February when the position was filled. • One of the recommendations approved in the FY 2020-21 Adopted Budget was to delay the hiring of the Permit Technician position through the first quarter. The vacancy of the Permit Technician position in the Engineering division continued through the end of the second quarter resulting in labor savings of approximately $55,000 compared to the Target. The Permit Technician position was filled in early January 2021. • The Engineering Division had a vacancy in the Program Analyst position the majority of the fiscal year and the part-time Intern position remained vacant, saving approximately $113,000. • Contractual services were budgeted for on-call engineering services totaling $95,600; however, of the budgeted services only $49,410 were used, resulting in a favorable variance of $46,200. Department: Administrative Services Division: 4120-Administrative Services and 4145-Non Departmental Issue: Overall savings in salaries and CalPERS prepayment Impact to General Fund: $387,551 savings Department: Community Development Division: Various (4301, 4130, 4212) Issue: Savings in contractual services Impact to General Fund: $537,873 savings Item 8.b. - Page 9 Page 6 of 10 For simplicity, Police Services will be analyzed in total rather than by individual divisions. The majority of the Police Department’s favorable variance is attributed to salary savings resulting from vacant permanent Police Officer positions through the fiscal year. Some of the more significant variances include: • The Police Patrol Division experienced vacancies in three of its Police Officer positions. One of the Police Officer positions was budgeted to remain vacant for the year, with the salary savings designated to purchase new digital radios. The impact of the salary savings versus the budget was $394,300. • Other labor costs including health benefits and retirement costs were under the Target by $66,000 and $83,000 respectively. KEY REVENUE VARIANCES BY ACCOUNT FOR THE FISCAL YEAR Table 4 – General Fund Revenue Planning Contractual Services Budget Expenditures Balance Housing Element Update 80,737 33,805 46,932 Circulation Element Update 87,557 87,107 450 East Grand Ave Master Plan 117,303 117,303 On-Call Environmental Review Services 50,000 20,949 29,052 On-Call Planning Services ad Misc. Planning Studies 30,000 575 29,425 365,597 142,436 223,161 Property Tax 5,614,864$ 5,856,436$ 241,572$ 4% Sales Tax 4,401,649 4,449,196 47,547 1% Transient Occ. Tax 900,000 1,028,718 128,718 14% Property Tax in Lieu of VLF 1,822,740 1,822,740 - 0% Franchise Fees 690,000 713,919 23,919 3% License & Permit Fees 441,300 397,471 (43,829) -10% User Fees 457,800 451,707 (6,093) -1% Planning Fees 360,500 382,195 21,695 6% Recreation Fees 410,700 540,774 130,074 32% Transfers In 2,737,100 2,716,904 (20,196) -1% Other Revenue 728,336 703,503 (24,833) -3% TOTAL 18,564,989 19,063,564 498,575 3% % Fav/(Unfav) General Fund Revenue Variances - Year End REVENUE BY CATEGORY 2020-21 Adjusted Budget 2020-21 Actuals Dollar (Unfav)/Fav Department: Police Services Division: Various (4201,4203,4204) Issue: Overall savings in salaries and benefits Impact to General Fund: $577,107 savings Item 8.b. - Page 10 Page 7 of 10 As reflected in Table 4, actual revenue exceeded the Adjusted Budget by $498,575 for the year. The Forecast developed at the start of the COVID-19 pandemic anticipated an overall shortfall in revenue by fiscal year’s end. A more detailed discussion is included below to help explain actual revenue variances. Property Tax – Property tax ended the year favorable by $241,572, or 4% above the Adjusted Budget. Property tax collected grew 6% over the previous fiscal year, as the housing market continues to rise. Property tax represents 31% of the City’s annual revenue. Sales Tax – Actual sales tax revenue exceeded the Adjusted Budget by $47,547, or 1% above the Adjusted Budget. Sales tax collected grew 7% over the previous fiscal year. Certain business categories like building and construction, online shopping, general consumer goods, and food and drugs continued to show strong sales tax receipts during the pandemic and exceeded expectations. Whereas other business categories, such as restaurants and hotels, auto and transportation, were significantly impacted by the economic decline (20% decline in sales tax). Fuel and service stations were impacted the most (50% > decline). Sales tax represents 23% of the City’s annual revenue. Transient Occupancy Tax (TOT) –The FY 2020-21 budget took a cautious approach when estimating TOT revenue and forecasted the revenue to decrease by approximately 40%. During April, May, and June, with the mask mandates being lifted, the tourism industry began to see a large increase of travelers that helped this revenue exceed the Adjusted Budget by $128,718. License & Permit Fees – License and permit revenue fell short of the Target by $43,829. The majority of the variance is due to fewer building permits being issued during the Fiscal Year. Recreation Fees – Actual recreation fee revenue exceeded the Adjusted Budget by $130,074, or 32%. With COVID-19 restrictions, many programs were modified this fiscal year to adjust to the current guidelines, making FY 2020-21 budget assumptions extremely conservative. The original budget anticipated a decrease in revenue of approximately 40% year over year. Fortunately, the program decrease compared to FY 2019-20 was only 9%. Adjustments to operations continue to help provide Recreation programs to the community during the COVID-19 pandemic. FUND BALANCE The actual Fund Balance for the General Fund ended the year at $8.0 million. Fund Balance increased this year from $5.9 million at Fiscal Year End 2019-20 because actual revenue exceeded expenditures by approximately $2.1 million. The City’s auditors are working with Staff to complete the Annual Comprehensive Financial Report, which will confirm the Fiscal Year End 2020-21 Fund Balance. When this report is finalized, staff will report the final Fund Balance for General Fund. At this time, the year-end reserve fund balance is computed to be 47.7% and exceeds the City’s Fund Balance reserve goal of 20%. Item 8.b. - Page 11 Page 8 of 10 SECTION 2: POSITION CHANGES AND HEADCOUNT NUMBERS POSITION ALLOCATION CHANGES MADE BY THE CITY COUNCIL (4th Quarter) None made during this quarter. FULL TIME EQUIVALENT (FTE) STAFFING BY DEPARTMENT – PERMANENT STAFF ONLY The following table reflects FTE staffing by department. The table only includes permanent staff and does not include part-time or temporary staffing. While departments may hire part-time staff on a regular or seasonal basis, they are not included in the analysis below. Department Adopted Budget Headcount (FTE’s) Vacancies (4th Qtr) % of Total Staffing Vacant Positions City Manager 1.00 0.00 6.4% Administrative Services 6.00 1.00 7.7% Accounting Manager Community Development 10.00 2.00 12.8% Permit Tech, Program Analyst Legislative & Info Services 4.00 0.00 5.1% Police Services 29.00 3.00 37.2% Police Officers (3) Public Works 21.00 1.00 27.0% Maintenance Worker I Recreation Services 3.00 0.00 3.8% Total 74.00 7.00 100% EMPLOYEE VACANCY RATE The City’s employee vacancy rate at the end of FY 2020-21 was 9.5%. This equates to seven (7) vacant positions. The vacancy rate tracks the number of permanent vacant positions at the end of the quarter in comparison to the total number of permanent positions available. Unlike a turnover rate, which tracks employees that separated during the period, the vacancy rate only looks at vacancies at the end of period. The costs associated with turnover includes the cost of advertising new positions, training, overtime, lowered productivity, and workload balance. In the FY 2020-21 Budget, it was agreed that the City Manager, Permit Tech, and Maintenance Worker positions were to remain vacant until after the first quarter. These positions, other than the City Manager position which was appointed prior to the end of the first quarter, remained vacant through the full year. In addition, a Police Officer position was to remain vacant for the full year. The higher-than-normal vacancy rate can be attributed to the delay in hiring these positions. Item 8.b. - Page 12 Page 9 of 10 SECTION 3: UPDATE ON COMPLETED CAPITAL PROJECTS This information is provided to keep the Council apprised of the status of the City’s Capital Improvement Projects (CIP). The projects listed below represent projects that were completed in the fourth quarter of FY 2020-21. Project Title Comments Total Amount Budgeted for Project Total Final Project Costs % Expended Funding Sources PD Evidence Room Secondary Access Construction of a secondary/emergency exit from the police station property and evidence room 18,579 16,890 91%Police Impact Fees Replace Radio Receivers Replace and upgrade the Police Department analog radio system to migrate to a digital platform. 174,000 127,602 73%General Fund & COPS Fund Network Storage Expansion – PD Replacement of existing primary network storage system located at the Police Department data center. 80,000 74,012 93%Sales Tax Various Park Improvements Turf and infield renovations at Soto Sports Complex 30,000 22,275 74%Park Improvement Soto Sports Complex ADA Bleachers Replace current bleachers with new ADA complaint bleachers 5,000 5,388 108%Park Improvement Soto Sports Complex Fencing Repairs Replace segments of broken chain- link/barbed wire fencing throughout the Soto Sports Complex 15,000 14,258 95%Park Improvement Barrier Removal Project at Ikeda Field Provide ADA ramp from the Soto Sports Complex parking lot to Ikeda Field bleachers 176,673 168,802 96%CDBG Citywide Trash/Recycle Receptacle Replacement Replace outdated broken trash/recycle receptacles throughout the City 6,000 6,000 100%Park Improvement FY 2020-21 Fourth Quarter - Completed Capital Improvement Projects Item 8.b. - Page 13 Page 10 of 10 SECTION 4: APPROPRIATION TRANSFERS AND BUDGET ADJUSTMENTS The following fourth quarter budget adjustments were previously approved by Council or are classified as administrative and not requiring Council approval. $0 Community Development Department: Reallocated $5,030 of budgeted expenditures within the General Fund from the Community Development Department Engineering Contractual Services account to authorize the additional Local Roads Safety Program (LRSP) amendment for additional data updates. Approved on 06/22/2021 Council meeting, item 8.i. No other adjustments are required at this time. Item 8.b. - Page 14